2 Dividend Stocks to Double Now

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The stock market is off to a strong start to the year. Despite a recent cooling off period, the S&P500 has risen more than 5%. A big catalyst is the view that interest rates will fall later this year.

Despite this looming catalyst, the shares of many major real estate investment trusts (REITs) have underperformed this year. Real estate income (NYSE:O) And Prologis (NYSE: PLD) Are two of the more notable stragglers. Nouch resembling a great time to double down on those prime dividend stocks.

Solid built-in growth with upside potential

Shares of Realty Income are down more than 5% this year. The main culprit is the Federal Reserve's continued delay in rate cuts as it waits for inflation to move closer to target levels. Rate cuts would benefit the REIT. They would lower it costs of capital by lowering financing costs and likely increasing the stock price, which would put the REIT in a stronger position to make acquisitions.

However, real estate income can grow just now fine this year without the Fed's help. It recently completed the acquisition of fellow REIT Spirit Realty. Meanwhile, the combined company will generate even more excess free cash flow after paying dividendsgiving it free capital to finance profitable deals. The company estimates it can acquire about $2 billion in real estate this year without obtaining additional financing. Add in rental growth and these catalysts should allow the REIT to grow its adjusted operating resources (FFO) by 3.3% to 5.3% per share this year. That's in line with a long-term target of 4% to 5% per year.

Meanwhile, falling interest rates would likely allow the REIT to invest even more money in new properties this year. That could boost the growth rate even further, further supporting continued dividend growth. (Realty Income has increased the payout every year since going public in 1994.) Add in the attractive current income yield of around 6%, and real estate income could generate double-digit total returns in the coming years from here.

Hitting a speed bump

Shares of Prologis are down more than 20% this year. He was a great driver first quarter earnings reportwhere the leadership industrial REIT has slightly lowered its expectations for 2024. “While operating conditions are healthy the majority of our markets,” said CEO Hamid Moghadam in the first quarter earnings press release, “customers remain focused on controlling costs, which is weighing on the decision and the pace of leasing.” The CEO noted: “A volatile and persistent high interest The interest rate environment, together with rising geopolitical concerns, are contributing to this indecision and its short-term impact on net absorption.”

Despite this near-term sluggishness, the REIT still expects its core FFO to grow nearly 8% per share this year. Furthermore, while the company is taking a more cautious stance for this year, these “adjustments are seen as more of a matter of timing as the outlook for the new offering remains very favorable,” CFO Tim Arndt said.

The company expects to grow core FFO per share by an average of 9% to 11% through 2026, assuming modest market rent growth. Meanwhile, even if market rents don't rise, this should deliver annual core FFO per share growth of around 8.5%.

That positions the REIT to continue to grow its dividend above average. The country has achieved a compound annual growth rate of 13% over the past five years, more than double the average of 5% over the past five years. S&P500 and other REITs. With the dividend yield approaching 4% after this year's sell-off, Prologis could easily generate double-digit total annual returns in the coming years as it delivers above-average core FFO and dividend growth.

Lower stock prices = higher dividend yield

Key REITs Realty Income and Prologis have slumped this year as the Federal Reserve is reluctant to cut interest rates until inflation has fallen. more under control. This has brought their dividend yield to an even more attractive level.

Both REITs can grow just now fine this year, even if the Fed doesn't cut rates. In the meantime, the eventual rate cuts would be a further growth catalyst. Of strongly built-in total return potential and a looming upside catalyst, now is a great time to double down on these top dividend stocks while they're still on sale.

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 one disclosure policy.

2 Dividend Stocks to Double Now was originally published by The Motley Fool

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