Dividend stocks can be excellent sources of passive income, and Stag Industrial (STAG -0.17%) is a popular one that has delivered for investors. Its high dividend yield and monthly payout schedule make it particularly appealing to income investors.
Stag has delivered excellent returns for investors since its initial public offering (IPO) in 2011. The company benefited from the rise in e-commerce, which drove strong demand for the types of properties it leases. If you had invested in Stag during its IPO, you would've outperformed the S&P 500 index in the years since.
A stellar dividend stock
Stag Industrial is a real estate investment trust (REIT) that owns and operates industrial properties across the U.S. To enjoy the special tax treatment of a REIT, it's required to distribute 90% of its taxable income to shareholders each year. Stag owns 562 buildings across 41 states; warehouses and distribution centers comprise 86% of its portfolio.
Since it went public, Stag's property count has grown from 93 to 558, and it has become one of the largest owners and operators in the U.S. industrial real estate industry. The company benefited from the shifting landscape toward e-commerce, which drove increasing demand for warehouse and distribution properties.
REITs use funds from operations (FFO) to measure their cash flow; the metric is viewed as providing the clearest picture of a REIT's operating performance. Since 2011, Stag's FFO has grown at a compound annual rate of over 37%, from $12.2 million to over $400.8 million.
Dividends more than doubled investors' returns
There is no doubt Stag has achieved impressive growth since going public. Its stock price has appreciated by 194%. However, that doesn't take into account the value of its dividends. If you took its monthly payouts and reinvested them in the stock, you would have realized a 489% return -- good enough to turn $1,000 into $5,890 in a little over a decade.
STAG Total Return Level data by YCharts.
What investors in Stag need to keep an eye on
The commercial real estate sector has dealt with its fair share of factors impacting the market. Most commercial real estate loans are made with balloon payments at the end -- these are generally refinanced into another loan. These loans tend to last five to 10 years, creating a need for consistent refinancing for companies operating in the space. The higher interest rates that have prevailed since the Fed began its fight against inflation have made it more expensive to refinance loans.
Stag Industrial is well positioned in the near term. Of its nearly $2.5 billion in outstanding debt, only $53 million matures by the end of 2024.
On top of that, Stag's industrial focus puts it in a more resilient segment of commercial real estate. According to CBRE Group, the world's largest commercial real estate company, office property valuations will take a bigger hit due to higher interest rates and declining demand. In contrast, it expects industrial real estate to hold up better and predicts their valuations will recover much quicker than those in other parts of the market.
Image source: Getty Images.
A solid REIT that can continue delivering for investors
Stag Industrial has been a solid performer since its public debut in 2011. The stock is a stellar source of dividends, and its total returns beat the S&P 500 during that time period.
The company should benefit from tailwinds that could help it overcome the slowdown in the commercial real estate market -- among them, the growing popularity of e-commerce and an increasing need for warehouse and distribution facilities. Analysts at eMarketer project that global e-commerce sales could grow at an annualized rate of 8.8% over the next four years.
Not only that, but Stag is on sound footing financially. The company doesn't have an immediate need to refinance much of its debt, and with a payout ratio of 55%, Stag is an excellent dividend stock you can buy today.
