THE S&P500 has generated strong returns over the past year, up more than 25%. Most stocks participated in this rally.
However, a few stocks lagged the market. Real estate income (NYSE:O) And Prologue (NYSE:PLD) stand out because they have decreased by more than 10% over the past year. On the plus side, investors can purchase these magnificent dividend stocks at lower and much higher prices dividend yields.
Built to grow its dividend
Realty Income has been a fantastic dividend stock over the years. The diversified REITinvolved in commercial, industrial and gaming properties, recently declared its 647th consecutive monthly dividend. He increased its payment by 2.1% from the previous month’s levelmarking his 107th right quarterly dividend increase. Realty Income has increased its payouts at a compound annual rate of 4.3% since listing on the public market. In 1994.
With its stock price falling — largely due to the impact higher interest rates to have on REITs – and its growing dividend payout, Realty Income currently offers a forward dividend yield approaching 6%. That’s several times higher than the S&P 500’s 1.3% dividend yield based on payments over the past year.
Realty Income should have no trouble increasing its dividend in the future. The REIT can provide annual adjusted operating funds of 2% (FFO) growth from internally generated sources – growth in rentals and investments financed with cash flow retained after dividend payments. It can add 0.5% to its adjusted FFO per share growth rate for every $1 billion in externally financed acquisitions (i.e. those financed by the sale of stock and new debt). It aims to generate adjusted FFO per share growth of 4% to 5% each year, implying that it will make between $4 billion and $6 billion in externally financed acquisitions per year. This is easily achievable, given that it has completed over $9 billion in acquisitions in each of the the last two years.
With a yield of 6% and annual earnings growth of 4% to 5%, Realty Income is expected to generate a total operating return of approximately 10% per year. without change in its valuation multiple. However, there is additional upside potential as interest rates fall (increasing the value of commercial real estate), which many expect to happen over the next few years. This catalyst could enable Realty Income to generate market-beating returns over the long term.
A reacceleration is future
Prologis has seen solid dividend growth in recent years. The leading industrial REIT has increased its payouts at a compound annual rate of 13% over the past five years. That’s more than double the rate for S&P 500 companies (5%) and other REITs (5%). With an increase in its payments and a drop in its stock price (again largely due to the impact of rising interest rates), Prologis’ dividend yield amounts to more than 3.5%.
The company hopes to continue its rapid growth in the coming years. However, it will reach a a bit of a speed bump in 2024. It forecasts core FFO per share growth of nearly 8% at the midpoint of its forecast range, down from its initial forecast of core FFO per share growth of more than 9% this year.
Prologis faces temporary headwinds in the near term. “A volatile and persistent situation high interest “The interest rate environment, as well as growing geopolitical concerns, are contributing to this indecision and its near-term effect on net absorption,” CEO Hamid Moghadam said in the first quarter results release. These issues will impact occupancy and rent growth over the next two quarters. However, the company remains very optimistic about the long term. It expects low market vacancy rates, limited supply growth and strong demand to drive core FFO growth of 9% to 11% through 2026. This should allow Prologis to continue to produce above-average results. dividend growth.
Add its dividend yield to its growth rate, and Prologis should easily generate double-digit total returns in the years to come. Harness the upside potential of a higher valuation multiple as interest rates fall, and this REIT could perform very well in the years to come.
Great purchasing opportunities
Realty Income and Prologis missed the S&P 500’s rally over the past year, and investors can now buy these magnificent dividend stocks at lower valuations and higher yields. This could allow investors to achieve higher total returns in the future.
Should you invest $1,000 in real estate income right now?
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Matt DiLallo holds positions in Prologis and Realty Income. The Motley Fool ranks and recommends Prologis and Realty Income. The Motley Fool recommends the following options: Long $90 January 2026 calls on Prologis. The Mad Motley has a disclosure policy.
2 Gorgeous S&P 500 Dividend Stocks Down 10% to Buy and Hold Forever was originally published by The Motley Fool
