STAG is not the only Industrial REIT
One of my readers asked a question on yesterday’s post. His question was, “How do you compare STAG to DRE and FR? the last two have higher rating and better dividend pay?” Although I responded to his question, I believe there is value in talking about DRE and FR to present a balanced case. First of all, DRE and FR are not bad industrial REIT choices. But there are reasons why I prefer STAG. Before I tell you why, let’s do a quick high-level view of the three business models.
Where does each REIT focus and how big are they?
Duke Realty Corporation owns and operates approximately 159 million rentable square feet of industrial assets in 20 major logistics markets. Duke Realty Corporation is publicly traded on the NYSE under the symbol DRE and is a member of the S&P 500 Index. Duke has the most rentable square feet of space. DRE has a market cap of $24.7 billion. That makes it number one in that measure.
First Industrial Realty Trust, Inc. (NYSE: FR) is described as, “a leading fully integrated owner, operator, and developer of industrial real estate with a track record of providing industry-leading customer service to multinational corporations and regional customers. Across major markets in the United States, our local market experts manage, lease, buy, (re)develop, and sell bulk and regional distribution centers, light industrial, and other industrial facility types. In total, we own and have under development approximately 64.1 million square feet of industrial space as of September 30, 2020. FR has less industrial space than either DRE or STAG. FR has a market cap of $7.33 billion. So it is much smaller in total valuation.
STAG has this description: “STAG Industrial, Inc. (NYSE: STAG) is a real estate investment trust focused on the acquisition and operation of single-tenant, industrial properties throughout the United States. By targeting this type of property, STAG has developed an investment strategy that helps investors find a powerful balance of income plus growth.” Stag claims to have 111.5 million square feet of industrial space. STAG has a market cap of $6.07 billion.
What does Fidelity Investments Think?
Fidelity has some reputable analysts that provide their buy, hold, and sell recommendations. These can change quickly, or they can creep up and down. While I usually look at the Fidelity equity summary score, I usually want to see the Seeking Alpha QUANT rating as well. While I was on Fidelity, I also noticed that you could see ETFs that hold a stock like STAG. So I looked at INDS (Pacer Benchmark Industrial Real Estate SCTR ETF) and decided it was too scattered with 21 holdings. I want a more focused approach. Furthermore, the yield on INDS is a paltry 1.61% and the expense ratio is 0.60%. That makes it too expensive and a poor source of income. The dividend growth rate is also substandard.
What are Reputable Analysts Saying?
Wall Street analysts are a crazy bunch. Most of them are really hesitant to recommend selling an investment. Furthermore, they use Wall Street “speak” when giving their recommendations. They might say you should “over-weight” a stock. They might also say “Equal weight” the investment. They might be more straightforward and say “buy.” You might guess that most of these are positive recommendations. However, they also provide a price target. If something is trading at $33.75 (like STAG), they might suggest a target price of $41. However, they are revising a former recommendation where they thought the target price would be $43. Above are three recent views of STAG, FR, and DRE.
What are the Top Ten Industrial REITs on Seeking Alpha?
One nice thing about Seeking Alpha is the ability to quickly see the “top ten” QUANT-rated stocks. As you can see from the following illustration, DRE is in third place, FR is in 6th place, and STAG comes in at 7th. However, always pay attention to “Valuation.” If it is red, then it means the stock price at the present time seems high. That means there could be a pullback. Perhaps I would add DRE and/or FR if that were to happen.
Why I Choose STAG over DRE and FR.
There is no single answer. My reader asked a valid question. All three are decent investments. But I prefer STAG for dividend yield and a monthly dividend payout. It beats DRE and FR handily on both of these metrics. Furthermore, STAG is showing better revenue growth and EBITDA growth for the last three and five years. DRE is certainly a lower growth engine when it comes to revenue. Finally, as I mentioned earlier, STAG is not overvalued at the present time, in my opinion. I think both DRE and FR are pricey at their current market prices.
You can create your own build-an-ETF by buying equal portions of all three. Therefore, if you have $15,000 to invest in industrial REITs, consider buying $5,000 of each of these three. Also, please note that I did not discuss number one and number two in Seeking Alpha’s industrial REIT list. Those might also be good investments, but I did not review them in this post.
Full Disclosure
Cindie and I own 1,300 shares of STAG as a long-term investment.
