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Insiders Eye Mercury General and STAG Industrial

05/29/2020 5:00 am EST

Focus: STRATEGIES

John Dobosz

Editor, Forbes Premium Income Report & Forbes Dividend Investor

The latest two additions to the model portfolio at Forbes Dividend Investor share one thing in common — both have seen sizable purchases by key insiders. Here's an update from growth and income expert John Dobosz — a participating speaker at MoneyShow's Virtual Event on June 10-12.

Los Angeles, Calif.-based Mercury General (MCY) is a multi-line insurance company offering personal automobile, homeowners and commercial insurance through a network of independent agents in Arizona, California, Florida, Georgia, Illinois, Nevada, New Jersey, New York, Oklahoma, Texas and Virginia.

Revenue (net premiums earned) this year is expected to be flat at $3.59 billion, with earnings up 27% to $3.32 per share, giving the stock a forward P/E of 11.8, almost 38% below its five-year average P/E of 19. It also trades 19% below its five-year average price-to-book value ratio.

Insiders are bullish, with Chairman of the Board George Joseph purchasing more than $24.2 million worth of company stock this month, while CEO Gabriel Tirador buying $104,000 worth of shares.

Mercury generated $7.22 per share in free cash flow over the past 12 months, making it easy to sustain or increase the $2.52 per share in annual dividends. The ex-dividend date for the next quarterly payout of $0.63 per share is June 10.

Boston, Mass.-based STAG Industrial (STAG) is a real estate investment trust focused on the acquisition, ownership, and operation of single-tenant, industrial properties such as warehouses and distribution centers throughout the United States.

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At the end of the first quarter of this year, STAG’s portfolio consisted of 456 buildings in 38 states with approximately 91.8 million rentable square feet.

Its largest customers include companies in air freight and logistics, automotive, and industrial equipment. Revenue this year is expected to grow 13% to $458.3 million, with funds from operations of $1.84 per share, flat from last year.

At 13.6 times funds from operations, STAG trades at a 5.5% discount to its five-year average price-to-FFO ratio of 14.4. STAG is a monthly dividend payer, with May 28 the ex-dividend date for the next $0.12 per share dividend.

Dividends from REITs are taxed at your marginal income tax rate, but only 62% of dividends paid by STAG last year were taxable, with the remainder treated as a return of capital, which reduces your cost basis in the stock. Director Francis Jacoby has purchased $122,000 worth of STAG shares since March.

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