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Stag Industrial Inc (STAG)’s Big Dividend: A Unique Risk Worth Considering

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If you like big dividends and discounted prices, Stag Industrial Inc (NYSE:STAG) may have recently caught your eye. Its shares have fallen 12% since August 1st, and its dividend yield (paid monthly) has risen to 6.3% (annually).
And despite Stag’s unique risk exposures (i.e. secondary/tertiary industrial properties that institutional investors usually avoid), we’ve ranked it #10 on our recent list of 10 Big Dividend REITs Worth Considering because of its diversified approach, reasonable valuation, continued growth opportunities, and big monthly dividend.

STAG’s Unique Investment Strategy

Stag focuses on the acquisition and operation of single-tenant industrial properties across the United States. As the following table shows, the company is diversified across geographies, tenants and industries.

Stag is unique in the sense that it invests in properties perceived to be higher risk, but then reduces the risk through diversification. Specifically, Stag invests in single-tenant, industrial properties, located in non-primary (i.e. secondary and tertiary) locations, posing unique binary cash flow risks. However, as the following graphic shows, Stag believes it can diversify away a significant portion of the risk so as to reduce volatility and keep returns high.

We agree Stag can (and does) diversify away SOME of the risk (more on risk later), and we believe there is significant opportunity for Stag to continue to grow its funds from operations, dividend and share price.

This next chart shows the trajectory of Stag’s growth in FFO (it’s impressive, in our view).

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