Whilst shares in National Storage REIT (ASX:NSR) yield 6.21%, I believe investors should be cautious when buying purely for the dividend. There are some key metrics to test against in order to make a more informed opinion on the company. National Storage REIT has a market cap of USD $573 Million and is run by Andrew Catsoulis. See our latest analysis for NSR
The first thing I look at is the company’s payout ratio.
Payout ratio is a measure of what portion of a company’s earnings are paid out to shareholders as a dividend. So a payout ratio of 50% would mean for every $1 earnt they pay 50c as a dividend. Likewise a payout ratio of 150% means the company is paying out more as a dividend than it earns, usually this is paid out of debt or cash.
The current payout ratio for the stock is -7522%, which means that National Storage REIT is loss making, and paying it’s dividend by diving into the balance sheet. Looking forward 3 years the analysts expect the dividends per share to be around $0.107 and EPS to increase to $0.11. This means shareholders should be concerned with the company’s ability to continue paying with an expected future payout ratio of 97%.
The payout ratio is a strong indicator of a company’s ability to finance their dividend distribution, but I also encourage investors to look at how consistent those payouts have been over time.
If there’s one type of stock you want to be reliable, it’s dividend stocks. It is really too early to view National Storage REIT as a dividend investment. They have only been consistently paying for 3 years and standard practice for reliable payers is to look for 10+ years track record. }
Where else to look?
We’ve seen why investors should be careful investing in NSR for the dividend. In fact if you are looking for a good dividend stock, it would probably be worth of looking elswhere.
If however, you are not after a reliable dividend payer, National Storage REIT could still offer some interesting investment opportunities. See our latest FREE analysis to find out! If you are looking for potential dividend investments I recommend you take a look at our Dividend Rock Stars view.