Rexford Industrial (NYSE: REXR) is offering a 3.3% dividend yield today, which is greater than twice the yield of the S&P 500 index. It has increased its dividend annually for a decade and at a rapid pace of greater than 10% a yr. The stock continues to be 40% below the highs reached in 2022, despite continued strong operating performance. Here’s why it is advisable to buy this real estate investment trust (REIT) and hold on to it for the long run.
What does Rexford Industrial do?
As Rexford Industrial’s name implies, it owns industrial real estate. The list includes each warehouses and manufacturing assets, which is pretty typical of an industrial REIT. Rexford currently owns over 420 properties and has around 720 buildings. It has roughly 1,600 lessees. It’s one in all the larger industrial REITs, sporting a market cap of $11 billion.
The largest difference between Rexford and other industrial REITs is that Rexford is entirely targeting a single geographic region, Southern California. For investors who deal with owning diversified businesses, this REIT could also be a tough sell. But don’t write it off before you understand somewhat bit more in regards to the Southern California region.
Southern California is the biggest industrial market in the US. Should you pulled it out by itself, it might be the fourth largest industrial market on this planet. In other words, it’s a highly attractive region during which to operate. Southern California also happens to have the bottom industrial emptiness rate in the US. Should you needed to deal with one industrial region, this may probably be the one you’ll select.
What is going on on with Rexford’s business?
From a giant picture perspective, the commercial real estate sector is not doing quite in addition to it was just a couple of years ago. For instance, while Southern California has the bottom emptiness rate for industrial assets, the emptiness rate has greater than doubled to just about 4% since hitting a low point in 2023. There was the same spike in emptiness rates in other regions as well, which has investors anxious about all the industrial REIT sector.
That may very well be a chance for investors, provided that Rexford’s stock has fallen so hard. Indeed, despite the headwind of rising emptiness rates, Rexford’s portfolio was 96.9% occupied within the second quarter. And it was still capable of increase lease rates by an enormous 67% on leases that were rolling over in Q2. That may be a clear indication that demand for its properties stays high.
This strong leasing performance, meanwhile, resulted in funds from operations (FFO) per share rising by a powerful 11% yr over yr within the quarter. There’s reason to imagine that this strong performance will proceed. For starters, lease rollovers will likely allow for material rent boosts for several more years. But there’s more.
Rexford has notable plans to upgrade its assets (which can allow it to charge higher rents), and there are rent bumps built into its existing leases, too. On top of that, Rexford continues to amass latest properties, expanding its portfolio. In other words, there are internal and external growth levers that management is using to drive continued strong performance. So, despite the stock drop, Rexford continues to be operating at a high level.
Rexford is a buy and hold
To be fair, Rexford’s dividend yield may not be high enough to entice investors focused on maximizing current income. However the impressive dividend growth rate here should make it highly attractive to dividend growth investors. While the stock price is down because the commercial sector is, indeed, softening, Rexford continues to operate at a really high level, a minimum of partly due to its unique geographic focus. Should you can see the worth on this REIT’s approach, Rexford Industrial is the form of dividend stock you will probably be blissful you purchased while others were selling.
Do you have to invest $1,000 in Rexford Industrial Realty straight away?
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Rexford Industrial Realty. The Motley Idiot has a disclosure policy.
1 Magnificent Dividend Stock Down 40% to Buy and Hold Endlessly was originally published by The Motley Idiot