Rexford Industrial (REXR 1.60%) offers a dividend yield of 3.3% today, which is more than double the yield of the S&P500 Index. The company has increased its dividend annually for a decade and at a rapid pace of more than 10% per year. The stock is still 40% below 2022 highs despite continued strong operating performance. Here’s why you should buy this real estate investment trust (REIT) and hold it for the long term.

What does Rexford Industrial do?

As Rexford Industrial’s name suggests, the company owns industrial properties. The list includes both warehouses and manufacturing facilities, which is pretty typical for an industrial REIT. Rexford currently owns over 420 properties and has around 720 buildings. It has around 1,600 tenants. It is one of the larger industrial REITs with a market cap of $11 billion.

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

Southern California is the largest industrial market in the United States. If you looked at it on its own, it would be the fourth largest industrial market in the world. In other words, it is an extremely attractive region for companies. Southern California also happens to have the lowest vacancy rate in the United States. If you had to focus on one industrial region, you would probably choose this one.

What’s going on with Rexford’s business?

From an overall perspective, the industrial real estate sector is not doing quite as well as it did a few years ago. For example, while Southern California has the lowest vacancy rate for industrial real estate, the vacancy rate has more than doubled to nearly 4% since hitting a low in 2023. Other regions have seen a similar increase in vacancy rates, which has investors concerned about the entire industrial REIT sector.

This could prove to be an opportunity for investors given Rexford’s sharp decline in share price. Despite the headwinds of rising vacancy rates, Rexford’s portfolio was 96.9% occupied in the second quarter. And the company was able to increase rents on leases renewed in the second quarter by a whopping 67%, a clear indication that demand for its properties remains high.

REXR data from YCharts.

This strong leasing performance, meanwhile, resulted in funds from operations (FFO) per share increasing an impressive 11% year over year for the quarter. There is reason to believe this strong performance will continue. For starters, lease renewals will likely continue to provide significant rent increases for several years to come. But that’s not all.

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

Rexford is a buy and hold option

To be fair, Rexford’s dividend yield may not be high enough to attract investors focused on maximizing current income. But the impressive dividend growth rate should make the stock very attractive to dividend-focused investors. While the share price is falling because the industrial sector is actually weakening, Rexford continues to perform at a very high level, at least in part because of its unique geographic exposure. If you recognize the value of this REIT’s approach, Rexford Industrial is the kind of dividend stock you’ll probably be glad you bought while others were selling.