Tuesday, August 11, 2015

Recent Buy: Stag Industrial Inc




Jul 29, 2015: Bought 140 shares of STAG at $18.94 per share.

Founded on July 21, 2010 and based in Boston, Massachusetts, Stag Industrial Inc (NYSE:STAG) is a real estate investment trust focused on the acquisition and operation of single-tenant, industrial properties throughout the United States. STAG’s portfolio consists of 265 properties in 37 states with 242 tenants.

STAG is not yet a CCC stock, having only paid and raised dividends for 4 consecutive years. The company pays monthly dividends of 11.5¢ per share. At my buy price, the stock yields 7.29%.

STAG performed very well in 2012 and in 2013 (through May). At that point, the stock had outperformed the S&P 500 by more than 60%. Since then, performance has been up and down and STAG has lost ground compared to the S&P 500. My buy price is indicated in the following chart. It happens to be near the 2-year low for STAG:

 Source: Scottrade

According to longrundata.com, an investment in STAG when the stock started trading on 15 April 2011 would have returned more than 18% on an annualized basis. This excludes dividends, which totaled $4.755 per share through July 2015.


STAG's stock price has been under lots of pressure in 2015. The stock has fallen by 23% since January 2. A falling stock price causes yield to rise and in the case of STAG, yield is very attractive at over 7%:

 Source: Dividend.com

One reason I like STAG is that it now pays monthly dividends. The company switched to monthly dividend payments in November 2013:


Analysis of STAG


My fair value estimate of STAG is $22.00, so I purchased shares at a discount of 14%. 

STAG passes the following of my selection criteria:
  • Dividend yield: at least 4.5% (7.29%)
  • Equity valuation multiple: price to funds from operations (FFO) is less than 16 (12.88x)
  • Debt ratio: debt to market capitalization ratio is below 50% (31.70%)
  • Fair value: price discount is at least 5% of fair value estimate (14%)

STAG fails the following of my selection criteria:
  • Dividend streak: at least 5 consecutive years of dividend increases (4 years)
  • Dividend growth rate: 5-year DGR is at least 10% (n/a)
  • Dividend payout ratio: ratio of dividend to FFO per share is less that 75% (93.88%)

Based on these statistics, STAG earns 4 out of a possible 7 stars: (****---)


Other ratings for STAG


 Zacks Rank 3-Hold (C•C•C)†
 Thomson Reuters StockReport+  (4/10) Neutral 
 TheStreet Ratings Rating Hold [C]
 The Motley Fool's CAPS Rating (****-)
 Dividend.com's DARS Rating  3.3/5
        †(Growth•Value•Momentum)

Concluding Remarks


After STAG announced second quarter earnings on 23 July 2015, the stock price fell over 12% to $18.51 per share. Aside from one sell-side analyst, who moved STAG to SELL before earnings were announced, Brad Thomas of iREIT Investor couldn't find any reason for the drop. In fact, he initiated a STRONG BUY on the shares, noting that STAG's fundamentals are sound and that shares are cheap. Perhaps investors are just nervous that tighter monetary policy and higher bond yields in the near future will put pressure and STAG and other REITs.

I like STAG for several reasons, including the impressive yield and the fact that STAG pays monthly dividends. The dividend is entirely derived from operating income, with an average payout ratio of 93% for the last 12 months. STAG's dividend growth rate, since the company went public, is 7.2%. 

Fitch recently upgraded STAG's corporate credit rating BBB with a stable outlook, citing the company's credit strengths, including strong leverage and strong fixed charge coverage metrics, excellent liquidity, and improving access to unsecured debt capital. 

140 shares of STAG adds $193.20 to DivGro's projected annual dividend income.

Thanks for reading! What do you think of this buy? Do you own shares of STAG or are you considering buying shares?

2 comments :

  1. Nice buy FerdiS, I like it too, and I think that's a nice price. I missed the mid-$18's so I am going to wait. I think all REITs will take a bit of a hit soon if rates go up. At that point, I will add them.

    ReplyDelete
    Replies
    1. Thanks, Mike -- REITs will take a hit when rates go up, yes, giving you an opportunity to get in at a lower price. There's been talk recently that the widely expected rate hike in September may not happen... but it will happen eventually.

      Delete

Contact Form

Name

Email *

Message *

Follow by Email