Passive income investors love real estate investment trusts (REITs) because they pay out 90% of their earnings as dividends. Each one is different, though. Some are riskier than others, and some have very high yields, while others lag.
Prologis (PLD -0.95%) is an excellent choice for a REIT for almost any investor. It's a logistics provider for all kinds of retailers, and specifically for e-commerce. It's already established itself as the leader in the industry, servicing the top names in both the U.S. and internationally. If you're considering a new REIT or a great dividend stock to add to your portfolio, here are three reasons Prologis should be on your list.
1. The opportunity
Retail sales are a common measure of how the economy is doing, and more often than not, retail sales are increasing. Even during these tough times, when inflation has been stubborn and interest rates are still high, retail sales continue to increase. People may be sticking to essentials, and rates might be slowing down. But they're still shopping.
On top of that, e-commerce continues to increase as a percentage of retail sales, and it requires a greater distribution system than physical stores do. For every $1 billion in retail sales, physical retailers need 334,000 square feet of space, while e-commerce retailers need more than a million. As retailers develop their e-commerce businesses more fully, they're becoming even more dependent on Prologis and its systems. As e-commerce retailers race to increase their speed, they also need more centers closer to more shoppers.
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Prologis estimates that e-commerce accounted for 24% of sales in 2024, and that's expected to hit 29% in 2028. Every percentage point is hundreds of billions of dollars, and some piece of that goes to logistics partners like Prologis. As the largest commerce logistics provider in the world, it's benefiting more and more from the shift.
It also has a huge opportunity in data centers. With the advent of artificial intelligence, many top companies like Nvidia and Amazon are investing in data centers that are needed for the massive power loads that drive AI. Prologis has identified $8 billion in data center opportunities over the next five years, and management says that the value created from data centers is about double its standard.
2. The stability
Prologis has a robust business servicing 6,500 customers globally. 86% of its net operating income comes from the U.S., but it serves global retailers who have worldwide needs, especially in e-commerce. In fact, the company says that 3% of the world's gross domestic product (GDP) flows through its distribution centers every year. Although it has incredible growth drivers in e-commerce, 40% of its customers service basic, daily needs and benefit from population growth, protecting its business in tough times.
Its major clients are a who's-who of top retailers. About 35% of its rentals go to tenants in consumer products like Amazon, Walmart, and Coca-Cola, and other clients include names like UPS and TJX Companies.
Right now, while many companies, including retailers, struggle with a slowdown in spending and an arrested economy, Prologis is benefiting from increased rent and inflation, since its core clients will pay the going rate for its indispensable infrastructure services. There is the possibility that increased tariffs will affect retailers, and that's something to watch. But that issue isn't likely to extend to significant cutbacks in logistics spend for most of Prologis' client base, even in the short term.
3. The dividend
Prologis pays a growing dividend that yields 3.6% at the current price, and it's increased 180% over the past 10 years. With its robust growth drivers and leading position, it's likely to keep paying and raising the dividend reliably.
The company is well-positioned to gain from current logistics trends, and its excellent track record of increasing the dividend should put it on the buy list for any investor looking for an excellent dividend pick.
