After much speculation, the Federal Reserve has finally started reducing interest rates. Falling rates should be a boon for the real estate sector. It will lower borrowing costs and should boost property valuations.

This means real estate investment trusts (REITs) look like no-brainer buys right now, especially for those seeking a lucrative income stream. Realty Income (NYSE: O), Mid-America Apartment Communities (NYSE: MAA), and Prologis (NYSE: PLD) all have dividend yields over 3%, more than double the S&P 500’s dividend yield (less than 1.5%). That makes them great REITs to buy for income and upside potential right now.

An acceleration ahead

Realty Income currently yields more than 5%. At that rate, it could turn a $1,000 investment into more than $50 of annual passive dividend income.

The diversified REIT has a terrific track record of paying dividends. It has paid over 650 consecutive monthly dividends, including raising its payout 127 times since coming public in 1994 and for 108 straight quarters. It has grown its dividend at a 4.3% compound annual rate, which helped it deliver a 13.5% compound annual total return since its public listing.

Realty Income is in a strong position to continue increasing its dividend. The REIT’s main growth driver is its ability to acquire income-producing properties. It can raise its adjusted funds from operations (FFO) by around 0.5% per share for every $1 billion of accretive investments it funds externally (issuing new debt and shares). It currently expects to invest about $3 billion into new properties this year, which is down from recent years due to higher interest rates (it also purchased another REIT in a $9.3 billion deal).

With rates expected to fall, Realty Income should be able to ramp up its acquisition volume and grow even faster. That should enhance its ability to increase its dividend.

A reacceleration awaits

Mid-America Apartment Communities (MAA) is a leading apartment REIT focused on Sunbelt markets. The landlord currently offers a dividend yield above 3.5%. It has paid 122 consecutive quarterly dividends and increased its payment for 14 straight years, including by 5% late last year.

The REIT benefits from the strong demand for apartments in its markets. That keeps occupancy levels high and tends to drive above-average rent growth.

A surge in new supply has slowed rent growth to a crawl in recent quarters (0.5% in the second quarter). That headwind should fade over the second half of this year and into 2025 as its markets absorb this new supply. That should drive a reacceleration in rent growth.

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Meanwhile, MAA has started ramping up its investment activities to capitalize on the expected resurgence in rent. It recently acquired a newly built multifamily property. It also has seven communities under construction and expects to begin four to six more projects over the next two years. The combination of accelerating rent growth and its investments to expand its portfolio should enable the REIT to continue increasing its dividend.

A speed bump on the path to more growth ahead

Prologis currently yields more than 3%. The leading industrial REIT has a great record of growing its payout. It has grown its dividend at a 13% compound annual rate over the last five years, more than double the S&P 500’s average (5% compound annual dividend growth).

The warehouse owner hit a slight speed bump this year. Higher interest rates have impacted customer demand, which caused the REIT to trim its guidance earlier for 2024. Despite that near-term headwind, it still expects its core FFO to grow by nearly 8% per share this year.

Meanwhile, it sees a reacceleration ahead, driven by the growing demand for warehouse space and limited future supply. It sees its core FFO growing by 9% to 11% per share through 2026. In addition to strong warehouse demand, the REIT is starting to tap into new growth drivers like energy and data centers. These catalysts could enhance its long-term growth rate, potentially allowing it to continue increasing its dividend at a well-above-average annual pace.

A great time to buy these top-notch REITs

Realty Income, MAA, and Prologis pay high-yielding dividends that they’ve historically grown at healthy rates. While they’re all experiencing some near-term growth headwinds from higher rates, that should fade as they begin to fall. Because of that, they look like no-brainer buys right now for those seeking income and upside potential.

Should you invest $1,000 in Realty Income right now?

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Matt DiLallo has positions in Mid-America Apartment Communities, Prologis, and Realty Income. The Motley Fool has positions in and recommends Mid-America Apartment Communities, Prologis, and Realty Income. The Motley Fool recommends the following options: long January 2026 $90 calls on Prologis. The Motley Fool has a disclosure policy.

3 No-Brainer High-Yield Dividend Stocks to Buy With $1,000 Right Now was originally published by The Motley Fool