Public Storage (NYSE:PSA) announces Q2 2017 earnings Wednesday after the close of trading. PSA stock is down 4.7% year to date through July 24 and 14.6% over the past 52 weeks, so there better not be any surprises in its second-quarter report.
Public Storage’s business is a good one that grows at a slow and steady pace. You won’t confuse PSA stock for some high-flying tech stock. But, that’s precisely why buy-and-hold income investors love it.
InvestorPlace’s Ian Bezek believes it’s one of the safest REITs investors can own, with an excellent history of growing its dividend. Currently yielding 3.9%, it’s dividend might not be the highest among its self-storage REIT competitors, but it has increased the dividend by 15% compounded annually over the past 11 years.
Any investor in dividend-paying stocks will tell you that dividend growth is far more important than dividend yield.
“The company is one of the few A-rated American REITs out there,” Bezek wrote about PSA stock in May. “This REIT won’t have the most explosive upside of its industry, but it’s arguably the single safest option during a bear market for REITs.”
Why the Drop in Price?
Take a frothy valuation and add in Q1 2017 earnings that missed both revenue and funds from operations (FFO) estimates — FFO was $2.34, nine cents off analyst expectations, while top-line revenue was $645.5 million, $10.3 million less than expected — and you’re going to get a smackdown from investors. PSA stock is down 6.7% since it announced first-quarter earnings April 27.
But, it wasn’t an entirely bad quarter, with revenue up 5.5% year over year, FFO up 11.4%, same-store revenue up 4.0%, realized annual income per occupied square feet grew 4.9% to $16.81 and net operating income increased by 4.1%.
The only blemish on the card was a 0.5% drop in the weighted-average square foot occupancy rate to 93.1%. That is lowest rate over the previous four quarters. However, putting it in perspective, a five-star hotel would die for an occupancy rate that high.
What to Expect From Q2?
Analysts expect $668.2 million in revenue for 12.4% growth over last year and earnings per share of $1.80, 19 cents higher than a year ago.
Although PSA has a mixed record when it comes to earnings surprises, analysts still see revenue growing by 11.1% annually over the next five years. While not as good as the 15.5% revenue growth over the past five years, the fact that analysts still expect it to deliver double-digit growth is encouraging.
PSA isn’t going to deliver earnings that are significantly above or below analyst expectations. As Bezek said in his article, Public Storage is as consistent as they come. Over the past decade, the company has grown its free cash flow per share 10% annually from $3.75 in 2006 to $9.39 in 2016.
Bottom Line on PSA Stock
It’s currently trading at a level it has seen on a consistent basis since 2015. Its valuation regarding the usual metrics such as P/E ratio is actually lower than they’ve been at any point in the past five years.
Unless Public Storage delivers a stinker of an earnings report, which isn’t going to happen, now is the time to buy PSA stock, maybe a half position, and if its shares drop on earnings, buy some more.
It will be a boring stock to own, but a darn good one, because the public storage business is only going to keep growing.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.