A Monthly Income Stream Investors Can Count on
The outbreak of COVID-19 has led to many disruptions in the business world, one of which is the reduction—and in some cases, suspension—of dividend payments at a number of companies. To investors who want to live off those dividends, that’s bad news.
However, not every company is in the doldrums. STAG Industrial Inc (NYSE:STAG), for instance, has no problem paying its shareholders the same amount that it was paying before the COVID-19 pandemic. Better yet, this company follows a monthly distribution schedule, so investors don’t have to wait three months for a check, which is something they have to put up with when investing in most other dividend stocks.
So, who is STAG Industrial?
Well, it is a real estate investment trust (REIT) headquartered in Boston. The company owns, operates, and acquires single-tenant, industrial properties throughout the United States. At the end of March 2020, STAG’s portfolio consisted of 456 buildings totaling 91.8 million square feet. The properties are located in 38 states and diversified across 420 tenants. (Source: “Supplemental Information: Unaudited First Quarter 2020,” STAG Industrial Inc, last accessed July 3, 2020.)
One neat thing about being a REIT is that, because tenants have to pay rent every month, STAG Industrial has the ability to pay investors a monthly dividend. Right now, the company’s monthly dividend rate stands at $0.12 per share, giving STAG stock an annual yield of 4.8%.
As I mentioned earlier, the COVID-19 pandemic has led to an unprecedented business environment. A lot of businesses have had to close their doors. So if you are a commercial landlord, one of the major concerns right now is whether you are still able to collect rent from your tenants.
In the case of STAG Industrial, the answer is a nice surprise. In STAG Industrial’s first-quarter earnings report, which was released on April 30, it said that the company had already collected 99% of the base rent for March. (Source: “STAG Industrial Announces First Quarter 2020 Results,” STAG Industrial Inc, April 30, 2020.)
Since many non-essential businesses in the U.S. were ordered to shut down in March, the collection of April’s rent could be challenging. But STAG Industrial’s numbers have proven its resilience again.
In a recent investor update, the REIT revealed that 98.8% of April’s rent was either collected, deferred, or expected to be paid by year-end. For May, the portion of rents collected, deferred, or expected to be paid by year-end was 96.8%. (Source: “2020 – NAREIT Update,” STAG Industrial Inc, last accessed July 3, 2020.)
Now, you are probably wondering how the REIT managed to achieve these numbers during this difficult time.
Well, there are two reasons.
First, STAG Industrial has a high-quality tenant base. As of March 31, 54.7% of the company’s tenants were publicly rated and 31.1% were rated investment-grade. Moreover, 85.1% of the REIT’s tenants have annual revenues of more than $100.0 million. (Source: “Supplemental Information: Unaudited First Quarter 2020,” STAG Industrial Inc, op. cit.)
By leasing its properties to high-quality tenants that are not going anywhere, STAG Industrial can keep collecting rental income even during tough times.
Second, the REIT’s portfolio consists of 372 warehouses and 70 light manufacturing facilities. Warehousing is a critical component of the e-commerce supply chain. According to a 2019 tenant survey, 43% of STAG Industrial’s portfolio handled some sort of e-commerce activity. (Source: “2020 – Spring / Summer,” STAG Industrial Inc, last accessed July 3, 2020.)
In the second quarter of 2020, e-commerce accounted for around 53% of the REIT’s long-term leasing activity. (Source: “2020 – NAREIT Update,” STAG Industrial Inc, op. cit.)
Over the past decade, e-commerce as a percentage of total retail sales in the U.S. has been steadily climbing. During the COVID-19 shutdowns, many physical retailers had to close their doors, so online sales were the only option for consumers. STAG Industrial’s sizable stake in e-commerce properties should bode well for the company, even in this challenging economic environment.
As the company’s Chief Executive Officer Ben Butcher put it, “Perhaps the biggest impact of the virus will be a permanent acceleration of the trend towards e-commerce. Having a viable e-commerce business plan will no longer be a luxury for retailers. Collectively, these factors should provide increased demand for industrial space post crisis. These positive effects for industrial real estate demand will likely manifest themselves later this year.” (Source: “STAG Industrial Inc. (STAG) CEO Ben Butcher on Q1 2020 Results – Earnings Call Transcript,” Seeking Alpha, May 1, 2020.)
For those wondering about the safety of this REIT’s monthly dividends, don’t worry. In the first quarter of 2020, STAG Industrial generated core funds from operations of $0.47 per share. The amount not only represented a 4.4% increase year-over-year, but also covered the $0.36-per-share dividend declared during the quarter with ease. (Source: STAG Industrial Inc, April 30, 2020, op. cit.)
Furthermore, as of March 31, the REIT’s portfolio was 96.2% leased, with a weighted average lease term of 5.1 years.
Bottom Line on STAG Industrial Inc
Add it all up and you see that STAG Industrial Inc is well positioned to keep earning rental income from its properties and pass that income to shareholders as dividends.
For investors who want to collect monthly dividends, STAG stock deserves a serious look.