Market pullbacks are a terrific time to buy high-performing dividend stocks. Buying shares when prices are low locks in discounted pricing and higher dividend yields while also supercharging your earnings over the long term thanks to the power of dividend increases.
Two dividend stocks that look extra appealing right now are American Tower (AMT -0.22%) and Invitation Homes (INVH 0.68%). At recent prices, American Tower is down 12% over the past year while Invitation Homes is down 16%, even though both companies are performing admirably. The companies also pay dividend yields nearly double that of the S&P 500, with a healthy track record of dividend raises.
AMT Dividend Yield data by YCharts
Here's a closer look at each company and why adding just $500 to these two stocks could be a genius move right now.
1. American Tower
American Tower is the largest infrastructure real estate investment trust (REIT) in the world, owning and leasing over 233,000 communication sites to a diverse range of tenants across the globe. Its assets, which are largely structures like cell towers and antennas, are leased to mobile carriers and other telecommunications companies over 10-year-plus periods.
Its full-year 2022 earnings were strong, with its consolidated adjusted funds from operations (AFFO) -- a key metric showing a REIT's profitability -- up by 7.1% compared to 2021. Revenue also rose 14.5%. The company acquired CoreSite, a data center REIT, at the end of 2021, which added more data center facilities to its portfolio. This gave the company a notable boost in earnings in 2022, with data center revenues growing by 3,000% from 2021. .
Short-term headwinds due to high interest rates and currency exchange fluctuations won't be offset by data center revenue in 2023. Despite this, I still believe American Tower's long-term outlook is strong. Data usage for mobile phones is rising quickly. More people are not just adopting cellphones, but increasing their data needs. The company expects the total number of connected smart devices to expand at a compound annual growth rate (CAGR) of 10% by 2027, and data usage in the United States to climb at a CAGR of better than 20% over the next four years.
There's also the rollout of 5G wireless networking technology. The United States is nearly complete in its 5G rollout, but international markets are just starting to deploy this new tech, giving American Tower sustained demand for its communication assets. The company also benefits from low overhead. Since most of its expenses are fixed, it can grow revenue -- and increase its return on investment -- fairly easily by adding new tenants to its towers without increasing its costs.
AMT Dividend data by YCharts
American Tower has increased its dividend payout every quarter since 2012, for a total raise of 500%. I believe it will maintain this streak even with near-term headwinds because of its strong financial position. Over the past year, the company's dividend payouts amounted to roughly 60% of AFFO -- a healthy sign it can afford to keep paying shareholders. Buying shares while the stock is down today would secure investors a dividend yield of just over 3% at recent prices.
2. Invitation Homes
Invitation Homes is the largest single-family rental REIT. The young company got its start in the wake of the Great Recession, purchasing properties when prices were low and turning them into long-term rentals. In its roughly 10 years as a business, it has managed to amass over 80,000 rental homes across the country.
Like telecommunications infrastructure, rental real estate is a necessity-based service. Where and how people live may change from year to year, but they will always need a place to live. And given Invitation Homes' strategic positioning in some of the hottest markets across the Southern part of the country, it's in a strong position to see healthy demand for decades to come.
The company operates in high-demand, high-job-opportunity markets where the cost of rent is more affordable than buying. Being positioned in attractive locations like this creates high demand for its rental properties and a sticky tenant base. The REIT also leases to middle- and higher-income earners who earn on average 5 times more than their rent. This adds a layer of safety for the company because its tenants are more likely to be able to continue paying rent even if economic conditions like inflation impact its tenants' earnings.
The stock had a strong finish to the year, with its full-year revenue growing by 12% and its AFFO rising just over 10%. High demand and limited supply have helped its new and renewing rental rate grow by nearly 11% for the year. Invitation Homes knows this accelerated growth isn't the norm and is prepared for its 2023 earnings to better reflect more normalized rates of growth. But that doesn't mean it won't be able to deliver healthy earnings for shareholders in the future.
The company has a diverse acquisition pipeline, buying distressed properties from banks, auctions, and individual owners while also working with developers to create built-to-rent communities. Invitation Homes also had a reasonable dividend payout ratio of 62% over the past 12 months, which gives the company plenty of room to grow its payouts as it expands. It started 2023 with an 18% jump in its payout and has increased its dividend by 333% in its six years as a publicly traded company. Right now, the stock pays a dividend yield of just over 3%, which is near its highest yield percentage in history.
INVH Dividend data by YCharts
Given these companies' long-term growth opportunities, attractive yields, and history of healthy dividend increases, a $500 investment could pay off handsomely when held for the long term. I've owned shares in both stocks for some time and will certainly be using today's favorable pricing as an opportunity to add to my positions.
