We’re doubling down on Iron Mountain (IRM), a data storage REIT; since we recommended the stock last month, the firm declared its quarterly dividend and released quarterly financial results, explains Ian Wyatt, editor of High Yield Wealth.
The news was encouraging on both fronts. Iron Mountain raised its quarterly dividend to $0.611 per share. The shares trade ex-dividend on Dec. 12. The dividend will be paid on Jan. 3.
As for the quarterly financial numbers, revenue posted at $1.06 billion, a 9.7% year-over-year increase. Revenue beat the consensus estimate by $20 million. EPS posted at $0.27, which beat the consensus estimate by a penny.
Because Iron Mountain is a REIT, adjusted funds from operations (AFFO) is the attention-getter. AFFO — a REIT measure of cash flow — covers the dividend. As the dividend goes, so goes the share price (eventually). The news on AFFO was at the least encouraging.
Iron Mountain increased the midpoint of AFFO growth guidance to 14.5% from 9% for 2018. Iron Mountain should generate roughly $3 per share of AFFO. The is more than enough to cover the new-and-improved dividend.
Management portends steady growth through 2020, supported by 11% annual AFFO growth. The expected growth will enable management to follow through with its pledge for 4% annual dividend growth. (The recent increase was 4%.)
Given the increased dividend and solid outlook, you would expect Iron Mountain shares to trend higher. Not so, they have trended lower over the month. They have fallen to a point where the dividend yields a full percentage more (7.8% compared to 6.8%) than when we issued our updated buy recommendation last month.
Selling pressure was instigated by Stifel Nicolaus, which downgraded Iron Mountain to a hold from a buy. Stifel also cut its price target to $34 from $39. Stifel analysts clutch their pearls because of stunted growth in Iron Mountains “core” business, document storage.
Yes, growth has slowed in Iron Mountain’s developed markets, but emerging markets are picking up the slack. They’ve grown to 18% of the Iron Mountain’s business.
Long-term relationships that Iron Mountain has formed with its customers enables it to capture additional business as their digital-storage needs growth. Service revenue is expected to double every two-to-three years. Iron Mountain was a good high-yield value last month. It’s a better high-yield value this month.
