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Inside Prologis’s Relationship with Its Shareholders

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REIT dividends and share buybacks

Commerical REITs (real estate investment trusts) have to pay at least 90% of their taxable income as dividends or share buybacks. The source of funding for REITs to pay dividends is their rental income, which provides predictable flow. This process helps REITs enjoy additional tax benefits.

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Consistent dividend payments

Prologis (PLD) has been paying dividends to its shareholders consistently every quarter since it became a public company in 1998. On February 23, 2017, the company announced a hike in its quarterly dividend by $0.02 to $0.44 per share, resulting in an annualized dividend of $1.76, payable on March 31, 2017, to shareholders as of record of March 15.

Its most recent dividend announcement is 4.8% higher than its dividend announced during 4Q16. Prologis has hiked its dividend every year by an average of 23.7% over the past five years. It raised its dividend by 5% in fiscal 2016.

The company has maintained a consistent dividend yield over the past two years. The company’s dividend yield was 3.54% in 2015 and 3.15% in 2016. Analysts expect Prologis to maintain a dividend yield of 3.01%, 3.12%, and 3.23%, respectively, for 2017, 2018, and 2019.

FFO payout ratio

FFO (funds from operations) refers to the ratio between dividend per share and diluted FFP per share over a given period. It gives insight into the shareholder returns of a particular stock and implies the amount a company distributes as a dividend of its FFO.

PLD’s FFO payout ratio was 69.8% in 1Q17. The company’s expected payout ratios for the next four quarters are 58.7%, 65.7%, 64.7%, and 63.9%, respectively, for 2Q17, 3Q17, 4Q17, and 1Q18.

Prologis does not currently make share repurchases of its common stock.

Peer group

PLD’s FFO payout ratio is in line with its competitors. Duke Realty (DRE) has an FFO payout ratio of 3.1%, while Kilroy Realty (KRC) has an FFO payout ratio of 0.7%, and Brandywine Realty Trust (BDN) has an FFO payout ratio of 4.5%.

Notably, Prologis, Duke Realty, Kilroy, and Boston Properties together make up 14.1% of the iShares Cohen & Steers REIT ETF (ICF). ICF has an annualized yield of 3.9%.

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