These Dividend Growth Juggernauts Gave Their Investors Big Raises in 2023 (and Could Deliver an Encore in 2024)

Most dividend-paying stocks aim to increase their payouts at least once a year. The average growth rate among members of the S&P 500 has been around 6% annually over the last five years.

Prologis (PLD 0.69%) and Equinix (EQIX -0.91%) are anything but average. The real estate investment trusts (REITs) gave their investors big raises last year, continuing their trend of delivering above-average dividend growth. They should have no problem providing an encore performance in 2024.

Multiple growth drivers

Leading industrial REIT Prologis increased its dividend by 10% last year. That continued its trend of delivering above-average dividend growth. It has grown its payout at a 12% compound annual rate over the last five years, double the average of the S&P 500 and REIT sector. That's a strong growth rate for a company that also offers an above-average dividend yield (2.7%, compared to 1.5% for the S&P 500).

The REIT should continue growing its payout at an above-average rate in 2024 and beyond. A big factor driving that view is Prologis' embedded rent growth. The warehouse owner expects its existing portfolio's same-store net operating income to grow at a 7.5% to 8.5% annual rate over the next three years. The main driver will be expiring leases, which will enable the REIT to sign new contracts at much higher market rates.

On top of that, Prologis should benefit from the continued expansion of its portfolio. The REIT has a large land bank, giving it a lot of room to build additional warehouses or invest in higher-and-better-use projects (like data centers). The company's organic growth drivers alone (rising rents and development projects) should power 9% to 11% annual core funds from operations (FFO) per share growth over the next three years.

The company also has an elite balance sheet (and access to third-party capital), giving it lots of flexibility to make acquisitions. Over the last three years, M&A has contributed an incremental 1.5% annually to its FFO per share. Add it all up, and Prologis should be able to continue growing its dividend at a double-digit annual rate.

Strong embedded growth, with dual upside catalysts

Equinix supercharged its dividend last year. The leading data center REIT increased its payment by 10% in February. It followed that up by giving investors a monster 25% raise in October.

The company has now increased its dividend every year since converting to a REIT in 2015, growing the payout at a more than 12% compound annual rate. Meanwhile, its raises over the past year have helped push its dividend yield up to an above-average 2.2%.

The data center operator expects to continue delivering strong dividend growth over the next few years. Equinix anticipates investing $3 billion annually through 2027 on organic capital projects to maintain and expand its global data center platform. Those investments power its expectations that its revenue will grow by 8% to 12% per year, reaching $12 billion by 2027. That should drive 7% to 10% annual adjusted FFO-per-share growth.

That plan has ample upside because it doesn't include two notable growth catalysts: M&A and artificial intelligence (AI).

Equinix has a long history of making value-enhancing acquisitions. It has generated about $3 billion of incremental value since 2018 through M&A. Meanwhile, AI could supercharge its development plans. The company estimates that AI infrastructure could be a $60 billion market opportunity by 2026.

Equinix can deliver robust dividend growth without factoring in those upside catalysts. The company anticipates that its current embedded growth drivers and low dividend payout ratio (45% in 2023) will support 10%-plus dividend-per-share growth through at least 2027.

Above-average return potential

Prologis and Equinix have been great dividend growth stocks over the years. This trend should continue in 2024. That's excellent news for their investors, since dividend growers have historically delivered above-average total annual returns (10.2% versus 7.7% for the average stock in the S&P 500 over the last 50 years). These features make them great dividend stocks to buy in 2024 for income and upside potential.