I'm going to let you in on a little-known investing fact: Companies that grow their dividends have delivered the highest total returns over the last several decades. According to data by Hartford Funds and Ned Davis Research, dividend growers and initiators have delivered a 10.7% annualized total return since 1973. That's a better return than the average of stock in the S&P 500 (8.2%), companies with no change in their dividend policy (7.1%), and non-payers (4.8%).
Given those higher returns, investors should consider adding high-quality dividend growth stocks to their portfolios. Five top options are American Tower (AMT -0.25%), Digital Realty (DLR 1.25%), Mid-America Apartment Communities (MAA 1.84%), Realty Income (O 0.08%), and Prologis (PLD 0.94%). They should continue delivering unstoppable dividend growth in the coming years. Add in that their stock prices are all down at least 5% this year -- pushing up their dividend yields -- and they look like great long-term buys right now.
1. Powered by the digital infrastructure megatrend
American Tower has been a dividend growth machine. The data and communications infrastructure REIT recently declared its latest payment, which was 6.1% above last quarter's amount and 12.2% higher than its year-ago level. That continued the company's unstoppable dividend growth since becoming a REIT more than a decade ago. With demand for digital infrastructure as strong as ever, driven by 5G upgrades and digital transformation initiatives, American Tower should be able to continue growing its dividend, which now yields 2.8%, for years to come.
2. The streak continues
Digital Realty increased its dividend by 5% earlier this year. That marked its 17th straight year of increasing its dividend, keeping the data center operator in a select group of REITs that have grown their payouts each year since their IPO.
Digital Realty should be able to continue growing its dividend, which yields an attractive 4.4%. It has several data center developments and expansion projects underway, positioning it to capitalize on the strong worldwide demand for data center solutions.
3. Capitalizing on growing apartment demand in the South
Mid-America Apartment Communities recently increased its dividend by another 12%. That marked its 13th straight year of dividend growth.
The apartment REIT should be able to continue growing its dividend. It's benefiting from strong demand for apartments as more people migrate to the Sun Belt region, where it focuses its operations. That's keeping occupancy levels high, driving up rental rates. Mid-America also has several apartment communities under development, which should drive further income growth in the coming years.
4. Dividend royalty
Realty Income has one of the most impressive dividend growth track records in the REIT sector. The company recently delivered its 101st consecutive quarterly dividend increase. That easily qualifies the S&P 500 member as a Dividend Aristocrat.
Realty Income should have no problem continuing to grow its payout. It has an exceptionally strong financial profile, allowing it to continue acquiring stable income-producing real estate like warehouses, grocery stores, and pharmacies. It has already bought over $5 billion of these properties this year, helping support a more than 5% increase in its dividend, which yields an attractive 4.6%.
5. Plenty of embedded growth
Prologis gave its investors a 25% raise earlier this year. That continued the industrial REIT's torrid dividend growth. It has delivered 12% compound annual dividend growth over the last five years, double the REIT sector average.
The company should be able to continue growing its payout at an above-average rate. Prologis has significant embedded rent growth. In addition, it has several development projects underway and recently bought its closest rival, Duke Realty, in a $26 billion deal. Those catalysts should enable it to grow its income at an above-average pace, positioning it to keep increasing its 2.6% dividend.
Great dividend stocks to buy and hold
American Tower, Digital Realty, Mid-America Apartment Communities, Realty Income, and Prologis have delivered consistent dividend growth throughout the years. Because of that, it should be no surprise that all five companies have outperformed the S&P 500 since Digital Realty's IPO in 2004. Those dividends should keep rising in the future, making them great stocks to buy right now.
