Amid the global Covid-19 pandemic, many “hot” sectors such as e-commerce, cybersecurity and cloud computing have attracted investors’ money.
However, when it comes to bricks-and-mortar property, certain sub-sectors of the real estate investment trust (REIT) industry are set to benefit.
REITs are a great way to generate a passive income stream by tapping into the revenue-generating capabilities of property.
Obvious ones, such as data centre REITs, immediately come to mind. However, with the rise in e-commerce and the increasing need for efficient/timely delivery, logistics properties are set to benefit over the long term.
That’s particularly true in the US, where e-commerce penetration has much further to run. Last year highlighted the importance of having supply chains you can rely on. Unsurprisingly, logistics properties play a key role in that.
With that, here are two US-listed logistics REITs that long-term investors can buy and hold for dividend income.
One of the top three largest REITs in the world (by market capitalisation), Prologis Inc (NYSE: PLD) is a logistics-focused REIT that has US$148 billion of assets under management (AUM), with 984 million square feet of lettable space.
It also has a global presence, with properties not only in North America but in South America, Europe and Asia too – spread across 19 countries.
The modern logistics facilities owned by Prologis service two types of clients: business-to-business (B2B) and retail/online fulfillment.
Prologis is a veritable giant in these niches. In 2020, the REIT posted a full-year net operating income of US$3.1 billion.
The REIT has also doubled its core funds from operations (FFO) from US$1.4 billion in 2016 to just over US$2.8 billion in 2020.
Prologis and its dividend isn’t too shabby either. For 2020, the REIT paid out a total dividend of US$2.32 per share (a quarterly payout of US$0.58 per share).
Given its full-year core FFO per share of US$3.80, this actually worked out to a payout ratio of 61%, which means the dividend is extremely safe for shareholders.
Trading at just over US$100 per share, Prologis offers income investors a dividend yield of a shade over 2.3%.
2. STAG Industrial
STAG Industrial Inc (NYSE: STAG) is a US-focused industrial REIT that operates single-tenant properties in 38 states across the country.
Although it “only” has 462 building (around one-tenth the number of Prologis), STAG has built up this portfolio since its IPO back in 2011 when it started out with just 93 properties.
Covering 92.3 million square feet, the REIT is also continuing to grow its presence in the US industrial real estate market – one that is large but highly fragmented.
For long-term investors, the company is riding on the megatrend of e-commerce by pivoting its portfolio towards where the long-term tailwinds are (see below).
Source: STAG Industrial presentation, November 2020.
The REIT is also being pro-active on the Environmental, Social and Governance (ESG) front. For example, it’s installing solar panels on the roofs of its properties and utilising reflective roofing to reduce warehouse temperatures, thereby helping decrease energy usage.
STAG has just about doubled its dividend since 2011 and, more interestingly, actually pays its dividend monthly rather than quarterly.
Given its share price of just over US$30, the REIT is offering investors a dividend yield of 4.8%.
Riding property megatrends
For long-term investors focused on dividends and REITs, being in the right sector is as crucial as picking the right stocks in other sectors.
Prologis and STAG Industrial offer investors exposure to properties that can benefit from the e-commerce boom while also delivering a growing dividend.
Disclaimer: ProsperUs Head of Content Tim Phillips doesn’t own shares of any companies mentioned.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.
In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.