Dividend stocks can be a fantastic way to build passive income for your retirement years. By investing in dividend stocks that consistently increase payouts over time, a small investment today can become serious income in the future.
Two stocks that look like great candidates for delivering high dividend growth over the next 10 to 20 years are Prologis (PLD -1.57%) and Invitation Homes (INVH 0.53%). Here's a closer look at each company and why they could help you to retire early.
1. Prologis
Industrial property has become one of the hottest, most in-demand asset classes within the real estate industry. By helping store, manufacture, and distribute goods, industrial real estate acts as the backbone of our global economy. And no single company is more intertwined in this industry than Prologis.
It's not only the largest publicly traded REIT by market capitalization, it's also the largest industrial operator in the world. Owning and leasing nearly 5,500 buildings across 19 countries, Prologis facilitates the production or movement of goods equal to 3% of the world's gross domestic product (GDP).
Prologis has produced incredible returns over its nearly 30 years of tenure. Not only has it outperformed the S&P 500, delivering an 11% annualized return over the past 26 years, the REIT has also grown its dividend payouts by 489% over that time. The stock has seen unprecedented growth for its properties over the last few years thanks to short supply and increased demand for warehouses, distribution centers, third-party logistics facilities, and manufacturing buildings.
The full-year 2022 set new operating records for all major metrics, showing the strength and resilience of this industry despite a slowing economy. Prologis expects its growth to start to normalize back to historic levels in the coming years, but right now its demand remains robust. Rent growth is still hovering around 50% higher than the year prior, and its occupancy remains incredibly strong at 98%. Strong operating margins like this help ensure the company has sufficient liquidity to continue growing, while also covering its debt and dividend obligations.
The company has increased its dividend for 10 consecutive years. It has ample coverage for its dividend payouts today, and given its robust performance as of late, it has plenty of room to keep growing. The stock has taken a beating thanks to investors' pessimistic outlook amid rising interest rates and waning demand for industrial properties. Today the stock is down 20% year over year, giving investors a great entry price for this reliable high-growth dividend stock.
2. Invitation Homes
No matter what's going on in the world, people will always need a place to live. Housing demand may change based on supply, migration patterns, or other trends, but housing will always be a necessary part of living. That is what makes Invitation Homes, the premier single-family home rental REIT, such an attractive long-term investment.
Invitation Homes owns or has an interest in over 80,000 single-family homes in 16 key markets across the southern parts of the U.S. It focuses on purchasing newer homes, renovating them, and turning them into rental properties for mostly higher-income tenants. The company, which has been in operation for nearly 10 years, has done incredibly well growing its portfolio and earnings each year.
The pandemic ushered in a shortage of housing and high demand for single-family rental housing, particularly in the Sun Belt region where Invitation Homes operates. In turn, its year-over-year rental growth was consistently in the double digits. Rental demand is slowing as inflation weighs on consumers. But demand for Invitation Homes properties still remains high.
Occupancy is at 97%, and its blended lease rate, which includes new and renewing leases, was up 10% since last year. The company has partnerships with home builders to deliver several built-to-rent communities over the next five years, and it has a robust pipeline of new acquisitions that will help it maintain its momentum of growth.
The stock is down 24% this past year as investors grow concerned over the slowing housing market and the effects of rising interest rates on REITs' cost of borrowing. But the stock has plenty of cash on hand and low debt ratios, which helps it keep growing and maintain its near-term debt obligations and dividend payments with ease.
Since 2017, when the company first went public, it's increased its dividend payouts by 266%. Its dividend payout is extremely low compared to most other REITs at just 52%. This gives the stock plenty of room to keep growing its dividends as its portfolio and revenues increase.
