Most investors don't think of real estate investment trusts (REITs) as growth stocks. But certain REITs have major growth potential. For example, Mid-America Apartment Communities (MAA 0.55%), now going by just MAA, saw its share price grow 871% to its peak in Nov 2021, outperforming the S&P 500 and providing an annualized return of nearly 15%.

But today's bear market along with a cooling housing market has brought share prices for this residential REIT down 37% this year. Wall Street hasn't lost hope in this stock though.

Analysts predict this growth stock could soar as much as 40% by 2023. While investors shouldn't put too much weight on analysts' near-term targets for stock pricing, here's why MAA is still a great buy-and-hold for both growth and income investors.

Sun Belt-centric housing

MAA is in the business of acquiring, developing, owning, and leasing residential housing. Specifically higher-end mid-rise, garden, and high-rise apartments in top-tier markets across the southern region of the United States. As of the second quarter of 2022, it owned just over 101,000 apartment units.

The last few years were exceptionally prosperous for the REIT. New migration trends favoring the sunnier, warmer cities in the South, dubbed the Sun Belt, and low housing supply in this region led to record rental growth for the company. The sunbelt cities like Tampa, Orlando, Austin, and Raleigh were booming.

While rental demand is cooling rapidly, Sun Belt cities still see robust demand. According to a recent report published by Costar Group's Apartments.com, MAA owns properties in five of the 10 strongest markets for year-over-year rent growth.

Year to date through 2022, MAA's net effective rental growth (which includes new and renewing lease rates) is around 13%. Which is virtually unheard of in the real estate industry. August 2022 saw its highest net effective rent growth of the past two years.

Rental housing is one of the most essential services in our economy. People will always need a place to live. And while demand for housing can change based on migratory trends, it seems MAA is one of the best-positioned REITs for today's housing demand.

Driving growth

Rental growth at the rate MAA is currently experiencing won't last forever. It's very likely in the coming few years that rental rates will likely return to the historical range of 2% to 5% year over year. But that doesn't mean the company won't keep growing. 

MAA's acquisitions and development pipeline help improve its revenues. Right now it has five active developments underway and four properties recently completed and in active lease-up. It also has a robust renovation program that helps drive rental growth without having to acquire or develop new properties. Right now, it has 6,000 to 7,000 units positioned for renovations with a projected rental increase for those units of 8%-10%.

Reliable dividend income

REITs are known for being reliable dividend payers since REITs are required to pay 90% or more of taxable income in the form of dividends. MAA is no exception. The REIT currently pays a dividend yield of 3% while having 12 years of consecutive dividend increases. Its most recent dividend increase in July 2022 grew its payouts by 15%.

However, reliability in dividend payments is only as good as the company's balance sheet. The good news is that MAA boasts top-notch financials, including an A- credit rating by the S&P and a very low debt-to-earnings before interest, taxes, depreciation, and amortization (EBITDA) of under four times. For reference, the REIT average is five times.

Its dividend payout ratio, which helps investors understand if the company is in a good position to maintain or raise its dividends in the future is 65%, a very conservative rate and leaves plenty of room for the company to continue to raise dividends in the future.

Its pricing is favorable right now

MAA is currently trading around 3.5% higher than its 52-week low, which leaves a lot of room to achieve the 40% upside analysts are predicting. Its price-to-adjusted-funds-from-operations (AFFO), a metric that works similarly to price to earnings (EPS), is 19 times. This isn't a huge discount compared to other REITs right now but is well within the normal range for residential REITs today.

There's no true way of knowing if MAA will hit the 40% near-term pricing target analysts predict. The continued bear market could strain price growth in the short term. But that shouldn't discount the company's long-term growth opportunities and strong performance today. Given today's favorable pricing, it certainly looks like a great stock to buy and hold for the long term.