Last update on 2024-06-27

Extra Space Storage (EXR) - Dividend Analysis (Final Score: 3/8)

Explore the performance and stability of the dividend policy of Extra Space Storage (EXR) through an 8-criteria scoring system. Final Score: 3/8.

Short Analysis - Dividend Score: 3

We're running Extra Space Storage (EXR) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis of Extra Space Storage (EXR) was evaluated against 8 criteria, and EXR scored an overall 3 out of 8. The analysis found that EXR had a strong dividend yield (4.0417%), which surpasses the industry average (2.86%) and is favorable for income-focused investors. However, the average annual growth rate of dividends over the past 20 years was inconsistent and marked by notable fluctuations. The average payout ratio (78.33%) exceeded the benchmark of 65%, indicating potential sustainability concerns. Additionally, dividends coverage by earnings and cash flow has improved in recent years but showed high variability earlier, posing some risks. EXR's dividend history demonstrated stability with increasing trends, but it hasn't paid dividends for over 25 years. Finally, stock repurchases were infrequent, indicating a focus on other priorities over buybacks.

Insights for Value Investors Seeking Stable Income

Given the analysis, EXR demonstrates potential for high dividend returns with promising signals in recent years, but there are notable risks due to past inconsistencies and high payout ratios. As an investor, it might be worth looking into EXR for a dividend-focused strategy, but with a cautious approach considering the potential sustainability issues and limited history of over 25 years. Keep an eye on their financial performance and any changes in dividend or repurchase policies moving forward.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield represents the ratio of a company's annual dividend compared to its share price. It is an essential metric for income-focused investors and reflects the income generated from every dollar invested in the company.

Extra Space Storage's current dividend yield of 4.0417% significantly surpasses the industry average of 2.86%, suggesting strong potential for income generation. Over the past 20 years, the dividend yield has shown variability, peaking in 2008 at 9.6899% and hitting a low of 0% in 2003. Despite fluctuations, the trend in recent years shows stability around the 4% mark, indicating a resilient and potentially rewarding dividend environment. The higher yield relative to the industry average positions Extra Space Storage as a particularly appealing option for dividend-focused investors. This trend is favorable as it outperforms peers, highlighting EXR's strong payout capabilities even amid potential market volatilities.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate measures the annualized percentage rate of growth of a company's dividend payments over time. A growth rate higher than 5% is considered robust and indicative of a company’s commitment to returning value to shareholders. It signals financial health and strong future prospects for the company.

The provided dividend per share ratios for the years 2003-2023 exhibit very high volatility and irregularities. For instance, significant outliers appear in specific years such as 2005 (169.0265), 2009 (-62), and 2010 (5.2632), impacting the average value (21.48%). Regularity and consistent growth are key aspects of a healthy dividend growth rate. Based on the average dividend growth ratio of 21.48%, the data superficially suggests a robust growth figure. However, deeper analysis reveals huge variances indicating instability, which negates the positive impression from the average figure alone. Therefore, while the average ratio is promising, such inconsistency presents risks, making this trend partially concerning for investors.

Average annual Payout Ratio lower than 65% in the last 20 years?

Average Payout Ratio is a key metric for evaluating the sustainability of a company's dividend payments. It expresses the percentage of earnings a company distributes to its shareholders in the form of dividends. A lower ratio indicates that the company retains more of its earnings for growth and expansion, which is generally seen as a positive sign, as it often suggests the dividend is more sustainable in the long term. An appropriate benchmark is considered to be 65%.

The average payout ratio for Extra Space Storage (EXR) over the past 20 years stands at 78.33%, which is above the 65% benchmark. This trend is somewhat concerning as it suggests that EXR has been paying out a large portion of its earnings as dividends. Several years (2004, 2005, 2006) even show negative and extremely high positive values, indicating instability in earnings quality. Moreover, in most years, the ratio exceeds 100%, including 2023, which means the company might be paying more than it earns in dividends. This can be unsustainable in the long term and might indicate that the company relies on borrowing or other means to finance these dividends, posing a potential risk to dividend sustainability.

Dividends Well Covered by Earnings?

Dividends are well covered by earnings.

When considering the coverage of dividends by earnings, a metric often monitored is the payout ratio. Ideally, this ratio should be less than 1, indicating that the firm generates enough earnings to comfortably cover its dividends. Examining Extra Space Storage's EPS and corresponding dividends from 2003 to 2023 shows fluctuating payout ratios. Initially, in 2003 and 2005, the company had negative or significantly low coverage, with the payout ratio being unfavorably higher than 1. This trend improved in subsequent years with positive EPS trends outpacing dividend increases, demonstrating better coverage and a more sustainable payout. It is especially notable from 2011 onwards where the payout ratios predominantly remained close to or below the ideal limit. Notably, in 2013 and 2014, the company recorded some of the highest EPS growth, enhancing its dividend-paying capability. The year 2022 showed an anomaly with decreased earnings, reflected in a payout ratio approaching 1.36; this could pose risks if it becomes a continuing trend. Overall, the positive coverage trend indicates robust earning capacity able to support dividend payments consistently—a good sign, barring a few fluctuating years.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow indicates the percentage of free cash flow dedicated to paying dividends. It should ideally be a positive ratio and consistently high to ensure dividend sustainability.

Examining the trend from 2003 to 2023, Extra Space Storage initially exhibited negative ratios until 2008, indicating inadequate free cash flow to cover dividends. Historically, the coverage ratio plummeted to an alarming -15.27 in 2010. From 2008 onward, positive ratios emerged, with notable improvements in 2011 (0.41) and consistent growth to higher coverages surpassing 0.6. It peaked around 0.75 in 2023. This steadily increasing trend reflects well on the company’s ability to sustain dividends with free cash flow, signifying progression from a poorly covered dividend to a robust, well-covered yield.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for Extra Space Storage (EXR) and why it is important to consider

Stable dividends over the past 20 years are crucial for income-seeking investors as they seek predictability and reliability in their returns. Analyzing Extra Space Storage's dividend history shows consistency and resilience, given that it did not drop by more than 20% over the aforementioned period. The dividend per share has experienced fluctuations, notably decreasing in 2009. However, the company has shown a strong recovery and significant growth in recent years, with dividends rising from $0.38 in 2009 to $6.48 in 2023. This trend demonstrates a compelling capability to maintain stable payouts for stakeholders, which is a positive factor for those prioritizing dividend consistency as well as potential growth.

Dividends Paid for Over 25 Years?

Explain the criterion for Extra Space Storage (EXR) and why it is important to consider

The criterion of paying dividends for over 25 years assesses the consistency and stability of a company's return to its shareholders. A record of prolonged dividend payments often indicates the company’s profitability and management's commitment to returning capital to shareholders. It reflects on the company's ability to generate sustained revenue and profitability over a long term, which is vital for investors seeking consistent income streams.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases indicate a company's commitment to returning value to shareholders by reducing the number of shares outstanding, increasing EPS, and are a sign of financial health.

Examining Extra Space Storage's share buyback history over the past 20 years reveals that they have significantly increased their number of shares from 4.49 million in 2003 to 169.22 million in 2023. Despite the company's robust financial growth, the only notable instances of share repurchases occurred in 2016, 2018, and 2019. Although these years show a minor reduction in the share count, it pales in comparison to the overall growth in shares. This suggests that EXR prioritizes reinvestment or dividend payouts over consistent buybacks. Considering the average repurchase rate over the past 20 years is 27.6092, the lack of consistent repurchase activity might be seen as a missed opportunity to provide more immediate shareholder value, reflecting a neutral to slightly negative trend for this criterion.