Dividend Increase | Iron Mountain (IRM)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Iron Mountain for the dividend increase!
There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  

On October 31st the Board of Directors at Iron Mountain (IRM) approved an increase to the quarterly dividend payment.  The dividend was increased from $0.611 up to $0.6185 per share.  That's a pretty meager 1.2% increase, but it was a raise!  Iron Mountain is a Dividend Contender with 10 consecutive years of dividend increases.  Shares currently yield 1.93% based on the new annualized payout.

The newly increased dividend will be payable on January 2nd to shareholders of record as of December 16th.

Since I own 30.147 shares of Iron Mountain in my FI Portfolio, this raise increased my forward 12-month dividends by $0.90.  This is the 2nd dividend increase I've received from Iron Mountain since initiating a position in October 2018.  Cumulatively, Iron Mountain's dividend has increase 5.3% since I purchased shares.

A full screen version of this chart can be found here.

Iron Mountain's dividend growth streak isn't that lengthy, but every streak of 50+ years started with 10 at some point.  

Iron Mountain's dividend growth has historically been strong; however, I expect it to slow down going forward.  Hence the small 1.2% increase this time.  Given that shares yield 7.38% I'm not too worried about how quickly the dividend grows as long as it's well covered and sustainable.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 2010 can be found in the following chart.  

A full screen version of this chart can be found here.

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

Iron Mountain's 5-year moving average forward dividend yield is 6.36%.  Based on the new annualized dividend a "fair" price for Iron Mountain would be $38.90 or ~16% higher than current levels.

The fair value range based on dividend yield theory is $35 - $43 assuming historic yield levels are indicative of future yield levels.  The current yield of 7.38% is in the 93rd percentile since 2010 meaning that only 7% of the time shares have offered a higher starting yield.

One thing to note though is the pretty obvious trend of a higher dividend yield over the last decade or so.  

This is definitely one of my more speculative holdings.  The core business is pretty strong, but doesn't offer much growth.  Knowing that management is trying to expand into digital data storage.  If done successfully, then shares are extremely cheap here, but if the expansion falters then further examination will be needed.

The EV/EBITDA multiple sits at 13.93x which still isn't all that cheap.  On top of that Iron Mountain has a heavily leveraged balance sheet which is just additional risk.

The new dividend of $0.6185 is just barely covered by 3Q's FFO of $0.62.  

Guidance for the current fiscal year was lowered during the 3Q earnings release.  The upper end of revenue was dropped 1.0% with the upper end of AFFO lowered 3.3%.

Based on the diluted weighted shares outstanding at the end of Q3 management is guiding to $2.95 - $3.02 of AFFO.  If those targets are hit that would put the forward dividend at a payout ratio between 82% - 84%. 

Iron Mountain is far from one of my usual SWAN investments.  That being said there's a lot of potential here to generate some incredible returns and I believe the downside is fairly limited.  Luckily I have some pretty good REIT and high yield investors on my side that are both quite bullish on the business.  That being said Iron Mountain is one that I'll watch more closely compared to most of my holdings.

Wrap Up

This raise increased my forward dividends by $0.90 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 2.95% this raise is like I invested an extra $31 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way.  

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

Thus far in 2019 I've received 44 raises from 39 of the 55 companies in my FI Portfolio.  Combined the dividend increases have boosted my forward 12-month dividends by $312.47.

My FI Portfolio's forward-12 month dividends climbed to $7,669.04.  Including my FolioFirst portfolio's forward dividends of $101.18 brings my total taxable accounts dividends to $7,770.22.  My Roth IRA's forward 12-month dividends remain at $619.71.  My Rollover IRA's forward dividends remain at $2,305.61.  Across all accounts I can expect to receive $10,695.54 in dividends over the next year.

I've also started compiling dividend data on many of the companies that I own or would like to own.  Iron Mountain's can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of Iron Mountain?  

Please share your thoughts below.