Two Dividend Stocks to Buy Now for a Double Down

The stock market started well this year. Despite a cooling off period, the S&P 500 is up over 5%. A significant trigger is the expectation of lower interest rates later this year. Many top REITs have underperformed this year despite that catalyst. Two major laggards are Realty Income (NYSE: O) and Prologis (NYSE: PLD). I recommend doubling up on top dividend stocks now.

Strong built-in growth with upside Realty Income stock has declined over 5% this year. The Federal Reserve's inaction while waiting for inflation to decline is the main cause. REITs profit from rate reduction. They would cut its borrowing costs and potentially raise its stock price, making the REIT more able to undertake purchases.

Without the Fed, Realty Income can increase well this year. It completed its accretive acquisition of Spirit Realty. The merged business will create more free cash flow after dividends, providing no-cost capital for accretive deals. The corporation expects to buy $2 billion in real estate this year without outside finance. These triggers could boost the REIT's adjusted FFO by 3.3% to 5.3% per share this year, including rent increases. That meets its long-term 4%–5% annual aim.

Meanwhile, falling loan rates may allow the REIT to invest more in new buildings this year. That might boost its growth rate, boosting dividend increases. Real Estate Income has raised its payment year since going public in 1994. With its 6% current income yield, Realty income might provide double-digit total returns in the future.

Hitting a speed bump Prologis shares has dropped over 20% this year. A key contributor was its first-quarter earnings announcement, where the leading industrial REIT marginally lowered its 2024 projection. The first-quarter earnings press release stated that "While operating conditions are healthy in the majority of our markets,

"customers remain focused on controlling costs, which is weighing on decision making and the pace of leasing." He said, "A volatile and persistently high interest rate environment, together with mounting geopolitical concerns, contribute to this indecision and its short-term effect on net absorption."

Despite the near-term slowdown, the REIT plans to grow core FFO by roughly 8% per share this year. CFO Tim Arndt says these "adjustments more as a matter of timing as the outlook on new supply remains very favorable," despite its cautious outlook for this year.

If market rents rise somewhat, the business forecasts core FFO per share to expand 9% to 11% through 2026. Even without market rent growth, core FFO-per-share should climb 8.5% annually.

That allows the REIT to raise its dividend above average. Its five-year compound annual growth rate is 13%, more than double the S&P 500 and comparable REITs' 5%. As it generates above-average core FFO and dividend growth, Prologis may easily produce double-digit total annual returns over the next few years with its dividend yield approaching 4% following this year's sell-off.