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It’s not easy being an income investor these days.
Short-term rates, already in decline, are widely expected to drop further — especially once President Donald Trump appoints a new chair of the Federal Reserve.
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The situation gets even more bleak when turning to stocks. The dividend yield of the S&P 500 index is a paltry 1.1%. That’s also near historic lows.
Thankfully, there are still pockets of the income investment universe that are much more generous. One that we at Stansberry Asset Management (SAM) find particularly attractive is a niche and often overlooked part of the real estate market: self-storage.
The future for storage demand looks bright
If you’ve never used a self-storage facility before, you might be surprised how many Americans do: nearly 40% by some counts. Demographic trends point to this number remaining stable or even growing.
As a wave of Baby Boomers are reaching retirement age, many are opting to downsize to smaller homes, condominiums or retirement communities. This downsizing process typically involves decluttering.
Yes, some possessions will end up in the trash or giveaway pile. But folks are often reluctant to let go of sentimental or potentially useful items. These items often end up in storage.
According to the U.S. Census Bureau, Millennials (those born from 1981 to 1996) are now the largest generation group in the United States. It has commonly been observed that compared to their predecessors, Millennials prioritize experiences over material possessions as well as lifestyle flexibility.
On the surface, that seems like it would be a headwind for self-storage demand. But these preferences draw Millennials to urban areas, which, in addition to job opportunities, offer vibrant social scenes and lifestyle amenities. All great things. But city living often equates to smaller apartments or shared spaces. That means limited storage.
The rise of the “gig economy” is yet another driver of self-storage demand as freelancing roles may require space for storing equipment and inventory.
That’s in addition to the many businesses that commonly use storage including both online and brick-and-mortar retailers (inventory), real estate agents (staging pieces) and construction companies (tools, equipment and materials) to name just a few.
How to invest in self-storage REITs
As a business, there is a lot to like about self-storage. These companies typically generate stable cash flows, have low maintenance costs and have proven surprisingly resilient in previous economic downturns.
Then there’s the yields. Publicly traded self-storage companies are structured as real estate investment trusts (REITs). REITs are required by law to distribute at least 90% of their taxable income as dividends to shareholders. At current valuations, annual dividend yields for public storage REITs range from 4.4% to 7.7%.
|
Ticker |
Company |
Market Cap |
Price/AFFO |
Dividend Yield |
EBITDA Margin (mrq) |
Net Debt/FFO |
|---|---|---|---|---|---|---|
|
PSA |
Public Storage |
$45.9 billion |
16.8 |
4.4% |
70.89% |
3.06 |
|
EXR |
Extra Space Storage |
$29.1 billion |
17.2 |
4.8% |
53.19% |
7.31 |
|
CUBE |
CubeSmart |
$8.1 billion |
14.6 |
5.8% |
62.34% |
5.43 |
|
NSA |
National Storage Affiliates |
$3.8 billion |
14.0 |
7.7% |
62.42% |
10.06 |
|
SMA |
SmartStop |
$1.9 billion |
15.6 |
5.1% |
45.66% |
12.14 |
|
SELF |
Global Self Storage |
$100 million |
12.7 |
5.7% |
32.21% |
1.83 |
Source: FactSet as of 1/6/2026. Estimated 2026 AFFO.
In the world of income investing, simply buying the highest yielding securities is not advised. Buying self-storage REITs that way is no exception. Typically, the higher the yield you receive, the more risk you are taking.
The key is to be aware of and methodical about the risk you take. With that in mind, consider a few of the other metrics on the table above and what they tell us.
Valuation. No matter what you are buying, it’s always a good idea to not overpay. Stock investors often use the price/earnings ratio (P/E) as a way to value stocks. It tells you what price you are paying for $1 worth of annual earnings.
However, that earnings number can quickly become misleading in the world of REITs due to factors such as non-cash expenses (for example, depreciation) and gains from property sales.
That’s why SAM prefers looking at the price-to-adjusted funds from operations (AFFO). The average P/AFFO is about 15x for the group, though there are outliers in both directions.
Profitability. Take a look at the earnings before interest, taxes, depreciation and amortization (EBITDA) margin table. That tells you the company’s operating profitability (in this case we’re looking at data from the most recent quarter, or mrq).
Now compare this to the market capitalization, which tells you the total market value of the company’s outstanding shares, or put more simply, how big the company is.
The connection: The bigger the company, the more profitable it tends to be. That makes sense when you consider that bigger companies can operate leaner per facility, leverage technology, benefit from experience, knowledge and often from a lower cost of capital.
Leverage. Remember, REITs are required by law to pay out the vast majority of earnings to shareholders. That’s how we land those juicy yields.
However, it doesn’t leave much retained capital to reinvest in the business. To do that, REITs typically issue more shares and/or issue more debt.
Let’s take a look at the debt side of things by comparing net debt (that is, the debt remaining after accounting for cash on the balance sheet) to the last 12 months of funds from operations (FFO). The higher the number, the more leveraged the company.
Now, leverage itself is not bad. Frankly, it can be a good thing, provided the company is making an adequate return on what it’s borrowing.
But there can be too much of a good thing. Leverage amplifies risk, and a company can find itself struggling to pay back debt when business is bad.
Getting the best yield for the least risk
There is much more to consider when investing in self-storage REITs — geographic exposure, growth projections, occupancy rates and management teams to name a few. But the above metrics should get you started on your investment journey.
And keep in mind that nothing is static. Financials, outlooks, even management teams change over time. That’s why SAM, as an active manager, is constantly reevaluating in our efforts to capture the best yield for the least risk on behalf of our income-focused clients.
