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Income, Investing  | January 11, 2019

Dividend growth stocks are the most time-tested and proven way of building wealth over time.

Not just do they tend to beat the stock market (itself the best-performing asset class in history) over time, but they do so with lower volatility. That's because income investors, including retirees looking to live off dividends, are more long-term focused, and as long as a company's payout is safe and growing, are less prone to panic-selling during inevitable downturns.

Trailing Total Returns Vs S&P 500 By Strategy

(Source: Ploutos Research)

That historical outperformance is not a trick of cherry-picking time frames either. As you can see, dividend growth stocks have continued to outperform the S&P 500 over all time frames. That includes the most severe correction in the last 10 years.

But while market-beating total returns are great for investors like myself (32 years old) who have long time horizons, high-yield stocks are what many older investors (near retirement or already retired) are looking for. Fortunately, the world of REITs offers a way to combine high-yield to pay the bills during your golden years with inflation-beating long-term income growth. This allows you to not just preserve your buying power over time but also grow it, as well as your overall nest egg's size.

My goal is always to point out great long-term income growth opportunities to my readers. Iron Mountain (IRM) is one of my favorite high-yield picks right now, which I consider a solid sleep well at night, or SWAN, stock for most people, no matter what your primary goals are (total returns or current income or both).

That's because this 7.1%-yielding industry blue-chip (the biggest in the world at what it does) has several great attributes that make it a fine choice for anyone seeking safe and growing, recession-proof income. And thanks to a highly attractive valuation and long-term growth runway, as well as a top-notch management team to execute on it, Iron Mountain is also likely to deliver strong long-term dividend growth that will likely result in about 14% total returns in the coming years.

This is why I not just own Iron Mountain in my own retirement account but also in my new Deep Value Dividend Growth Portfolio. This is a portfolio of my top dividend growth stock recommendations at any given time, and is 100% focused on low-risk SWAN stocks that are capable of delivering 13+% long-term total returns (the portfolio is beating the market by 8.3% since inception).

So let's take a look at the four reasons 7.1% yielding Iron Mountain a retiree dream stock, as well as one of the best long-term, high-yield investments you can make today, no matter your time horizon.

1. A Wide-Moat, Recession-Proof Business Model

While it didn't become a REIT until 2014, Iron Mountain traces its roots back to 1951. That's when it began its physical document storage business serving New York City-based corporations. Over the past 68 years, the company has built itself into the world's largest document storage business serving more than 225,000 customers (including 95% of the Fortune 1000) in 54 countries on all six inhabited continents via over 1,400 storage facilities.

(Source: IRM investor presentation)

Today, 63% of the REIT's revenues are still from storing physical documents, and for good reason. This industry may be boring, but it's also highly recession-resistant and high-margin. In fact, Iron Mountain's customer retention rate is 98% per year, and 51% of boxes placed into its facilities 15 years ago still remain in storage and generating revenue.

(Source: IRM investor presentation)

The reason for this super-low turnover is because, according to Morningstar's Eric Compton, the average price per month for storing a cubic foot of documents for customers is a measly $0.10-0.22. Box retrieval costs a one-time fee of $1.65-2.77 per cubic foot, and there is also a handling fee of $0.53-0.83 per cubic foot.

This basically means that a corporation's storage costs are so low compared to the cost of moving a box to a rival that few both to do so, even during economic downturns, when cost savings become a primary goal (document storage is an insignificant expense for most companies). That advantage is further strengthened by most of its contracts stipulating a maximum monthly withdrawal rate, which means that even if a company wanted to switch storage providers, it would take a long time to do so. However, because Iron Mountain maintains an industry-leading document/data accuracy rate of 99.99999%, very few customers have an incentive to try to switch (legal requirements in various industries require physical document backup storage).

What's more, the company enjoys one of the widest moats in all of REITdom. This is because, after decades of consolidating the global document storage market, no one can match IRM for its supply and logistics capabilities. That includes the pick-up and delivery network it's spent billions building, which allows it to charge less than its smaller peers, while still retaining industry-leading profitability.

