The S&P500 has delivered strong returns over the past year, up more than 25%. Most stocks participated in that rally.
However, a number of shares have lagged behind the market. Real estate income (NYSE:O) And Prologis (NYSE: PLD) stand out because they are down more than 10% in the past year. On the plus side, investors can buy these great stocks dividend stocks at lower prices and much higher dividend yields.
Built to grow the dividend
Realty Income has been a fantastic dividend stock over the years. The diversified REITinvolved in retail, industrial and gaming properties, recently ranked 647th consecutive monthly dividend. It increased its payment by 2.1% from the previous month’s levelwhich marks his 107th straight away quarterly dividend increase. Realty Income has increased its payout by 4.3% annually since listing in 1994.
Now stock prices have fallen – largely as a result the consequences higher interest rates to have on REITs – and the dividend payout is rising, Realty Income currently offers a dividend yield of almost 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 2% annual adjusted funds from operations (FFO) growth from internally generated sources – rental growth and investments financed with retained cash flow after payment of dividends. It can add 0.5% to its adjusted FFO growth rate per share for every $1 billion of externally financed acquisitions it makes (that is, those financed by stock sales and new debt). It aims to deliver 4% to 5% adjusted FFO per share growth each year, which implies it will make $4 billion to $6 billion in externally funded acquisitions annually. That’s easily achievable, considering the company has made more than $9 billion in acquisitions each of The past two years.
With a yield of 6% and annual earnings growth of 4% to 5%, Realty Income should deliver an operating total return of approximately 10% annualized without change its valuation multiple. However, there is even more upside potential if interest rates fall (raising commercial real estate values), which many believe will happen in the coming years. That catalyst could enable Realty Income to deliver market-beating returns over the long term.
There is a re-acceleration coming
Prologis has delivered robust dividend growth in recent years. The leading industrial REIT has increased its payout at a compound annual rate of 13% over the past five years. That’s more than double the percentage of companies in the S&P 500 (5%) and other REITs (5%). Now that the payout is rising and the stock price is falling (again largely due to the impact of higher interest rates) Prologis’ dividend yield has risen to over 3.5%.
The company expects to continue to grow strongly in the coming years. However, it will be a bit of a speed bump in 2024. The company projects core FFO per share growth of nearly 8% at the midpoint of its guidance range, down from its initial forecast of more than 9% core FFO per share growth this year.
Prologis faces temporary short-term headwinds. “A volatile and persistent high interest The interest rate environment, together with increasing geopolitical concerns, is contributing to this indecision and its short-term impact on net absorption,” CEO Hamid Moghadam said in the first quarter earnings release. These issues will impact occupancy and rental growth over the next two quarters. However, the company remains very optimistic about the long term. It expects low market vacancy, limited supply growth and strong demand to deliver core growth of 9% to 11% through 2026. That should enable Prologis to continue delivering above-average results. dividend growth.
Add the dividend yield to the growth rate and Prologis should do the same easy deliver double-digit total returns in the coming years. Take advantage of the upside potential of a higher valuation as rates fall, and this REIT could be a strong performer in the coming years.
Great buying opportunities
Realty Income and Prologis missed the S&P 500’s rally over the past year, and now investors can buy these great dividend stocks at lower valuations and higher yields. That could encourage investors to earn higher total returns in the future.
Should you invest €1,000 in real estate income now?
Consider the following before purchasing shares in Realty Income:
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Matt DiLallo has positions in Prologis and Realty Income. The Motley Fool holds positions in and recommends Prologis and Realty Income. The Motley Fool recommends the following options: Long $90 January 2026 calls on Prologis. The Motley Fool has a disclosure policy.
2 Great S&P 500 Dividend Stocks Down 10% to Buy and Hold Forever was originally published by The Motley Fool
