Investing in real estate stocks can be a great way to generate dividend income. Real estate investment trusts (REITs) must distribute at least 90% of their taxable income to investors to remain in compliance with IRS regulations. Because of that, most of these companies pay above-average dividends.
Prologis (PLD -3.70%), Realty Income (O -1.62%), and Invitation Homes (INVH -2.16%) are my top three REITs to buy for dividend income right now. Here's why I think they make great investments to generate durable and growing passive income.
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Above-average growth should continue
Shares of Prologis currently trade more than 15% below their 52-week-high. That's one reason the leading industrial REIT's dividend yields around 3.7% these days. That's well above the S&P 500's (^GSPC -1.61%) dividend yield (less than 1.5%) and approaching the REIT's highest level in a decade.
Prologis has done a fantastic job growing its dividend. Over the last five years, the company has grown its payout at a 13% compound annual rate. That's faster than both the S&P 500 (5%) and REIT sector average (6%).
The leading industrial REIT is in a strong position to continue growing its high-yielding payout. While it's facing some near-term demand headwinds due to the potential impact of tariffs, the long-term outlook for the industrial real estate market remains bright. Demand is growing, while new supply growth should remain limited. That should support continued rent growth.
Meanwhile, Prologis has an elite balance sheet, giving it ample financial flexibility to invest in development projects and make accretive acquisitions. These growth drivers should enable the REIT to continue increasing its payout at an above-average pace.
A very steady dividend grower
Shares of Realty Income currently sit more than 10% below their 52-week-high. That's one reason the diversified REIT has a dividend yield of 5.7%.
Realty Income has a phenomenal record of growing its high-yielding dividend. It has raised its monthly dividend payment 130 times since its public market listing in 1994. The REIT has hiked its payout for 110 straight quarters and 30 years in a row. It has grown its dividend at a 4.3% compound annual rate during that period.
The company is in a strong position to continue growing its dividend. Its real estate portfolio produces very stable rental income, backed by long-term net leases. Meanwhile, it has a conservative dividend payout ratio (around 75% of its adjusted funds from operations) and an elite balance sheet. Those features give it tremendous flexibility to continue growing its portfolio of income-generating real estate.
Cashing in on the housing market
Shares of Invitation Homes are down more than 5% from their peak price over the past year. That has helped push its dividend yield up toward 3.4%.
The landlord owns interests in or manages over 110,000 single-family rental properties across more than a dozen of the country's top housing markets. This portfolio generates stable and growing rental income. Demand for rental housing in its markets tends to remain strong, which keeps occupancy levels high and drives above-average rent growth.
Invitation Homes also has a strong financial profile, which enables it to steadily expand its portfolio. It's in deals to buy over 2,000 newly built homes from some of the nation's top homebuilders. The REIT also buys homes on the open market and from other real estate investors.
The company's rising rental income and steadily expanding portfolio have enabled it to increase its dividend every year since its initial public offering in 2017. With high mortgage rates and home prices making homebuying unaffordable for many people, demand for rental properties should remain strong and growing, which will benefit Invitation Homes.
Great real estate dividend stocks
Prologis, Realty Income, and Invitation Homes have excellent records of paying dividends. All three REITs currently offer very attractive yields due to their lower share prices and consistent dividend growth. With more growth ahead, they're some of the top REITs to buy right now for a growing stream of passive dividend income.
