STAG Industrial (STAG) | Monthly Dividend Safety Analysis

Up to date on September twenty second, 2024 by Felix Martinez

The true property business is a superb place for traders looking for yield. Intuitively, this isn’t shocking. Actual property homeowners acquire predictable earnings from their tenants. Thus, the true property enterprise is qualitatively geared towards homeowners wanting to gather periodic earnings.

The most effective methods for traders to achieve publicity to the true property business is thru Actual property Funding Trusts – or REITs.

STAG Industrial (STAG) is a business REIT that focuses on leasing single-tenant industrial properties all through the US. The inventory’s present dividend yield of three.8% is extra then double the 1.6% common yield within the S&P 500.

Furthermore, STAG Industrial pays month-to-month dividends (reasonably than quarterly). That is extremely useful for retirees and different traders who depend on their dividend earnings to cowl life’s bills. There are at present 78 month-to-month dividend shares.

You may 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 its excessive yield and its month-to-month dividend funds, STAG Industrial has the potential to be an excellent funding for earnings traders, notably for the reason that firm has a protracted runway of development forward.

Enterprise Overview

STAG Industrial is a Actual Property Funding Belief, or REIT. It’s an proprietor and operator of business actual property. It’s centered on single-tenant industrial properties and has 559 buildings throughout 40 states in the US. The main focus of this REIT on single-tenant properties may create greater danger in comparison with multi-tenant properties, as the previous are both absolutely occupied or fully vacant.

Nonetheless, STAG Industrial executes a deep quantitative and qualitative evaluation of its tenants. Consequently, it has incurred credit score losses which have been lower than 0.1% of its revenues since its IPO.

Supply: Investor Presentation

The corporate sometimes does enterprise with established tenants to scale back danger. Furthermore, STAG Industrial has restricted publicity to any particular tenant. STAG has an added benefit because of its publicity to e-commerce properties, which provides it entry to a key development section in actual property.

The penetration charge of e-commerce is anticipated to develop from 14% in 2021 to 30% by 2030. This secular shift in shopper conduct will present a robust tailwind to the enterprise of STAG for the subsequent a number of years.

STAG is at present going through a headwind because of the rise of rates of interest. Nonetheless, the impact of the upper rates of interest on the REIT has been restricted up to now, because of the excessive credit score profile of its tenants.

Some REITs view single-tenant properties as dangerous as a result of these properties are seen as a binary proposition; they’re both absolutely leased or empty. Nonetheless, specializing in single-tenant properties creates mispriced belongings, which STAG can add to its portfolio at enticing valuations. That is central to STAG’s technique and is a key differentiator amongst rivals.

STAG’s addressable market is in extra of $1 trillion, a good portion of which is made up of single-tenant properties. The sector is very fragmented, that means that no specific entity would have a major scale benefit. For this reason STAG believes it may possibly buy mispriced belongings.

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

STAG’s tenant profile displays the huge diversification it has constructed into its portfolio. This diversification mitigates the danger of proudly owning single tenant properties to an excellent extent. STAG has accomplished a pleasant job of taking a comparatively dangerous sector of actual property – single tenant properties – and constructing a portfolio in such a approach that it tremendously reduces that danger.

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 ample room for future development.

The corporate reported its monetary and working outcomes for Q2 2024, exhibiting robust development. The corporate achieved internet earnings of $0.33 per share, up from $0.29 in Q2 2023, with complete internet earnings rising to $59.7 million. Core FFO per share grew by 8.9% to $0.61, whereas Money NOI elevated by 10.3% to $148.4 million. Identical Retailer Money NOI additionally noticed a 6.1% rise to $138.2 million.

The corporate made vital strikes within the quarter, buying 10 buildings totaling 2.2 million sq. toes for $225.6 million and promoting seven buildings for $78.2 million. STAG’s portfolio maintained a excessive occupancy charge of 97.1%, with the working portfolio at 97.5%. New leases lined 3.5 million sq. toes with vital lease development, and 79.9% of expiring leases have been renewed.

Moody’s reaffirmed STAG’s Baa3 ranking and upgraded its outlook from ‘Secure’ to ‘Constructive’ in June 2024. By late July, the corporate had addressed 94.7% of anticipated 2024 leasing exercise, with a 28.9% improve in money lease on new and renewed leases.

Supply: Investor Presentation

Dividend Evaluation

STAG is a high-dividend REIT. Its 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 now at $1.48 per share. Nonetheless, dividend development since 2015 has been minimal, averaging just one.0% per 12 months.

We don’t see materials development within the dividend shifting ahead, however STAG’s payout ratio, which at present stands at 62% of FFO-per-share, offers a significant margin of security for the dividend. We count on STAG to proceed elevating its dividend at a really sluggish tempo for the foreseeable future as a way to keep away from ending up in a good spot prefer it did within the earlier half of the trailing decade.

The payout ratio is down considerably from earlier ranges of close to 100% again in 2016, as STAG has made a concerted effort to scale back the vulnerability of its dividend. Nonetheless, that effort remains to be underway, and therefore we see significant payout development as unlikely within the close to time period.

The present payout ratio, mixed with our expectations for mid-single-digit FFO-per-share development within the coming years, ought to progressively enhance the protection of STAG’s dividend. The belief has additionally made divestitures when pricing is favorable, an possibility it may use to briefly cowl dividend shortfalls. In brief, we view the three.8% dividend yield of the REIT as protected for the foreseeable future.

Remaining Ideas

STAG Industrial has two traits that may instantly enchantment to earnings traders: a 3.8% dividend yield and common month-to-month dividend funds. As well as, the REIT has promising development prospects and is fairly valued proper now. Consequently, it may possibly supply a complete common annual return of about 7.1% over the subsequent 5 years.

We just like the belief’s technique for long-term development in a sector of actual property that traders typically ignore because of its perceived riskiness. Thus, STAG Industrial makes potential addition to a high-yield portfolio because of its excessive dividend yield, its month-to-month dividend funds, and management within the single-tenant industrial actual property market. General, STAG Industrial appears a sexy candidate for income-oriented traders, particularly within the extremely inflationary investing atmosphere prevailing proper now..

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