Just because a stock has done well doesn’t mean it will do so in the future, but in the case of STAG Industrial (STAG -1.19%)there’s reason to be confident that shares of this owner of logistics space across the country will continue to outperform.
STAG says its investment strategy is to help shareholders find “a powerful balance of income plus growth,” and, as the numbers show, so far so good.
In just more than a decade, the Boston-based real estate investment trust (REIT) has expanded its portfolio from 14.2 million square feet and 93 buildings in 26 states to 111.6 million square feet and 563 buildings in 41 states.
And the chart shows how STAG has performed in comparison to Prologis, the largest of all industrial REITs, and to the S&P 500 itself since the smaller REIT went public in April 2011 at $13 a share.
STAG Total Return Level data at YCharts
A respectable yield and low payout ratio
REITs are typically considered income stocks, competing with the likes of bonds, CDs, and savings accounts for the attention of investors who need income as much or more than growth, including many retirees such as myself.
In that respect, STAG does just fine. This REIT pays dividends monthly, which is nice for fixed-income folks, and has raised its dividend for four straight years. The current yield is about 4.2%, and a payout ratio of about 58% based on cash flow indicates little difficulty in meeting its obligation as a REIT to pay out at least 90% of its taxable income to shareholders.
STAG’s performance also provides the opportunity to point out the importance of dividend payouts to total return. The chart compares the REIT’s total return compared to price share growth alone since that 2011 IPO.
STAG Total Return Level data at YCharts
Big trends that point to a buy
STAG is benefiting from the same trends that are pushing up income for its competitors: low vacancy rates and the ability to raise rents significantly as leases expire. In its 3Q22 report, the company says its occupancy rate was 98.2% as of Sept. 30, and that it expects demand to continue keeping its coffers and warehouses full.
The company says about 40% of its portfolio handles e-commerce activity, and that it expects continued growing demand from reshoring and nearshoring growth, along with the shift from “just-in-time” to “just-in-case” inventory strategies as supply chain issues ease.
As for the financials, one key measure is funds from operations (FFO) per share, which STAG says rose by about 7% in the first three quarters of 2022 from the previous year. Another good sign is that cash available for distribution rose by nearly 17%.
Now might be a particularly good time to pick up a few shares of this passive income machine. STAG stock is down about 20% during the past year and is selling at a per share price-to-FFO ratio of about 12, which strikes me as an attractive valuation. I own shares of STAG and intend to keep adding to my stake.
Marc Rapport has positions in Prologis and Stag Industrial. The Motley Fool has positions in and recommends Prologis and Stag Industrial. The Motley Fool has a disclosure policy.
