A dozen years ago, Prologis (PLD -1.25%) was created in a consolidation that kicked off a growth spurt, and the San Francisco-based real estate investment trust (REIT) has now become the largest owner of industrial properties on the planet.
And along the way, a $1,000 investment made the day of the merger with AMB Property -- June 3, 2011 -- would be worth about $5,200. That's if the dividends were reinvested to help goose the total return of this logistics and dividend powerhouse.
It's a total return that not only smokes two frequently cited benchmarks for REIT performance -- the CRSP US REIT Index and the S&P 500 itself -- but it just barely trails the tech-heavy Nasdaq Composite over that time. Check this out:
PLD Total Return Level data by YCharts
A global client list helps pump up passive income
That's pretty heady stuff for what sounds like a staid business -- warehouses. But Prologis has ridden the same wave of e-commerce and business-to-business online fulfillment growth that has fueled the fortunes of many of those tech stalwarts that have driven the Nasdaq's fortunes over that time.
The newly merged company was no small potatoes when it started in June 2011 with about 600 million square feet and about 4,500 customers. But its growth through acquisitions and internal expansion has been dramatic. This industrial REIT now has a portfolio of 1.2 billion square feet at 5,495 logistics facilities serving a diverse customer list of about 6,600 retailers, manufacturers, transportation companies, and other third-party logistics providers.
And, for those interested in passive income, payouts have grown right along with the portfolio. Prologis stock yields about 2.6%, not huge but still well above the 1.7% of the S&P 500. The REIT also regularly raises its payouts, including by an average of 14.2% over each of the past three years.
Reasons this could be a good time to buy
A payout ratio of 59% based on cash flow also points to the ability to not only easily maintain this dividend flow but to further increase it, too, should management see fit. Lending further support to the idea that Prologis has the ability to raise its dividend, the company has forecast core funds from operations (FFO) -- a key measure of REIT performance -- growth of 9.5% in 2023.
The chart below shows how much the concern about e-commerce growth -- and reports that some of Prologis' biggest tenants, especially Amazon, are scaling back their need for logistics space -- has hammered the share price compared to dividend growth.
PLD Dividend data by YCharts
Meanwhile, the company's ratio of share price to FFO -- a good measure of how much the market is valuing a REIT -- has gone from the 23 times what it was selling for when shares were at their all-time high of $170 last April to 18 times now that the stock is bouncing around $123. This further supports the case that the shares are attractively priced.
Not as safe as a savings account, but probably more rewarding in the long run
Prologis stock doesn't yield as much as some of the top money market rates right now and carries more risk. To some, that may dim its appeal as an income play.
But the company is an integral part of the international supply chain whose space is in demand, and it has an ability to increase its income. This lends confidence to buying and holding this dividend machine for both potential share price appreciation and likely dividend increases.
And that could lead to increasing that $1,000 stake very nicely for years to come.
