This Top Dividend Stock Is Growing More Optimistic About What's Ahead

Prologis (NYSE: PLD) has done a magnificent job paying dividends over the years. The leading industrial real estate investment trust (REIT) has increased its payout every year for over a decade. It's grown at a 13% compound annual rate over the last five years, more than double the rate of the S&P 500 (5%) and other REITs (5%).

The industrial REIT is in an excellent position to continue increasing its dividend at an above-average rate. Add in its high yield (recently 3.2%, which is more than double the S&P 500's 1.3% yield), and it could produce market-beating total returns in the coming years.

Another strong quarter

Prologis recently reported its third-quarter earnings, which were exceptional. The REIT grew its core funds from operations (FFO) by 9% to $1.45 per share. It benefited from improving demand for warehouse space.

While occupancy ticked down a bit (it ended the quarter at 95.9%, down from 96.4% in the second quarter and 97.5% in the year-ago period), retention was strong, and rents are rising. New and renewal leases signed during the period were 44.1% higher on a cash basis, compared to the expired lease rates on the same space. That helped drive a 7.2% increase in the net operating income (NOI) of its same-store portfolio.

The REIT also benefited from its continued investment in expanding its leading logistics real estate portfolio. It completed $1.25 billion of acquisitions during the period and stabilized $784 million of development projects. Accretive investments added to its FFO growth during the quarter.

An improving outlook

Prologis notes that the demand headwinds it experienced earlier this year due to higher interest rates are starting to fade. According to CEO Hamid Moghadam:

The bottoming process is underway as our customers navigate an uncertain environment. Looking ahead, the supply picture is improving, and the long-term demand drivers for our business remain strong. Going forward, we find ourselves in an enviable position as the partner of choice for leading global customers to meet their needs in supply chain, digital, and energy infrastructure.

This optimism about what's ahead led the REIT to increase its full-year outlook. Prologis raised the midpoint of its core FFO guidance range from $5.50 to $5.51 per share. That implies an 8% increase from last year's level.

The improving near-term outlook bodes well for the company to deliver on its longer-term growth expectations. It's on track to achieve the low end of its original 2024 outlook of 8% to 10% FFO per-share growth. Meanwhile, it expects its FFO to rise by 9% to 11% annually through 2026 before factoring in the potential impact of acquisitions. With market conditions improving, the company is in an excellent position to deliver double-digit FFO per-share growth in the coming years.

Because of that, it should have no trouble continuing to increase its dividend. It has a low dividend payout ratio for a REIT (70% of its core FFO through the first nine months of this year). It also has a very strong balance sheet with investment-grade credit, long-term fixed-rate debt, and low leverage ratios.

These factors give the company the financial flexibility to continue investing in development projects and acquisitions, while also increasing its dividend. Prologis could continue to grow its dividend at a double-digit rate in the future.

A top-tier dividend stock

Despite some demand headwinds in recent quarters, Prologis is on track to grow at a solid rate this year, thanks to the overall strength of the industrial real estate market in recent years. With its headwinds fading and demand remaining robust, the company's growth rate is beginning to reaccelerate.

That puts Prologis in a strong position to continue growing its higher-yielding dividend at a well-above-average rate. Add in its strong financial profile, and Prologis is an excellent dividend stock to buy for the long term. It could produce attractive total returns as its earnings, dividend, and stock price continue to rise at healthy rates.

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Matt DiLallo has positions in Prologis. The Motley Fool has positions in and recommends Prologis. The Motley Fool recommends the following options: long January 2026 $90 calls on Prologis. The Motley Fool has a disclosure policy.