Why Duke Realty Is a Long-Term Market Beater – The Motley Fool

Duke Realty Corp. ( DRE 1.42% ) has been around since 1972 and since going public in 1993 it has produced an enviable total return for shareholders. And it looks like this could be a long-term market beater in the future.

The Indianapolis-based company is a real estate investment trust (REIT) with a growing portfolio of 545 facilities containing 162-million square feet of space in 19 key logistics markets across the country. Its tenant list is headed up by Amazon, Home Depot, Wayfair, UPS, Target, and the federal government.

Overhead shot of a worker in a warehouse.

Image source: Getty Images.

Warehouse space is being consumed at a record pace in the U.S. as companies work to secure locations for their e-commerce and just-in-case manufacturing inventory needs. Duke Realty gets 99% of its revenue from rents and has been adept at leveraging that demand. For years, in fact.

As the chart below shows, Duke Realty has handily beaten the S&P 500 in total return in the past decade, as well as the Vanguard Real Estate ETF (NYSE:VNQ), which typically comprises about 180 different REITs and serves as a popular proxy for the REIT industry.

VNQ Total Return Level Chart

DRE Total Return Level data by YCharts.

Filling its sales and sails with “secular tailwinds”

Duke Realty has raised its dividend for seven straight years, including by 9.8% last year, and is now yielding about 2.09% — compared with about 1.27% for the S&P 500 — while trading at about $54.10 a share, down from the 52-week high of $66.22 it reached on Dec. 31 before the current market swoon.

Last year, core funds from operations (FFO) — a key measure of REIT performance — grew 13.8% for this industrial REIT, while occupancy was 98.1% amid record leasing volume, and rent growth of 35%.

For 2022, the company is projecting a 9.8% jump in FFO as well as $1.3 billion in development starts and $300 million in net acquisition spending. That new space will likely be quickly and profitably filled.

In a recent investor presentation, Duke Realty says it’s benefiting from “secular tailwinds” that are creating what it calls the “early innings of demand boost from multiple secular forces … supportive of higher levels of rent growth and opportunities for premium yield development deliveries.”

In other words, more space to rent for more money. A dividend payout ratio of 53.33% based on 2022 earnings estimates means there’s also room for more dividend growth because the current level appears to be so easily funded.

Meanwhile, a March 14 roundup of 10 analysts by MarketBeat found six “buys” and four “holds” with a consensus price target of $61.20. That would be a 13% gain from the current market price.

In the past three years, Duke Realty has moved into new headquarters, opened a Seattle office, and expanded its New Jersey and Northern California teams. “With 50 years of experience, Duke Realty is well-positioned for future growth,” the company says.

There’s ample reason to invest in that optimism, especially for a long-term buy and hold.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.