Wednesday, August 31, 2022

🥳 A Lucrative Stag Party

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AN OXFORD CLUB PUBLICATION

Wealthy Retirement

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A Stag Party Everyone Can Enjoy

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

No, this isn't an article about the prospects of RCI Hospitality Holdings (Nasdaq: RICK), which operates what are euphemistically known as "gentlemen's clubs" - though RCI does offer a tiny dividend. (I guess all those single dollar bills add up.)

Rather, today I'm discussing a business that operates in a far less titillating but far more lucrative sector - industrial real estate.

Stag Industrial (NYSE: STAG) owns 559 buildings across 40 states. Most of them are distribution warehouses or manufacturing facilities. Its top customers are Amazon, Eastern Metal Supply and American Tire Distributors.

The real estate investment trust (REIT) pays a $0.12-per-share monthly dividend, which comes out to a 4.5% annual dividend yield.

Let's see whether all of those boring buildings will result in shareholders continuing to get paid their dividends...

When analyzing REITs, we look at funds from operations (FFO) to determine whether a company can afford its dividend. FFO is a measure of cash flow used by REITs.

Stag's FFO has been growing strongly and is expected to increase by 18% this year.

Chart: Stag Industrial's Funds From Operations Rising
 

Last year, the company paid $246 million in dividends, or 74% of FFO. This year, Stag is forecast to pay $262 million in dividends, or 67% of expected FFO.

I am comfortable with REITs paying up to 100% of FFO in dividends. So the fact that Stag Industrial's payout ratio is so low gives me confidence the company wouldn't have to cut its dividend even if FFO declined in the near future.

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12 Years of Dividend Increases

Stag has raised its dividend every year since it began paying one in 2011 (including a raise in 2011).

Granted, the raises are usually a fraction of a cent on the monthly dividend. In 2020, Stag paid out $1.44 per share for the year. Last year, the total annual dividend was $1.45 per share. In 2022, Stag is on pace to pay $1.46 per share, for a nice 4.6% yield.

The yearly raises, however puny, show Stag's commitment to its dividend.

Given its low payout ratio and rising cash flow - and its dozen consecutive annual increases - Stag's dividend is safe.

Dividend Safety Rating: A

Dividend Grade Guide
 

If you're on the hunt for stocks that pay out SAFE and SUBSTANTIAL dividends, look no further than my FREE Ultimate Dividend Package.

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If you have a stock whose dividend safety you'd like analyzed, leave the ticker symbol in the comments section.

You can also check to see whether we've written about your favorite stock recently. Just click on the magnifying glass in the upper right corner of the Wealthy Retirement homepage and type the company's name in the box.

Good investing,

Marc

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