The market rally has Wall Street talking about bull markets. This is exciting, but not really a core factor when you think about investing for the long term.
Bull markets and bear markets both come and go. But investors want to think beyond the short-term trends and buy good companies at attractive prices. That's exactly what this blue chip dividend stock is offering today.
In all the right places
With a $115 billion market cap, Prologis (PLD 0.69%) is one of the largest industrial real estate investment trusts (REITs) you can buy. It focuses on warehouses, with a portfolio that spans 1.2 billion square feet across four continents. It basically has properties in all of the most vital transportation hubs in the world. It came public in 1991, so it has roughly three decades of history as a public company, but it has been operating for four decades.
It's the 800-pound gorilla, and industry bellwether, of the warehouse sector, with a long-tenured management team. The dividend has been increased annually for a decade. Although you may not have heard of Prologis, it is a blue chip REIT by almost any measure.
The stock, however, is down 25% from its peak in 2022. For comparison, since Prologis hit its high water mark in April 2022, the S&P 500 Index is up roughly 6%. That's a pretty notable underperformance.
The 2.8% dividend yield is near its highest point over the past 10 years. That hints that Prologis is attractively priced today, assuming that the weak stock performance isn't an indication that something has gone fundamentally awry at the company.
If recent business results and management's outlook are any indication, Prologis remains on very solid footing.
What's going right and wrong?
During the early days of the coronavirus pandemic, people were basically stuck in their homes. Purchases that would have happened in a brick-and-mortar store shifted to the internet. More online sales, coupled with supply chain problems driven by the fast-spreading illness, increased the demand for warehouses.
Investors reacted as you would expect, bidding up the price of companies like Prologis that own warehouses. Now that the world has returned to a more normal state, that demand has cooled off and investors have moved on to a new investment story. Prologis stock has been tossed aside.
But Prologis' second-quarter 2023 adjusted funds from operations (FFO) increased approximately 12.5% year over year. The REIT was able to increase rents by 78.5% on expiring leases. And despite huge rent hikes, occupancy rates remain robust at 97.5%. These aren't numbers that you would expect from a company that's struggling.
Even more notable, management continues to explain that the good news isn't over yet. Market rents are well above the rents it's currently charging older tenants.
If rents were to be increased all at once to market rents, the company's rental income would jump by 68%. But leases get signed over time and, thus, expire at different points. The 68% increase in rents that are effectively embedded in the portfolio will play out in smaller increments over a number of years. Management expects to achieve 8% to 10% same-store net operating income growth for several years.
Simply put, the story here hasn't changed. All that has altered is Wall Street's perception of the company. And the good news doesn't even take into account the $38 billion worth of value the company believes it can create by building warehouses on vacant land it owns.
Room to grow
If you're looking for attractively priced investment opportunities, even after a sizable broader market rally, Prologis should be on your shortlist. The dividend has increased at an annual pace of 12% over the past decade, as well, so it's also a solid dividend growth story, with more dividend hikes likely as lease rollovers boost the REIT's financial results.
This blue chip landlord is the kind of stock you can buy today and comfortably hold for years to come, regardless of the bulls and bears roaming around Wall Street.