(Source: IRM investor presentation)

That profitability keeps rising steadily, despite the REIT's rapid diversification into non-storage business lines such as services (shredding), data security, and data centers. This is courtesy of Iron Mountain's unbeatable economies of scale, which allow the company to spread out its fixed costs over its rapidly growing and contracted revenue.

And don't be fooled by the REIT's weak stock price performance over the past few years. Iron Mountain is enjoying some of the best growth rates in all of REITdom.

MetricQ3 2018YTD 2018
Revenue Growth9.8%10.9%
Adjusted EBITDA Growth12.7%15.6%
Adjusted Funds From Operation Growth9.0%13.7%
Dividend Growth (YOY)4.0%6.9%
AFFO Payout Ratio76.6%74.3%

(Sources: Company earnings release, earnings supplement, GuruFocus)

Even factoring in 8% share dilution over the past 12 months (like all REITs, IRM sells new shares to partially fund its growth), AFFO (the REIT equivalent of free cash flow and what funds the dividend)/share is up 5.3%. What's more, management recently raised its top and bottom line growth guidance for 2018, and by a significant amount.

  • Revenue growth: 9-11% (up from 7-9%)
  • AFFO growth: 13-16% (up from 5-13%)

Analysts expect that this year's strong results will result in AFFO/share rising by 7%, in line with its growth rates of previous years.

(Source: F.A.S.T. Graphs)

Analysts also expect (as do I) that IRM's AFFO/share will continue growing at roughly this pace for not just the next few years but over the next decade. Now, that might come as a surprise to investors who are worried about the long-term secular decline of physical storage in developed markets like the US and the EU.

In fact, the decline in developed market storage volumes is the primary reason why one analyst recently downgraded the stock. And it's true that in developed country markets, physical storage volume is starting to shrink, with document destruction rates now overtaking new document inflows.

(Source: IRM earnings supplement)

IRM's developed market net storage growth has been falling at a steady (though very slow) pace for three quarters. But as CFO Stuart Brown pointed out in the latest conference call, thanks to good revenue management (such as price hikes), developed market storage revenue still grew by 0.7% in Q3.

Meanwhile, its overseas document storage volumes have been growing at a fast and accelerating rate. Because management expects the weakness in developed market storage volumes to continue for the next few years, it's been actively acquiring fast-growing storage businesses overseas, and in the past year, has made acquisitions in:

  • Croatia
  • China
  • Philippines
  • South Korea

Today, 14% of IRM's revenue is from emerging markets in Asia and Latin America, but its steady acquisitions in those markets will help the company to substantially grow its international diversification.

(Source: Iron Mountain investor presentation)

The REIT's services business revenue (think document scanning and shredding) is booming, up 10.1% in the first 3 quarters of 2018. This is why even adjusting for currency fluctuations, IRM's total storage revenue in the first nine months of 2018 grew 3.6% (and 4.2% in Q3, when volume declines were the highest in years).

And as its CFO explained to analysts during the last CC, Iron Mountain is well-situated to deal with even much faster volume declines in its developed markets.

If we had a global volume net decline as large as 1% of total volume or 7 million cubic feet, which is 10 times larger than anything we've experienced. If you assume the volume decrease comes from a combination of fewer incoming boxes and increased destructions, the revenue lost from the fewer incoming boxes would be largely offset by an increase in destruction-related fees even before any paper revenue... In summary, we remain on track to continue strengthening our balance sheet while funding our targeted dividend increases such as that announced this morning. We expect our strong cash flow generation to enable us to fund dividend increases while improving our AFFO payout ratio.

- Iron Mountain CFO (emphasis added)

The bottom line is that Iron Mountain isn't worried about its core document storage business in developed markets. While this source of highly recession-resistant cash flow is likely to eventually decline over the long term, the REIT's long-term growth plan remains firmly on track.

That plan calls for steady dividend growth, deleveraging the balance sheet (to eventually achieve an investment grade credit rating), and is ultimately the biggest reason I'm such a fan of this high-yield REIT.

2. Great Long-Term Growth Strategy Supports Safe Dividend Growth And Deleveraging Plan

All companies can come up with great sounding long-term growth plans, but ultimately, it's quality management that counts. An experienced executive team that is capable of smart capital allocation is the key difference between promising a wonderful future and actually delivering on it.

