If You Like Watching "Storage Wars," You will Love Owning these Dividend Stocks
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Legendary investor Peter Lynch advised individuals to buy shares of the companies whose products were selling at the local mall. He felt that individual investors had an edge on Wall Street analysts in that they could actually see, feel and touch what consumers were buying rather than just gauge the attractiveness of a company from its financial statements. While Lynch, who guided the Fidelity Magellan mutual fund to annualized returns of 29.2% from 1977 to 1990, did not specifically mention reality shows, for those who like watching "Storage Wars" buying shares of self-storage real estate investments (REIT) is an ideal way to profit from a personal expertise and interest in the business.
For two years in a row, the stocks of self-storage REITs have been the best performing component of the Dow Jones All REIT Equity Index. Last year, self-store REITs as an industry group were up by 35.4%. Overall, the Dow Jones ALL REIT Equity Idex rose by 8%.
That is to be expected and should continue into the future, according to Michael Knott, an analyst with Green Street Advisors. Noting that profits in self-storage companies "far exceeded where most thought they would come in," Knott observed that, "Almost every situation in life can create demand for self-storage, like moving, divorce and getting married, [that is] irrespective of where the economy may be."
PSA Profit Margin data by YCharts
That has certainly benefited the shareholders of Public Storage (NYSE: PSA), a self-storage REIT that is up 22.68% for the last year of market action. For this year, earnings-per-share growth is up 41.77%. Enhancing the total return is a dividend of 3.08% (REITs are required by law to pay dividends). With a very low-debt-to equity ratio and strong earnings, Public Storage should continue to reward its shareholders.
Extra Space Storage (NYSE: EXR) has risen more than 67% over the past 52 weeks of trading. This year, earnings-per-share growth is higher by 81.21%. On a quarterly basis, sales growth has increased more than 20%. Extra Space Storage has a dividend yield of 2.40%. The average dividend for a member of the Standard & Poor's 500 Index is around 2%.
Higher by more than 50% over the last year, the total return Sovran Self Storage (NYSE: SSS) is enhanced by a dividend yield of 3.19%. On a quarterly basis, sales growth is rising by 17.19%. The operating margin is a very healthy 32.39%, as is the gross margin of 63%.
CubeSmart (NYSE: CUBE) operates in 26 different states. For this year, earnings-per-share growth is higher by 38.55%. Sales growth on a quarterly basis is up by 22.73%. The dividend yield for the company is 2.52%. CubeSmart, too, has a robust gross margin of 59.70%.
In addition to having demographics and the economic outlook on its side, the business model of the self-storage industry is very attractive. Labor costs are low. The property expenses can be modest, too, as these facilities are usually located in areas that offer cheap land. The demand is great: at present, one in every ten American families has a self-storage unit. This need is expected to grow, along with the earnings growth for self storage REITs.
Self-store REITs are uniquely situated in the property sector. When the housing market is down, more need self-storage units to store belongings due to foreclosures, not be able to afford a bigger home, etc... In a bull market real estate sector, the share prices of the REITs will rise along with the rest of the industry group. More businesses will utilize storage units in a strong economy, too. High margins, high earnings growth rates, high dividend yields and a higher demand in the future result in self-storage REITs having a high total return for investors.
PSA Dividend Yield data by YCharts
Fool blogger Jonathan Yates does not own any of the stocks mentioned in this article. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
