Stag Industrial (STAG -0.17%) went public in spring 2011 as a real estate investment trust (REIT) focused on the acquisition and operation of single-tenant industrial properties and with an eye toward balancing income and growth.
Riding the tide of e-commerce logistics and, post-pandemic, a new emphasis by manufacturers on on-shoring their supply chain, this Boston-based REIT now trades for about $34 a share. And it has drubbed the greater market in the dozen years since its initial public operating, as the chart below shows.
STAG Total Return Level data by YCharts
But what will do you for me now?
Past performance is never a guarantee of future results, but there are reasons for confidence. Stag has steadily grown its portfolio to 561 buildings in 41 states, and those 111.6 million square feet are about 98% occupied. Nearly 10% of that space saw new lease signings this year at an average rent boost of close to 31%.
Another key metric to consider is funds from operations (FFO), analogous to earnings per share for non-REIT stocks. Stag reported per-share core FFO of $0.55 for the first quarter of 2023, an increase of 3.8% compared to the first quarter of 2022. That and a dividend payout ratio of an estimated 63% for this year point to the ability to cover its dividend while leaving room to continue its run of five straight years of increases.
The charts below show how Stag stock has been recently outperforming three other well-known industrial REITs in both price and total return, which combines price movement and dividends.
Outperformance at an attractive valuation
Despite that outperformance, Stag shares are selling for about 13.5 times their FFO per share, sharply lower than warehouse giant Prologis at about 21 times. The smaller REIT is also yielding about 4.3%, a notably healthy figure considering that its share price is also performing well (yield equals dividend per share divided by share price). Prologis, meanwhile, yields about 2.8% and the other two in the chart above are at about 2%.
Stag also pays monthly, which adds to its appeal to investors interested in that kind of passive income stream. So does the solidity and diversity of its geographic and client base. Its top 20 markets currently comprise only 57% of its rent roll, led by Chicago at 7.2%, while its top 20 tenants comprise only 16.5%. Amazon at 2.8% is the largest tenant, and the rest are a mix of logistics, services, and manufacturing operations.
Nicely suitable for a long-term buy and hold
Stag Industrial has built a nice record in a sector that could continue to outperform other commercial real estate for years to come. Additionally, Stag's valuation and yield make it an appealing investment opportunity compared to its industry peers. Monthly dividend payments and a diverse geographic and tenant base add to Stag's compelling combination of income and growth potential, making it particularly attractive as a long-term buy and hold.