Iron Mountain's strong management team is led by CEO William Meaney. He took over the top job at IRM in January 2013 and has been responsible for overseeing the REIT's strong cash flow and dividend growth since then. Before IRM, Meaney was CEO of The Zuellig Group, a $12 billion Hong Kong-based business-to-business conglomerate, for eight years. Over his tenure, Zuellig's revenues tripled.

A key reason Zuellig hired Meaney was because of his strong global connections, which stem from serving as Chief Commercial Officer and managing director of Swiss International Airlines (2002-2004). And before that, he served as executive vice president of South African Airways for three years. He's also a member of the Asia Business Council, giving him strong business connections in IRM's largest and fastest-growing market.

Meaney's skill isn't in just rapidly consolidating overseas storage businesses, and thus recreating IRM's historical business model in fast-growing emerging markets. It's also in diversifying into other fast-growing business lines such as data security, cloud computing, and services.

(Source: IRM investor presentation)

IRM already operates in 12 data center markets around the world, including in some of the fastest-growing markets (9 top US markets and 3 international ones). The REIT's long-term goal is to serve both America's and the world's top 10 data center markets (total market expansion to 20 cities).

The data center business has been steadily built up through acquisitions over the past year, and today, IRM has 103 MW of data center capacity that's expandable to 289 MW (basically tripling in size in the future from organic capex investment). Occupancy is 91.1%, with over 1,100 corporate clients and average remaining leases of 3.5 years. Despite this being a new business for the company, and still relatively small, global adjusted EBITDA data margins are already 44% and expected to climb in the future (improving economies of scale).

Iron Mountain is targeting long-term 10-13% rates of return on invested capital in data centers, which is similar to what it enjoys in physical storage. In other words, data centers are not a way of sacrificing profitability for growth but a good strategic choice for the company to leverage its current business model into strong growth in the coming years and decades.

(Source: IRM investor presentation)

That's because Iron Mountain's data center business shares many of the appealing characteristics of its storage business, including high retention rates, low capex, and very high EBITDA margins.

Why does IRM think it can compete in data centers when it's the new kid on the block? This is because of Meaney's global B2B connections and the REIT's decades-long relationships with its global corporate clients. Iron Cloud is the REIT's new data protection and retrieval platform, and the REIT's trusted brand, literally the best in the industry, has allowed its data center business to grow quickly from nothing a few years ago to 5% of revenue today (data security is another 12%). By 2020, IRM expects that 10% of all cash flow will be coming from data centers.

(Source: IRM investor presentation)

Combined with the fast-growing overseas storage business, Iron Mountain is building its long-term growth on a portfolio of businesses that is seeing double-digit revenue growth, more than three times that of its mature core business.

This is why IRM isn't worried about slowing growth in developed storage, because the company believes its growth initiatives are still on track to actually accelerate overall revenue growth by 2020, while ever-improving economies of scale will allow annual cash flow growth to accelerate by about 20%.

To help fund its growth goals, Iron Mountain has a few sources of capital. There's steadily rising retained cash flow (from a falling payout ratio), modest amounts of new debt (designed to still allow deleveraging), accretive equity issuances, and capital recycling.

(Source: IRM investor presentation)

That last strategy simply means that the company will periodically and opportunistically sell properties when it can achieve an annualized rate of return of 15+% on its investment.

What does Iron Mountain's grand strategic vision (which it's executing on very strongly, thanks to great management) ultimately mean for income investors?

(Source: IRM earnings presentation)

How about close to 7% revenue growth, double-digit AFFO growth, and a steadily growing dividend. And at 4% payout growth, IRM plans to use its rapidly growing cash flow to deleverage its balance sheet from a leverage ratio (defined by its creditors) of 5.6 to 5.0 by 2020. And over the long term, management expects to lower the leverage ratio to about 4.75, but possibly to 4.5, all but ensuring an investment grade credit rating (see "risk" section).

