If you invested $10,000 into STAG Industrial (STAG 1.60%) three years ago, you would have around $10,700 today. That sounds somewhat underwhelming, but if you dig in a little bit deeper you'll see that this is much better than it at first seems. Here's why a stock that looks like it's dead in the water turned out to be a solid win for investors.
The business
Over the past three years or so STAG has steadily grown. It started 2020 off with 450 industrial properties and an occupancy rate of 95%. At the end of the third quarter of 2022, the real estate investment trust's (REIT) portfolio stood at 563 industrial properties sporting an occupancy rate of 96.4%. It maintained financial discipline while expanding, with a balance sheet that's basically just as strong today as it was three years ago. The adjusted funds from operations (FFO) payout ratio, meanwhile, improved to roughly 65% from 75%.
It would be very hard to suggest that the last three years were wasted time for STAG as a company. And yet the stock today is only up about 7% from where it was three years ago. To be fair, that's much better than the average REIT, which is down about 8% from three years ago using the Vanguard Real Estate Index ETF (VNQ 0.48%) as a proxy. However, the S&P 500 index is up 22% over that span, so it's hard to look at STAG's stock price and think of it as a total win.
An alternative view of the past
There's a problem with the performance numbers above. They aren't wrong, but they aren't providing you with the full picture. REITs are designed to pay dividends, and a significant portion of your return will be in the form of income. For example, the S&P 500 index's dividend yield today is a scant 1.55% or so compared to STAG's 4% yield, which is a massive difference. STAG, meanwhile, has increased its dividend in each of the last three years, so investors are collecting more income now than they were back then, as well. For reference, the average REIT's yield is 3.5%.
STAG Total Return Level data by YCharts
When you take the dividend into consideration, STAG suddenly starts to shine. You can do this by looking at total return, which assumes the reinvestment of the dividend. STAG's total return over the past three years was roughly 28.5% compared to 23% for the S&P 500 and just 4% or so for the average REIT.
STAG Total Return Level data by YCharts
So, when you include the dividends that this industrial REIT generated over the last three years, it has grown a $10,000 investment into $12,850, which is about $500 more than what you'd have if you had bought an S&P 500 index fund. And it's roughly $2,400 more than you'd have if you had bought the Vanguard Real Estate Index ETF. All in, that makes STAG the winner in this comparison.
Look at more than the price
The first takeaway here is that, despite the volatility, STAG clearly rewarded investors well for sticking around. Second, and perhaps more important, the power of dividends shouldn't be overlooked when you assess stock performance, particularly for dividend-focused investments like a REIT. Sure, STAG's stock price hasn't changed much over the past three years, but those dividends clearly added up when you added them back into performance!
Today STAG's dividend yield is just a touch lower than it was three years ago, which suggests that investors are assigning the stock a roughly similar valuation. Given the total return over that span, dividend investors might just want to take a closer look at this industrial REIT even though its stock price hasn't moved all that much.
