Passive income is easily my favorite aspect of investing. There's something magical about making money without having to actively work for it. It's why I love dividend stocks so much. Not only can I earn reliable income, but the money I make can grow over time thanks to dividend increases.
There are a lot of worthwhile dividend stocks to choose from in today's market, but my top three dividend stocks to buy right now are without a doubt Blackstone (BX 1.07%), Digital Realty Trust (DLR -0.50%), and Invitation Homes (INVH 0.09%). Here's a closer look at each company and why these three stocks are currently my top picks.
1. Blackstone has trillions in untapped potential
Blackstone manages money for institutional investors, large investment firms, and insurance companies investing in assets outside of the traditional market. These assets include things like real estate, fintech, and debt equities, along with several other niche industries. Appetite for alternative assets has grown rapidly over the last decade as investors look for ways to diversify their holdings.
The last year has been quite challenging for the company. Investors are concerned that interest and performance in the alternative sector is waning. It doesn't help that Blackstone has been consistently hitting redemption request limits for its private real estate investment trust (REIT), BREIT, since October. And yet, despite these issues, the company has never looked more solid.
By the end of 2022, Blackstone's assets under management (AUM) grew by 11% year over year, even with redemption requests, with its AUM nearing the $1 trillion mark. The company is extremely liquid with $187 billion in dry powder primed and ready for investing. Given its experience investing in recessionary periods, its A credit rating, and its strong financial position, Blackstone should be able to achieve attractive returns for its investors and keep growing.
Unlike other dividend stocks, Blackstone changes its dividend payments each quarter based on its recent performance. This strategy keeps its dividend payouts within a safe and sustainable range while usually falling within the 4%-to-5% yield range. Since the stock price is down about 35% from late 2021 highs, it's a favorable time to grab this high-yielding dividend stock.
2. Digital Realty Trust managed 17 years of dividend increases
I'm partial to buying stocks that specialize in niche industries that the economy relies on heavily like housing, manufacturing, and infrastructure. That's because demand for these sectors of the economy won't wane eventually.
Digital Realty Trust is a data center REIT. The company helps store and send digital data, a service that is vital for functions like streaming, artificial intelligence (AI), social media apps, e-commerce websites, and online work. Given the massive role data centers play in technology infrastructure, the need for Digital Realty Trust's properties likely isn't slowing anytime soon.
2022 was a slower year of growth for the company as the unprecedented demand during the global pandemic returned to more normalized levels. However, the company still achieved positive growth in its core metrics like funds from operations (FFO) compared to last year and it saw record new bookings for its properties. The REIT made some big expansion moves in 2022, acquiring South African data center operator Teraco. It also expanded its partnerships to help its roughly 300 data centers operate more efficiently.
As if its necessary service and healthy financial profile didn't make it an attractive enough buy, its dividend track record seals the deal. The company increased its dividend annually for 17 straight years, growing its total dividend payout by 680%. That's a compound annual growth rate of 10%. Right now the stock is trading down around 36% from January 2022 highs and pays a yield of 4.4%.
3. Invitation Homes just increased its dividend by 18%
With over 80,000 homes in its portfolio, Invitation Homes is the largest single-family rental REIT in the public market. The company was originally a subsidiary of Blackstone that started purchasing single-family homes for a fraction of their cost in the wake of the 2007-09 Great Recession. The company purchased thousands of homes in distress, renovated them, then held them as long-term rentals.
The company spun off from Blackstone, becoming its own public REIT in 2017. In its short time as a public company, Invitation Homes has already achieved impressive growth. It's added 30,000 homes to its portfolio, grown its FFO by 158%, and increased its dividend payouts by 333%. The last few years have been extra lucrative for the company thanks to the super high demand for rental housing. Its blended rental rates (which include new and renewing leases) have grown by double-digit percentages for the past two years straight.
While the overall economy is starting to return to more normalized levels, the long-term outlook for the company still looks great. It has low debt ratios, a solid pipeline of new acquisitions to help it continuously grow its holdings, and strategic exposure to high-growth markets across the booming Sun Belt region of the U.S. And since housing (like data centers) isn't a need that is going anywhere, I believe it's a stock that has a long journey of growth ahead.
Right now the stock is down 27% from January 2022 highs and is paying a dividend yield of 2%. This yield may not seem huge compared to the others on this list, but its dividend payout ratio is super low by REIT standards (it's around 50%), meaning the company has a lot of room for dividend growth as it continues expanding. The company's most recent dividend increase bumped its dividend by 18%.
All three of these stocks are solid buys given today's beaten-up pricing, long-term growth opportunities, and attractive dividend payouts.