(Source: Iron Mountain investor presentation)

As for IRM's dividend safety, that will be enhanced by the stronger balance sheet and an AFFO payout ratio that's expected to fall to 73%. Note that at the start of 2018, the company was guiding for a full-year AFFO payout ratio of 81%, in the last 12 months it's actually been 80%, and management now believes its increased guidance will put the company under 80% for 2018.

Basically, despite what the stock's recent price crash may lead you to believe, IRM isn't some flailing yield trap with an unsustainable and unsafe dividend that's almost certain to be cut. Rather, it's a thriving, cash-rich, and wide-moat business with a top-quality management team that consistently over-delivers on its already impressive growth plans.

This, in turn, creates a highly attractive dividend profile that promises not just generous, safe, and steadily rising dividends in the future, but also mouth-watering total returns that are far superior to what the market is likely to deliver.

3. Dividend Profile: Safe, Generous, And Growing Yield Plus Market-Beating Total Return Potential

The most important part of any income investing is the dividend profile, which consists of the yield, payout safety, and long-term growth potential. Combined with valuation, this is what tends to drive total returns over time.

REITYieldTTM AFFO Payout RatioProjected 10-Year AFFO/Share Growth (Analyst Consensus)10-Year Potential Annual Total Return (No Valuation Change)

Valuation Adjusted Total Return Potential

Iron Mountain7.1%80%5.6%12.7%14.4%
S&P 5002.0%33%6.4%8.4%5% to 9%

(Sources: Management Guidance, Simply Safe Dividends, GuruFocus, F.A.S.T. Graphs,, Yardeni Research, Vanguard, Gordon Dividend Growth Model, Dividend Yield Theory, Moneychimp)

Iron Mountain is sporting a yield nearly quadruple the S&P 500 and far above the REIT median of 5.3%. That's thanks mostly to market fears over the developed market storage business (not justified) and its junk bond credit rating (somewhat justified - see the "risk" section for a detailed explanation).

The actual dividend though, is safe, thanks to a modest payout ratio (the REIT average is 80%) that's steadily falling over time. And don't forget that IRM's cash flow is still coming mostly from its core and recession-resistant business.

But a good payout ratio is just one half of the dividend safety equation. The other half is the balance sheet, and this is IRM's biggest issue (though I still consider it a SWAN stock, thanks to management's great execution on its long-term growth plan thus far).

REITDebt/Adjusted EBITDAInterest Coverage RatioS&P Credit Rating

Average Interest Cost

Iron Mountain5.63.6BB-4.8%
Sector Average5.83.4NANA

(Sources: earnings supplement, Morningstar, GuruFocus, F.A.S.T. Graphs)

The REIT's actual leverage ratio isn't egregious by REIT norms, nor is the interest coverage ratio particularly troubling.

(Source: IRM earnings supplement)

And IRM is nowhere near violating its debt covenants. Those are credit metric levels it must maintain, otherwise creditors can call in its loans right away and cause a liquidity crisis. Debt covenant violations are a primary reason REITs are forced to cut their dividends (deteriorating cash flow is the other big one).

As I explain in great detail in the risk section, the reason for IRM's junk bond rating likely has to do with its growth strategy since becoming a REIT in 2014. As a REIT, it must pay out 90% of taxable net income (not the same as GAAP EPS or AFFO) as a dividend.

Thus, like all REITs, IRM has to use a lot of leverage (as well as equity issuances) in order to grow. Despite being 68 years old, as a REIT it is still relatively young, and while the company's cash flow and dividend growth has been impressive over the past four years, credit rating agencies have taken a poor view of its large use of low-interest junk bonds to fund much of it.

While IRM plans to reduce its leverage over time, the pace of that reduction has thus far angered the rating agencies (especially Moody's), which wish it would prioritize deleveraging above growth projects and dividend increases.

Management's actual strategy is longer term and incorporates the fact that steady cash flow and dividend growth (and falling leverage over time) is critical to maintaining a strong share price and low enough cost of equity to achieve its long-term growth ambitions. In the hands of a less skilled management team, I might be skeptical of the REIT's ability to achieve its long-term targets, while paying a safe dividend. But IRM has consistently met or beaten its guidance over the years, and so, I'm confident that it will be able to navigate its challenges and risks going forward to deliver a safe and steadily rising payout.

