Editor’s Note: Today’s Safety Net comes from Kyle Amato, Wealthy Retirement‘s Financial Research Associate. Kyle will investigate a 4.63% yield from a well-diversified real estate investment trust (REIT).
– Mable Buchanan, Managing Editor
While the need for traditional retail and office space has declined significantly over the past year, the demand for warehouse space has boomed. Online retailers are stocking up to meet the growth in demand.
That’s where STAG Industrial (NYSE: STAG) comes in.
The REIT owns and manages industrial properties across the United States.
Its portfolio includes warehouses, fulfillment centers, storage units and other properties.
Typically, industrial REITs offer low dividend yields. They are seen as safe, long-term investments. The average yield is 2.55%.
Yet STAG pays $1.44 per share, yielding a whopping 4.63%.
Investors want to know… Is it safe?
A Dividend Raiser With Room to Grow
STAG has raised its dividend every year since it began paying one in 2011.
Since 2012, the company’s dividends have increased at an annual growth rate of 4.2%.
STAG has a diversified tenant base spread across many industries. Fewer than 25% of the company’s leases expire before 2023, ensuring a stable flow of income.
The company’s largest tenant is Amazon (Nasdaq: AMZN), and even it makes up only 2.9% of STAG’s yearly base rent.
In fact, STAG’s top 10 tenants together account for just 12% of its yearly base rent.
Meanwhile, e-commerce makes up 40% of STAG’s portfolio.
In 2019, e-commerce accounted for 11% of total retail sales in the United States. In 2024, it is estimated that 19.2% of retail sales will be e-commerce.
This shift should stimulate growth for STAG’s e-commerce-heavy tenant base, further reducing the possibility of defaults.
Investors have seen the benefits…
In the past five years, STAG’s funds from operations (FFO) have experienced robust growth driven by rising rental rates and property acquisitions.
The chart below depicts STAG’s FFO over the past five years.
As STAG’s FFO rises, its payout ratio falls. In 2020, STAG’s payout ratio was estimated to be 77.42%, down from 81.17% in 2019.
Since REITs are required by law to pay out 90% of their earnings in dividends, they often pay out all of their cash flow. That’s why SafetyNet Pro‘s payout ratio comfort zone is 100% for REITs.
With a low payout ratio and a history of dividend increases, we could see another dividend raise in the near future.
STAG’s varied portfolio base combined with its growing FFO make its dividend extremely safe.
Dividend Safety Rating: A
If you have a stock whose dividend safety you would like Marc to analyze, leave the ticker symbol in the comments section.