It's not often that you hear a dividend stock has market-beating potential. Such stocks are known for slow growth and reliable income over big gains. But this real estate investment trust (REIT) has all of the signs for market-beating potential. Here's why.
Serving a necessity-based, niche industry
Iron Mountain (IRM +1.35%) is a specialty REIT that owns or leases industrial space for the physical or digital storage of data and goods. It helps roughly 225,000 clients across the world store, organize, and manage physical and digital assets like documents, collectibles, or artifacts.
This might not seem like a smart business model in today's tech-heavy world, but a huge number of companies and industries are still mandated to keep physical documents and other files in storage. Lawyers, government offices, doctors, and banks rely on services like this to safely store and organize things like medical records, historical records, or loan documents. And that demand likely isn't changing.
The cost to create a safe, weatherproof environment for storing important collectibles and files like these is cost intensive. You need a team of in-house people to organize and manage the assets, increasing the costs further. It's much more cost-effective to outsource the task to a company like Iron Mountain.
NYSE: IRM
Key Data Points
While its core business is booming, the company realizes the world is changing. To stay ahead of the curve, Iron Mountain has expanded its assets to serve a larger need: data storage.
The REIT now has 15 data center facilities in its portfolio that are leased to tenants to help store, aggregate, and transmit data safely. Several of these facilities are being expanded to increase the property's megawatt capacity.
Demand for data centers across the globe is booming. And there's clearly demand for its core services, too. For the full year 2022, its service income grew 32% year over year while its storage income grew by 9%.
It has historically beaten the market
Iron Mountain operates in a high-demand niche industry that should see long-term demand. And it has proved its market-beating potential over the long run.
The REIT has provided a total return of 122% over the last five years, while the S&P 500 provided a 57% total return in that time.
IRM total return level data by YCharts.
As is often repeated, historical performance isn't a guarantee for future performance, but given its latest earnings and forecast for the next five years, the company should be able to continue delivering outperforming returns for investors.
The REIT's leasing activity blew its original projections out of the water. Its adjusted funds from operations (AFFO) per share -- a key metric for REIT profitability -- were up 7% in the fourth quarter of 2022, while organic storage revenue was up 11%.
High demand for its services should continue to help it beat the market, at least for the next few years. The REIT currently pays a dividend yield of just under 5%, which is four times that of the S&P 500.
