I'm packing my retirement account with dividend-paying stocks. The thesis is simple: Dividend stocks have historically outperformed non-payers by a wide margin. The biggest outperformance has come from companies that routinely increase their dividends. According to data from Ned Davis Research and Hartford Funds, dividend growers have delivered a 10.2% average annual total return over the last 50 years, compared to 4.3% for the average non-dividend payer.
My strategy is to focus on stocks that make paying dividends a priority. Consistent growth and a higher-yielding payout are strong evidence of that. Camden Property Trust(NYSE: CPT) and EastGroup Properties(NYSE: EGP)certainly fit the bill. That's why I recently bought more shares, a trend I expect will continue next year.
The strength to continue growing
Camden Property Trust is a real estate investment trust (REIT) focused on owning residential rental properties. The company currently owns 172 properties with about 58,250 rental units. It focuses on owning apartments and single-family rental homes in high-growth markets benefiting from above-average employment and population growth. It owns properties in 15 major markets, predominantly across the southern half of the U.S.
The residential REIT's dividend currently yields 3.6%. That's about three times higher than the S&P 500's dividend yield (around 1.2%).
Camden has a solid record of growing its dividend. While the REIT did have to reduce its payment during the Great Recession, growth quickly resumed, and its payment is now well above the level it was before that reset.
The REIT is in an excellent position to continue increasing its dividend payment in the future. It has a relatively low dividend payout ratio (around 70% of its adjusted funds from operations (FFO) this year). It also has a very strong balance sheet. That gives it the financial flexibility to continue expanding its portfolio.
Camden currently has six communities under development or in the lease-up phase that should stabilize over the next few years. It has already funded about 65% of the estimated $747 million cost for these multifamily and build-for-rent single-family communities. Given its strong liquidity, it can easily fund the remaining cost (it has nearly $1.1 billion of cash or availability under its credit facility).
That strong liquidity will enable the REIT to continue growing. It currently has three more projects under development, representing $673 million of future investment potential. It can also make acquisitions (land suitable for future developments and operating communities) when opportunities arise. With a strong financial profile and visible growth prospects, Camden should have no trouble continuing to grow its dividend in the future.
Very consistent growth
EastGroup Properties is an industrial REIT focused on owning warehouses. It currently owns about 60.5 million square feet of space, predominantly across the fast-growing U.S. Sunbelt region.
The company has built about half of its portfolio from the ground up. It has invested about $3 billion since 1996 to build 263 properties with 30.1 million square feet of space. The REIT builds in business park settings because that strategy produces higher returns with less risk. EastGroup Properties will also acquire warehouses, including stabilized operating properties and those with value-add upside from expansion, redevelopment, or leasing opportunities.
EastGroup's strategy has paid off for investors over the years. It recently declared its 180th consecutive quarterly dividend. It has either maintained or increased its dividend over the last 32 years, and raised it in 29 of those years, including the last 13 in a row. Its payout currently yields 3.5%.
The industrial REIT is in a solid position to continue raising its dividend payment. It currently has 17 development and value-add projects underway at a total projected cost of $528 million. These investments will grow its cash flow as it finishes them in the coming quarters. Meanwhile, EastGroup has a solid financial profile, giving it the flexibility to continue expanding its portfolio as opportunities arise. For example, it spent $144 million to buy operating properties across three existing markets this year.
Camden Property Trust and EastGroup Properties make paying dividends a priority. That's evident in their higher-yielding payouts and solid growth track records. With more dividend growth likely ahead, they should be able to deliver solid total returns in the coming years, which should help grow the value of my retirement nest egg. That's why I recently bought more shares and plan to continue doing so in 2025.
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Matt DiLallo has positions in Camden Property Trust and EastGroup Properties. The Motley Fool recommends Camden Property Trust and EastGroup Properties. The Motley Fool has a disclosure policy.
