This 3% yielding real estate stock just raised its dividend again. Is it a buy before the next surge?

Terreno Realty (TRNO -0.01%) it flies under the radar of most investors. The industry-focused real estate investment trust (REIT) is small compared to the industry giant Prologue (PLD -1.54%). It owns 292 buildings in six U.S. markets, compared to more than 5,500 properties worldwide for the industry leader.

Due to its smaller size, many investors might have missed this Industrial REIT only increased its dividend again. That increase pushed its dividend yield closer to 3%, more than double S&P 500his yield below 1.5% and around Prologis’ payout level. With the likelihood of higher dividend growth, it looks like a great REIT to buy for those looking for an attractive and fast-growing income stream.

The upward trend continue

Terreno Realty recently declared its latest dividend payment. The REIT hit Above its quarterly rate at $0.49 per share, an increase of 8.9% from the previous level. This continued the rapid growth of REIT dividends over the years. Since initiating a dividend in 2011, Terreno has grown its payout at a compound annual rate of 12.7%. That’s roughly in line with the dividend growth rate of sector leader Prologis, which has grown its payout at a compound annual rate of 13% over the past five years.

An important factor behind Terreno’s strong dividend growth is growing demand for industrial building. The continued growth of e-commerce, supporting trends and changing inventory management practices I drive strong demand for storage space. The REIT also focuses on high-demand coastal markets strong fundamentals and limited supply. These factors have kept occupancy levels high while driving strong rent growth. Since its initial public offering, Terreno has seen 11.3% compound annual growth in its same-store net operating cash income.

In addition to its strong organic growth drivers, Terreno has completed a steady diet of acquisitions. It tends to target value-add opportunities where it can buy properties with potential for redevelopment or land suitable for expansion. This strategy generates higher returns on investment.

Positioned for continued growth

Terreno Realty is in an excellent position to continue to grow its earnings and dividends at high rates. Its well-positioned portfolio, focused on six US coastal markets, should continue to benefit from strong and growing demand. This should lead to above-average occupancy levels and rising rents, which should continue pushing its net operating income to the larger same store.

Meanwhile, the company has a lot of growth potential built into its existing portfolio of current development projects and its great the position of the land. Although Terreno does not have a large-scale development program like Prologis, it selectively invests in high-yielding projects to improve its existing properties. Terreno is investing $185.2 million in nine development and redevelopment projects, such as constructing additional buildings on existing sites. Meanwhile, the company has 45 improved land parcels for future projects.

Terreno also has the financial flexibility to make acquisitions. It typically buys unique properties in its six markets. For example, in August, he bought a vacant industrial property between two of it existing properties in Washington, DC for $7.6 million. Because it was vacant, the REIT got a good price on a property it will have no problem renting out. It also bought a leasehold property in Alexandria, Va., for $84.3 million in April.

The REIT will also pursue larger portfolio transactions when those unique opportunities arise. For example, it acquired a portfolio of 28 property buildings in New York City, Northern New Jersey, San Francisco and Los Angeles for $365 million earlier this year. That acquisition aligned with its geographic focus and value-added strategy. While the purchase is initial ceiling rate is quite low at 4.3%, the REIT expects the stabilized cap rate to rise to 5.8% based on current market rents it will capture as existing leases expire, and it sign new ones at market rates.

The acquisitions provide the REIT with additional income to support its growing dividend. They are already helping to improve it strong organic growth factors.

A great one dividend growth stock

Terreno Realty has a great record of dividend growth. This trend should continue in the futuregiven its laser focus on high-demand US coastal markets and its constant investment to improve and expand its existing portfolio. The REIT strategy has paid high dividends for shareholders over the years, with an average annual total return of 10.4% since IPO, and should continue to create value for shareholders in the future. That’s what it does a great one stock to buy ahead of what will likely be many more dividend increases.