Want to Beat the Dow Jones? This Blue Chip Stock Could Be the Answer

Blue chip stocks are shares in companies with impressive performance over decades that has given them a burnished reputation among their customers as well as the stock market.

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These industry leaders have the scale and business chops to weather economic cycles and offer shareholders stability they might find elusive among more volatile growth stocks. Many blue chips are household names, many are not. One of them that probably isn’t in most households — but that helps to deliver products from other blue chip companies to your home — is Prologis (NYSE: PLD).

Doubling the Dow since 1994

Prologis is the world’s largest owner of warehouse space, and a great example of a well-established, financially sound, and growing operation. It offers blue chip opportunities for both share price appreciation and dividend growth — which, together, form the key metric known as total return.

Since its 1994 initial public offering as Security Capital Industrial Trust (it became Prologis in 1998), this San Francisco-based company has nearly doubled the total return of the benchmark Dow Jones Industrial Average, turning a $10,000 investment made then into about $78,000 now.

A REIT that’s grown really big

The company says that about 2.5% of the world’s gross domestic product (GDP) runs through its global network of logistics real estate that now comprises about 5,500 buildings and 1.2 billion square feet of space in 19 countries. Amazon, Home Depot, and FedEx are the top three tenantsd in a client list of about 6,600 customers engaged in business-to-business and retail/online fulfillment.

Prologis operates as a real estate investment trust (REIT) and is obligated by tax law to return at least 90% of its taxable income to shareholders in the form of dividends. Of course, REITs need to generate income to pay those dividends. That’s not been a problem for this logistics powerhouse, which has grown both organically and through the accretive effects of major acquisitions, such as the $26 billion deal to acquire fellow industrial REIT Duke Realty last year.

The pandemic helped sharply drive up the price of Prologis’ stock. Investors bought up shares of the company as it saw unprecedented demand for its inventory of logistics space needed by suppliers for both business-to-business and business-to-consumer e-commerce around the world. Then rising interest rates, inflation, and concerns about oversupply helped ding the company’s stock. But at about $115 billion, Prologis is still by far the largest REIT by market cap.

Record-high occupancy continues and Prologis says that it expects its properties to be about 97% full through 2023. Meeting that demand means this REIT can also demand higher rent, reflected in a record net effective rent change of 68% in the first quarter. That’s the percentage of change from an old lease to a new lease at the same property.

The chart below shows how much Prologis’ revenue, price, and dividends have grown since 2019, as well as its funds from operations (FFO) — a key measurement of how a REIT generates and uses cash flow.

Flat roofs round out the REIT’s reputation

Sustainability can be a major attraction for investors who value ESG bonafides in a blue chip company, and Prologis boasts that in both its business and environmental practices. It was recently ranked second in the country for corporate on-site solar generation, putting those acres of flat roofs to work with a goal of reaching 1 gigawatt of solar and battery storage by 2025.

That effort began in 2007 and is now at about 378 megawatts locally, and it includes a partnership in California that provides fixed-rate, clean energy to local neighborhoods in disadvantaged communities.

Prologis certainly has competition, but its strong balance sheet and ample liquidity, and the reputation that comes with three decades of blue chip performance, should allow it to continue to pursue growth opportunities while its experienced management adapts to changing market dynamics.

The REIT’s stock is yielding about 2.8% after 10 straight years of dividend increases. Should that streak continue, it would just add to this stock’s status as a blue chip that should keep on providing Dow-beating returns at a lower risk than many other options in the equities market.