Dividend stocks have historically outperformed major equity indices like the Dow Jones Industrial Average. Meanwhile, the best returns tend to come from stocks that consistently increase their dividends.
This has certainly been the case for dividend machines like Accept real estate (CDA 1.23%), Prologue (PLD 0.04%)And Extra space storage (Ex -2.37%). Here is why these dividend stocks can continue on their way to victory.
Agree Realty stands out as a provider of reliable total returns
Mark Report (Accept real estate): Agree Realty has transformed itself into a Wall Street darling by achieving years of outperformance of what could be considered a somewhat pedestrian business: leasing space to retail businesses.
Since its initial public offering in 1994, this real estate investment confidence (REIT) has produced an average compound annual total return of 12.5% and has increased its dividend by an average of 6.1% per year over the past 10 years.
And that makes Agree a real Dow beater. Find out how this Retail REITsThe total return of compares to that of the Dow Jones Industrial Average over the past decade:
And that beloved piece of Wall Street? Agree earns that description by impressing enough investors to hold its stock price around 17% year-over-year at a time when many of its competitors are eyeing zero gains.
Agree’s tenants are primarily premium branded retailers with a portfolio of over 1,800 properties and growing. The company spent $1.59 billion on new acquisitions in 2022 and took in about $1.5 billion in cash in 2023 to continue adding net leasehold properties.
All of that and a penchant for increasing payouts means the odds look good for Agree – which currently earns around 3.9% and pays monthly – to continue beating the Dow Jones and just about any other relevant benchmark than you can choose to use.
Prologis benefits from a change in the mentality of companies towards inventory management
Brent Nyitray (Prologue): Prologis is a leader in logistics real estate. Over the past three years, the stock has easily outperformed the Dow Jones Industrial Average by almost 25%. Prologis operates those huge warehouses with dozens of truck bays that you often see while driving down a major highway near a major city.
One of the big stories to emerge from the COVID-19 pandemic has been the overhaul of inventory management by businesses. Before the pandemic, American businesses operated on the philosophy that inventory was a cost to manage and extended supply chains were more efficient. This is actually true, but this philosophy comes at a cost and it has been exposed during the pandemic. Many businesses have been taken aback and have been forced to refuse business due to insufficient inventory.
The COVID-19 pandemic has caused businesses to build inventory, which has translated into low vacancy rates and steep rent increases when leases are reset or expire. At the end of 2022, the occupancy rate stood at 98.2%, which was well above the pre-pandemic level of 96.5%. This high occupancy rate translates into significant rent increases when the leases expire. Prologis has one of the best portfolios of logistics spaces based on proximity to major American cities and major highways.
Last year, we worried about fedex And Amazon reduce their storage space. So far, the company has seen no impact: Amazon is leaving some non-Prologis spaces and FedEx is considering airfreight, which won’t affect Prologis. Given the fundamentals, Prologis is expected to experience strong growth for the foreseeable future.
Additional Special Returns
Matt DiLallo (Additional storage space): The self-storage sector benefits from a sustainable and growing demand for storage space. This keeps units occupied, allowing the industry to raise rents and increase capacity. These factors have resulted in continued strong earnings and dividend growth for Self-storage REITs.
The top performer of the past decade is Extra Space Storage. It produced a total return of 490% (19.4% annualized), which more than doubled the Dow’s total return of approximately 200% (11.7% annualized) during this period. Extra Space has also significantly outperformed the Dow over the past three and five years.
A key driver of the company’s strong total returns is its growing dividend. Extra Space has achieved industry-best dividend growth of 650% over the past decade. Fueling this rising dividend has been the best-in-class core of Extra Space Storage funds from operations (FFO)–growth per share of approximately 700% over the past 10 years.
Extra Space benefited from several growth drivers, including rising rental rates, acquisitions and its third-party management platform. The company is a leader in third-party management, with 886 locations across its portfolio of 2,337 stores. This platform provides efficient capital growth, allowing the business to generate additional revenue streams from management fees, tenant insurance and loan interest for minimal investment. The platform also provides an acquisition pipeline, as it can acquire managed properties when owners are ready to sell.
Extra Space should be able to continue to grow its portfolio, FFO and dividend at attractive rates in the future. The self-storage sector remains highly fragmented, providing Extra Space with numerous acquisition and management opportunities. In the meantime, it has a solid balance sheet to continue financing new investments.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Brent Nyitray, CFA has no position in the stocks mentioned. Mark Report holds positions at Agree Realty, Amazon.com and Prologis. Matthew DiLallo has positions at Amazon.com, FedEx and Prologis. The Motley Fool holds positions and recommends Amazon.com, FedEx and Prologis. The Motley Fool recommends additional storage space. The Motley Fool has a disclosure policy.