I recently published an article entitled “The Best Monthly Dividend Stocks” where I evaluated 17 C-corporation stocks that pay dividends monthly.
In that previous article I covered the benefits of monthly dividends and provided the reader with a red/yellow/green recommendation on investment potential and a brief rationale for the recommendation on each of the 17 stocks.
To provide more granularity on those stocks ranked green in the previous article, I’m covering in more detail the four stocks I consider “The Best of the Best Monthly Dividend Stocks”.
This article covers the first stock in the series, Stag Industrial Inc (NYSE:STAG). Out of the four stocks, why am I choosing to cover STAG first?
I believe STAG is currently the most undervalued of the four stocks I intend to highlight. In the spirit of providing currently actionable investment recommendations, I’m planning to cover the four “best of the best” stocks in order from most undervalued to least undervalued. The investment thesis for STAG is laid out in the following paragraphs and charts.
Among the investors tracked by Insider Monkey, the largest positions in Stag Industrial are held by J. Alan Reid, Jr.’s Forward Management and billionaire Israel Englander’s Millennium Management. In the latest round of 13F filing, Forward Management reported holding 1.92 million shares, while Millennium disclosed holding 473,400 shares as of the end of March.
Stag Industrial Investment Thesis
STAG is a triple net lease REIT with the primary objective of acquiring and leasing single tenant industrial properties, primarily warehouses and light industrial manufacturing.
The triple net lease agreements places the responsibility for all real estate taxes, building insurance, and maintenance costs directly on the tenant. STAG has been growing rapidly since it went public in 2011. The chart below shows that STAG has nearly tripled the number of buildings under management.
Today Stag Industrial Inc (NYSE:STAG) owns more than 54 million square feet of industrial floor space in 40 states. For 2016, STAG has a target growth of $300M – $400M in new and accretive acquisitions.
STAG maintains a BBB investment grade credit rating with a stable outlook from Standard and Poor’s and its debt metrics are solid if not stellar. STAG currently as a debt to EBITDA (1Q2016 run rate) of 5.3x which is a bit higher than I like to see but STAG’s fixed charge coverage ratio of 3x is comfortable.
STAG’s most recent 1Q16 financial report shows STAG is continuing to perform. STAG grew net operating income (NOI) by 19% over 1Q15 and funds from operation (FFO) at 17%. The chart below shows adjusted FFO (AFFO) for the last 5 years.
STAG has grown AFFO by 10.9 % annually and is guiding for full year 2016 AFF of $1.56, a growth of 2% over 2015. Readers should note that STAG more frequently than not beats their own guidance.