Dividend-growth stocks have been terrific investments over the decades. They've typically outperformed the market with less risk. For example, since 1973, dividend growers and initiators in the S&P 500 have delivered a 10.2% average annual total return compared to 7.7% for an equal-weighted market index, according to data from Hartford Funds and Ned Davis Research. Furthermore, they've delivered those higher returns with much lower volatility than the broader market.
Realty Income (O -0.17%) and Prologis (PLD 0.69%) have been dividend-growth stars over the years. That should continue in the future. This factor makes them seem like no-brainer investments for those with a couple of hundred dollars to invest right now.
Already locked in a solid growth rate for 2024
Realty Income has been a wealth-creating machine since its public market listing in 1994. The diversified real estate investment trust (REIT) has delivered a 13.4% compound annual total return since coming public. That would have grown a $200 investment into nearly $9,000 over the years.
Its steadily rising dividend is a big driver. Realty Income has increased its payout 122 times since its public market listing, including in the last 104 straight quarters. It has grown its payout at a 4.3% compound annual rate. The REIT currently offers an attractive 5.8% dividend yield.
Realty Income expects to continue growing its earnings and dividend in the future. The company recently agreed to acquire fellow diversified REIT Spirit Realty in a $9.3 billion deal. Realty Income anticipates this highly accretive transaction will boost its adjusted funds from operations (FFO) by more than 2.5% per share next year. That gives the company a line of sight to deliver 4% to 5% adjusted FFO per-share growth in 2024 as it continues making new property investments. It's having no problem finding attractive opportunities. The REIT has recently made its second deal in the gaming sector and its first foray into the massive data center sector.
With a dividend yield approaching 6% and earnings growing by at least 4% next year, Realty Income could produce a more than 10% total return in 2024. That makes it a very low-risk way to put $200 to work, which could buy around four shares at the REIT's recent stock price.
Built-in rent growth
Prologis has also enriched its investors over the years. Since its predecessor came public in 1997, the industrial REIT has delivered a nearly 10.6% average annual total return. That has grown a $200 investment into over $2,700.
A big driver has been its rapidly rising dividend. Prologis has grown its dividend at a 15% compound annual rate since its initial public offering (IPO). That rapid pace has continued in recent years. Prologis has grown its payout at a 12% compound annual rate over the last five years, twice as fast as the S&P 500 and REIT sector averages.
Prologis is in an excellent position to continue growing its payout (which currently yields 3.2%) at an above-average pace in the future. It has significant built-in earnings growth due to the massive gap between the current market rate for warehouse space and the rents on its existing leases. As those long-term contracts expire, Prologis can sign new ones at higher market rates. The company estimates this catalyst could grow its same-store net operating income at an 8% to 10% annual rate for the next several years.
On top of that built-in rent growth, Prologis can continue expanding its portfolio through development projects and acquisitions. The company expects to start $3 billion to $3.5 billion of new development projects this year. Meanwhile, it spent $3.1 billion to acquire a portfolio of warehouses earlier this year. It has ample vacant land and financial flexibility to continue growing its portfolio in the future.
With a more than 3% dividend yield and earnings at its existing portfolio growing by at least 8% per year, Prologis could easily produce double-digit total annual returns over the next several years. That makes it a great stock for those with a couple of hundred dollars to put to work, which could buy around two shares at the recent price.
A high probability of producing high total returns
Realty Income and Prologis have been wealth-building machines over the years. The REITs have produced double-digit total returns by paying high-yielding dividends that they steadily increase. Those trends should continue, given their built-in earnings growth. That makes them seem like no-brainer stocks to buy right now.
