Got $1,000? Buy These 2 Dividend Stocks Before It's Too Late.

Higher interest rates over the past couple of years have weighed on many dividend stocks. They make borrowing money to fund acquisitions and expansion projects more expensive, which can slow growth. Higher rates also make lower-risk income options like bonds more attractive. That weighs on the value of dividend stocks, pushing up their yields to more enticing levels.

Rates could go from a headwind to a tailwind for dividend stocks in the coming months if the Federal Reserve begins cutting them as many expect. So i nvestors with a little bit of money to spare might want to start scooping up high-quality dividend stocks while prices remain low so they don't miss out on today's bargains. Realty Income (NYSE: O) and Prologis (NYSE: PLD) stand out as some of the best ones to buy before they start rallying.

Falling rates should boost its valuation and growth rate

Realty Income's stock has lost about a quarter of its value from the peak before rates started rising in early 2022. That rate-driven sell-off has pushed its dividend yield up to more than 5.5%, several times higher than the S&P 500 's 1.3 % yield. That's toward the high end of its historical average, which has been in the mid-4% range over the past decade. At the current rate, a $1,000 investment would generate more than $55 of annual dividend income.

The real estate investment trust ( REIT ) has been an income-producing machine over the years . It recently delivered its 126th dividend increase since going public in 1994, and its 107th straight quarterly increase.

That steady growth should continue. Realty Income aims to grow its adjusted funds from operations ( FFO ) per share at a 4% to 5% annual rate. Driving that view is a combination of rent growth, acquisitions funded with retained cash after paying dividends, and externally financed new investments. It will be a lot easier to externally finance acquisitions as interest rates fall , lowering its cost of capital .

With a dividend yield of over 5.5% and earnings growing by 4% to 5% annually, Realty Income can deliver total returns in the 10% to 12% range each year. Meanwhile, falling rates should boost its valuation, enhancing the total returns this REIT can deliver from here.

Fading rate headwinds should boost warehouse demand

Prologis stock has shed nearly 30% of its value from the peak in early 2022. A big factor weighing on the industrial REIT is the concern that demand for warehouse space will slow because of a slowing economy.

The current rate environment is having a near-term impact on its business. CEO Hamid Moghadam commented in the first quarter earnings release: "Customers remain focused on controlling costs, which is weighing on decision making and the pace of leasing. ... A volatile and persistently high interest rate environment, together with mounting geopolitical concerns, contribute to this indecision and its short-term effect on net absorption." However, he believes this short-term headwind will only last "the next quarter or two."

Meanwhile, the company's longer-term outlook remains bright. Demand for warehouse space has been robust since the pandemic, driven by the accelerating adoption of e-commerce and changing inventory management practices. That continuing catalyst drives the REIT's belief that its FFO per share will grow 9% to 11% annually through 2026. While it expects its growth rate to be slightly below that trend this year because of its near-term interest rate headwinds, it sees an acceleration ahead once rates start falling.

That strong growth outlook should enable Prologis to continue increasing its dividend at an above-average rate. The industrial REIT has grown its dividend twice as fast as the S&P 500 over the past five years.

Prologis' sell-off has the REIT trading at a more attractive dividend yield of over 3% and a better valuation. It currently trades at an 11.3% earnings growth plus dividend yield, making it cheaper than the 10.3% average of other REITs in the S&P 500. It also trades at a lower multiple-to-growth ratio of 2.5, compared with 2.7 for other S&P 500-listed REITs. With an upcoming catalyst in falling rates expected to reaccelerate its growth, Prologis could produce strong total returns from here.

A great time to buy these high-quality REITs

Leading REITs Realty Income and Prologis have been under pressure because of higher interest rates. They trade at lower valuations and higher dividend yields, but t his attractive investment opportunity might not last much longer, considering rates should start falling later this year. That makes now a great time to buy these top-notch dividend stocks before they begin their rate-driven recovery.

Matt DiLallo has positions in Prologis and Realty Income. The Motley Fool has positions in and recommends 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 .