Ushering in good news for its shareholders, Prologis Inc.’s (PLD) Board approved a 9% hike in its annual dividend rate to $1.44 from $1.32 paid earlier. As a result, the company would now pay 36 cents per share as against 33 cents paid in the prior quarter.
The new dividend will be paid on Mar 31, 2015 to shareholders of record as on Mar 18. Based on this increased rate, annualized yield comes at about 3.4%, considering Prologis' closing price of $42.90 on Feb 25.
We believe that Prologis has an adequate capacity to support its dividend policy. Helped by higher occupancy, Prologis reported better-than-expected results in the fourth quarter of 2014. The company reported core FFO (funds from operations) per share of 48 cents, a cent ahead of the Zacks Consensus Estimate and a nickel above the year-ago quarter figure of 43 cents.
The company exited 2014 with cash and cash equivalents of $350.7 million, up from $311.9 million at the prior quarter-end. Prologis’ capital market activities totaled over $1.7 billion during the quarter and $7.0 billion for the full year.
As a matter of fact, the industrial real estate market has been experiencing solid growth, thanks to the rising Internet retailing and supply-chain consolidation. This, in turn, is generating greater demand for logistics infrastructure and efficient distribution networks. But vacancy rates are tightening with construction starts lagging the demand growth, thereby pushing the rents higher in many of the U.S. markets.
Prologis, with its solid capacity, is well leveraging this demand-supply imbalance. The company, with its strategy of operating in infill markets, is well capitalizing on global growth opportunities. Hence, going forward, we believe the company’s opportunistic investments would help it ride on the growth trajectory and reward its shareholders accordingly.
As a matter of fact, solid dividend payouts are arguably the biggest attraction for REIT investors. In addition to Prologis, a number of other REITs have come up with dividend hike announcements of late.
Among them are Essex Property Trust Inc. (ESS), Avalonbay Communities Inc. (AVB) and HCP Inc. (HCP). While Essex Property raised its quarterly dividend by 10.8% to $1.44 per share, AvalonBay announced a 7.8% increase to $1.25 per share and HCP declared a hike of 3.7% to 56.5 cents.
Prologis currently carries a Zacks Rank #2 (Buy).
Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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