Dividend stocks can be some of the best investments on the market. Not only do they offer the potential for share price growth, they regularly distribute a slice of their earnings to shareholders. National Storage Affiliates Trust (NSA -0.09%), for example, has provided a 25% annualized return over the past 10 years -- nearly double what the S&P 500 has delivered. It also holds the title of the best-performing self-storage real estate investment trust (REIT) of the past decade.
Right now, the REIT's share price is down about 27% this year, making this an excellent time to buy.
A twist on the traditional self-storage business
There's a lot to like about National Storage Affiliates Trust. It owns just over 1,000 self-storage facilities across 42 states plus Puerto Rico. It has a healthy balance sheet, with ample cash flow and a fairly low debt ratio of around 5.7 times its earnings before taxes, interest, depreciation, and amortization (EBITDA).
The REIT also operates in a resilient industry that is well-positioned to perform strongly even during times of economic hardship, and its unique business model gives it a competitive advantage over its peers. National Storage Affiliates doesn't operate under one core brand: It has nine regional brands and three corporate brands under its umbrella. It acquires existing self-storage locations through joint ventures, and in some cases via its Participating Regional Operator (PRO) partnership structure. Under those deals, National Storage gives the selling party equity in the REIT, plus a portion of the sales price, and leaves them as the independent operator and manager of the facility.
This business model allows the company to benefit from local knowledge and connections within markets, reduces its overhead by keeping independent management in place, and gives it more favorable acquisition prices. As of the end of the first quarter, 374 of the REIT's properties were managed by PRO partners.
Locking in today's savings
On the business front, National Storage had a strong start to 2022. Same-store revenue rose 16.6% year over year in Q1, net operating income rose 22.2%, and core funds from operations (the key metric for gauging a REIT's profitability) rose by 38.8%. It also has a robust pipeline of possible acquisitions. It completed $93 million in acquisitions in Q1, and has identified another $2.9 billion worth of potential deals, including the option of buying out its joint venture partners.
Oversupply was a challenge for the storage industry before the pandemic. Excessive development in several major metro markets had lifted inventory to an all-time high, which pushed occupancy and rental rates down. However, National Storage's presence is heaviest in secondary and tertiary markets, and in its top 15 markets, the supply-and-demand outlook is balanced.
Thanks to the market's recent volatility, this stock is trading at around 18 times funds from operations -- a discount from its recent highs. While that's still on the more expensive side, it's in line with where its self-storage REIT peers are trading now. National Storage Affiliates Trust has already raised its dividend payout twice this year, putting its yield at recent share prices around 4.4%. I believe the company has a lot of growth potential ahead of it. And given the fragmentation in the self-storage industry and National Storage Affiliates Trust's unique business model for expansion, after its year-to-date share price decline, this would be a smart time to buy.