Prologis (PLD 0.60%) has done an incredible job paying dividends over the years. The real estate investment trust (REIT), focused on logistics properties, has grown its payout at a 13% compound annual rate over the last five years. That's more than double the 5% dividend growth rate of the S&P 500 and the average REIT.
The industrial REIT had initially expected that 2024 would be another strong year. However, some near-term headwinds will likely weigh on its growth. Here's a look at whether investors should bail on the top dividend stock.
NYSE: PLD
Key Data Points
A solid quarter for the REIT
Prologis recently reported its first-quarter results, and its core funds from operations (FFO) grew 5% to $1.28 per share. Core FFO per-share growth was an even higher 6.5% after excluding the impact of net promote income from its funds management business.
The company benefited from strong occupancy (96.8%) and tenant retention (74.3%) rates. It also continued to capitalize on the sizable gap between existing lease rates and market rents as legacy leases expired.
It captured a hefty 48.2% cash rent change on new and renewal leases signed on the same space during the period. These factors helped drive a 5.7% increase in its net operating income (NOI), which would have been higher if not for the impact of some one-time items.
Hitting a speed bump
While the first quarter was solid overall, Prologis sees some potential headwinds ahead. Co-founder, Chairman, and CEO Hamid Moghadam commented in the first quarter press release:
While operating conditions are healthy in the majority of our markets, customers remain focused on controlling costs, which is weighing on decision making and the pace of leasing. A volatile and persistently high interest rate environment, together with mounting geopolitical concerns, contribute to this indecision and its short-term effect on net absorption. We remain optimistic about the fundamentals of our business, while being prepared for a slower environment in the next quarter or two.
These near-term headwinds drove the REIT to reduce its full-year guidance:
|
Metric |
Previous Guidance |
Revised Guidance |
|---|---|---|
|
Average occupancy |
96.5% to 97.5% |
95.75% to 96.75% |
|
Cash same-store NOI growth |
8% to 9% |
6.25% to 7.25% |
|
Core FFO per share |
$5.42 to $5.56 |
$5.37 to 5.47 |
|
Core FFO per share (excluding net promote income) |
$5.50 to $5.64 |
$5.45 to $5.65 |
Data source: Prologis.
Prologis also slowed its development plans. It now expects to start $2.5 billion to $3 billion of development projects this year, down from $3 billion-$3.5 billion.
The company's initial forecast anticipated that its core FFO per share (excluding promotes) would grow by more than 9% this year, but it now sees cash flow rising by nearly 8%. While that would put its earnings growth below the double-digit rate it has delivered over the past four years, that's still a solid rate for a REIT.
The long-term outlook remains bright
While 2024 won't be quite as strong as Prologis initially expected, the company believes that's a temporary setback. CFO Tim Arndt commented in the earnings report that the company views "the adjustments more as a matter of timing as the outlook on new supply remains very favorable."
Because of that, its longer-term forecast remains very much intact. The REIT still believes that, at a minimum, it can deliver 8.5% core FFO per-share growth (excluding promotes) annually through 2026, and that assumes no further market rent growth and low-end occupancy of 96%. Meanwhile, 4% to 6% rent growth with 96% to 97% occupancy could drive 9% to 11% annual core FFO per-share growth.
Still a great dividend stock
Prologis should be able to deliver high-single-digit core FFO per share growth for the next several years, with double-digit upside potential in 2025 and 2026. Because of that, the REIT will likely continue increasing its dividend at a healthy rate (potentially continuing the 10% annual pace it has delivered over the past two years).
Add that growth to its already attractive yield (recently around 3.4%), and Prologis could easily deliver double-digit total annual returns over the next several years. Because of that, it still looks like a great dividend stock to buy, despite this year's expected speed bump.