The dividend growth rate is currently 4%, and management expects to maintain that rate through 2020. Eventually, once the payout ratio falls low enough (70-75%) and the REIT gets an investment grade credit rating, payout growth is likely to track AFFO/share growth. Analysts currently expect 5.6% long-term (10-year) cash flow growth, which I consider a reasonable estimate.

Even assuming zero valuation improvement, that growth rate, combined with the current yield, is enough to deliver nearly 13% long-term total returns. Given that the S&P 500 has historically generated 9.2% CAGR total returns and is likely to deliver between 5% and 9% (Vanguard thinks 5-8% is most likely) in the next few years, Iron Mountain looks like an extremely attractive high-yield income growth investment.

And when we consider its current valuation, and the valuation boost that successful execution on its growth plan would likely represent, then IRM's investment thesis gets even stronger.

4. Valuation: A Good Margin Of Safety For This Low-Risk Stock

Thanks to two corrections in 2018 (including the most recent 19.8% decline), investors in general haven't had much reason to cheer the past year. Courtesy of high yields, REITs and IRM did manage to beat the market, though 12-month total returns remain negative. However, long-term value-focused income investors are actually happy to see such charts, because for rapidly growing businesses like IRM, it means highly attractive valuations.

P/2018 AFFOHistorical P/AFFOGrowth Baked Into Current Price

Analyst Long-Term Growth Forecast


(Sources: F.A.S.T. Graphs, Benjamin Graham)

Today, Iron Mountain trades at just 11.4 times AFFO (P/AFFO is the REIT equivalent of a P/E ratio). That's below its average ratio since becoming a REIT and the 15.5 that most REITs trade for. Since its REIT conversion, IRM has traded at a significant discount to most REITs, largely due to concerns over the credit rating and fears over the physical storage business's future. The REIT's actual fundamentals (cash flow and dividends) have been moving steadily higher and at one of the sector's fastest rates, indicating it's spent most of the past four years undervalued.

IRM's current cash flow multiple implies a 2% long-term growth rate, which is nearly three times slower than what analysts expect and 3.5 times slower than 2018's expected AFFO/share growth rate. This means the company is likely facing significant multiple expansion if management delivers on its long-term plans and a stronger balance sheet reduces its biggest risk factor.

How much of a valuation boost are we talking about? For that, I turn to my favorite valuation method for high-yield dividend stocks: dividend yield theory, or DYT. This is the exclusive method that asset manager/newsletter publisher Investment Quality Trends has used since 1966 to deliver market-beating total returns (with 10% less volatility) for decades.

(Source: Investment Quality Trends)

DYT works by comparing a stock's yield to its historical norm. Unless the investment thesis breaks, yields tend to mean-revert or return to relatively stable levels that approximate fair value.

Yield5-Year Average Yield8-Year Median Yield

Estimated Fair Value Yield


(Sources: Simply Safe Dividends, GuruFocus)

Since IRM shifted business models in 2014, I'm using the higher, and thus more conservative, 5-year average yield (which also includes the sector bear market and two corrections). This is how I make a conservative fair value yield estimate of 6%, meaning that IRM should, over time, return to that yield as its fundamentals and risk profile improve.

Note that if management succeeds in its long-term plans, then IRM's actual fair value yield might end up decreasing closer to its historical median yield. Or, to put it another way, IRM is at least 16% undervalued, but potentially much more (a fair P/AFFO ratio for a REIT growing at 5.6% is 17.9).

Fair Value PriceDiscount To Fair ValueUpside To Fair ValueLong-Term CAGR Valuation Boost

Valuation-Adjusted Total Return Potential


(Sources: Simply Safe Dividends, F.A.S.T. Graphs, Dividend Yield Theory, Moneychimp)

But even using this conservative fair value estimate (IRM is worth $40.67 today), this means that the REIT would need to rise 19% just to get to fair value. My valuation-adjusted total return model (based on DYT and the one Brookfield Asset Management uses) assumes a 10-year outlook. In reality, IRM's return to fair value isn't likely to take a decade. But even if it did, then the share price would likely outpace cash flow and long-term dividend growth by nearly 2% per year.

