The Best of The Best Monthly Dividend Stocks: Stag Industrial Inc (STAG)

For REITs, growth in AFFO is the basis for growth in dividends paid. STAG has continually grown its dividend each year since going public. The chart below shows STAG’s dividend history for the last 5 years.

Source:  Author

STAG has been more conservative in growing their dividend in order to lower their dividend to AFFO payout ratio from its current 86.9% to a target range of 80% plus or minus a couple percent.

Even with the conservative dividend growth strategy, STAG has been able to grow their dividend at a 5.4% clip over the last 5 years.  At current prices, STAG yields 6.7%.

So, STAG is growing at a significant clip, keeping its debt conservatively under control, and managing to grow its cash flow and its dividend payout to investors.  What makes STAG a compelling valuation today?

When you look at STAG’s dividend yield or price per dollar of FFO, it is clear that STAG is currently undervalued compared to its industrial REIT peers.  The two charts below show both metrics with STAG highlighted in green.

Source:  Author

In comparing STAG to its peers on dividend yield, STAG is paying out well more in terms of yield than most of its peers.  Likewise, STAG’s stock price is low on a per dollar of FFO comparison.

Given STAG’s growth history, solid balance sheet, investment grade credit rating, and strong outlook, I believe STAG is currently undervalued. It is one thing to be able to identify an undervalued stock. I find it much more difficult to estimate a fair value assuming the market comes to its senses on the stock in question.

Considering the average price/FFO of all of STAG’s peers is about 16.3, my estimate for a fair value for STAG is about $25.50. At a price of $25.50 and STAG paying out a $1.39 annual dividend would put the yield at 5.44% which is reasonable given our current ultra low interest rate environment.