I'm still decades away from retirement. This means my focus is on building my portfolio by steadily investing more money into companies I believe can help achieve my financial goals. A core part of my strategy is investing in companies that pay attractive, growing dividends.
Two of my highest-conviction investment ideas right now are Blackstone (BX -2.67%) and Prologis (PLD -1.51%). With shares of these top dividend stocks down sharply over the past year, I'm buying them like there's no tomorrow so I can grow my positions before their shares rebound. Here's why I can't get enough of them these days.
This big-time dividend will only grow bigger
Blackstone is a unique dividend stock. Unlike most companies, it doesn't pay a fixed quarterly dividend. Instead, Blackstone returns 100% of its distributable earnings to shareholders each quarter via dividends and share repurchases. There's some variability with its earnings because of the performance revenues it earns as the investment funds it manages for clients deliver on their return objectives. It collects that revenue as its funds sell assets and realizes a profit.
While that causes Blackstone's dividend to fluctuate, the annual total has risen sharply over the years.
Data source: Blackstone. Chart by author.
Overall, Blackstone has grown its earnings at a 20% annual rate over the last decade, more than double the market's rate. Meanwhile, its total dividend outlay last year was more than 300% above what it paid investors in 2013.
I expect Blackstone to continue growing its earnings and dividend at outsized rates. The company has enormous growth potential as more investors increase their allocation to alternative investments like private equity, real estate, infrastructure, and credit. The industry as a whole should double by 2027. Meanwhile, Blackstone should grow faster than the sector, given its remarkable performance track record.
With shares down over 30% from their peak early last year, Blackstone offers an attractive dividend yield of over 5%, several times above the S&P 500's sub-2% yield. If shares remain under pressure, I'd love to continue adding more of that big-time income stream to my portfolio.
Lots of embedded dividend growth
Prologis has been a leading dividend stock in recent years. The industrial REIT has grown its payout at a 12% compound rate over the last five years. That's more than double the 5% compound annual growth rate of companies in the S&P 500.
Prologis currently yields an attractive 2.5% following the 25% slump in its stock price from its peak early last year. That sell-off has come even though Prologis is growing briskly. The REIT grew its core funds from operations (FFO) per share by 24.3% last year, or 12.7% after excluding promote income, which is its share of the returns from the investment funds it manages. The company has delivered core FFO per share growth (excluding promotes) of 11% over the last five years, well above the REIT sector's 7% average.
Prologis expects to continue growing at a brisk rate this year, projecting 9.5% FFO per share growth after excluding promote income, despite the macroeconomic headwinds. Meanwhile, the REIT should be able to continue growing at an above-average rate for the next several years. There's a massive 60%-plus gap between the lease rates on its existing properties and current market rents. Because of that, Prologis should be able to grow its same-store net operating income at an 8% to 10% annual rate for the next several years as existing leases expire and reprice to market rents.
The company has additional growth drivers from acquisitions and its development pipeline. These catalysts should enable Prologis to continue increasing its dividend and delivering strong total returns for shareholders.
Extremely attractive investments these days
Blackstone and Prologis are two of my top investment ideas right now. They're trading at attractive values following the slump in their stock prices over the past year. That has them offering enticing dividend yields.
They should be able to continue growing their earnings and dividends at above-average rates over the next few years, given the long-term tailwinds driving their businesses. These factors put the companies in an excellent position to generate strong total returns in the coming years. That's why I'm buying as many shares as possible while they're still on sale.
