Most investors thinking about dividends are looking for high-yield stocks. But that's just one way to benefit from dividends; another way (equally attractive) is to buy stocks that grow their payouts at a rapid clip. Given enough time, this can turn a small yield into a very large yield relative to the purchase price of the stock.
Basically, dividend growth helps you increase the buying power of the income your portfolio generates over time. If that sounds attractive, you'll want to look at Visa(NYSE: V) and Rexford Industrial Realty(NYSE: REXR) this November.
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Visa is near all-time highs and still looks cheap
Visa is a very interesting stock right now, filled with seeming contradictions. And yet, at the end of the day, it looks like a very attractive dividend growth opportunity.
For starters, it is one of two dominant companies in the payment processing space, the other being Mastercard. Visa's network is worldwide, and the card is accepted at just about every store, in physical locations and on the internet. The company is paid a small fee for every transaction it processes, which individually doesn't amount to much but collectively generate huge revenue.
Quantifying that statement, Visa processed 59.3 billion transactions in the third quarter of 2024, up 10% year over year. The associated transaction fees generated $8.9 billion in revenue, also up 10% year over year.
Earnings rose 12%, hitting $2.42 per share. That's the power of doing lots of little things very well. It would be difficult for a smaller competitor to match that scale and reach. Meanwhile, the company's industry-leading position is benefiting from the long-term move toward cards over cash, helped along by the growth in online shopping.
So Visa looks well-positioned today and appears to have a bright future. Which is likely why the stock is trading near all-time highs. And yet the price-to-sales and price-to-earnings ratios are both below their five-year averages, which suggests the stock is cheap. The dividend yield, while just 0.8%, is also near the high end of its historic yield range. That's another sign of a cheap price.
But the attractiveness really shines here when you add in the 10-year annualized dividend growth of 18% a year. So this is a growing company with what appears to be an attractive valuation and a rapidly expanding dividend.
The only drawback is the low starting yield. But if you are a long-term investor, that rapid dividend growth could turn Visa into a very attractive income stream if you own it long enough.
Rexford Industrial starts with a higher yield
Rexford is a real estate investment trust (REIT), a corporate structure designed to pass income on to shareholders. That helps explain why the dividend yield here is more attractive at 3.9%.
That said, there are plenty of REITs out there with higher yields. What sets Rexford apart is dividend growth, with a compound annual growth rate of 13.5% over the past decade. That's good for any company, but particularly attractive for a REIT.
The company has achieved this by taking a highly focused approach. It only invests in industrial assets and only in the Southern California market.
For more conservative investors, that might be a bit too much concentration risk. But Southern California is a large, vital, and supply-constrained market for industrial property. Although Rexford owns less than 3% of the space in the market, it is a sizable and well-respected company there with a long and successful history of acquisitions and redevelopment.
Basically, it has good assets in a market where it can raise rents at a relatively rapid clip. And it has the size to buy new properties and update assets as it looks to grow its portfolio. Add in the 3.9% yield and there's a lot to like here for dividend growth investors and those in search of higher yielding stocks (noting that the S&P 500 index is only yielding around 1.2% today).
It's also worth noting that Rexford's yield is near the high end of its historical range, too, suggesting the stock is cheap today.
Both are attractive right now
Visa and Rexford both look like attractive dividend growth stocks right now. But, given their historically high yields, they also look attractively valued. That double benefit for dividend growth investors probably won't last forever. If you have some money to put to work in November, you might want to jump on these investment opportunities while they're still available.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard, Rexford Industrial Realty, and Visa. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.
