You Won't Want to Miss These 3 Under-the-Radar Dividend Stocks

Hundreds of companies pay dividends, making it easy to miss some great dividend stocks. Many smaller companies that aren't big enough to be in the S&P 500 tend to fall under the radar of most investors.

Rexford Industrial Realty (NYSE: REXR), Equity LifeStyle Properties (NYSE: ELS), and NNN REIT (NYSE: NNN) are smaller real estate investment trusts (REITs). Because of that, many investors are missing out on how good they are at paying dividends. Here's why they're worth a closer look.

Its focused strategy is paying big dividends

Rexford Industrial Realty is an industrial REIT focused on a single market: Southern California. That market has tremendous fundamentals. It's the largest industrial market in the country and consistently has the highest demand with the lowest supply. Those factors keep occupancy levels high while driving strong rent growth, which has helped drive strong outperformance for Rexford over the last several years.

Its funds from operations (FFO) have grown at a 16% compound annual growth rate (CAGR) during the past five years. That's much faster than the 9% CAGR of its peers, helping to drive faster dividend growth (18% CAGR over the last five years compared to 10% from its peers).

Rexford Industrial has substantial embedded internal growth drivers. A combination of repositioning and redevelopment projects, rent growth, and recently announced acquisitions will add 35% to its annual net operating income over the next three years. That lays a strong foundation for continued dividend increases from a payout that already yields more than 3%. Meanwhile, there's additional upside potential from future accretive acquisitions, which would further enhance its ability to continue increasing its dividend.

Going off the beaten path has paid big dividends

Equity LifeStyle Properties is a residential REIT focused on manufactured home communities, RV resorts, campgrounds, and marinas. Fewer real estate investors focus on those niche property types, which leaves less competition to acquire properties when they go on the market. That has enabled the REIT to earn higher investment returns via a higher initial real estate cap rate.

The fundamentals in those niche sectors are strong and durable. Relocating a manufactured home is expensive, which enables Equity LifeStyle to raise rents every year, even during a recession. Because of that, it has grown its net operating income at a higher rate over the years (4.4% annually compared to 3.3% for the REIT industry since 1998).

These factors have contributed to Equity LifeStyle's strong dividend growth rate. The REIT has increased its payout at a 21% compound annual rate since 2006. With a strong balance sheet and robust market fundamentals, Equity LifeStyle is in an excellent position to continue growing its 2.7%-yielding dividend in the future.

A remarkable record

NNN REIT has quietly put together an amazing record of dividend growth. The retail REIT recently delivered its 35th consecutive annual dividend increase. That's a rare feat. Only two other REITs and fewer than 80 publicly traded companies have reached that milestone.

The REIT's strategy is very simple and consistent. It buys single-tenant net lease retail properties. It focuses on well-located properties leased to growing national and regional retailers, like auto service locations, convenience stores, and restaurants. The net lease structure provides predictable cash flow because tenants cover all operating expenses, including routine maintenance, building insurance, and real estate taxes.

NNN REIT grows by acquiring additional income-producing retail properties, primarily via existing tenant relationships. Those deals have higher cap rates than market/auction transactions, enhancing the company's investment returns. It has a low dividend payout ratio and a very conservative balance sheet, giving it lots of flexibility to continue making accretive property acquisitions as opportunities arise. Those deals should enable the REIT to continue steadily increasing its 4.8%-yielding dividend.

Small but mighty

Rexford Industrial Realty, Equity LifeStyle Properties, and NNN REIT are smaller companies that many investors have likely overlooked. Because of that, they've missed out on their tremendous dividend growth track records. They should be able to continue increasing their payouts, which could make them a great addition to any investor's income portfolio.

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Matt DiLallo has positions in Rexford Industrial Realty. The Motley Fool has positions in and recommends Rexford Industrial Realty. The Motley Fool has a disclosure policy.