As an investor, whether you seek growth, income or both, you should always look at the five-year performance record of a company when considering stocks to purchase. A five-year time frame should address the company’s price movements, dividend growth and recent news and earnings.
Take a look at one real estate investment trust (REIT) with an extremely impressive five-year performance, and see how much a $10,000 investment in February 2018 would be generating in dividends today.
Extra Space Storage Inc. EXR is a Salt Lake City-based self-storage REIT with over 2,000 locations in large metropolitan areas across 41 states and Washington, D.C. Extra Space Storage was founded in 1977 and is the second-largest operator of self-storage facilities in the U.S. with 1.4 million units totaling 152.6 million square feet of rentable space. Over the past five years, it has acquired over $5 billion in new properties.
Extra Space Storage’s performance history is excellent. Over the last five years, the REIT has increased its quarterly dividend five times, from $0.78 to $1.50 per share, an increase of 92%. The dividend has never been cut nor suspended during this time — not even during the worst of the COVID-19 pandemic. The annual yield of $6 per share on a recent closing price of $167.99 was 3.57%.
The rise of its dividend has been the result of the increase in quarterly funds from operations (FFO), which have grown from $1.09 to $2.21 over that time. FFO has increased in 17 of the last 20 quarters. The present forward FFO of $8.39 per share provides a 71.5% payout ratio, which while not ideal, is at least comfortable.
If you had invested $10,000 in shares of Extra Space Storage five years ago, you would have received 124.34 shares at a starting price of $80.42. Over that time, you would have earned a total return of 135.03%, with $87.57 coming from appreciation (108.9%) and another $21.02 (26.13%) per share from dividends. Your original investment of $10,000 would now be worth $23,604.75.
But if you are an investor who prefers to use a dividend reinvestment plan (DRIP), over the past five years your original 124.34 shares would have grown to become 146.68 shares. Your total return would be 146.41%, and your starting investment of $10,000 would now be worth $24,645.65.
After a difficult 2022 with a total return of negative 30.13%, and despite the absence of positive news and two analyst downgrades in January, Extra Space Storage has rebounded to gain 16.43% year to date in 2023. With the reduction in Federal Reserve interest rate hikes, market sentiment has recently grown more positive toward self-storage REITs. As a result, self-storage companies were the leading REIT subsector in the week from Jan. 30 to Feb. 3 with a 3.43% gain overall.
Going forward, Extra Space Storage shares are very near the 200-day moving average at $170.43, so some resistance could be expected, especially after running up from $140 since the New Year. But shares still have a long way to go to return to the highs near $220 in December 2021.
Fourth-quarter operating results will be announced after the market closes on Feb. 22. Investors will be watching the results closely to see whether Extra Space Storage can continue its remarkable streak of increasing FFO and dividend payments.
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