While interest rates on government bonds have crept up recently, they're still near historic lows. Likewise, the dividend yield on stocks in the S&P 500 is relatively low at 1.5% on average. Those factors make real estate investment trusts (REITs) stand out since the sector's average payout is above 3%, giving income investors a more attractive option.
Three REITs currently offering enticing payouts around the industry's average are Camden Property Trust (NYSE: CPT), Crown Castle International (NYSE: CCI), and Digital Realty (NYSE: DLR). Here's why they look like top buys for dividend investors these days.
A bright future
Camden Property Trust currently yields 3.2%. The apartment REIT backs that payout with some of the strongest financial metrics in the sector. It has A-rated credit and a relatively low dividend payout ratio of around 66% of its FFO.
That top-notch financial profile gives the REIT the financial flexibility to continue expanding its portfolio. The company recently completed construction on three projects, investing $242.3 million into those developments. It's currently spending $790 million on seven additional developments and recently purchased more land for future projects.
Most of these investments are in the fast-growing Sun Belt region. That focus on this area could continue paying dividends for the REIT in the future, given the accelerated migration trends as people and businesses move to Sun Belt cities because of their better weather, affordability, and opportunities. That should enable the REIT to grow its rental rates at an above-average pace and continue expanding its portfolio via additional development projects. This growth should support continued dividend increases.
Dialed into a megatrend
Crown Castle International currently pays a 3.5%-yielding dividend. The infrastructure REIT focuses on 5G communications infrastructure like cell towers and fiber optic networks. It supports its above-average payout with solid financials, including an investment-grade credit rating, a reasonable dividend payout ratio, and a significant backlog of customer leases.
That gives Crown Castle the financial flexibility to capture additional expansion opportunities. The company estimates that it has a decade-long investment cycle ahead of it as its customers deploy 5G technology, enabling it to build more small cells and fiber networks. That leads the REIT to believe it can grow its FFO at a pace to support 7% to 8% annual dividend growth in the coming years.
Connected to a major trend
Digital Realty's dividend currently clocks in at 3.4%. The data center REIT's payout is also on solid ground, backed by investment-grade credit and a reasonable payout ratio.
That financial profile gives Digital Realty the flexibility to continue expanding its data center portfolio to capture new opportunities in the fast-growing sector. The company has several new data centers in development and purchased more land in the past year to pave the way for future growth. It also has an excellent track record of acquiring data centers that drive meaningful per-share FFO growth. That combination of growth drivers has enabled the REIT to expand its FFO at an 11% compound annual clip since its IPO.
Given its solid financial profile and the rapid growth in data, Digital Realty should have plenty of power to keep growing its dividend in the coming years. It has already increased its payout for 16 consecutive years. That has it in a select group of REITs as it's one of the few that has given its investors a raise each year since its IPO.
Top-notch REIT dividend stocks for the long haul
Camden Property, Crown Castle, and Digital Realty all offer attractive dividends that yield more than 3% backed by rock-solid financial profiles. However, what makes this trio stand out for dividend seekers is their growth potential. All three companies have a long history of growing their dividends. That's showing no signs of stopping, given their focus on fast-growing regions or megatrends. Because of that, they appear poised to produce steadily rising income streams, making them great REIT options for dividend investors.