Some stocks offer investors the best of both worlds: They pay an above-average dividend and grow at an attractive rate. Those dual growth drivers can help them deliver impressive total returns.
Terreno Realty (TRNO 2.29%) and First Industrial Realty (FR 2.18%) are two dividend stocks that have been exceptional over the past decade. However, because they're real estate investment trusts (REITs), many growth-focused investors haven't heard of them. Here's why you won't want to miss what these dividend-paying REITs offer.
Focusing on tight markets
Terreno Realty is an industrial REIT focused on owning logistics-related properties in six major coastal markets. That concentrated strategy has paid big dividends for its investors over the years. Terreno has produced a nearly 350% total return over the last decade, about 16.2% annualized, making it one of the top-performing REITs. That was significantly higher than the S&P 500's 240% (13% annualized) total return.
Terreno focuses on markets where there's a limited new supply of industrial real estate. That's allowed it to benefit from growing demand, which has kept occupancy levels high while driving up rental rates. As a result, its existing portfolio has steadily increased its rental income, giving Terreno the cash to pay a growing dividend. Overall, its same-store net operating income has grown by an average of 11% annually since its initial public offering in 2011. That's helped support 11.8% compound annual dividend growth.
Meanwhile, the REIT has complemented its existing industrial real estate portfolio's results by acquiring and redeveloping properties. Most of its acquisitions have been of the value-add variety, allowing it to leverage its leasing and redevelopment capabilities. The company acquires older properties that need some upgrades, which it can then lease to tenants at higher rental rates. These investments provide it with additional income to support its growing dividend.
Building value for investors
First Industrial is another industrial REIT focused primarily on logistics-related real estate. It also focuses on key logistics markets, with a heavy concentration along the coasts. Another key aspect of its strategy is ground-up development. These dual growth drivers have enabled First Industrial to deliver a nearly 370% total return over the last decade (16.7% annualized).
First Industrial benefits from the same demand drivers as Terreno, which helps keep occupancy levels high and rents rising. Meanwhile, the company creates additional value for investors by developing new warehouse capacity in those supply constrained markets. The REIT has invested nearly $1.2 billion to build 15.7 million square feet of space since 2016. These developments have created an estimated $900 million in value over the past six years, adding $7.10 per share to the REIT's net asset value.
First Industrial is currently investing another $729.7 million to develop an additional 6.3 million square feet of industrial space to support the continued strong demand for warehouse space in the U.S. It expects these developments to deliver attractive returns as it completes construction and leasing. That should enable the REIT to continue growing its cash flow at an attractive rate.
This rising cash flow should also allow First Industrial to continue growing its dividend. It has increased its payout by more than 40% since 2017.
High returns from an underfollowed sector
Many growth-focused investors don't pay much attention to REITs, thinking they're only for income investors. They're missing out on the growth that certain segments of the REIT industry offer, like logistics, which is benefiting from e-commerce growth and other drivers. The factors driving that growth remain firmly in place. That could enable First Industrial and Terreno Realty to continue producing strong returns in the coming years.