Lastly, Stag Industrial has a manageable gross debt-to-assets ratio of 42%, supported by a decent interest coverage of five times. More importantly, it faces limited refinancing risk, with no debt maturing from 2013 to 2016.
Peer comparison
Stag Industrial’s peers include DCT Industrial Trust Inc. (NYSE:DCT) and First Industrial Realty Trust, Inc. (NYSE:FR). Stag Industrial stands out from its peers with a forward dividend yield of 5.2%. In contrast, DCT Industrial Trust Inc. (NYSE:DCT) and First Industrial Realty Trust, Inc. (NYSE:FR) sport dividend yields of 3.6% and 1.9%, respectively.
DCT Industrial Trust Inc. (NYSE:DCT) is differentiated from Stag Industrial in that it selectively develops some of its properties. It has $128 million worth of development properties under construction or recently completed, of which 70% have been leased, according to a management presentation at the Citi 2013 Global Property CEO Conference. Although DCT Industrial Trust Inc. (NYSE:DCT) manages its risk by focusing on a maximum of two building projects at any one time, and caps development assets under 15% of total assets, I prefer that REITs, property owners and landlords, not take on development risk.
There were two positive takeaways from First Industrial Realty Trust, Inc. (NYSE:FR) in 2012 and early 2013. Firstly, through a combination of increased cash flow from leasing and decrease in secured debt, First Industrial Realty Trust, Inc. (NYSE:FR) lowered its gearing from about 9.8 times net debt/EBITDA at the end of 2008 to 6.8 times net debt/EBITDA at the end of 2012. Secondly, it also re-initiated its payment of a dividend on its common stock for the first quarter of 2013, after suspending payouts since the fourth quarter of 2008. While other investors might be excited by such a re-initiation and prospects of increased dividends in the future, I prefer stocks with an unbroken record of dividend payments.
Conclusion
Every investment is an exercise in evaluating the upside and downside that a stock brings, relative to its valuations. Stag Industrial has a better chance of securing good returns since it faces weaker competition in its target markets. It is also well-diversified in terms of tenant, industry, and geography, and has a strong balance sheet. A high dividend yield is the reverse of a low price-to-dividend ratio, implying attractive valuations for Stag Industrial.
The article This Company Chooses Its Battleground Wisely originally appeared on Fool.com is written by Mark Lin.
Mark Lin has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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