STAG Stock: This Monthly Dividend Stock Is Now Yielding 5.2%
STAG Industrial Is a Top Monthly Dividend Stock
For income investors who want to use the “buy-and-hold” strategy, few things are better than monthly dividends. The problem is that among the thousands of companies trading on U.S. stock exchanges, only a very small subset offers monthly distributions. In this article, we are going to take a look at a top monthly dividend stock that is currently yielding 5.24%.
The company in question is STAG Industrial Inc (NYSE:STAG), which is a real estate investment trust (REIT) headquartered in Boston, Massachusetts. As its name suggests, the company specializes in industrial properties.
Now, I know what you are thinking: if an investor is looking to generate a steady stream of income from a monthly dividend stock, shouldn’t they consider retail REITs or residential REITs? Well, while industrial REITs may not have the best reputation when it comes to providing recession-proof income, STAG Industrial stock could represent a unique opportunity.
The company focuses exclusively on single-tenant industrial properties. Its portfolio consists of mainly warehouses, distribution centers, and light manufacturing facilities.
What’s the importance of that? Well, first of all, STAG Industrial’s business could benefit from an ongoing trend in consumer behavior. One of the most important shifts happening right now is consumers moving from brick-and-mortar retailers to online shopping platforms. Just compare Amazon.com, Inc.’s (NASDAQ:AMZN) earnings report to that of physical retailers and you’ll see what I mean.
Online shopping sites don’t need a physical storefront. What they do need, however, is a warehouse to store inventories. And for these goods to arrive at customers’ doorsteps, they typically have to go through distribution centers. In other words, warehouses and distribution centers are critical in e-commerce logistics. As the e-commerce industry continues to grow, there will likely be more demand for these industrial properties. And that would be good news for this monthly dividend stock.
Also, with President Trump’s new policies, companies could bring more manufacturing back to the U.S. And that would strengthen the demand for manufacturing facilities, which would be another potential catalyst for STAG Industrial.
After looking at macro factors, note that STAG Industrial has also adopted a unique strategy on the microeconomic level. The company can use this unique strategy because of its target asset class of single-tenant industrial properties.
Think about it: if you are a landlord of a single-tenant property, you either get full rent when the property is leased or no rent when the property is vacant. That’s quite a bit of risk. The binary risk nature of single-tenant properties results in higher potential volatility in the cash flows generated by these properties compared to multi-tenant ones. And since investors are risk-averse, they require a higher risk premium. In other words, investors are not willing to pay that much for single-tenant industrial properties.
However, if an investor has a portfolio of single-tenant properties located in different geographies and they are leased to a large number tenants in different industries, they might be able to mitigate the binary risk. And that investor would see a big opportunity in these properties because others are simply not willing to pay too much for them.
That investor is STAG Industrial. By the end of the first quarter of 2017, the company’s portfolio included 324 buildings located in 37 states. These properties are leased to 279 tenants.
Of course, if there are too many large investors in the business, they would find single-tenant industrial properties equally attractive. If they bid up the prices, the opportunity would no longer exist.
The thing is, though, the industrial property market in the U.S. is extremely fragmented. The largest owner controls less than three percent of the market. As for STAG Industrial’s target assets, well, they are usually owned by local, non-institutional investors.
With its target market being large yet extremely fragmented, STAG Industrial sees a large-scale opportunity. The company estimated that its own share of the single-tenant industrial properties space is approximately one percent. For a real estate investment trust, that could mean plenty of acquisition opportunities ahead.
(Source: “Investor Presentation,” STAG Industrial Inc, last accessed July 6, 2017.)
And because this monthly dividend stock is structured as a REIT, it is required by law to distribute almost all its profits to shareholders in the form of dividends. STAG Industrial currently pays $0.1175 per share every month. At the current price, that gives it an attractive annual dividend yield of 5.24%.
Bottom Line on This Monthly Dividend Stock
As a REIT with an investment-grade credit rating, STAG Industrial has financing flexibility to support its acquisition plan. In 2016, the company acquired $472.0 million worth of industrial properties at a weighted average capitalization rate of 7.9%. In the first quarter of 2017, Stag Industrial acquired another $99.8 million worth of industrial buildings at a weighted average capitalization rate of 8.2%. These buildings were 100% occupied upon acquisition. (Source: “STAG Industrial Announces First Quarter 2017 Results,” STAG Industrial Inc, May 2, 2017.)
Bottom line: STAG stock may not be the most popular REIT, but because of its unique portfolio strategy and monthly distributions, it is worth considering for investors looking for monthly dividend stocks.