I’ve always struggled covering popular stocks because oftentimes investors form opinions based on emotions rather than facts. I’m not very keen on unanimity because it creates an aura around a company and management that makes people disregard weaknesses. For sure, it’s good for the company, but this benefit doesn’t necessarily translate to the investor.
Take STAG Industrial for instance. The company has demonstrated numerous flaws in its investment strategy and the way it handles its funding. But no matter what, there has been a legion of investors loyal to the company. The management used to tell investors they wanted to grow their assets aggressively, annually, and the ‘masses’ loved it. The management only skipped the part that a significant portion of growth would come on the shareholders’ expenses. Go figure!
STAG’s share price has now trended downwards. Even a Wall Street analyst downgraded the stock last year; I believe it takes a lot of guts for an analyst to downgrade a stock when everyone else is not. The price accumulated a 17% drop this year and 38% since December 31, 2014. It is now very cheap relative to its peers. Whenever the share price drops, people hopeful of a rebound buy more. By the way, loyalists, just a heads-up–the STAG share price dropped another 9% last week.
The same aura has been created around big ‘O’, the monthly dividend company. The company released its results last Wednesday and shares spiked by 8.2% last week. National Retail Properties (NNN), its closest peer, also released strong results on the following day and the market reaction was ‘nada’. In fact, I have already written articles showing that NNN’s performance is as good as big ‘O’. Also, in the same category of net leases, I have highlighted Agree Realty Corp as an opportunity.
The secret of the big ‘O’ is its track record and consistency. Every month when it distributes the same or increased dividends, it is holding itself accountable to its shareholders. That is, it sends the following message: ‘We have generated growing cash and here it is’. And since it’s been doing so for years and has increased the dividend for 73 quarters in a row, the stock seems to be immune to these volatile times. It has a beta of 0.12, as opposed to NNN’s 0.36.
The other side of the coin is that people quickly forget that the stock seems overpriced relative to its peers, edging an AFFO multiple of 22x. Also, dividend yield of 3.9% is below peer average. It is at the same magnitude of Public Storage, which reached 27x, but it has moved way above the entry point.
Maybe that’s something STAG could learn from O. Focus on track record and consistency, and the market will reward you. This way, STAG could detach from the market’s volatility (STAG’s beta of 1.05).
Source: Public Storage(NYSE:PSA), Realty Income Corporation(NYSE:O), National Retail Properties, In(NYSE:NNN), STAG Industrial, Inc.(NYSE:STAG)
Disclaimer: This is not a recommendation to buy or sell stocks. The highest-yield stocks are not necessarily the best portfolio investment choice. The purpose of this report — which is essentially a snapshot of information available on February 12, 2016 — is to reduce your stock analysis by enabling you to compare stock and sector performance. Please do your own due diligence before making any investment decision.
As of January 31, 2016, the equity REITs are constituent companies of the FTSE NAREIT All REITs Index. Companies whose equity market capitalization is lower than $100 million have been disregarded.
This report is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.
Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.