Real estate investment trusts (REITs) make excellent dividend stocks because they pay out 90% of their earnings as dividends. As the name implies, REITs are real estate companies, and they own portfolios of properties that they rent out to tenants.
There are all kinds of REITs, and they each typically focus on a single area, like retail or mortgages. Prologis (PLD -0.56%) focuses on logistics infrastructure, and it has robust growth opportutnies and an attractive dividend yield. Here's why it could be the best dividend stock to invest $1,000 in today.
What is logistics infrastructure?
Prologis owns a portfolio of properties that aid in retail and e-commerce supply chains. These are the warehouses and distribution centers that drive all kinds of commerce, but with rising e-commerce, they have a new importance in the supply chain. Companies need warehouses closer to more customers, and they need their capabilities to be digitally driven and nimble. They must be able to manage multiple flows, including by air, by sea, and by truck. There's also a heightened awareness of sustainable energy.
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Prologis meets all of these needs. It's the leading logistics infrastructure REIT, with 5,900 properties and 6,500 clients. Its properties are built with green energy, such as electric charge points and solar installations, and it's an innovator in next-generation logistics technology. It operates in high-growth regions, with 86% of net operating income coming from the U.S., but with significant exposure to Latin America, Europe, and Asia. This industry has high barriers to entry, giving it a leg up on any potential competition.
Prologis works with many of the major global retailers. Its top three clients are Amazon, Home Depot, and FedEx, which gives you a good idea of how Prologis plays into global commerce. But the top 10 customers only comprise 15% of total rent, giving it broad diversification, and 35% of its rent comes from consumer products, giving it stability.
Massive growth drivers
Prologis sits at the intersection of e-commerce and retail, powering global supply chains with its innovative technology. Its clients are spending millions to get products to stores and customers faster, and Prologis helps make that happen.
Consider that Amazon has spent the past few years completely revamping its fulfillment network to improve speed and lower costs. It finished a restructuring from a national network to a regional network of eight points, and that means more warehouses and distribution centers. Now it's turned its focus to revamping its inbound flows to keep its regional warehouses well-stocked, with products ready to go, and it relies on its partners for efficiency and speed.
Nearly 40% of Prologis' customers service basic, daily needs and benefit organically from population growth. Another 30% are growing through secular trends like e-commerce, while 31% enjoy growth from cyclical spending patterns. The company says that e-commerce had a 23.7% penetration rate last year, and that's expected to increase to 28.5% by 2028, giving it organic tailwinds.
E-commerce is three times more space-intensive than physical retail for a number of reasons, such as a greater variety of products and a larger inventory. Distribution center value and rent have both increased by a wide margin over the past 20 years, putting Prologis' fleet of properties in an excellent position.
"In the near term, policy uncertainty is making customers more cautious," said CEO Hamid R. Moghadam. "But over the long term, limited new supply and high construction costs support continued rent growth." With $6.5 billion in liquidity, Prologis has the means to continue purchasing and leasing new properties, and it has identified $41 billion in what it calls potential total expected investment.
All about the dividend
Prologis' robust opportunities indicate that it should be able to pay and grow its dividend for a long time, which is an important feature of an excellent dividend stock. It has a great track record, with a 180% increase in the dividend over the past 10 years, much higher than many other top dividend stocks.
With all its growth drivers, it should be able to maintain that kind of growth for the foreseeable future. At the current price, Prologis' dividend yield is 3.7%. That's an attractive yield for passive income investors. If you have $1,000 available to invest and are looking for a top dividend stock, Prologis' strong track record and long-term opportunities make it an excellent candidate.
