These 2 Bargain High-Yield Stocks Just Raised Their Dividends

The real estate sector has been beaten down lately, mainly as a result of rising interest rates. Because rock-solid REITs make excellent long-term investments for both income and growth, now is an excellent time to take a close look at some of the best REITs in the market while they're cheap.

With that in mind, here are two top-notch REITs, both of which are trading near their 52-week lows, and both of which just increased their dividend.

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Data sources: TD Ameritrade, company earnings reports, and author's own calculations. Stock prices as of Jan. 31, 2018, at 11 a.m. EST.

The urban apartment market is strong

Equity Residential is a massive apartment REIT, focused on six key urban markets, including New York City, Boston, and San Francisco. In a nutshell, Equity's apartments are located in markets with high barriers to entry, and with better-than-average wage growth and excellent rental market fundamentals.

For 2017, Equity ended the year with 96% occupancy (excellent for residential real estate) and increased its average rental rate by 2%. Perhaps most impressively, same-store turnover (i.e., tenants who are leaving) was the lowest it's been in the company's history -- which dates to the early 1960s.

My favorite part of Equity's strategy is its emphasis on "capital recycling." Equity doesn't simply buy a property, hold it forever, and collect rent. Rather, the company is continually looking for ways to take advantage of appreciation of its property values and roll its capital into more attractive growth opportunities. For example, during 2017 the company acquired four apartment properties -- but sold five at an internal rate of return of 12.4%.

As far as the dividend goes, Equity technically hasn't increased its payout lately, but it looks pretty certain that it will. In its earnings report, Equity said that it "expects to declare a common share dividend for the first quarter of $0.54 per share," so it won't be official until the Board of Trustees actually declares the dividend. This represents a 7.2% raise for shareholders, and the company is dropping its unusual dividend policy of paying out a fixed percentage of estimated funds from operations (FFO) and will now adopt a more typical dividend policy that is simply based on its financial condition.

Take advantage of retail worries

Real estate has been one of the worst-performing parts of the stock market, and retail REITs are one of the worst-performing parts of the sector. High-profile retail bankruptcies and the growing threat of e-commerce competition have put investors on edge. That's why Simon Property Group trades for just 13.5 times its expected 2018 FFO.

However, the top-notch retail REITs are doing just fine. Mall REIT Simon, which operates so-called "A" shopping malls, is doing just fine. Its malls are 95.6% occupied, and income is growing significantly. Comparable property net operating income is up by 3.2% over the past year, and Simon has several projects in various stages of development, which should also help boost profits.

Simon's malls are among the most modern in the market, with innovative dining and entertainment options, as well as tons of modern amenities. Simon's "moat" that keeps e-commerce competition at bay is that it creates an experience for shoppers that Amazon.com and other online retailers can't match.

In fact, on research firm Boenning & Scattergood's recent list of the 10 most valuable malls in America, five were Simon properties. And they're doing great -- for example, the Sawgrass Mills mall in Sunrise, Florida, generates $1,149 in sales per square foot and ranks as the second most valuable mall property in the U.S., and the Forum Shops at Caesars in Las Vegas does $1,616 per square foot.

Simon just announced an increase in its quarterly dividend to $1.95 per share, which translates to a 4.8% dividend yield at the current share price and a 11.4% raise over 2017's payout. And with an exceptionally low (for a REIT) 65% FFO payout ratio, there should be plenty of room for future increases.

How to think about these stocks

To be clear, REITs are great long-term investments. Over shorter periods of time, REITs can be unpredictable and turbulent, even in strong stock markets like the one we're in. Just to name a couple of hypothetical scenarios, if long-term bond interest rates were to unexpectedly spike, these stocks could go down even more. Or if more high-profile retail bankruptcies happen in 2018, Simon Property Group could see its valuation drop more, even if the bankruptcies don't directly affect its business.

However, over the long run, both of these companies are likely winners. They both have an excellent combination of income and growth potential that can produce market-beating total returns. In other words, you may not be thrilled with these investments a month or a year from now. In a decade or two, I'm confident you'll be glad you added these to your portfolio.