STAG Industrial (NYSE:STAG) has historically paid a robust monthly dividend, offering buyers with a dependable stream of revenue. That mentioned, the inventory is hardly enticing aside from for conservative revenue buyers. Whereas the corporate’s rock-solid property portfolio stays well-positioned to maintain producing dependable money flows, I anticipate dividend will increase to stay marginal, probably underperforming inflation. Thus, I imagine that the inventory is appropriate just for conservative revenue buyers. I’m impartial on STAG.
STAG’s Property Portfolio Stays Nicely-Positioned
STAG’s portfolio seems well-positioned to maintain producing strong money flows, in my opinion. Whereas STAG’s multi-year lease profile considerably hampers its total development prospects, it gives notable visibility to hire assortment. Mixed with the mission-critical nature of those properties, STAG is poised to continue to grow slowly however absolutely.
To offer you an outline, STAG’s portfolio includes 569 industrial properties situated in 41 states. Extra particularly, the property combine leans towards warehouses and distribution facilities, with 493 buildings. The remaining are 70 gentle manufacturing buildings, one flex/workplace constructing, and 5 Worth Add Portfolio buildings. This final class mainly refers to sub-optimal or to-be-renovated properties.
STAG’s property portfolio has traditionally produced predictable money flows and proven stable resilience, even throughout unfavorable market durations. As an instance, even with occupancy declining by about 0.7% to 98.4% on the finish of 2023 from 99.1% on the finish of 2022, it nonetheless stays at an distinctive stage. This was the case in 2020 and 2021 through the pandemic, with occupancy coming in at 97.7% and 97.1% in every interval, respectively.
It is sensible, as warehouses and distribution facilities are an integral part of any firm’s provide chain dynamics. Because of this, it’s frequent to see STAG’s lessors attempt to safe multi-year leases. Significantly, on the finish of 2023, STAG’s properties featured a remaining weighted common lease time period of 4.3 years. This ensures each long-term visibility for lessors and a stream of predictable money flows for STAG.
This comes with a further profit, too. With STAG demonstrating years of steady money movement and close to 100% occupancy charges, administration has been capable of safe favorable borrowing phrases. STAG’s weighted common rate of interest stays at 3.8%, even within the present rate of interest setting. There are additionally no important near-term maturities, with STAG’s weighted common maturity length at a wholesome stage of 4.3 years.
Accordingly, curiosity bills remained beneath management this 12 months, and STAG was as soon as once more capable of develop AFFO per share. Nevertheless, AFFO per share rose by simply 3.6% to $2.29.
For context, STAG’s AFFO per share CAGR over the previous 5 years stands at 6.2%. The truth that rates of interest stay excessive could proceed to hamper STAG’s profitability prospects, as evidenced by the below-average AFFO per share development final 12 months. Nonetheless, as soon as rates of interest normalize, AFFO per share development ought to rebound by 5-6%. STAG’s 2.7% weighted common annual escalation fee and decrease curiosity prices ought to be the primary drivers.
Dividend Development Prospects Stay Tender, Nonetheless
Though STAG’s portfolio is more likely to match the strong efficiency it has proven lately, I imagine that the inventory’s total dividend development prospects stay gentle.
That’s to not say that STAG is just not a gorgeous dividend inventory. The interesting frequency of month-to-month payouts, along with a 3.9% yield and a confirmed monitor report of dividend development (13 years of consecutive annual dividend hikes), type a gorgeous dividend profile.
That mentioned, dividend will increase are more likely to proceed to underperform inflation. For context, though STAG has put out a commendable dividend development monitor report spanning over a decade, its dividend development CAGR over the previous 5 and 10 years stands at 0.7% and a couple of.5%, respectively. STAG’s most up-to-date dividend improve this January was additionally by a slightly underwhelming fee of 0.7%.
I imagine this development is more likely to proceed, as STAG seemingly goals to reasonable its payout ratio earlier than probably pursuing property acquisitions as soon as rates of interest ease. Apart from, the extremely enticing frequency of payouts has traditionally resulted in STAG inventory retaining a robust shareholder base and experiencing little volatility with out notable dividend will increase. Thus, administration is just not in a rush to spice up the dividend considerably.
In any case, the danger right here is that such a tempo of dividend development may probably underperform inflation, as has been the case in earlier years. Due to this fact, I imagine the inventory is barely appropriate for very conservative revenue buyers who search dependable dividends and low volatility returns however don’t anticipate notable capital and/or dividend development.
Is STAG Inventory a Purchase, Based on Analysts?
Wall Road’s view on the inventory, STAG Industrial includes a Maintain consensus score based mostly on two Buys, 5 Holds, and one Promote assigned prior to now three months. At $39.63, the common STAG Industrial stock forecast implies 5.65% upside potential.
In case you’re unsure which analyst you need to observe if you wish to purchase and promote STAG inventory, probably the most worthwhile analyst masking the inventory (on a one-year timeframe) is William Crow from Raymond James. He boasts a median return of 12.89% per score and a 73% success fee. Click on on the picture under to be taught extra.
The Takeaway
To sum up, I imagine that STAG Industrial presents a dependable, regular month-to-month dividend, which makes it an interesting choice for conservative revenue buyers. Nevertheless, past its dependable revenue stream, there isn’t an excessive amount of to love. Certain, its resilient property portfolio ought to maintain producing constant money flows, however dividend development is more likely to stay marginal, probably failing to maintain tempo with inflation. Thus, the inventory has a restricted goal group of buyers, in my opinion.
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