Dividend stocks are proven wealth creators. For example, if you invested just $100 into the average dividend stock 50 years ago, that investment would have grown to $8,756 five decades later (assuming you reinvested those dividends). That’s nearly double the return of the average stock in the S&P 500 (SNPINDEX: ^GSPC)($4,439 for an equal-weighted S&P 500 index fund) and 10 times more than you’d have made in the average non-dividend payer ($843).
The best returns came from dividend growers (they turned a $100 investment made 50 years ago into $14,118, compared to $2,788 for those with no change in their dividend policies and $73 for dividend cutters and eliminators). Given that data, companies that routinely increase their payouts are no-brainer investments.
Sun Communities(NYSE: SUI) and VICI Properties (NYSE: VICI) have solid records of increasing their dividends. Here’s why they’re ideal dividend stocks to buy right now for those with a little bit of extra cash to invest.
Sun Communities is a real estate investment trust (REIT) focused on niche property types. It’s the largest publicly traded owner and operator of manufactured home communities, RV parks, and marinas. It’s also the second-largest owner/operator of U.K. holiday parks.
Those properties produce stable and resilient income. For example, manufactured home communities are so stable that the REIT has delivered positive net operating income growth from those properties every year for more than two decades. That’s due to the durable demand for affordable housing and the fact that it’s expensive to move a manufactured home from one community to another (costing $6,000 to $10,000).
Sun Communities uses its stable cash flow to pay dividends and expand its portfolio. The REIT currently pays out $0.94 per share each quarter ($3.76 annually), giving it a 3% dividend yield on its current share price (around $125 apiece).
The REIT has increased its dividend payment for nine straight years. Sun Communities should be able to continue growing its dividend in the future. It expects to push through rental increases of 3.7% (marina and U.K.) to more than 5% (manufactured home and annual RV site leases) in 2025. The REIT also has a strong balance sheet, giving it ample financial flexibility to continue acquiring additional properties as opportunities arise.
VICI Properties is also a REIT. It focuses on owning experiential real estate, like gaming, hospitality, and entertainment destinations.
The REIT owns several of the most iconic casinos along the Las Vegas Strip. It leases these properties back to operating companies under long-term triple net leases (NNN). Those leases provide it with very stable rental income that steadily rises with inflation due to contractual escalation clauses.
VICI Properties pays out about three-quarters of its stable income via dividends. It currently pays $0.4325 per share each quarter ($1.73 annualized). That gives it a nearly 6% dividend yield on its recent share price (less than $30 apiece). VICI Properties has increased its dividend for seven straight years (every year since its formation). It has grown its payout at a peer-leading 7% compound annual rate during that period.
VICI Properties is in an excellent position to continue increasing its dividend. In addition to the inflation-linked rental rate increases, the REIT has ample financial flexibility to continue expanding its portfolio. It also has several ways to grow. For example, it can buy additional experiential properties in sale-leaseback transactions with the operating companies.
It also has several financing partnerships that provide funding to companies developing experiential properties. Those investments supply it with interest income and the opportunity to buy those properties in the future. The REIT will also provide capital to its current tenants to help them fund expansion projects at its properties, in exchange for an increased rental rate.
Sun Communities and VICI Properties own properties that produce durable, growing rental income. That gives them the cash flow to pay a growing dividend and invest in expanding their portfolios. The combination of income and growth should enable these REITs to produce strong total returns in the future. That income and upside potential make them look like no-brainer dividend stocks to buy right now for those with a little bit of cash to invest.
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Matt DiLallo has positions in Sun Communities and Vici Properties. The Motley Fool recommends Sun Communities and Vici Properties. The Motley Fool has a disclosure policy.
