Why I Recently Bought More Shares of This Beaten Down 4.1%-Yielding Dividend Stock

The stock market has been in rally mode in the second half of this year. The S&P 500 is up by almost 14% over the last 12 months and seems to be hitting new all-time highs almost every day. That rally has driven the index's average dividend yield down to 1.2%, near its record low. As a result, there are fewer stocks trading at bargain levels and fewer higher-yielding dividend stocks.

However, the market isn't without some compelling value-driven income opportunities. Shares of Invitation Homes (NYSE: INVH) are down more than 16% over the past year and about 20% from their 52-week high. That slump has helped drive the yield of the real estate investment trust (REIT) up to 4.1%. That combination of value and yield was too compelling to resist, especially given its healthy growth profile. That's why I recently bought more shares of this high-quality residential REIT.

Resilient rental income

Invitation Homes is a leading owner and manager of single-family rental properties. It owns interests in nearly 93,000 homes and manages over 17,000 additional properties for other investors. It focuses on 16 core housing markets, predominantly in the Sun Belt and on the West Coast, benefiting from those regions' above-average population and job growth.

Consistent demand for housing has allowed the company's rental property portfolio to generate resilient and steadily rising rental income. Its focus on high-demand properties (single-family homes) in strong housing markets has driven above-average same-store net operating income growth. Since its initial public offering in 2017, Invitation Homes has delivered more than 60% net operating income growth, nearly double the national average for multifamily properties during that period (36.7%).

Invitation Homes' portfolio maintains strong occupancy rates (over 97% this year). Meanwhile, it has raised its rents at a healthy rate (over 4% blended lease rate growth in the second quarter). This provides the REIT with durable cash flow to pay dividends. It will distribute around 72% of its adjusted funds from operations (FFO) this year as dividends, which is a conservative ratio. That provides it with a nice cushion, allowing it to retain cash to invest in new income-generating rental properties.

Multiple avenues to continue growing

Rent growth is only one of Invitation Homes' many growth drivers. The REIT also routinely buys houses (either outright or with joint-venture partners) to expand its rental property portfolio. It currently expects to spend around $750 million on acquiring properties this year. It purchases those properties on the open market, from other real estate investors, and directly from homebuilders. It has partnerships with several leading homebuilders to buy over 1,800 purpose-built rental properties over the next several quarters.

The company also has plenty of room to expand its third-party management business, which it launched last year. This platform enables it to leverage its in-house management capabilities to earn incremental income by providing those services to other investors. This platform could also provide the REIT with opportunities to acquire properties it manages when its clients are ready to sell.

A new growth avenue is Invitation Homes' developer lending program, which it launched this year. In its first deal, the REIT provided a builder with a $32.7 million loan to support the development of a 156-home community in Texas. The company has the option to acquire the community once it has stabilized. This platform can generate incremental interest income and new investment opportunities.

The REIT's growing portfolio and rental income should enable it to continue increasing its dividend. Invitation Homes has raised its payout every year since its initial public offering in 2017, including a 3.6% hike late last year.

A great value proposition

Shares of Invitation Homes have slumped over the past year despite the market's surge. A silver lining of that sell-off is that the REIT's dividend yield has risen above 4%. That's an appealing level for a company with an excellent growth track record. With more growth ahead, I couldn't resist the opportunity to scoop up more shares of this top-notch dividend stock while it's on sale.

Matt DiLallo has positions in Invitation Homes. The Motley Fool has positions in and recommends Invitation Homes. The Motley Fool has a disclosure policy.