Prologis (PLD -0.47%) isn’t your average company. The leading real estate investment trust (REIT) that’s focused on logistics properties has a long history of delivering above-average growth and total returns. Last year was no exception, as the warehouse owner delivered strong earnings and dividend growth.
The industrial REIT expects 2024 to be another strong year. Because of that, it remains a top option for investors seeking an elite dividend stock with high total return potential.
The elite growth continued
Prologis has a knack for delivering above-average growth. It had grown its core funds from operations (FFO) per share at a 12% compound annual rate over the five-year period ending in 2022. That was faster than the S&P 500‘s average (11%) and the REIT sector’s average (7%). The company also delivered above-average dividend growth during that period (12% compound annual growth, compared to 6% for the S&P 500 and other REITs).
Last year was no different. It was its fourth straight year of delivering double-digit earnings growth (its core FFO per share rose nearly 11%). Meanwhile, the REIT increased its dividend by another 10%. Since its initial public offering (IPO), the company has grown its dividend at a 15% compound annual rate, the 13th fastest pace in the S&P 100 (the top 100 publicly traded stocks in the country).
The company’s above-average earnings and dividend growth rates have helped power strong total returns. The REIT has delivered an 18.3% annualized total return over the last five years (compared to 14.7% for the S&P 500) and 16.6% over the past decade (versus 12% for the S&P 500).
More of the same in 2024 (and beyond)
Prologis expects 2024 to be another strong year. The company anticipates growing its core FFO per share by more than 9% at the midpoint of its guidance range. It expects its existing portfolio to drive most of that growth, estimating it will deliver 8% to 9% same-store net operating income growth in the year ahead.
The company will benefit from modest contractual rental rate increases on existing long-term leases, along with much higher rates as legacy leases expire and it signs new leases at much higher current market rates. It also expects to benefit from stabilizing $3.6 billion to $4 billion of development projects.
There’s additional upside potential from acquisitions. The company has penciled in completing $500 million to $1 billion of acquisitions, largely offset by $800 million to $1.2 billion of asset sales. However, it has a long history of making accretive acquisitions. It bought a $3.1 billion warehouse portfolio from Blackstone last year and acquired rival REIT Duke Realty in a $23 billion deal in 2022.
Meanwhile, Prologis has lots of visibility into its earnings growth beyond this year due to its long-term leases. Most lease rates remain well below current market rents, which should continue rising at a healthy clip. That drives the company’s view that its core FFO will grow at a 9% to 11% annual rate through at least 2026, with the potential of an additional contribution from mergers and acquisitions (which added 1.5% to its FFO per share each year in the 2021-2023 time frame).
That strong FFO growth rate should support continued dividend growth. Given its conservative dividend payout ratio, Prologis could continue increasing its payment at a double-digit annual rate over the next few years.
Primed to continue producing above-average returns
Prologis had another strong year of growth in 2023, delivering double-digit earnings and dividend increases. It’s in an excellent position to grow at a healthy rate in 2024, which will likely continue in the coming years.
The company’s strong growth rates and above-average dividend should enable it to produce attractive total returns in the coming years. Those features make Prologis a great stock to buy in 2024.
Matthew DiLallo has positions in Blackstone and Prologis. The Motley Fool has positions in and recommends Blackstone and Prologis. The Motley Fool has a disclosure policy.
