Investing for many years now, one thing I’ve learnt is that dividend shares come in all shapes and sizes.
It’s easy to think of the best dividend paying stocks as blue chips only. However, there are some smaller but well performing options out there too. One of those options is Safestore (LSE: SAFE).
Let me explain why I like the business and would be willing to buy some shares as soon as I can.
Storage space
Perhaps not the most exciting business or sector, storage is a big industry in the UK these days. This is perfectly illustrated by the sheer number of businesses now operating in the space (pun certainly intended), if you ask me.
Safestore is the UK’s largest self-storage business with a dominant position in the UK, as well as operations in France and Spain.
The shares are down 22% over a 12-month period from 959p at this time last year, to current levels of 740p.
I’m not too worried about the share price drop as it’s linked to the fact economic turbulence is pushing down anything real estate related.
Why I’m a fan
Safestore’s growth journey to become the UK’s largest firm is impressive. However, I’m more excited by its future path of looking to dominate further afield, and aggressively opening European locations. I’m especially looking to see how it fares in Germany, which is said to be an under-penetrated market and potentially lucrative self-storage market. This exciting growth could boost performance and dividends.
Next, as the Safestore share price has dropped recently, the shares look decent value for money. They trade on a price-to-earnings ratio of 16.
Finally, the firm possesses an excellent track record of performance growth and investor rewards. I do understand that past performance is not a guarantee of the future. Plus, dividends are never guaranteed. However, I can’t ignore a consistent record of hiking payouts, as well as a dividend yield of 4% today. Furthermore, if growth plans boost the business, this could well go up!
Risks and final thoughts
The biggest threat to Safestore right now is higher interest rates. Higher rates mean higher rents, and some customers may not be able to afford the new rent. This could hurt customer numbers, and performance. In addition to this, higher rates also impact property values. This can have a knock-on effect to the firm’s performance and balance sheet.
A smaller risk is the continued competition popping up domestically, and further afield. Low barriers of entry into the industry mean new start ups can appear anywhere and anytime. I’m not worried too much here as Safestore has good brand power and an established business behind it. However, I’ll keep an eye on this front in its growth markets.
Overall, I reckon Safestore is an excellent stock to buy for returns and growth for me and my holdings. The investment case is simple as the rewards outweigh the risks.
