Public Storage - Growth & Income

Public Storage ( PSA ) increased its dividend in the first half of 2012, and currently pays a regular quarterly dividend that yields 3.0% annually. This Zacks #2 Rank (Buy) REIT had a solid third-quarter performance in November that has helped earnings estimates to rise.

With a steady dividend yield and an expected long-term FFO growth rate of around 6.2%, PSA appears to be a promising pick for investors seeking both growth and income.

Impressive Third Quarter Earnings

On November 8, Public Storage reported third quarter FFO per share of $1.73, topping the Zacks Consensus Estimate by 1.8% and the year-ago FFO by 34.1%. The healthy top-line growth was due to improved property operations and the impact of foreign currency translations.

On a year-over-year basis, revenues for Same Store Facilities advanced 4.8% to $412.6 million, thanks to higher realized annual rent per occupied square foot. Net operating income for Same Store Facilities increased 7.9% to $294.1 million.

Earnings Estimates Moving Higher

The Zacks Consensus Estimate for 2012 edged up 0.3% to $6.24 in the past 60 days, while the Zacks Consensus Estimate for 2013 increased 1.6% to $7.08. These outlooks suggest year-over-year growth of about 5.2% for 2012 and 13.5% for 2013.

Dividend Payment

Public Storage hiked its dividend by nearly 16% to $1.10 per share in the first half of 2012. The current dividend rate affirms an annual yield of 3.0%.

Premium Valuation

Shares of Public Storage currently trade at 20.7x 12-month forward earnings, a 29.4% premium to the peer group average of 16.0x. Its price to book ratio of 4.9 is at a significant premium to the peer group median of 1.8. Given its strong fundamentals, the premium valuation is justified.

Moreover, the company has a trailing 12-month ROE of 16.7%, compared with the peer group average of 4.7%. This implies that the company reinvests its earnings more efficiently than its peer group.

Public Storage has been continuously outperforming the S&P 500 since mid-October as well as its 200 days moving average since the beginning of last month.

With rising earnings estimates, strong expected earnings growth and a decent dividend yield, Public Storage looks like an attractive growth and income pick.

Headquartered in Glendale, California, Public Storage is a real estate investment trust that was founded in 1971. The company acquires, develops, owns and operates self-storage facilities in the U.S. and Europe. As of September 30, 2012, the company had interests in 2,069 self-storage facilities located in 38 states in U.S. and 189 storage facilities located in seven Western European nations. It also owns a 41% common equity interest in PS Business Parks Inc. ( PSB ), which owns and operates commercial space, primarily flex, multi-tenant office and industrial space. The company has a market cap of about $25 billion. Other Zacks #1 Rank (Strong Buy) stocks in the industry include Arbor Realty Trust Inc. ( ABR ).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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