A Simple Strategy for Both Income and Growth Investors
“If you could only give one piece of advice to investors, what would it be?” That’s a question I like to ask whenever I meet a successful investor.
So on the first day my colleague Robert Baillieul walked into the office, I asked him that question.
“Oh, that’s easy,” he said. “Don’t wait to buy stocks. Buy stocks and wait.”
Robert has been involved in the financial industry for quite some time. He worked alongside traders at big banks and knows complicated trading strategies inside-out. However, when asked about the secret to his success—he has also built quite a sizable retirement portfolio over the years—his answer was surprisingly simple: “Just buy solid dividend stocks and wait for the dividend increases.”
This might seem a bit underwhelming at first, but it is by far the easiest way for investors to get started on building a nest egg.
Emotions are known as an investor’s worst enemy. By simply holding on to their shares instead of buying and selling all the time, an investor can take their emotions out of the equation. With a portfolio of solid dividend-paying stocks, the investor can even turn off the financial news altogether and just collect the dividend checks in the mail.
Why would this simple “buy and wait” strategy work?
Well, because as companies grow their business (and dividends), they can justify higher valuations as time goes by. And indeed, in the long run, investors are willing to reward those companies with higher share prices.
Meanwhile, rising dividends can provide shareholders with a great source of passive income.
Looking at the most well-known dividend growth stocks, it’s easy to see how much profits “buy and wait” investors have enjoyed. Over the past decade, both The Coca-Cola Co (NYSE:KO) and Johnson & Johnson (NYSE:JNJ) have delivered total returns well above 100%.
And if you check out dividend growth stocks in slightly more exciting industries, such as technology, the returns are even more impressive. In the past 10 years, Microsoft Corporation’s (NASDAQ:MSFT) share price has increased more than fivefold. The company also raised its cash payout to shareholders every single year.
Of course, one consequence of this pattern is that dividend growth stocks seem to have already shot through the roof. For instance, the companies I just mentioned have all gotten quite expensive, and at the current price, they don’t provide much in terms of yield.
If you hold on to shares of JNJ, KO, and/or MSFT stocks, you’ll likely collect higher yield on cost in the years ahead. But what if you want to earn an outsized cash return today?
Well, then I suggest you take a serious look at Iron Mountain Inc (NYSE:IRM).
Iron Mountain Inc
Structured as a real estate investment trust (REIT), Iron Mountain Inc specializes in the storage and protection of valued assets, such as critical business information, highly sensitive data, and cultural and historical artifacts.
Today, the company has a portfolio of over 1,400 facilities totaling more than 85-million square feet, located in more than 50 countries around the world. Through these real estate assets, Iron Mountain provides a wide range of services, including secure storage, secure destruction, information management, and digital transformation, just to name a few.
And as more and more businesses move their computing needs to the cloud, the REIT has also started offering data centers services.
Iron Mountain excels at dividend growth. In just the last three years, the company’s quarterly dividend rate went from $0.485 per share to $0.611 per share, marking an increase of 26%. (Source: “Historical Dividends,” Iron Mountain Inc, last accessed January 29, 2019.)
Trading at $36.41 per share, IRM stock offers a generous annual yield of 6.7%.
Those dividend hikes are backed by growing financials. In the first nine months of 2018, Iron Mountain’s total revenue increased 10.4% year-over-year on a constant currency basis to $3.16 billion. Adjusted funds from operations, a critical measure of a REIT’s performance, totaled $680 million during this period, up 13.7% from a year ago. (Source: “Iron Mountain Reports Third-Quarter 2018 Results,” Iron Mountain Inc, October 25, 2018.)
Thanks to a growing business, management is determined to continue raising the cash payout to investors.
According to Iron Mountain’s 2020 Plan, the company is projecting a minimum dividend-per-share growth rate of four percent per year until 2020. (Source: “Durable Business Drives Cash Flow and Dividend Growth,” Iron Mountain Inc, last accessed January 29, 2019.)
Based on what the company has been doing, I have no doubt that it will hit the target and continue that streak for years to come.
In other words, if an investor puts Robert’s advice to work on IRM stock, not only will they earn an oversized 6.7% yield today, but also collect an even higher yield on cost in the future.
As it stands, Iron Mountain Inc represents a serious dividend growth opportunity.