Successful dividend investing can be as simple as picking quality businesses operating in industries with easily recognizable growth trends. Well-run businesses with growth catalysts produce earnings growth, which can also fuel dividend and share price growth.

Investors who have any familiarity with industrial real estate investment trusts (REITs) probably are aware that Prologis (PLD 1.66%) is the leader of the industry. Let's unpack three reasons why the stock could be a convincing buy for dividend growth investors.

1. Prologis dominates the industrial real estate market

It's not a secret that global e-commerce has been on an unstoppable trajectory for many years now. In fact, global e-commerce sales quadrupled from $1.3 trillion in 2014 to $5.7 trillion in 2022. And as more consumers in developing nations turn to e-commerce for the sake of convenience, global e-commerce sales should only grow further. This is why global e-commerce sales are expected to top $8.1 trillion by 2026.

With around 1.2 billion square feet of top-grade commercial industrial real estate, nobody short of e-commerce giants like Amazon will benefit more than Prologis from this encouraging e-commerce trend. And the investment thesis for Prologis isn't confined to just e-commerce. Tenants in the basic daily needs space, like the food & beverage and apparel industries, as well as cyclical spending space like the auto parts and construction industries, occupy the remaining 69% of Prologis' commercial real estate.

Simply put, Prologis' commercial real estate is mission-critical to its tenants in supplying customers around the world with the goods they need. And this real estate is in short supply: The current supply of industrial real estate in the U.S. of 25 months is well below the historical average of 36 months for Prologis' U.S. markets. This has led to a disconnect between the company's average rental rate on existing leases and market rents. That's why as those leases expire and are renegotiated, the REIT expects to grow its same-store net operating income by 8% to 10% annually over the next few years. This should lead to funds from operations (FFO) per share growth of around 10% each year in the years ahead. 

Two employees working at a warehouse.

Image source: Getty Images.

2. Double-digit dividend growth can be sustained

Prologis' 3% dividend yield is well above the S&P 500 index's 1.7% yield. And if that wasn't enough to draw in income investors, the company's healthy dividend growth may do the trick; Prologis' quarterly dividend per share has more than tripled in the last 10 years from $0.28 to $0.87.

PLD Dividend Chart.

PLD Dividend data by YCharts.

Best of all, this track record of dividend growth is poised to continue. The company's dividend payout ratio was just 61.2% in 2022, which allows Prologis to retain the capital needed for further growth. This is why I would be surprised if the company delivered dividend growth any slower than the most recent 10.1% hike over the medium term. 

3. The valuation is within reason

Economic concerns have hit shares of Prologis reasonably hard over the last 12 months, with the stock down 21% during that time. As a result, Prologis' trailing-12-month price-to-FFO-per-share ratio has tumbled to 22.9. That's hardly an excessive valuation to pay for a business growing at a double-digit clip, which is what makes the stock a solid buy for dividend growth investors.