3 Magnificent Dividend Stocks Yielding Around 3% to Buy Right Now

The best-performing dividend stocks share one thing in common: They grow their dividends. Over the last 50 years, dividend-growth stocks in the S&P 500 have outperformed companies with no change in their dividend policy (10.2% versus 6.6%) and that broader market index (7.7%), according to data from Ned Davis Research and Hartford Funds. 

Many dividend growers also satisfy income investors' craving for yield. American Tower (AMT -0.70%), Prologis (PLD 0.69%), and Invitation Homes (INVH 0.70%) currently offer the best of both worlds with above-average yields and strong dividend-growth profiles. That makes them magnificent dividend stocks to buy right now.

Towering dividend growth

American Tower has increased its dividend every year since converting to a real estate investment trust (REIT) in 2012, growing its payout at a more than 20% compound annual rate over that first decade. While dividend growth has slowed recently, the data infrastructure REIT expects to increase its payout by 10% in 2023.

The cell tower and data center owner has faced some headwinds over the past year, which have put downward pressure on its stock price (shares have fallen by a third). However, on the bright side, this sell-off has driven its dividend yield up to 3.4%. That's a historically attractive level for American Tower and double the dividend yield of the S&P 500 (currently 1.6%). 

American Tower should have plenty of power to continue growing its dividend in the future. Long-term growth tailwinds from 5G, AI, and business transformation should drive continued growing demand for new data infrastructure. That should enable American Tower to make high-return investments to expand its data infrastructure and grow its cash flow, supporting future dividend increases.

A sizable built-in dividend-growth driver

Prologis has been an elite dividend-growth stock. The industrial REIT has increased its dividend at a 15% compound annual rate since its initial public offering (IPO). That ranks it 13th in growth in the entire S&P 100 (the 100 largest publicly traded stocks). Prologis has increased its dividend twice as fast as the broader market over the last five years (12% versus 6% for the S&P 500). 

The leading warehouse owner should have no problem continuing to grow its dividend, which currently yields an above-average 2.9% following a 15% slide in the stock price over the past year. Built-in rent growth across its existing portfolio is the main factor driving that view. Warehouse rents have surged since the pandemic, driven by the accelerating adoption of e-commerce and supply chain issues. Given the long-term nature of its leases, Prologis isn't fully capturing the rise in market rents. However, that should occur over the next few years as legacy leases expire and reprice to current market rents. The company estimates lease rollovers should drive 8% to 10% annual net-operating income growth in its same-store portfolio.

On top of that, Prologis can continue using its tremendous financial flexibility to make acquisitions and invest in new developments. The company has been on a major shopping spree over the past year. It acquired rival Duke Realty for $26 billion and recently agreed to buy a $3.1 billion warehouse portfolio. These accretive deals further enhance its embedded rent-growth potential. 

Cashing in on the tight housing market

Invitation Homes has a strong dividend-growth track record. The residential REIT focused on single-family rental homes has increased its payout each year since its IPO in 2017. It has grown the dividend by an impressive 333% during that period, including by 18% earlier this year. 

The single-family housing REIT currently yields 3.1% following a more than 10% slide in its stock price over the past year. That payout should continue rising. A big factor driving that view is above-average rent growth for single-family homes, driven by affordability, lack of housing supply, and preference. Invitation Homes also focuses on the fastest-growing housing markets, which enhances its ability to capture rising rents.

Meanwhile, the REIT continues to expand its portfolio by acquiring new homes. It purchases homes from multiple seller types, including directly from builders. For example, in 2021, the company formed a strategic relationship with PulteGroup to buy 7,500 purpose-built new homes over a five-year period. The company also has several other industry partnerships to help grow its portfolio, which along with rent growth, should enable it to continue increasing its dividend. 

Top-shelf dividend stocks

American Tower, Prologis, and Invitation Homes offer attractive dividend yields. Meanwhile, they have excellent track records of growing their payouts. With more growth ahead, this trio of REITs looks like great buys right now, especially given their lower stock prices. It sets investors up to potentially generate strong total returns in the coming years.