An Income Opportunity for the Long-Term

Check out the video above, which is from my live stream for traders and active investors, to learn why I like this company and non-traditional REITs in general.

If you’ve followed the live stream lately, you know I’m bearish on the stock market.  Most stocks are priced at lofty valuations right now, and it’s likely we’ll see a hard landing as deflationary pressures resume.  Therefore, I’m currently net short the market.  I’ve sold short more stocks than I own.

Despite the bearish forecast, I’m still on the hunt for long-term portfolio holdings that can give me a reliable yield.  Real estate investment trusts (REITs), with the exception of certain commercial REITs (retail and office buildings), will outperform the market going forward.  I also feel I’m personally underinvested in real estate.  I recently found a company in this space that I liked enough to take a position in: Iron Mountain REIT (IRM).

You may have seen Iron Mountain trucks driving around your town, or their secure storage bins in your office.  This company is in the business of storing, protecting, and managing records, both physical and electronic, for their business clients.  Iron Mountain owns or leases space in over 1,400 facilities across the globe.  They lease this space out to other businesses for storage of their data and records.  They also provide information management services to diversify their revenue base beyond simply lease payments.  What’s more, they’ve picked up some fine art storage facilities to meet the specialized needs of art investors and wealthy individuals.

Document retention is a secure business with good prospects for growth as well.  Companies are required to maintain physical and/or electronic records by law.  Not to mention, it’s a vital part of any firm’s disaster recovery and contingency planning.

This company is more like a traditional stock than a REIT, but it adopted a REIT structure in 2014.  Therefore, it must pay at least 90% of its taxable earnings back to investors as a dividend.  This is great news for investors seeking income.  The dividend yield on IRM is currently 6.2%.

Whenever you see a yield over 5%, you’ve got to do extra diligence to figure out why the yield is high.  In other words, why is the price low when compared against the dividend?  In the case of IRM, I think it is simply because of the company’s high debt levels.  They’ve issued a substantial amount of debt in the last year to finance their international expansion.

I usually avoid highly indebted companies, but I’m not worried about this one because:

  • They acquired another company, Recall Holdings, in 2016.  Recall has a similar business to Iron Mountain, but in Australia.  The integration costs hit earnings in the last several quarters, but Recall will provide significant cost savings for Iron Mountain.
  • Along these same lines, Iron Mountain has been financing international expansion.  This expansion has diversified Iron Mountain’s revenue base, enhancing the stability of the company’s total revenue and net income.
  • The company’s debt is at reasonable rates and its maturities are mostly after 2020, so there is limited risk associated with rolling over the debt at maturity in the event of a near-term credit crunch.
  • A significant portion of the debt is denominated in currencies other than the US dollar.  This reduces the company’s exposure to foreign exchange risk.  If they had financed overseas growth with US dollar-denominated debt, we’d have to worry about a rising dollar making those interest payments more expensive.  Not an issue here.
  • They recently hiked the dividend from 48 cents per share to 55 cents per share, which is a huge increase.  Management would not have done this if they were not highly confident the dividend could be maintained at this level, or grown further.

As long as they don’t start to over-reach in their acquisitions of other companies, Iron Mountain should be exactly the kind of long-term holding I’ve been hunting for.

As with any investment, make sure to review the company’s annual report and other SEC filings to get a good understanding of the company before investing.  Pay particular attention to the disclosures of potential risks in those filings.  You can find investor info for Iron Mountain REIT here.  Just because this company is right for me right now doesn’t mean it is necessarily right for you.

As I disclosed above, I own shares of IRM as of the publishing of this post.  View other important disclaimers on this page.

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