Many income investors have looked to REITs (Real Estate Investment Trusts) as a source of dividends. REITs are pass-through entities and to qualify for this status, they must pay dividends equal to 90% or more of their taxable income. Because many REITs are now trading far below their 2007 highs, their yields appear very attractive. For example, National Retail Properties (NNN) currently pays a 6.6% dividend, while Realty Income Corporation (O) is paying 6.1% (the author is long O).
Since many of these companies were started after The Tax Reform Act of 1986, you won’t find them on S&P’s list of Dividend Aristocrats, which requires 25 consecutive years of increasing dividends. But there are some great dividend-paying REITs out there. Before you dive in, though, you might want to check whether or not the company has a policy of growing its dividend. If your dividends don’t grow at or above the rate of inflation, and you plan to hold the shares indefinitely (as an income investor) you may be losing ground financially.
Recently, the March adjusted CPI number was released. It indicated an annualized inflation rate of 3.6%. If this rate remains constant over the next decade, your dividends would have to grow in excess of 42% to stay ahead of the CPI. Not all REITs have exceeded this growth rate when it comes to dividends.
With this in mind, I set out to compile a list of REITs with the top dividend growth rates. I began with a list of 130 or so companies, and then eliminated those that have not paid dividends continuously for the last 10 years. The results were interesting: many of the companies with the highest dividend growth also had the best share price appreciation.
Based on my research, here are the top 15 dividend-growing REITs over the last 10 years:
Disclosure: The author is long Realty Income Corporation (O).