Iron Mountain Inc (NYSE:IRM): Earn a Growing 5.87% Dividend from IRM stock
Earn a Dividend of 5.87% from a Unique Business
The real estate industry is known for generating wealth time and time again. That is why investors flock to it; they love the investment opportunity because of the cash flow from such a simple business model.
With any investment, the more unique the businesses model, the greater the possibility of earning market-beating returns. I kept this in mind while conducting my research, when I suddenly came across Iron Mountain Inc (NYSE:IRM) stock. The more I looked into the company, the more I was attracted to it as a great investment opportunity.
Iron Mountain is a global enterprise company and real estate investment trust (REIT) that provides storage and a broad range of record and information management services to customers around the globe at its over-1,4000 facilities. Its customer base is very diversified, including a variety of businesses and government entities, with no single entity accounting for more than one percent of total revenue. Clients with long-term contracts include United Parcel Services, Inc. (NYSE:UPS), Boeing Co (NYSE:BA), and the John F. Kennedy Presidential Library. (Source: “Customer Success Stories,” Iron Mountain Inc, last accessed August 16, 2017.)
Below are two reasons why you should consider IRM stock.
Iron Mountain is a very unique real estate company, as evidenced by the history of its dividend. Normally, a company pays a regular quarterly dividend, and this is true for Iron Mountain stock as well. However, not only is Iron Mountain’s payment steady, but it is also constantly growing. Over the past five years, the dividend has seen an increase of more than 100%. This growth can be attributed to the growth of the business itself and a desire to maximize shareholder rewards.
But dividend growth is not the only method that has been used to reward shareholders; additional special dividends have been paid out as well using surplus cash. There have been two such payouts, detailed below:
|Year||Total Annual Dividend||Amount of the Special Dividend|
In 2014, there was about 40% paid out in addition to the regular dividend. In 2012, the special dividend amounted to 75% of the regular dividend. This resulted in receiving a higher rate of return based solely on the dividend payment.
In addition, there has actually been a third payout method: stock dividends. Unlike a dividend payment, investors can purchase more shares with the bonus of zero commission fees. Below are details on how this stock dividend has worked in the past:
|Year||Stock Dividend Percent||Stock Dividend Dollar Amount|
So in 2014, there was a stock dividend worth 7.23%, meaning investors would be given an additional 7.23 shares for every 100 purchased, which amounted to $2.89 per share in dollar value for investors. Partial shares cannot be purchased, so that 0.23 was replaced with cash.
But this has all occurred in the past , and you may be wondering about your future bottom line. Well at this time, investors can receive a dividend yield of 5.87%. I believe that the growth in the dividend can continue because real estate features inflation-protected assets. And keep in mind that Iron Mountain is a business with a high customer retention base, low turnover cost, and low maintenance capital expenditures. Also, when businesses grow, they will have a greater need for the company’s services, which bumps up Iron Mountain’s revenue.
The company anticipates dividend growth of four percent to 9.3% from 2017 to 2020. This would outpace the rate of inflation, which is typically in the range of three percent. There is the possibly that the growth in the dividend could be higher based on the level of demand for the company’s goods and services. (Source: “Durable Business Drives Cash Flow and Dividend Growth,” Iron Mountain Inc, May 2, 2017.)
I believe future special and stock dividends are also highly probable because of the growth in medical storage industry. This sector includes storage and information management services for physical records, x-rays, blueprints, and audio and video recordings. This segment currently contributes 17% to Iron Mountain’s total revenue. With more medical companies making the conversion from physical storage to digital, IRM should greatly be a beneficiary. Also consider the cash position that is building up in the company’s account; in just one year, the cash balance is up 78%. (Source: “Iron Mountain Inc.,” MarketWatch, last accessed August 16, 2017.)
IRM stock is part of the Vanguard Specialized REIT Index. Companies on this index have real estate assets that serve a specific set of client needs. For example, some companies own industrial buildings serving e-commerce businesses, while others own and operate shopping malls around the world. This group of stocks currently have an industry price-to-earnings (P/E) ratio of 82.9 times, or $82.90 for every $1.00 of earnings.
IRM stock’s current P/E ratio is 50.8 times. This is why Iron Mountain stock is much more attractive–because investors expect a stock to trade in line or at a higher multiple. This occurs for one of two reasons: either the market is unaware of the investment or it does not see growth in the company going forward. I believe that in this case, it’s the former.
Here is a table of the annual reported earnings in 2016 and the forecasted earnings for the coming year:
|Year||Type of Earnings||Amount of Earnings Per Share||Forecasted Earnings Growth|
Based on this table, the earnings forecasted could be in the double digits. This would positively impact both the stock price and dividend growth. With this type of growth in earnings, investment rotation could possibly occur. This simply means a high-P/E stock would be sold and another stock with a lower P/E would be purchased in its place. This would still provide the investor with exposure to the specialty REIT sector.
Final Thoughts About IRM Stock
Iron Mountain’s management is very shareholder-friendly and appears to always be looking to return a large amount of capital to investors when it’s financially viable. The main focus remains to grow the business to make such returns possible.
Unique companies with great business models and a focus on shareholders normally trade at a premium. This is one situation where the discounted valuation works in your favor if you did choose to purchase shares of IRM stock, getting paid for your time in the stock with an income-based return until the valuation increases.