It's hard to believe it's October. Schools are in full swing, pumpkin spice is everywhere, and depending on where you live, the weather may be cooling off.
While 2022 is nearing an end, there's still time left for investors to make the best of what has been a challenging year. Falling stock prices have driven up dividend yields, making now a great time to seek passive income. Three top-notch dividend stocks these Fool.com contributors think are great buys in October are Mid-America Apartment Communities (MAA 0.55%), Prologis (PLD 0.92%), and Community Healthcare Trust (CHCT 0.20%). Here's a look at how these real estate investment trusts (REITs) could boost your income harvest this fall.
One of America's largest landlords is growing its portfolio and payouts
Marc Rapport (Mid-America Apartment Communities): Food and shelter are two imperatives of life, and now is a good time to consider Mid-America Apartment Communities (MAA) as a way to reap profits from the latter.
MAA is one of the nation's largest apartment owners, with a portfolio that as of June 30 contained 101,229 units in 296 communities across 16 states from Nevada east, with a concentration on the East Coast and major markets in the fast-growing Sunbelt.
That portfolio is growing, too, with multiple acquisitions and development projects alike underway in multiple growth markets. REITs depend on their ability to borrow, and Fitch Ratings upgraded MAA's debt rating to A- in the second quarter, which speaks to the strength of the balance sheet.
As for performance, over the past 10 years, MAA has provided a total return of about 240%, compared with about 210% for the S&P 500 and 86% for the Vanguard Real Estate ETF, which holds about 160 REITs and serves as a benchmark for this sector.
MAA has also paid out every quarter since its 1994 initial public offering and has now raised its dividend for 12 straight years. The current yield is about 3.2%. Analysts give the stock a consensus price target of $207.86, a nice upside to its current share price of about $156.
Those same analysts rate MAA a "moderate buy" and I agree. I plan to make moderate additions to my stake in this residential REIT myself. Its long-term performance and investment in strategic markets makes now, with a share price that's more than 30% down during this fright of a market, a particularly good season to seize this opportunity.
Prologis has been beaten down but the longer-term story is intact
Brent Nyitray (Prologis): Prologis has been rocked by bad news lately from two of its biggest customers. First, Amazon was said to have planned a reduction in warehouse capacity, after increasing it for the COVID-19 pandemic surge in deliveries. Second, FedEx reported weaker-than-expected results as economic weakness hit deliveries. These two events have sent Prologis' stock tumbling, falling about 40% since the Amazon story in May.
Prologis is a logistics REIT, which means it provides warehouse space for major retailers and manufacturers. If you drive along almost any major highway, you will see these massive buildings with dozens of truck bays on them. These are the sort of facilities that Prologis manages.
Prologis has some of the most attractive logistics real estate, in high-growth markets with large barriers to entry. It has benefited from the increased use of e-commerce, as well as a longer-term trend toward companies holding more inventory. For 40 years, companies have used just-in-time systems to reduce inventory. The COVID-19 pandemic showed the vulnerability of this practice and many companies have learned the hard way that extended supply chains can hurt business when disrupted.
Amazon's story is one of overinvestment, while FedEx's story is one of declining demand in the face of rising interest rates. Neither story calls into question Prologis's longer-term business model or outlook. During the second-quarter earnings conference call, Prologis Chief Financial Officer Tim Arndt said that its lease mark-to-market is nearly 56%. This means that as leases roll off, they will reset to new, much higher levels. This will drive revenue. Prologis is a market leader that has been beaten down by overall market weakness. Its current dividend yield is 3%.
A healthy income stream
Matt DiLallo (Community Healthcare Trust): Community Healthcare Trust has quietly put together an impressive dividend track record. The healthcare REIT has increased its payout every quarter since its initial public offering in 2015. Given that track record, its acquisition pipeline, and solid financial position, the REIT will likely give its investors another raise this fall. That makes its already attractive 5.3% dividend yield look even more enticing.
One of Community Healthcare Trust's secrets to success is its strategy of owning a diverse portfolio of quality healthcare properties. That diversification helps reduce risk.
It also maintains a conservative financial profile. The REIT has a solid balance sheet with a low leverage ratio and well-staggered debt maturities. In addition, it has a healthy dividend payout ratio of about 70% of its adjusted funds from operations. That gives it some cushion while allowing it to retain cash to help fund new investments. These features put its dividend on a sustainable foundation while giving it the flexibility to continue acquiring an array of healthcare properties.
Community Healthcare Trust ended the second quarter with several acquisitions in the pipeline. It signed three definitive purchase agreements for $23.4 million of properties that should close in the second half. The REIT also had deals to acquire five properties currently under construction. It expects to invest $117.5 million to purchase the properties as construction wraps up between the end of this year and the fourth quarter of 2023. These deals will help increase its cash flow so that it can continue raising the dividend. The REIT's combination of yield and steady growth makes it a great addition to a passive income portfolio this fall.
