Here Are My Top 3 REIT Dividend Stocks to Buy Now

Key Points

• Realty Income trades at a high dividend yield, in part because of its low valuation.

• Mid-America Apartment Communities has dual growth drivers ahead.

• Vici Properties has a winning formula to create value for shareholders.

• 10 stocks we like better than Realty Income ›

Real estate investment trusts (REITs) are known for delivering steady dividend income. They own income-producing properties and use the cash flow to pay growing dividends, often with above-average yields.

Realty Income (NYSE: O), Mid-America Apartment Communities (NYSE: MAA), and Vici Properties (NYSE: VICI) stand out as the top REITs I recommend for buying to collect dividend income right now. Here's why I think these opportunities are especially compelling at the moment.

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High returns at an attractive value

Realty Income distinguishes itself with one of the most consistent dividend records in the sector. The diversified REIT, which owns retail, industrial, gaming, and other properties, has increased its monthly dividend payment 131 times since its public market debut in 1994, with an impressive streak of 111 consecutive quarterly raises. Over that time, the landlord has grown its payout at a solid 4.2% compound annual rate.

Currently yielding an impressive 5.5%, Realty Income easily outpaces the REIT sector average of around 4% and dramatically surpasses the S&P 500 yield of less than 1.2%. A big factor driving this superior yield is its appealingly low valuation -- 13 times funds from operations (FFO), versus 18 for other REITs in the S&P 500.

Despite its low valuation, Realty Income has consistently delivered better total operational returns -- combining dividend yield and FFO growth -- than its peers, with 9.7% annualized over the past five years compared to 7.7%. With a fortress balance sheet, the REIT has the financial flexibility to continue growing its portfolio, FFO, and dividend at solid rates. That positions it to continue producing attractive total returns.

Dual growth drivers

Currently yielding 4.3%, Mid-America Apartment Communities stands out as an exceptionally reliable dividend stock. The apartment owner has never reduced its dividends in over 30 years as a public company. Although it hasn't increased its dividend every year, last year marked its impressive 15th consecutive annual dividend increase. Over the past decade, the REIT's payout has grown at a 7% compound annual rate, significantly outperforming the sector average.

The REIT has recently faced slower rent growth in its markets because of an increase in new apartment supply. That headwind is easing, however, as strong renter demand absorbs these new units. Now, with limited new supply on the horizon and robust rental demand persisting, rental growth rates are likely to accelerate again in the coming years.

While other developers have scaled back on new projects, Mid-America is currently moving forward with about $1 billion in apartment development projects across eight new communities. The company anticipates starting three to four projects this year and has ample land to continue expanding. Accelerating rent growth, combined with the incremental income as these new developments stabilize, should drive strong income and dividend growth for this REIT in the coming years.

The peer-leading growth should continue

Vici Properties, a REIT focused on investing in casinos and other entertainment properties, currently yields 5.3%. It has increased its dividend in all seven years since its inception. Over that period, its payout has increased at a 7.4% compound annual rate -- significantly faster than the 2.3% average for other REITs with triple net (NNN) leases.

Growth prospects remain strong for this experiential REIT. As a larger share of its long-term NNN leases index rent to inflation -- 42% this year, rising to 90% by 2035 -- Vici Properties' rents should steadily climb, growing faster when inflation remains elevated.

Vici Properties also benefits from its strategy of establishing relationships with leading experiential companies. This approach allows the REIT to grow as its partners continue to expand. It supports new developments through real estate-backed loans, which often come with a future sale-leaseback option, and also funds expansion projects at existing properties. It will also buy other properties from its partners or third-party investors.

Vici's winning formula -- high dividend income, strong rent growth, and steady new investments -- positions investors to potentially earn attractive total returns in the future.

Great REITs to buy for dividends right now

Realty Income, Mid-America Apartment Communities, and Vici Properties have strong records of paying and growing dividends. Their high-yield payouts, proven performance, and future growth potential make them my top three REITs to buy right now.

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Matt DiLallo has positions in Mid-America Apartment Communities, Realty Income, and Vici Properties. The Motley Fool has positions in and recommends Mid-America Apartment Communities and Realty Income. The Motley Fool recommends Vici Properties. The Motley Fool has a disclosure policy.