Rexford Industrial (NYSE: REXR) today offers a dividend yield of 3.3%, which is more than twice the yield of the S&P 500 index. It has increased its dividend annually for a decade, at a rapid pace of more than 10% per year. The stock is still 40% below its peaks reached in 2022, despite continued strong operating performance. Here’s why you might want to buy this real estate investment trust (REIT) and hold it for the long term.

What does Rexford Industrial do?

As the name Rexford Industrial suggests, it owns industrial real estate. The listing includes both warehouses and manufacturing assets, which is fairly typical for an industrial REIT. Rexford currently owns over 420 properties and has approximately 720 buildings. It has approximately 1,600 tenants. It is one of the larger industrial REITs, with a market cap of $11 billion.

The biggest difference between Rexford and other industrial REITs is that Rexford is focused entirely on one geographic region, Southern California. For investors who focus on owning diversified businesses, this REIT can be a tough sell. But don’t write it off until you know a little more about the Southern California region.

Southern California is the largest industrial market in the United States. If you were to stand it alone, it would be the fourth largest industrial market in the world. In other words, it is a very attractive region to operate in. Southern California also happens to have the lowest vacancy rate in the United States. If you had to focus on one industrial region, this would probably be the one you would choose.

What’s going on with Rexford’s company?

From a broader perspective, the industrial real estate sector is not doing as well as it did a few years ago. For example, while Southern California has the lowest vacancy rate for industrial assets, the vacancy rate has more than doubled to nearly 4% since hitting a low in 2023. There has been a similar spike in vacancy rates in other regions as well, causing investors to worry about the industrial REIT sector as a whole.

That could be an opportunity for investors, given how much Rexford’s stock has fallen. Despite the headwind of rising vacancy rates, Rexford’s portfolio was 96.9% occupied in the second quarter. And it was still able to raise lease rates by as much as 67% on leases rolled over in Q2. That’s a clear indication that demand for its properties remains strong.

This strong lease performance, meanwhile, resulted in funds from operations (FFO) per share increasing by an impressive 11% year-over-year in the quarter. There is reason to believe this strong performance will continue. For starters, lease rollovers are likely to provide material rent increases for several more years. But there’s more.

Rexford has notable plans to upgrade its assets (which will allow it to charge higher rents) and there are also rent increases built into its existing leases. In addition, Rexford continues to acquire new properties and expand its portfolio. In other words, there are internal and external growth levers that management is using to drive continued strong performance. So despite the share price decline, Rexford is still operating at a high level.

Rexford is a buy-and-hold stock

To be fair, Rexford’s dividend yield may not be high enough to entice investors focused on maximizing current income. But its impressive dividend growth should make it very attractive to dividend growth investors. While the stock price is falling because the industrial sector is indeed softening, Rexford continues to operate at a very high level, at least in part because of its unique geographic focus. If you can see the value in this REIT’s approach, Rexford Industrial is the kind of dividend stock you’ll probably be glad you bought when others were selling.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Rexford Industrial Realty. The Motley Fool has a disclosure policy.

1 Magnificent Dividend Stock Is Down 40%, Buy & Hold Forever was originally published by The Motley Fool