industrial deer (WKN: A1C8BH) currently has a dividend yield of just 3.7%. Multiplying the current monthly dividend of $0.122 by a share price of $39.52 gives us this figure. Not bad. But not necessarily special for a REIT.
However, STAG Industrial definitely has other qualities to offer. Today we want to pay special attention to three, which shows that we have a management team that prioritizes growth and quality over the maximum dividend. However, this in turn can be the basis for increasing passive income in the long run.
STAG Industrial: The research process
The management of STAG Industrial operates in the real estate and real estate logistics market. The company gained notoriety because Amazon is one of the main tenants. But there are also many other companies in this exciting growing market. Let’s take a look at how management invests. Or how selectively you select real estate.
In the 2020 financial year, those responsible explained, among other things, that initially 1,200 different properties were considered. In 224 they submitted an offer and took a closer look at it. However, only 39 properties were added to the portfolio because they met their own requirements. In case you’re interested, that’s not even 3%. A lot of effort for little return? Or, thought of the other way around: Concentration on quality that serves your own success in the best possible way.
STAG Industrial has high standards when it comes to procurement. This is precisely a strength that emanates from the real estate investment trust and is the foundation for long-term success.
Operating Growth vs. Dividend Growth
We can see from their dividend history that STAG Industrial isn’t exactly known for rapid dividend growth. More recently, the total payment per share increased from $0.121 per month to $0.122. Relatively or absolutely that is little.
However, this is an idea. Admittedly, that doesn’t make the 3.7% dividend yield much more attractive. But it does mean management has the flexibility to buy all 39 properties in fiscal 2020. Or to make more acquisitions in 2021.
STAG Industrial is initially company oriented and does not care about dividend growth. With this long-term mission, growth rates are possible that not only provide a foundation for dividend growth.
Valuation and Growth in STAG Industrial
We have already seen that STAG Industrial offers a dividend yield of 3.7%. This is a look at fundamental valuation. With a price per share of $39.52 and funds from operations of $2.07, the price/FFO ratio is currently 19.1. It’s not cheap, even considering a payout rate of 70.7%. But the 8.9% year over year growth in funds from operations is a strong catalyst.
We recognize that STAG Industrial continues to grow and that the strategy of prioritizing operational growth over dividend growth is paying off. This can provide the basis for long-term returns that outperform the market through rising prices.
The Article Despite “Only” 3.7% Dividend Yield: 3 Features Now Make REIT STAG Industrial Attractive! first appeared in The Motley Fool Germany.
Vincent does not own any of the shares mentioned. John Mackey, CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool’s board of directors. The Motley Fool owns stock and recommends Amazon and STAG Industrial.
Motley Fool Germany 2022