HomeMost PopularThe Cash Keeps Flowing: Iron Mountain, a REIT Delivering Returns to Shareholders

The Cash Keeps Flowing: Iron Mountain, a REIT Delivering Returns to Shareholders

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Like building a house, constructing a dividend stock portfolio takes time and careful consideration. Each stock added to your portfolio either strengthens or weakens its foundation.

Iron Mountain Incorporated (NYSE:IRM) is a stock that has fortified my portfolio and has the potential to do the same for fellow dividend investors. Letโ€™s take a deep dive into this real estate investment trustโ€™s fundamentals and valuation assumptions to estimate the fair value of its shares.

Resumed Dividend Growth

Iron Mountain has taken steps to become a more competitive player in data centers by lowering its debt and dividend payout ratio over the past four years. The companyโ€™s leverage ratio has gone down from 5.7 to 5.1 as of June 30.

After freezing its quarterly dividend per share for four years, Iron Mountain recently announced a 5.1% dividend hike to $0.65. The companyโ€™s adjusted funds from operations (AFFO) per share payout ratio has improved from 81% in 2019 to 65.1% in 2022. For 2023, Iron Mountain expects a 63.4% AFFO per share payout ratio, well within its target range.

Steady Growth

In the second quarter of 2023, Iron Mountain maintained its operating momentum. Total revenue increased by 5.3% year-over-year to $1.4 billion. Storage rental revenue grew at a double-digit rate, offsetting a slight decrease in service revenue. The companyโ€™s AFFO per share increased by 1.1% compared to the previous year.

Risks to Consider

Although Iron Mountain has proven itself as a fundamentally sound business, certain risks remain. Economic downturns could impact rent collection, and oversupply in the data center industry could affect growth prospects.

The Recent Rally

Iron Mountainโ€™s shares have experienced a significant rally in 2023, increasing by 28% so far. However, based on valuation models such as discounted cash flows and dividend discount models, the shares appear to be overvalued, suggesting a potential retreat from the current share price.

Summary: Consider Iron Mountain for Your Watchlist

Iron Mountain offers investors a 4.1% dividend yield with a sustainable payout ratio, making it an attractive option for income and growth. However, given the current pricing, it may be prudent to wait for the stock to dip below $60 before making a move.

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