NSA

High Yield Dividend Income Investing Is Not as Easy as Chasing the Highest Yield

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Dear members: — The skills to successfully invest for long-term capital gains or long-term dividend growth are much different than those required for generating high yield dividend income. Income investing is a much different proposition. However, the skills do center on a similar equity evaluation process, but one that requires an acknowledgement and heightened awareness of considerably greater downside risks. Income investing, or high yield dividend income investing, should at times be considered among the riskiest forms of investing, as many high dividend-yielding securities tend to trade closer to the characteristics of junk-rated bonds than they do most net cash rich and free cash flow generating powerhouses that we like so much in the Best Ideas Newsletter portfolio (1) and Dividend Growth … Read more

Public Storage Puts Up Record Revenue and Net Operating Income in Fourth Quarter

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By Brian Nelson, CFA Self-storage giant Public Storage (PSA) reported solid fourth quarter results February 20, with revenue and funds from operations [FFO] coming in better than expectations. The company is one of our favorite income-oriented ideas. It has now been in business for more than 50 years, and it boasts an enviable A2/A credit rating, allowing it easy access to the capital markets to fund future deals and projects. Public Storage’s same-store operating margin also runs higher than many of its peers, showcasing its more efficient operating model. We like Public Storage quite a bit, and the company yields ~4.2% at the time of this writing. For the three months ended December 31, Public Storage’s revenue increased 6.6%, while … Read more

REITs Will Likely Continue To Underperform

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By Brian Nelson, CFA Stock prices and returns are in part a function of the cash-based sources of intrinsic value: net cash on the balance sheet and future expectations of free cash flow. Though there are many ways to slice and dice a company with respect to equity analysis, to arrive at an intrinsic value estimate of a firm, it generally comes down to these two important cash-based dynamics. Due to the nature of their business models, most REITs have lofty net debt positions, and many are investing in real estate at a pace that is faster than that which they are generating operating cash flow. One good example of the trouble brewing on many a REIT’s cash flow statement … Read more

ICYMI: Let’s Play Devil’s Advocate: What’s the Bear Case for Realty Income?

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By Brian Nelson, CFA We like Realty Income Corp. (O) a lot, but it’s not hard to see that the REIT could potentially have all the makings of a black swan. For one, the stock is loved by almost everyone–REIT investors, income investors, and dividend growth investors alike. Many are simply enamored by its monthly dividend, which it has raised nearly 120 times since it was listed on the NYSE in 1994. Over its 54-year history, the REIT has paid 632 consecutive monthly dividends, too. There’s a ton of things to like about Realty Income, but for this note, let’s build and examine the bear case, one that can be broken into three pillars: 1) its retail exposure, 2) its … Read more

Public Storage Picks Up Simply Self Storage; M&A Remains Hot in Self Storage

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Image Source: Public Storage By Brian Nelson, CFA On July 24, Public Storage (PSA) announced that it had agreed to acquire Simply Self Storage from Blackstone (BX) Real Estate Income Trust (BREIT) for $2.2 billion. The news follows the Public Storage-Life Storage (LSI) takeout saga that ended with Life Storage running to Extra Space Storage (EXR) for a deal. A PSA-LSI deal had made a lot of sense, and we’re not sure why LSI wanted nothing to do with PSA, but it may have had to do with a poor cultural fit. LSI apparently said it wasn’t for sale right before it tied the knot with EXR–moves that just didn’t seem to add up, in our view. In any case, … Read more

ICYMI: The Impact Rising Interest Rates Have on Equity REITs

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Image: REITs have not performed as well as one might have thought. The Vanguard REIT ETF has underperformed the broader market considerably since 2015, while dividends per share have not grown much, if at all, since 2005. Source: Vanguard By Brian Nelson, CFA The question on most everyone’s minds: How will equity real estate investment trusts (REITs) fare in the current rising interest-rate environment? The topic has long been debated and studied, and there are myriad opinions on the subject. From where we stand, however, there are two main moving parts consisting of fundamental and investment dynamics that investors should be aware of. Let’s have a look. Fundamental Considerations In the discounted cash-flow (enterprise) valuation context, a rising nominal interest rate (real + inflation) … Read more

Dividend Increases/Decreases for the Week of May 26

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Below we provide a list of firms that raised their dividends during the week ending May 26. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports use the ‘Symbol’ search box in our website header. Firms Raising Their Dividends This Week                          American Tower (AMT): now $1.57 per share quarterly dividend, was $1.56. Autoscope Technologies (AATC): now $0.26 per share quarterly dividend, was $0.12. Bank of Montreal (BMO): now CAD 1.47 per share quarterly dividend, was CAD 1.43. Bank of Nova Scotia (BNS): now CAD 1.06 per share quarterly dividend, was CAD 1.03. Canadian Imperial Bank (CM): now CAD 0.87 per share quarterly dividend, was CAD … Read more

Extra Space Storage Pursues the Winner’s Curse; LSI Shareholders Should Take the Money and Run

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Image Source: Extra Space Storage By Brian Nelson, CFA It would seem that Life Storage (LSI) wants nothing to do with Public Storage (PSA), first refusing to negotiate with Public Storage regarding its proposal to merge, then rolling out a revised severance package for its CEO, CFO and COO on March 17, and now most recently announcing that it would tie the knot with Extra Space Storage (EXR) on April 3. We walked through the background of Public Storage’s overture to merge with Life Storage in the March edition (pdf) of the High Yield Dividend Newsletter, and frankly, we’re a bit puzzled by LSI’s behavior. We’re not sure what Public Storage’s next move will be at this point – whether … Read more

Two Top Income Ideas Locked in Hostile Takeover Battle

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Image Source: Public Storage By Brian Nelson, CFA On February 5, self-storage giant Public Storage (PSA) announced that it had launched a hostile takeover attempt of rival Life Storage (LSI) for all of its outstanding shares in an all-stock transaction. According to the terms of the overture, Life Storage shareholders would receive 0.4192 shares of PSA for every share of LSI that they own, implying a 19% premium to the 20-day volume weighted average price of PSA and LSI, as of February 3. We like the proposal and believe that a combined PSA-LSI will be able to drive material synergies. For example, PSA’s same-store direct operating margin is ~80%, while LSI’s is roughly 7 percentage points lower. The combined entity … Read more

Why Are the Dividends of REITs So Risky?

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By Brian Nelson, CFA Not all REIT dividends are safe. Many REITs remain capital-market dependent, and some office REITs, retail REITs, and healthcare REITs may be difficult places to generate dependable long-term income in the coming decades, in our view. Office REIT SL Green (SLG) recently cut its payout 13% on December 5, 2022, while another office REIT Vornado Realty Trust (VNO) cut its dividend 29% on January 18, 2023. These are just two of the latest high-profile REIT dividend cuts, and there may be more to come. Contrary to popular opinion, the REIT sector has not been a great source of dependable, reliable income, particularly during the COVID-19 crisis. Five REITs cut their dividends in 2019: Medalist Diversified REIT … Read more