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Iron Mountain's High Dividend Yield Comes With Risks

The narrow-moat REIT has been funding its payout with debt and will need to execute on its acquisition ambitions to support its dividend.


Eric Compton: Iron Mountain is a REIT, or real estate investment trust, and pays one of the better dividend yields compared to peers. As of October 2017, the FTSE Nareit All Equity REITS index had a dividend yield of 3.85%. Compare this to the current yield of nearly 5.8% for Iron Mountain. REITs often make sense for investors in search of steady yield-generating stocks, however, Iron Mountain is not your typical REIT, and there are legitimate risks which factor into the higher yield which investors should be aware of.

While we assign the firm a narrow moat rating, as it is the largest global enterprise storage company, we also assign the stock a negative trend. This is reflective of the ongoing pressures within the enterprise storage sector. While regulations will undoubtedly force certain firms to store hard copies of certain documents for some time to come, corporations have gradually shifted more and more of their information storage to electronic mediums. In mature markets, storage volume is often flat or even down in certain periods for Iron Mountain because of this trend away from hard storage. To make up for this, Iron Mountain relies on acquisitions in less developed markets for roughly 40% of its total growth. Combine the heavy amount of cash needed to fund these acquisitions with existing capital expenditures, and the firm eats up most of its cash flows before even paying out its dividends. 

Eric Compton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.