Dividend up to 6%, market dominance and a $10 billion acquisition
Renting empty tin boxes to people sounds like the dullest business in the world. But it's actually one of the most profitable models in the entire real estate sector. A storage facility doesn’t need front-desk staff, expensive maintenance, or costly renovations, so a remarkably large slice of every rental dollar stays with the company as net operating profit. This particular company has taken that model to a world-class level: it is the largest owner of storage boxes on the planet, boasts one of the best credit ratings in the whole industry (and therefore the cheapest access to money) and generates so much cash that it can afford a generous dividend and expansion at the same time.
Highlights
The world’s largest owner of storage boxes – rating A2/A, the lowest cost of raising money (debt) in the sector
Two types of dividend yield: 4% on the common share, or up to 6% on the preferred shares
Acquisition of competitor NSA for USD 10.5bn – synergies of USD 110–130m and FFO growth as early as 2028
The cyclical trough in the sector is near: rental prices and occupancy are stabilising after two weak years
Dividend covered by 72% Core FFO, operating profit margin 77% – safety at the expense of dramatic growth
For an investor interested in regular income, one thing is particularly attractive. The company’s common share carries a dividend yield of around 4%, but the company has also issued so-called preferred shares, which today trade below their face value and their yield climbs to as high as 6%. In effect, an investor can choose between a lower but gradually growing income from the common share and a higher, fixed income from the preferred. That’s an unusual choice that most dividend stocks don’t offer.
We are talking about Public Storage $PSA , the largest owner and operator of self-storage facilities in the world and a member of the S&P 500 index. It is a real estate investment trust (REIT), which by law must distribute most of its taxable profit to shareholders – the reason for the traditionally high dividends in this sector.
The model is remarkably simple and resilient. The company owns thousands of storage sites, rents out boxes and units to households and small businesses, and collects monthly rent. Demand for storage is driven by what the industry calls the four Ds: death, divorce, dislocation and downsizing. On top of that come decluttering, temporary storage during a renovation, and the needs of small entrepreneurs. The key point is that this demand is relatively non‑cyclical. People need storage in good times and bad, and once they rent a box, they often stay in it much longer than they originally planned, because moving stuff is a hassle.
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