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. 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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