That valuation boost, when added to the Gordon Dividend Growth Model (effective since 1956 for stocks like these) of total return = yield + long-term cash flow/dividend growth (with valuation changes canceling out over time), is how I reach my long-term total return potential of 14.4%.

For a REIT of this caliber, with such a wide moat, quality management team, and strong long-term outlook, I'd have no problem recommending the stock at fair value (when its long-term return potential would still be 12.7%). But at a 16% discount to fair value, I consider IRM a Strong Buy today. That is, of course, if you're comfortable with the company's risk profile.

Risks To Consider

The biggest risk to any REIT's growth plans is a rising cost of capital. While IRM has enjoyed low borrowing costs relative to its high rates of return on invested capital over the past few years, rising interest rates and its junk bond credit rating are the biggest threat to management delivering on its long-term plans.

Why does IRM, despite a leverage ratio that's slightly below the sector norm, suffer from a junk bond rating at all? Well, that would likely be because it took on a lot of debt to make some big acquisitions in recent years. Moody's, in particular, wanted to see the REIT focus like a laser on decreasing its leverage ratio, but its 2020 growth plans require additional borrowing, which means that leverage won't come down fast enough for Moody's taste.

According to the rating agency's recent report on IRM:

"Iron Mountain's Ba3 CFR (BB- S&P equivalent) reflects its elevated leverage... that Moody's expects to continue through 2020. While management has a stated target of improving leverage to 5x on its lease-adjusted basis by 2020, the company's large funding requirements for dividends, capital expenditures and acquisitions increase the risks to achieving this target... The negative rating outlook reflects Iron Mountain's elevated leverage, which Moody's expects to decline slowly but likely remain near the mid 5x in 2019. Moody's could downgrade Iron Mountain's ratings if the total debt to EBITDA (Moody's adjusted) does not decline and is expected to remain above the mid 5x or liquidity weakens materially. Given the high leverage and a negative outlook, a rating upgrade is not expected in the near term. Moody's could upgrade Iron Mountain ratings if the company establishes a track record of deleveraging, uses a meaningful amount of equity to fund its annual cash deficits and maintains good EBITDA growth. The rating could be upgraded if Iron Mountain could sustain total debt to EBITDA below 4.5x (Moody's adjusted) and retained cash flow to net debt approaches 10%." 

- Moody's (emphasis added)

As you can see, Moody's is basing on its own adjusted leverage ratio to drive most of its rating decision on IRM. Because the 2020 plan doesn't deleverage the balance sheet sufficiently (in its opinion) over the next year, the rating agency has a negative outlook on the debt, and in order to upgrade this, it would likely require several years of deleveraging on IRM's part. While the fast-rising cash flow and falling payout ratio mean that the REIT will have a larger ability to fund more growth internally in the future, ultimately it will be somewhat at the mercy of the equity markets for raising accretive growth capital to fund its growth plans.

The good news is that there are two reasons why IRM isn't likely to cut the dividend in order to deleverage faster. First, as Moody's explains, the company is dependent on equity financing (like most REITs). The most IRM is likely to be able to cut the dividend and retain REIT status is about 40%. How much cash flow would that free up? About $280 million per year. That's approximately one-third of the REIT's long-term growth budget. In other words, cutting the dividend to the bone won't solve IRM's growth funding issues.

Equity raises are the answer, via the REIT's ATM program. However, that only works if the cost of equity (AFFO yield) is below the cash yields on invested capital (10-13%, depending on the investment). Right now, IRM's cost of equity is 8.8%, meaning it can still issue new shares to fund profitable growth.

The cost of equity won't decrease with a dividend cut, but the share price certainly would (share price generally tracks dividend growth up and down). Thus, a big dividend cut (the max 40%) would mean that IRM's cost of equity could rise to about 12.3% (due to a crashing share price).

Basically, this means that management knows the only way to an even lower-risk business model (with an investment grade credit rating) is to deliver on its long-term promises. Thus far, its track record on execution is excellent, and despite what a BB- rating might imply, the REIT's debt levels are not posing a major short-term risk to the dividend (though it is still the biggest risk factor facing IRM).

