One of the biggest benefits of owning dividend stocks is having your income grow over time as dividend payouts increase. A lot of dividend stocks pay an attractive yield, but not every stock will increase those dividends steadily. The key to maximizing your moneymaking potential is investing in stocks that offer high yields and consistent increases.
Three high-yield dividend stocks that recently raised their payouts by 10% or more are Prologis (PLD -1.57%), Invitation Homes (INVH 0.53%), and Life Storage (LSI). Let's take a look at each company and why investors may want to invest in these leading REITs, or real estate investment trusts.
1. Prologis
Prologis is an industrial REIT that owns and leases industrial properties like warehouses, distribution centers, and logistics facilities across the globe. At the end of 2022, the company owned or had an interest in roughly 5,500 properties, making it the largest industrial operator in the world.
In early February 2023, the REIT announced a 10% increase to its dividend payout. This bump wasn't too surprising, considering the company has increased its dividends every year since 2013. Although it is a slight decrease from the 25% increase it made in 2022, I still see it as a testament to the strength of the company today.
High demand and low supply for industrial real estate have pushed rents up rapidly. In the last quarter of 2022, its net effective rental rate was 50% higher than it was last year. Prologis realizes this accelerated growth won't last forever, but renewing leasings set to expire in the next few years will still drive a healthy 8% to 10% growth in its net income even if rental rate growth doesn't continue. Its dividend is well covered, with its dividend making up just 64% of its core funds from operations (FFO).
Aside from being the largest REIT by market capitalization, Prologis is the leader in its respective industry. Its balance sheet is ironclad, with an A credit rating and low debt exposure, and its dividend should keep growing. Right now its yield is 2%, which isn't super high compared to other REITs, but given its massive portfolio of assets, I feel it's a dividend worth owning.
2. Invitation Homes
Invitation Homes is a residential REIT that focuses on owning and renting single-family homes across the southern part of the United States. In total, the REIT has interest or ownership in roughly 75,000 single-family homes, making it the largest single-family rental REIT in the market today.
In its just over five years as a company, the REIT has raised its dividend payouts eight times, equating to an increase of 333%. Its latest raise, declared in early February 2023, jumped up by 18% and will net investors a 3.4% yield.
Rental housing was red-hot since the onset of the pandemic in 2020. Limited housing supply and many tenants moving from big cities led to rental rates skyrocketing in the markets where Invitation Homes operates. This unprecedented growth led to the company seeing a double-digit increase in its blended rental rates in 2022, but it seems things are starting to normalize.
Its blended rental growth, which includes new and renewing leases for January and February 2023, was just over 7%, while occupancy held strong at just under 98%. But the company's return to more normalized growth levels doesn't mean investors should expect slower dividend growth. In fact, it has more than enough room to keep growing.
The company's dividend payout ratio has historically been well below the REIT average. Even after its latest increase, its payout is still 58% of its projected full-year FFO.
Invitation Homes has a strategic partnership with a homebuilder to deliver built-to-rent communities, along with a diverse acquisition stream to help it add more homes to its portfolio. I've owned shares in Invitation Homes for several years and feel its current price of 17 times its forward FFO makes it a super attractive dividend stock to own right now.
3. Life Storage
Life Storage may not hold the title of the largest operator in its respective industry, but it certainly holds it own as one of the top self-storage companies. At the start of 2023, the self-storage REIT owned or had an interest in nearly 1,200 properties in 37 states across the country, in addition to managing around 440 facilities for third-party companies.
Its latest earnings reported fantastic growth for the company, with its FFO up by a whopping 28% compared to last year. Not only has Life Storage provided a return three times that of the S&P 500 over the last five years, but it also outperformed its fellow self-storage REIT peers.
The REIT held off on increasing its payout in 2019 as it battled oversupply in the self-storage market. However, once things normalized again, it started aggressively raising its payouts.
Since 2019 its dividends have increased by 80%. And its most recent increase, which was announced in early January 2023, will grow its dividend by another 11%. It also pays the highest dividend yield of the three stocks mentioned here at 3.7%.
Aside from its juicy yield, it also just makes sense as a smart long-term income investment. The self-storage industry is one of the most resilient assets in volatile economies. It's not highly exposed to inflationary impacts because it can adjust its rental rates on a monthly basis while having low operational overhead, and it fares well in recessionary environments.
An unsolicited public offer by its larger peer, Public Storage, in early February has pushed its share price up 20% since the start of the year. The company rejected the offer, but there is still a chance Public Storage could counter at a higher price, giving investors a nice profit and access to an even bigger self-storage company.
