This top 4% dividend stock thinks it’s a great buy right now

Public warehouse (PSA Announcement) 3.94%) is one of the leading real estate investment trust (REIT) companies. It is an industry leader in the self-storage sector, with 3,369 properties comprising 243 million square feet of rentable space in 40 states.

As majority REITsPublic Storage is better known for using its free cash flow to pay dividends (it currently yields 4%, well above S&P500 1.3% on average). However, the top self storage REIT believes its shares are currently trading at such an attractive price that it recently used some of its financial flexibility to buy back $200 million of its shares. Here’s why the REIT believes it’s a great investment right now.

Further growth ahead

Public Storage has grown rapidly over the years. Same-store REIT net operating income (NOI) has grown 4.9% year-over-year since 2004, much faster than the core commercial real estate sector average of 3%. The company has benefited from sustained, growing demand for self-storage space, which has helped maintain high occupancy levels while enabling REITs to constantly increase rental ratesIt also benefited from growing scale and operational efficiencies, which helped it achieve sector-leading NOI margins.

The REIT has complemented its solid organic growth rate with accelerated external growth over the past five years. Since 2019, it has invested $11 billion in acquisitions, developments and redevelopments, adding 56 million square feet to its portfolio (up 35%). For example, last year it acquired Simply Storage for $2.2 billion, adding 127 owned and managed properties and another 25 to its third-party management platform.

The company continued to invest in expanding its portfolio this year, buying two self-storage facilities for $22 million in the first half of the year and recently agreeing to buy three more for $24.2 million.

Public Storage also continued to develop new properties. In the first half of the year, it completed three development projects and several expansions, investing about $120 million. In the meantime, it is investing almost $740 million in various development and redevelopment projects that it expects to complete over the next two years.

Public Storage’s decision to buy back $200 million of its shares “reflects strong confidence in the company’s near-term, medium-term and long-term prospects,” Chief Executive Joe Russell said in the company’s second-quarter earnings report.

Attractive value

Another factor influencing a REIT’s decision to buy back its shares is an attractive valuation:

As this slide shows, Public Storage is trading at a discounted valuation compared to its peers. Extra storage space (PHOTO 3.18%)The company believes it should trade at a premium to its peers, which it has historically done. Several factors contribute to this view, including higher margins (77.2% same-store NOI margin vs. 74% for second-place Extra Space), stronger portfolio, a healthier balance sheet and an improved growth profile.

Public Storage stands out in the self-storage sector because of its development platform. Investing in development is more risky, So competitors like Extra Space prefer to provide financing to other developers rather than build projects themselves. However, development projects can be more profitable. Having an in-house development team enables a REIT to unlock more value from acquisitions because it can redevelop or expand recently acquired properties.

The company also has a stronger financial profile. Its leverage ratio is around 3.9 times, which places it below the low end of its 4.0-5.0 times long-term target range. It is also well below the 4.9 times leverage of its main rival, Extra Space Storage.

An attractive investment opportunity

Public Storage pays an attractive dividend. But that’s only part of its appeal. The REIT expects to continue to grow at an above-average rate. In the meantime, it offers that growth (and a higher-quality portfolio and balance sheet) at a discounted valuation compared to its rivals. The REIT believes these traits make its stock very attractive investment opportunity these daysThat’s why it recently bought back $200 million worth of shares.