Stash This “Hybrid” Investment for a 6.9% Yield

D.R. Barton Mar 08, 2019

These days, upon hearing the word “hybrid”, people most commonly think of a hybrid car – a combination of electric and combustion engines. But long before anyone had even dreamt of such a thing, the word hybrid meant something very different…

The earliest instance of hybrids can be found in ancient mythology, when the word referred to creatures composed of parts from different animals. One of the most well-known hybrids is the half-man, half-goat, known as a satyr. You may have seen such a creature in perhaps my favorite Disney animated film, Hercules.

The satyr Phil (short for Philoctetes), voiced by the sidesplitting Danny DeVito, serves as the trainer of the title protagonist, Hercules – a role I enthusiastically reprise for you, my readers – for his impending battle with the Titans.

But perhaps the most famous satyr is the one known as Pan, the god of the wild, shepherds, and flocks (you may also know of the type of flute named after him). Having the legs and horns of a goat, but the body and face of a man – as well as being the god of flocks and shepherds – Pan would certainly appreciate the hybrid and protective nature of todays recommendation, as we’ll be delving into the world of data storage.

Check it out…

Hybrid Storage Solutions for the Digital Age

In his Grammy-winning 1964 album of the same name, Bob Dylan sang, “The times they are a-changing.” That phrase rings particularly true these days for the data storage industry. Over the last decade, advances in technology have brought about the ability to easily and efficiently store massive amounts of data online. Many of the largest companies in the industry have realized that they’d better start swimming, or they’ll sink like a stone – including this month’s pick.

Now, that’s not to say that physical storage has gone the way of the dinosaur. Far from it, in fact. Even with the advent of digital storage, hundreds of millions of square feet are still used for the physical storage of documents and valuables. Several of the largest companies in the industry still make over half of their revenue from physical storage and related document management services.

That being said, digital and cloud storage is the future. A study by Global Market Insights Inc. projects the Electronic Document Management System (EDMS) market to surpass $6 billion by 2024. Storage companies have realized that they must adapt and take on a hybrid approach to bridge the gap between the old methods of storing valuables, and the new.

With the demand for data storage increasing by 50% annually over the last few years – and forecasted to increase fourfold by 2025 – businesses are realizing that they must store their data more efficiently than ever to keep costs down. There are many benefits to going digital, including:

  • Lower storage costs
  • Ease of searching and accessing documents
  • Labor savings in locating, managing, and disposing of documents

However, there are a few downsides as well:

  • Converting paper documents to digital is very expensive and time-consuming
  • Documents stored online are vulnerable to security breaches from hackers
  • Expense of updating storage systems as technology evolves

The most savvy business managers – understanding the pros and cons of each type of storage – will strike a balance between both physical and digital storage. And today’s pick is well positioned to meet that hybrid demand…

The Satyr of Storage…

If you’ve worked in an office (or any place with lots of paper files) in the last 30 years, it’s extremely likely that you’ve seen the branded boxes of this recommendation, Iron Mountain Inc. (IRM).

For decades, IRM has been one of the most recognizable faces in storage and information management, serving 230,000 customers in 45 countries, on six continents (including 95% of the Fortune 1000 companies). Iron Mountain’s main business is physical storage, which accounts for just over 60% of their revenue. In 2014, IRM was awarded a Private Ruling Letter from the IRS, classifying the large buildings IRM rents out for its physical storage as real estate, allowing them to convert into a REIT. In doing so, IRM was required to pay 90% of taxable income to its investors, significantly increasing the size of the dividend it pays. Currently, IRM’s annual dividend yield stands at a mountainous 6.9%.

Iron Mountain Global Footprint:

Like many REITs, IRM has shown to be an incredibly stable investment, in part due to inelastic demand. Iron Mountain has only a 2% customer turnover per year.

What sets Iron Mountain apart from a number of similar REITS, though, is its relative insensitivity to higher interest rates. This is due to the fact that their customers’ storage needs are unaffected by rising interest rates, and IRM owns less real estate than it leases (27 million sq. ft. owned, 59 million sq. ft. leased), which means IRM is less negatively impacted by rising interest rates.

Though perhaps the biggest appeal of IRM is their growth potential, thanks to their expansion efforts in digital storage and security services. Iron Mountain has acquired five different entities in the digital storage sector in the last nine months.

Their goal is to have digital data services account for 15% of their revenue mix by 2020.

A recent study by the IT network Spiceworks revealed that 55% of companies plan to increase their cloud budgets over the next 12 months, and 38% of companies have adopted advanced security solutions.

With a great dividend yield, a solid base as one of the world’s largest physical storage companies, and a digital storage division ready to climb to the top, the sky is the limit for Iron Mountain.

Action to take: Buy Iron Mountain Inc. (IRM) at market. Strategy: Buy and hold. Yield: 6.90%.


Comments are closed.