Iron Mountain (IRM 1.00%) currently offers investors a 4.5%-yielding dividend. That's above the more than 3.5% average in the real estate investment trust (REIT) sector and triple the dividend yield of an S&P 500 index fund. That above-average dividend yield makes Iron Mountain an attractive option for those who love to collect passive income. 

Here's a clear look at the information storage REIT and its attractive dividend.

Iron Mountain 101

Iron Mountain is a specialty REIT. Its global real estate network encompasses more than 1,400 facilities with over 85 million square feet of space in more than 50 counties. The company's properties store and protect valuable assets, including critical business information, highly sensitive data, and cultural and historical artifacts. It stores physical assets at its secured warehouse locations and digital information at its data centers. 

Iron Mountain is moving into the digital age to support its customers by building out data centers in key global markets to support their digital storage needs. The company currently operates 179.8 megawatts (MW) of leasable capacity, 90.6% of which it has leased to clients. It has another 185.7 MW of capacity under construction and enough room to develop another 247.9 MW in the future.

The REIT generates storage rental revenue by leasing space in its facilities to more than 225,000 customers worldwide. It also makes money by providing several related services to customers, including digitizing records, secure record destruction, and storage and logistics. In the second quarter of 2022, 58% of Iron Mountain's revenue was from storage rentals, while the rest was from services.

An already durable dividend is getting even stronger

Iron Mountain has invested heavily to grow its data center operations in recent years. That has put some pressure on its finances. As a result, the company hasn't increased its dividend since late 2019. 

However, those investments are starting to pay off. Iron Mountain's adjusted funds from operations (AFFO) grew by 9.6% per share in the second quarter. The REIT benefited from higher prices and volumes along with the growth of its data center business.

That rising income is putting the REIT's payout on an ironclad foundation. Iron Mountain is approaching its long-term target AFFO payout ratio of a low to mid 60% range. It was 67.8% in the second quarter, vastly improving from 80.7% in the year-ago period. Meanwhile, it expects to end the year within its long-term target leverage ratio range of 4.5 to 5.5. Leverage was 5.3 in the second quarter and should end 2022 at 5.4.

Iron Mountain therefore expects to be able to start growing its dividend again. It anticipates it can increase the payout in line with AFFO growth. While the REIT hasn't put out a long-term AFFO growth forecast, it does see it rising by 6% to 10% per share this year. That suggests the company could grow its payout by a similar annual rate if it can maintain that pace in the future. It's certainly possible, given the demand for digitalization services and the amount of data center capacity it has under construction.

A great way to generate passive income

Iron Mountain's investments in digitizing its storage business are starting to pay dividends for investors. Its AFFO is rising while its leverage and dividend payout ratio are falling toward its target ranges. That puts its high-yielding dividend on a firmer foundation, and it should start heading higher in the future. That makes Iron Mountain an attractive option for those seeking to collect a lucrative and growing passive income stream.