Prologis (PLD 0.27%) won’t stand out to dividend buyers. While the warehouse large’s dividend yield of two.8% is increased than that of the S&P 500 index (1.6%), it is not as excessive as others (the REIT sector’s common is above 4%). Because of that, it won’t be interesting to dividend buyers who worth yield above all else.
However, when put into the right context, Prologis pays a top-flight dividend. Here’s a take a look at what the corporate’s CFO, Tim Arndt, needed to say in regards to the shareholder payout on the main industrial REIT’s first-quarter convention name.
An elite dividend development inventory
Arndt shared some observations about the place the corporate stands in comparison with others within the S&P 500. He identified, “Today, we sit as the 68th largest company in the S&P 500 ahead of names like GE, American Express, Cigna, Citigroup, as well as Ford and GM combined.” Prologis has grown bigger than a number of iconic firms which might be family names. It’s the most important REIT with a market cap of over $115 billion.
Arndt then in contrast the corporate’s dividend with different main payers within the prestigious market index. The CFO said:
With our deliberate $3.3 billion of dividends this yr, we ranked forty second when it comes to whole money return to buyers. Of these high 42 dividend payers, Prologis has outgrown the group by 500 foundation factors per yr during the last three years. And in truth, since our IPO, we have now paid over $15 billion in dividends at a 15% CAGR, rating thirteenth on development in your complete S&P 100. While getting greater has by no means been our goal, we thought the context can be eye-opening.
As Prologis has grown in dimension, it has additionally grown shareholder worth by quickly growing the dividend. Over the final 5 years, Prologis has grown its payout at a 12% compound annual development fee, together with by 10% earlier this yr. That’s twice as quick because the S&P 500 (6%) and REIT sector (6%).
That quickly rising dividend has helped drive market-beating whole returns:
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More dividend development forward
Prologis can develop its dividend at an above-average fee for the following a number of years. The main issue driving that view is embedded hire development. Rental charges on warehouse house have skyrocketed in recent times attributable to scorching demand and restricted provide. Prologis is barely capturing a portion of this hire development as a result of it leases most of its properties underneath long-term contracts with a median remaining time period of 4 years. It can signal new leases at a lot increased market charges as they expire.
Arndt famous on the decision that there is now a 68% distinction between rents on its present leases and market charges “as market rent growth remained strong and slightly ahead of expectations” within the first quarter. The CFO famous that this “represents over $2.85 per share of incremental earnings (implying about 50% growth in its funds from operations) as our leases roll the market, providing visibility to future income and dividend growth.” The firm estimates this embedded hire development will drive its same-store web working earnings up 8% to 10% yearly for the following a number of years.
That embedded hire development is just one driver. Prologis additionally has a superb document of rising shareholder worth by growth initiatives and acquisitions. The firm has invested $40 billion to construct nearly 500 million sq. toes of recent warehouse house during the last 20 years. These investments have created an estimated $11 billion in shareholder worth. Prologis’s huge land financial institution might help $39 billion of future developments.
The firm’s elite stability sheet offers it the monetary flexibility to put money into new developments and make accretive acquisitions. Prologis purchased rival Duke Realty final yr in a $26 billion deal. It anticipated the accretive deal to instantly enhance FFO per share whereas producing $375 million to $400 million in annual earnings and worth creation.
A high dividend inventory
While Prologis’ dividend yield won’t wow buyers, the corporate greater than makes up for it with its capability to develop that payout. The industrial REIT has delivered elite dividend development through the years. That ought to proceed, pushed by strong embedded hire development, accretive acquisitions, and value-creating growth initiatives. That rising dividend positions Prologis to proceed producing robust whole returns, making it a pretty choice for these looking for earnings and upside potential.
Citigroup is an promoting companion of The Ascent, a Motley Fool firm. American Express is an promoting companion of The Ascent, a Motley Fool firm. Matthew DiLallo has positions in Ford Motor Company and Prologis and has the next choices: quick June 2023 $15 calls on Ford Motor Company. The Motley Fool has positions in and recommends Prologis. The Motley Fool recommends General Motors and recommends the next choices: lengthy January 2025 $25 calls on General Motors. The Motley Fool has a disclosure coverage.
