Monthly Dividend Stock In Focus: STAG Industrial

Up to date on Might twenty fourth, 2021 by Bob Ciura

For traders searching for yield, the actual property business is a good place to look. Intuitively, this isn’t shocking. Actual property homeowners gather predictable earnings from their tenants. Thus, the actual property enterprise is qualitatively geared for enterprise homeowners that wish to gather periodic earnings.

Top-of-the-line methods for traders to achieve publicity to the actual property business is thru Actual property Funding Trusts – or REITs, for brief.

STAG Industrial (STAG) is a industrial REIT that focuses on leasing single-tenant industrial properties all through the US. The inventory’s present dividend yield of 4.1% is sort of 3x as excessive as the common yield within the S&P 500.

Additional, STAG Industrial pays month-to-month dividends (fairly than quarterly). That is extremely helpful for retirees and different traders who depend on their dividend earnings to cowl life’s bills. There are at the moment round 55 month-to-month dividend shares.

You possibly can obtain our full Excel spreadsheet of all month-to-month dividend shares (together with metrics that matter like dividend yield and payout ratio) by clicking on the hyperlink beneath:

Due to the excessive yield and its month-to-month dividend funds, STAG Industrial has the potential to be an ideal funding for earnings traders, significantly because the firm has an extended runway of development up forward.

Enterprise Overview

STAG Industrial is an proprietor and operator of commercial actual property. It’s centered on single-tenant industrial properties and has ~462 buildings throughout 38 states in the US. The main focus of this REIT on single-tenant properties may create increased threat in comparison with multi-tenant properties, as the previous are both totally occupied or utterly vacant.

Nonetheless, STAG Industrial executes a deep quantitative and qualitative evaluation on its tenants. In consequence, it has incurred credit score losses which were lower than 0.1% of its revenues since its IPO. As per the most recent information, 55% of the tenants are publicly rated and 31% of the tenants are rated “funding grade.” The corporate sometimes does enterprise with established tenants to scale back threat.

STAG has an added benefit because of the firm’s publicity to e-commerce properties, which provides it entry to a key development section in actual property.

Supply: Investor Presentation

STAG Industrial is going through a headwind because of the recession brought on by the pandemic. Nonetheless, the impact of the pandemic on the REIT has been restricted thus far due to the excessive credit score profile of its tenants. The REIT collected 99.6% of its base rental billings in 2020.

Some REITs view single-tenant properties as dangerous as a result of the properties are seen as a binary proposition; they’re both totally leased or empty. Nonetheless, specializing in single-tenant properties creates mispriced belongings, which STAG can then add to their portfolio at engaging valuations. That is central to STAG’s technique and is a key differentiator amongst rivals. As well as, STAG sees a continued rise in e-commerce as a proportion of retail gross sales as central to its technique, as seen beneath.

STAG’s addressable market is in extra of $1 trillion, half of which is made up of single tenant properties. The sector is very fragmented, which means that no specific entity would have a big scale benefit. Because of this STAG believes it could actually buy mispriced belongings.

STAG finds this to be a beautiful mixture of belongings and mixed with comparatively low capex and excessive retention charges, it has created a robust portfolio of commercial actual property.

STAG’s tenant profile displays the huge diversification it has constructed into its portfolio, which the belief believes diversifies away a lot of the danger of proudly owning single tenant properties. STAG has executed a pleasant job of taking a comparatively dangerous sector of actual property – single tenant properties – and constructing a portfolio in such a method that it diversifies away a lot of that threat.

Development Prospects

STAG Industrial’s development since its IPO in 2011 has been spectacular from each a basic and an investor return perspective. Fortuitously, this actual property belief nonetheless has a robust development runway.

In early Might, STAG Industrial reported (5/4/21) monetary outcomes for the first quarter of fiscal 2021. The report was very just like the earlier seven experiences. Core FFO grew13% over final yr’s quarter due to the sustained power of the tenants of the REIT. Core FFO per share grew solely 4%, from $0.47 to $0.49, attributable to the in depth issuance of latest models.

Web working earnings grew 11% over final yr’s quarter and the occupancy price of the REIT marginally improved, from 96.9% to 97.0%. STAG Industrial is going through a headwind because of the recession brought on by the pandemic. Nonetheless, the impact of the pandemic on the REIT has been restricted thus far due to the excessive credit score profile of its tenants. It’s exceptional that the REIT has collected roughly 99% of its rental earnings in the final 4 quarters.

The belief continues to take a position closely in new properties because it expands its portfolio, and far of that financing is completed with new frequent inventory. We anticipate the belief will proceed to subject new shares for the foreseeable future to develop its portfolio.

We imagine STAG will seemingly proceed to develop at an identical mid-single-digit price. Certainly, we forecast 5% annual FFO-per-share development within the subsequent 5 years. The belief nonetheless has a really small market share in its goal market of actual property belongings, leaving loads of room for growth.

Supply: Investor Presentation

STAG has a highly-diversified tenant base with almost the whole portfolio comprised of tenants with no less than $100 million in annual income. Additional, the belief has little or no publicity to any specific business or tenant. Diversification will assist shelter the belief from the impacts of the subsequent financial downturn.

The market dynamics of the sector are favorable as properly, and have improved meaningfully in recent times.

With continued adoption of digital promoting channels from retailers, we anticipate these metrics to proceed to maneuver increased for the business, and certainly STAG particularly. It will assist help its development within the years to return.

Dividend Evaluation

STAG’s dividend is clearly crucial, as traders typically personal REITs for his or her payouts. STAG’s payout has grown yearly since its IPO, and stands right this moment at $1.45 per share. Nonetheless, development since 2015 has been very slight, because the payout was $1.36 in that yr, and has grown by simply $0.09 within the years since.

We don’t see materials development within the dividend transferring ahead as a result of STAG’s payout ratio, which at the moment stands at 74% of FFO-per-share, remains to be pretty excessive. We predict STAG will produce very small will increase for the foreseeable future, as it really works to lower the chances a lower can be vital throughout a downturn.

The present payout ratio is down considerably from earlier ranges close to 100% as STAG has made a concerted effort to scale back the vulnerability of its dividend. That effort remains to be underway, nonetheless, so we see significant payout development as unlikely within the near-term.

The present payout ratio, mixed with what we see as mid-single-digit FFO-per-share development within the coming years, ought to steadily enhance the protection of STAG’s dividend. The belief has additionally made divestitures when pricing is favorable, an choice it might flip to quickly cowl dividend shortfalls. In brief, we predict the 4.1% yield is pretty secure at this level.

Remaining Ideas

STAG Industrial has two traits that may instantly enchantment to earnings traders: a 4.1% dividend yield and common month-to-month dividend funds. This REIT remains to be a beautiful worth at right this moment’s value and yield.

As well as, we just like the belief’s technique for long-term development in a sector of actual property that’s typically ignored by traders due to its perceived riskiness. Thus, STAG Industrial makes a very good potential addition to a high-yield portfolio due to its excessive dividend yield, month-to-month dividend funds, and management within the single-tenant industrial actual property market. As such, we see STAG as very engaging right this moment and one of many high month-to-month dividend shares.