Like an ex-spouse, the Safety Net model is fickle and unforgiving. Screw up with a year of negative cash flow growth (or even the potential for a down year), and the stock’s dividend safety rating will get slapped like a smart-mouthed kid in the 1960s.
But once in a while, we come across a stock whose dividend safety rating is pristine.
At first glance, today’s Safety Net stock appears to have one of the safest dividends I’ve seen this year. Let’s take a closer look to see how it stacks up.
Stag Industrial (NYSE: STAG) is a real estate investment trust, or REIT, that owns warehouses, manufacturing facilities, and other industrial properties.
The company currently pays a monthly dividend of $0.1242 per share, which equals $1.49 per year or a 4.7% yield.
Stag has steadily grown its funds from operations (FFO), which is the measure of cash flow we use for REITs. That’s what we want to see. Rising cash flow means there is an increasing supply of cash to pay the dividend.
Last year, the company paid $370 million in dividends while generating $447 million in cash flow for a payout ratio of 83%. This year, because cash flow is forecast to grow to $487 million and the total dividends paid are projected to rise by a smaller amount to $385 million, the payout ratio is expected to dip to 79%.
I am comfortable with REITs paying out as much as 100% of their FFO in dividends, because REITs are obligated by law to pay out 90% of their profits in dividends in order to receive favorable tax treatment. Keep in mind, profits are not the same as cash flow or FFO. But because REITs must pay out such a high percentage of their profits, their payout ratios are usually higher.
Also, the purpose of most REITs is to pay shareholders a healthy amount of income, so it makes sense that their payout ratios are on the high side.
In short, as long as the REIT is not paying out more in dividends than it takes in in cash flow, I’m OK with it – and so is the Safety Net model.
Stag’s management has returned more cash to shareholders every year since it began paying a dividend in 2011. Granted, the increases lately have been small. In 2025, the monthly dividend was raised by $0.0009 per share, or a penny per share annually.
In fact, the dividend is only half a cent higher per month – or $0.06 higher per year – than it was in 2019.
But an increase is an increase, and it shows a commitment to paying and raising the dividend.
Stag Industrial is growing its cash flow, has a decade-plus history of annual dividend increases, and creates more cash flow than it pays out. When it comes to dividend safety, it doesn’t get any more perfect than that.
What stock’s dividend safety would you like me to analyze next? Let me know here.
Dividend Safety Rating: A
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