There are a lot of reasons to like Prologis (PLD 0.57%), the world's largest owner of distribution warehouses. Many of those same reasons apply to one of its much smaller competitors, Terreno Realty (TRNO 0.27%).
Both make their living on logistics, profiting from consistent, growing demand for warehouse space from business-to-business and business-to-consumer shippers. They're both real estate investment trusts (REITs) that have consistently grown their total return over the years, while meeting the requirement that they pay out at least 90% of their taxable income as dividends.
Both are based in San Francisco, and Terreno was founded in 2009 and taken public in 2010 by a team that included executives from Prologis and its predecessors. And the two industrial REITs' long-term performance has been similar, as this chart shows:
PLD total return level data by YCharts.
Terreno's territory is tightly focused
But there are some clear differences in scale and focus. Terreno, for instance, has a portfolio of 252 smaller warehouses comprising 15.4 million square feet and another 46 improved land parcels, all occupied by 575 customers.
They're in logistically key, hard-to-replicate areas near airports, seaports, and major interstates in six coastal markets: Los Angeles, northern New Jersey/New York City, the San Francisco Bay Area, Seattle, Miami, and Washington, D.C.
Prologis, meanwhile, currently has about 5,495 buildings comprising 1.2 billion square feet serving 6,600 customers in 19 countries around the world, making it a major cog in the worldwide distribution machine.
Two more metri: Prologis has a market cap of about $120 billion, 24 times that of Terreno's $5 billion or so, and they both yield about 2.5%. This next chart shows just how similar their dividend growth rate has been, as well.
PLD dividend data by YCharts.
Both these stocks have been beaten down by the rise in interest rates -- which makes expansion more expensive to finance -- and concerns about recession and future demand. But as shown below, both also have recovered since bottoming out in October.
Prologis or Terreno? How about both?
Prologis stock is still cheaper by one key measure, the ratio of price to funds-from-operations (FFO) per share, at about 16.5 for Prologis to nearly 22 for Terreno. But both have sound balance sheets, experienced and proven management, and moats around their businesses that give them durability for what the economy brings next.
And because of its much smaller size, Terreno should have the ability to move the needle more quickly on such market-moving metrics as FFO, portfolio, and dividend growth. Both are strong stocks that deserve a place in the dividend-producing part of your portfolio. And you don't have to choose between the two. I own both and have been adding to them over time.
