This Magnificent Dividend Stock Sees a Bright Future in 2025 and Beyond

Last year was a more challenging period for the industrial real estate sector and its leader, Prologis (NYSE: PLD). Demand for warehouse space cooled off due to concerns about the election and the economy.

However, demand has reaccelerated after the election, which enabled the real estate investment trust (REIT) to post solid results for the year. That momentum has carried over into 2025. Add in some other upside catalysts, and Prologis sees a bright future. That bodes well for its ability to continue growing its 3.4%-yielding dividend at an above-average rate in the coming years.

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Ending on a high note

Prologis "closed out 2024 with solid results," stated president Dan Letter in the company's fourth-quarter earnings press release. The industrial REIT reported $1.42 per share of core funds from operations (FFO), excluding net promote income (its share of the profits from the investment funds it manages), which was up 10.1% compared to the prior-year period. That pushed its full-year total to $5.53 per share, an 8.4% increase, hitting the high end of its revised guidance range.

Economic and political uncertainty had weighed on leasing demand for much of last year. However, "post-election leasing activity has been strong," noted CEO Hamid Moghadam in the fourth-quarter press release. On top of that, the company capped the year off by selling its Elk Grove data center, which is still under development.

The REIT has started using some of its vast land bank to develop data centers to capitalize on the surging demand for data capacity to support cloud and AI applications. The sale of its first project "led to significant value creation and demonstrated the end-to-end capabilities of our platform," stated the CEO.

Occupancy remained strong at 95.9% at the end of the year, driven by a robust retention rate of 78.4%. New and renewal leases signed during the period were 40.1% higher than the prior ones on the same space on a cash basis, as the REIT capitalized on the significant increase in market rents over the past few years. That helped drive a 6.7% increase in its cash net operating income (NOI) during the period.

Brighter days ahead

The post-election resurgence in leasing activity has carried over into the early part of 2025. Moghadam stated in the press release that "ongoing conversations with customers support our expectation that the market is nearing an inflection point," and that demand should continue to strengthen.

It will take some time for this to flow through to the company's financial results. As a result, its current expectations are that core FFO (excluding net promote income) will grow to a range of $5.70 to $5.86 per share in 2025 (a 3.1% to 6% increase). That's due to its outlook that occupancy will dip a little to 94.5%-95.5% this year, while cash same-store NOI will rise by 4% to 5%.

However, given its outlook that demand is nearing a tipping point, the REIT plans to ramp up its development activities significantly this year as it anticipates customer needs and stays ahead of market trends. It currently plans to start between $2.25 billion and $2.75 billion of development projects, a big increase from the more than $1.3 billion of developments it started last year.

In addition to capitalizing on the expected resurgence of warehouse demand, Prologis' "platform is uniquely positioned to seize the opportunities created by favorable trends in our data center and energy businesses," stated the CEO. Those catalysts will help add more power to its growth engine in 2025 and beyond. They drive Moghadam's view that the "long-term outlook for Prologis is bright."

The company's optimistic outlook also bodes well for its dividend. Prologis has done a magnificent job increasing its payout over the years. It has grown the dividend at a 13% compound annual rate over the last five years, more than double the pace of the S&P 500 (SNPINDEX: ^GSPC) and REIT sector average (both 5%). Given the company's financial strength, it could continue to grow its payout at an above-average rate in the coming years.

A top-notch dividend growth stock

Prologis has hit a speed bump over the past year due to market uncertainty. However, with that uncertainty now in the rearview mirror, the company expects demand to reaccelerate. Add in its other growth catalysts, and the REIT has a very bright future. Because of that, it should be able to continue growing its dividend at a healthy rate, making it a great dividend growth stock to hold for the long haul.

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Matt DiLallo has positions in Prologis. The Motley Fool has positions in and recommends Prologis. The Motley Fool recommends the following options: long January 2026 $90 calls on Prologis. The Motley Fool has a disclosure policy.