Real Estate Investment Trusts, or REITs, are one of the most popular types of dividend stocks for yield-hungry investors, especially those living off dividends in retirement.
When it comes to REITs, few have done better for investors than Public Storage (PSA) over the years.
The company has continuously paid quarterly dividends since 1981 while generating excellent total returns for shareholders.
| REIT | Total Return Since 2005 | CAGR Total Return |
| Public Storage | 569.2% | 17.16% |
| Vanguard U.S. REIT ETF | 192.5% | 9.36% |
| S&P 500 | 166.6% | 8.51% |
Source: Ycharts
While you might think that the company’s strong long-term outperformance means that Public Storage is overvalued and should thus be avoided, a look at the company’s fundamentals reveals a best-in-class industry leader with plenty of growth opportunities left in the coming years.
Best of all, the recent REIT correction has sent shares down 17% since early July, possibly making for a great long-term buying opportunity for what is likely to continue to be one of America’s best dividend growth stocks.
Business Description
Public Storage was founded in 1972 and is America’s largest public storage REIT, owning over 2,500 storage rental properties (as well as business parks) in 38 states, and seven European countries. The company’s self-storage facilities serve over one million customers in total.
The business model provides great short-term visibility, with customers signing month-to-month leases. This gives the REIT excellent protection against inflation due to the ability to continually raise rents.
Business Analysis
Public Storage has become famous for its ability to continually raise rents, especially in key markets such as California where high land costs and restrictive zoning regulations prevent new supply.
Combined with a disciplined growth strategy that’s focused on gradual property growth, as well as aggressive expansion of existing facilities ($542 million into expanding its rentable square footage by 4.2 million square feet in the next two years), Public Storage has put up impressive growth, both in top line sales but also margin expansion.
(Click on image to enlarge)
Source: Simply Safe Dividends
(Click on image to enlarge)
 Source: Simply Safe Dividends
Public Storage is a great company for several reasons, starting with the company’s sheer size. The business is larger than its top three competitors combined, which allows it to leverage its costs across the company to achieve better profitability.
Public Storage also focuses on major metropolitan areas with favorable demographics. These areas are characterized by better incomes, greater popular density, and faster growth rates. They also provide consumers with easier access to storage since they are conveniently located.
Public Storage has built up 20%+ market share in many of these cities and benefits from the high visibility its locations receive, further building up the company’s brand value and recognition. While barriers to entry are relatively low in this industry, it is harder for new rivals to enter major metropolitan areas because of higher property costs and increased zoning restrictions.
Self-storage warehouses are also attractive because they require very little costs to operate. Unlike most other types of buildings (e.g. offices and apartments), these facilities do not need carpet or furniture or much equipment that needs to be maintained.
They also require few employees to run them because they are largely self-serve, and much of the work needed can be automated (e.g. security cameras instead of security guards; online reservations). In fact, Public Storage has just 5,300 employees compared to its 2,500+ property locations.
As a result, once a storage facility reaches a high enough occupancy level, they generate excellent profit margins, have risk spread across a large tenant base, and require little maintenance capital expenditures to maintain their appearance. Unlike most REITs (and many other types of businesses, for that matter), Public Storage’s unique qualities have made it a free cash flow machine over the years.
(Click on image to enlarge)
Source: Simply Safe Dividends
As long as people continue experiencing major life events such as an unexpected move or divorce, there will be demand for self-storage warehouses.
