Real estate investment trust (REIT) stocks are often looked at for dividend income rather than growth. Since REITs are required to pay 90% or more of taxable income out as dividends, their higher dividend payouts can slow their rate of growth.

But Mid-America Apartment Communities (MAA 0.02%), better known as MAA, offers investors both long-term growth opportunities and attractive dividend yields. The stock has outperformed the S&P 500 over the past three, five, 10, 15, 20, and 25-year periods while also paying a 2.3% dividend yield, nearly double that of the S&P 500.

Considering the stock is down 31.6% this year and it recently raised its dividend payout by 12%, is now a good time to invest? Let's take a closer look.

The premier sunbelt apartment operator

Cities across the south like Austin, Texas; Atlanta, Georgia; Charlotte, North Carolina; and Nashville, Tennessee, have consistently been among the hottest real estate markets over the last decade. Long-term trends favored the move from densely populated northern cities to warmer, more spread-out cities across the south. But the ability to work from home during the pandemic accelerated this Sun Belt migration trend and led many new cities across the south to absolutely boom.

Given MAA is the largest operator of apartments across the southwest and southeast of the U.S., it's no surprise it benefited greatly from this migration trend. The REIT owns just over 280 apartment communities, the equivalent of 102,000 apartment units. This includes a mix of high-end class A and class B apartments in urban and suburban neighborhoods catered to mostly young, affluent residents. 

Robust demand for rental housing in these red-hot markets has helped MAA's "effective rent" (the money it earns from each rental unit) to grow on an annual basis of 14% in 2022 -- well surpassing this year's inflation rate. Funds from operations (FFO), a metric similar to earnings per share, grew by 23%, and net operating income increased by 17.6%. The company recently received an upgraded financial rating of A- from Standard and Poor's, undoubtedly thanks to its low debt ratios and ample liquidity.

Double-digit growth like this is hardly the norm for most residential REITs. As the housing market returns to more normalized levels of growth, so will MAA's earnings. The REIT's blended rental rate growth, which includes new and renewing leases, is down to 14% in the third quarter of 2022 compared to 17% in the previous quarter. This is partly due to seasonality, but is likely a reflection of less demand in the rental market as a whole. But it's not exactly a red flag.

October 2022's blended rental rate growth was 8%, which is still an extremely healthy rate of growth for an apartment operator. Considering MAA's occupancy sits near 96%, demand for its necessity-based housing remains strong.

Ample dividend coverage with room to grow

MAA's strong performance as of late prompted the REIT to increase its dividend payouts by 12%. This puts its dividend payout ratio, a metric that helps illustrate the viability of maintaining the dividend based on the current FFO, at 64%. This is a super healthy ratio by REIT standards and indicates the stock not only has ample coverage for its dividends right now, but room to grow its payouts in the future too.

Dividend raises are common for the company. MAA has increased its dividend every year for the past 12 years, equating to a 123% increase in dividend payouts. I see the dividend growth continuing even if the rental market recedes further. 

MAA has a robust redevelopment program making improvements to existing units and buildings. This investment requires less capital than a new development or acquisition and generates rental rates that are 9% to 11% higher on average than non-renovated units. MAA has identified around 14,000 additional units that would be ideal for the redevelopment program, allowing bottom-line growth to continue for the foreseeable future even without any new developments.

Rental housing is a necessity-based service. Even if the economy was to enter a recessionary period, people will still need a place to live. And MAA's positioning in the most attractive markets puts it in a safe position to ride out any market turbulence that may come.

Market volatility this year means the stock is trading around 18 times its projected full-year 2022 FFO. This is a notable discount compared to recent history and makes right now a fantastic time to buy this income and growth stock at a great price.