Prologis (PLD 0.69%) has a market cap of $120 billion, making it one of the largest publicly traded real estate investment trusts (REITs) you can buy. There's a good reason it's so large, but size alone is no reason to buy the stock of a company. In fact, Prologis, despite being a well-run company, may be a less than desirable choice for some investors. Here's what you need to know.
Prologis' business is big, diversified, and attractive
Prologis owns warehouses, which is not unique at all in the REIT sector. What sets it apart from its peers is the size and diversification of its portfolio. Prologis owns 1.2 billion square feet of leasable space spread over 5,500 properties across four continents and 20 countries. No other warehouse REIT comes close to those statistics.
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Notably, the properties Prologis owns are mostly located in key global distribution hubs. So not only is its portfolio big, but its properties are located where its over 6,700 customers want to operate. Given its scale, meanwhile, Prologis can actually offer something of a one-stop shop for customers with global operations.
On top of that, the company has been benefiting from leases ending and being resigned at materially higher rates. So there's built-in growth within the active properties it owns. Prologis, however, also owns over 12,000 acres of developable land around the world. That's another $40 billion growth opportunity, by management's estimate.
Now add in a decade of dividend growth at a compound annual rate of around 11%. That's an attractive track record for any company, but particularly impressive for a REIT. The most recent annual increase was 10%, so the company is still going strong on this measure. Given the business backdrop, meanwhile, there's good reason to think the dividend growth story will continue. If you are a dividend growth investor, Prologis could be a very attractive choice.
Prologis' yield is both good and bad
Prologis is currently offering investors a 2.8% dividend yield. If you're looking to live off of the income your portfolio generates, that probably won't be the least bit exciting to you. The average REIT, using Vanguard Real Estate ETF (VNQ 0.05%) as a proxy, is offering a yield of over 4.1%. This is a dividend growth stock, not a high-yield stock.
That said, the dividend yield is around the middle of the road if you look at the REIT's yield range over the past decade. So while it would be hard to suggest the stock is cheap right now, it also doesn't look expensive, using yield as a rough proxy for valuation. If you're a growth-and-income or dividend growth-focused investor, a fair price for a well-positioned industry giant like Prologis is a pretty attractive proposition.
But the stock isn't trading at depressed levels, so value investors will probably also want to take a pass here. A yield above 3% would be a far more compelling entry point if you're value conscious. However, even that might not be enough to entice a yield-focused investor.
A fair price for a great company
Prologis is not a value stock, and it's not a high yield stock. It will probably never be either of those things, given its strong industry position. But it is a solid option for dividend growth and growth-and-income investors. While it looks fully priced today, it's not a bad thing to pay a fair price for a well-run company if you have a long investment horizon.