(Source: IRM earnings supplement)

IRM's debt is mostly long-term (average maturity 6.3 years) and fixed-rate. What's more, the company has no major repayments coming up that might pose a risk to its 2020 growth plans. But with 28% of its debt being variable (actually 26%, if you account for leases), IRM has relatively high exposure to short-term interest rates.

Its variable rate debt isn't tied to the Fed Funds Rate, or FFR directly, but to LIBOR, which typically tracks the FFR closely over time. The good news is that the bond futures market is now predicting the Fed is done hiking rates.

In fact, thanks to slowing economic growth and inflation expectations, the bond market expects that there is roughly a 25% chance that the Fed hikes rates at all in 2019 and a 25% chance that it will cut rates at least once this year. And in 2020, the bond market thinks it's more likely than not that the Fed will cut rates in order to stave off a recession.

A falling FFR would likely mean lower interest rates on its variable debt, which would be a good thing. But we can't forget that the bond futures market isn't God, with infallible clairvoyance about the future. Rather, it's constantly adjusting its estimates of future rate policy based on frequently changing economic and inflation data whose trends can change over time.

This means that if the US economy were to surprise to the upside in 2019, then the Fed might indeed make good on its plans to hike the FFR three more times (through 2020). That, in turn, could cause LIBOR to rise by about 0.75-1% and possibly increase IRM's effective interest rate to 5.1%. Now, mind you that a slightly higher interest rate isn't going to threaten the dividend, but it might cause AFFO/share growth to come in below expectations, and thus cause the REIT to miss its 2020 plans.

The bigger potential risk is with IRM's long-term debt, which remains firmly in the junk bond market for now. In the past decade, record-low interest rates meant that the yield spread (junk bond yield minus 10-year Treasury yield) was low by historical standards. But there are two important things to know.

First, Treasury yields have now risen about 1.5% off their mid-2016 all-time lows, and should the economy surprise to the upside, that might increase to 2% or more. Meanwhile, junk bond yield spreads are not fixed, but market-based, and thus, are extremely volatile at times.

During periods of financial market turmoil (such as the economic growth scare we're in now), junk bond yield spreads can blowout and soar to very high levels. This means that Iron Mountain faces the risk of potentially having to refinance some of its debt when the credit markets might demand a much higher interest rate than what it currently pays on its bonds.

This long-term rate risk would be highest during a recession, when demand for riskier debt would fall. While a recession isn't likely in 2019, based on the most recent economic data and trends, one is most likely to begin in mid-2020 to late 2020.

Depending on how long a recession lasts, Iron Mountain might have to refinance close to $1 billion in junk bonds during 2021 and 2022 at what might be much higher interest rates. This is why it's so crucial that the REIT delivers on its deleveraging targets. Only an investment grade credit rating can substantially reduce the REIT's long-term interest rate sensitivity, and thus minimize the chance of rising rates hindering management's ambitious growth plans, including for its dividend.

Bottom Line: Iron Mountain Is A High-Yielding Retiree Dream Stock And A Strong Buy Today

No company is perfect, and neither is Iron Mountain (with its junk bond credit rating representing the biggest risk factor to watch over time). But ultimately, I consider this industry blue-chip's recession-resistant and high-margin core business to be a solid source of generous, safe, and rising dividends. And with a world-class management team leading an ambitious long-term growth plan based on diversification into faster-growing industries (and so far overdelivering on those plans), I'm confident the company has a bright future.

Since I'm confident in management's deleveraging plan, I'm willing to assign Iron Mountain a SWAN rating (no dividend cuts even during a recession), which is why I not just own it in my real money retirement portfolio but in my new Deep Value Dividend Growth Portfolio as well. That's what I consider to be the best collection of dividend growth stocks for conservative income investors seeking generous, safe, and rising income, as well as market-beating, double-digit total returns of 13+%.

Thanks to its attractive valuation (at least 16% undervalued), Iron Mountain clears that hurdle nicely with about 14.4% long-term expected total returns. And with nearly half of that return coming in the form of safe and steadily rising dividends, IRM is a great choice not just for younger investors seeking to grow their wealth over time, but also for retirees who need high current income to pay the bills during their golden years.

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