Down 25%-Plus From Their Recent High, These Dividend Stocks Look Like a Screaming Buy

Last year was a rough one for the real estate sector. The average real estate investment trust (REIT) shed a quarter of its value as rising interest rates weighed on valuations. 

That has several REITs looking like bargains these days. One sector in particular that stands out is residential REITs focused on the fast-growing Sun Belt region, led by Camden Property Trust (CPT 0.73%), MAA (MAA 0.73%), and Independence Realty Trust (IRT 1.01%). With their share prices down more than 25% from their peak, these fast-growing REITs look like screaming buys right now. 

Scorching growth

There has been a steady population migration from Northern to Southern states over the past few decades, due to the South's warmer weather and more affordable cost of living. In the decade from 2010 to 2019, several Southern states saw population increases of more than 10%. This trend has accelerated since the start of the pandemic as more people have had the flexibility to work remotely, allowing them to work from anywhere. 

Companies have also migrated south because of lower costs and a better business climate. Several large corporations have relocated their headquarters or opened regional offices to capitalize on the region's highly educated workforce. That has brought an influx of jobs, drawing jobseekers to move south.

This migration trend has driven up demand for housing. Home prices have risen sharply, as have interest rates, making buying a home less affordable. That has boosted the rental market, driving up occupancy levels and rental rates.

Focused on the right location

There's a saying in real estate that the three most important factors for success are "location, location, and location." With portfolios concentrated on the Sun Belt region, Camden, MAA, and Independence are in an ideal position to benefit from its continued growth.

Camden Property own 171 apartment communities with over 58,000 units across 15 markets, primarily in the Sun Belt. The company focuses on cities where population and employment will grow the fastest in the coming years. It owns apartments in all 10 markets with the most estimated total migration through 2024.

That's enabling the company to capitalize on rapidly rising rents to drive outsized growth in its same-store net operating income (SSNOI). It's also allowing the company to develop new apartment communities to further boost its funds from operations (FFO) per share. And it's investing over $750 million to build more than 2,200 additional apartment homes in some of its best markets.

These drivers should enable the REIT to continue growing its dividend, which now yields 3.3% after seeing its share price lose a third of its value from its recent peak. That's approaching its highest level since the early days of the pandemic. 

MAA owns 282 communities with over 96,000 apartment units across many of the top Sun Belt markets. Population in its markets should grow by 1.2% this year (compared to 0.4% for non-MAA markets), while job growth will also be above average at 1.4% (versus 1% in non-MAA markets). These strong demand catalysts should keep occupancy levels high and drive above-average rent growth.

MAA also has a solid development pipeline, with over 1,750 units under construction that should grow its earnings as these properties stabilize. These growth drivers should boost its FFO per share, allowing MAA to continue increasing its dividend, which yields 3.5% following the more than 25% slide in its stock price. That's also near its highest level since the pandemic's start.

Independence Realty owns 122 communities with over 36,000 units. Roughly 70% of its net operating income comes from the Sun Belt region. The REIT boosted its presence in that region in late 2021 by acquiring Steadfast Apartment REIT. That helped drive robust growth last year, as SSNOI surged 12.8% while core FFO per share jumped 28%.

Despite that blistering growth, shares tumbled 37% from their peak, pushing the dividend yield up to 3.2%. With more rent growth ahead, and the potential to make additional value-enhancing investments, Independence Realty should be able to grow its payout in the future.

The trend hasn't reversed

Shares of Sun Belt-focused apartment REITs Camden Property Trust, MAA, and Independence Realty Trust have all lost more than a quarter of their value. That sell-off has happened even though the Sun Belt migration trend remains firmly in place. It should drive strong demand for apartments, enabling these REITs to continue growing their FFO per share at above-average rates. Because of that, they look like screaming buys these days.