Life Storage (LSI) deserves to be included in the pantheon of powerhouse dividend stocks for a couple of good reasons: Its proven performance record and its position in a niche that's still growing.
For starters, as a real estate investment trust (REIT), Life Storage is obliged to pay out at least 90% of its taxable income as dividends each year. Over the past five years, it's grown that quarterly dividend by 79% and its total return by 117%.
That return is from a portfolio that this 35-year veteran of the self-storage business has now grown to 1,172 stores in 37 U.S. states, including 414 that it manages for third parties for a fee. That's part of an effective four-pronged strategy that also includes joint ventures that let it extend its own resources with partners to invest in new properties, a program targeted to e-commerce vendors, and self-service, touchless rentals that provide nearly 40% of its rental income.
Beating the benchmarks
The results have been strong and the record so far has been impressive. For comparison, let's first use as benchmarks the Vanguard Real Estate ETF, an exchange-traded fund that typically holds a weighted collection of about 160 REITs, and the S&P 500, which tracks the performance of 500 large companies listed on U.S. stock exchanges.
As you can see below, Life Storage has edged the greater market in total return -- which combines share price and dividend payouts -- over the past decade while nearly tripling the REIT ETF's performance.
VNQ Total Return Level data by YCharts
And because we're talking about dividend performance here in particular, the next chart shows how rapidly Life Storage has been growing both its payouts and its funds from operations (FFO), a key measurement of how well a REIT generates and uses its cash flow, including to support dividend payouts.
LSI Dividend data by YCharts
Nope, it's not too late
Now, let's look at why it's not too late to buy into this dividend machine. While Life Storage has certainly participated in the rally that has seen the S&P 500 index, for instance, gaining about 6% so far this year after dropping sharply along with the greater market in the past, there still appears to be room to run.
For instance, funds from operations (FFO) grew by 26% year-over-year in the third quarter, continuing a trend that has seen that key metric and the dividends FFO supports both outpacing share price in growth over the past decade, as seen below.
LSI FFO Per Share (TTM) data by YCharts
It seems to me that Life Storage has put itself in a position to continue growing for the long term, not only because of the strategies mentioned above, but because of where it's focusing its growth and because of the strength of its balance sheet.
The company has invested $5.5 billion in acquisitions since 2015, for instance, with 64% of that in the fast-growing Sunbelt states and 60% in the U.S.'s fast-growing metro markets.
Meanwhile, this company says it's leveraged its ability to raise rents more quickly than its peers, including by 14.5% per square foot in the first three quarters of 2022, while keeping occupancy at 91.4%. That's while maintaining a debt-to-EBITDA ratio of a very healthy 4.6 and earning an investment-grade rating from both Moody's and Standard & Poor's. Oh, and it's yielding a healthy 4.6%.
Life Storage has long shown the ability to unlock the value in self-storage and to deliver a nice share of that to shareholders in the form of total return. Buying it now and holding on to it would fit into a long-term strategy for investors seeking both growth and income.
