Wednesday, April 16, 2025

A Monthly Dividend Payer With a Solid 4.7% Yield

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A Monthly Dividend Payer With a Solid 4.7% Yield

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

Like an ex-spouse, the Safety Net model is fickle and unforgiving. Screw up with a year of negative cash flow growth (or even the potential for a down year), and the stock's dividend safety rating will get slapped like a smart-mouthed kid in the 1960s.

But once in a while, we come across a stock whose dividend safety rating is pristine.

At first glance, today's Safety Net stock appears to have one of the safest dividends I've seen this year. Let's take a closer look to see how it stacks up.

Stag Industrial (NYSE: STAG) is a real estate investment trust, or REIT, that owns warehouses, manufacturing facilities, and other industrial properties.

The company currently pays a monthly dividend of $0.1242 per share, which equals $1.49 per year or a 4.7% yield.

Stag has steadily grown its funds from operations (FFO), which is the measure of cash flow we use for REITs. That's what we want to see. Rising cash flow means there is an increasing supply of cash to pay the dividend.

Chart: Stag Industrial (NYSE: STAG)
View larger image
 

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Last year, the company paid $370 million in dividends while generating $447 million in cash flow for a payout ratio of 83%. This year, because cash flow is forecast to grow to $487 million and the total dividends paid are projected to rise by a smaller amount to $385 million, the payout ratio is expected to dip to 79%.

I am comfortable with REITs paying out as much as 100% of their FFO in dividends, because REITs are obligated by law to pay out 90% of their profits in dividends in order to receive favorable tax treatment. Keep in mind, profits are not the same as cash flow or FFO. But because REITs must pay out such a high percentage of their profits, their payout ratios are usually higher.

Also, the purpose of most REITs is to pay shareholders a healthy amount of income, so it makes sense that their payout ratios are on the high side.

In short, as long as the REIT is not paying out more in dividends than it takes in in cash flow, I'm OK with it - and so is the Safety Net model.

So far, there don't seem to be any concerns with Stag's dividend safety.

Can it earn a rare "A" grade?

Click Here to Find Out!
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