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Is Public Storage a Millionaire-Maker REIT?

Sep 21, 2020 by Matt Frankel, CFP

When it comes to self-storage real estate investment trusts, or REITs, Public Storage (NYSE: PSA) is in a class all by itself. There are some large, well-known competitors, but Public Storage is several times larger than any other company in the industry. Most Americans are familiar with the company's brand and its orange-colored storage facilities.

Many might think the self-storage business is boring. And that's somewhat true. Most self-storage properties aren't particularly attractive or interesting, and the business itself involves a customer leasing a space and just leaving their stuff in it.

However, one of the most valuable lessons to learn -- especially as a REIT investor -- is that a boring business doesn't necessarily imply boring returns. In fact, Public Storage has been anything but a boring investment to its long-time investors.

Public Storage has made investors into millionaires

Public Storage's business is boring in the sense the stock isn't likely to double your money in a few months, like some popular high-flying tech stocks have done in 2020.

On the other hand, don't underestimate the power of market-beating returns over time, which is exactly what Public Storage has delivered for its investors, as seen below.

Time Period Total Return Annualized Total Return S&P 500 Annualized Return
10 years 200.3% 11.6% 13.9%
20 years 1,670% 15.5% 6.3%
30 years 12,340% 17.4% 10.4%

Data source: YCharts.

Take a look at the 30-year column. That's not a typo. Public Storage has generated an average total return (stock price gains plus dividends) of 17.4% per year over the past three decades. And thanks to the effects of long-term compound gains, this translates to a total return of more than 12,000% for investors who had the foresight to invest in Public Storage 30 years ago.

Let's say you invested $10,000 in Public Storage in September 1990 and reinvested the dividends you received along the way. Your investment would now be worth about $1.24 million.

So, the answer to the question of "Is Public Storage a millionaire-maker stock?" is a resounding yes. It's fair to say Public Storage has made many of its early investors seven-figure sums.

Could Public Storage be a millionaire-maker stock for new investors?

To be sure, I'm not expecting Public Storage's performance of the past 30 years to be replicated over the next 30. Assuming an average dividend yield of about 4%, a 17% total return would imply Public Storage's stock price growing by 13% annualized, giving the company a $1.5 trillion market cap in 30 years. That isn't completely outside the realm of possibilities, but I don't see it as particularly likely, either.

Having said that, there's no reason Public Storage can't continue to produce strong (but somewhat milder) returns for years to come. The self-storage industry remains highly fragmented. Public Storage is several times larger than its closest competitor and only has a 6.8% share of the market. Just 18% of all U.S. self-storage facilities are owned by public companies like REITs, and the 100 largest private operators own just 9%.

In short, the majority of self-storage properties are owned by independent operators or small companies, meaning there is still tons of room for Public Storage to grow.

And that doesn't even consider opportunities for future development, a growing part of the company's strategy, or any international growth opportunities. Public Storage owns a 35% stake in European self-storage operator Shurgard Self Storage, but aside from that, it remains U.S.-focused for now.

The bottom line

While Public Storage has grown tremendously, that doesn't mean the growth story is over just yet. This leading self-storage operator has an excellent track record of responsible management and smart growth decisions and could continue on this path for decades to come.

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Matthew Frankel, CFP owns shares of Public Storage. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.