Is Iron Mountain a Good Dividend Stock?

Iron Mountain Inc (NYSE:IRM) offers one of the healthiest dividend payments on the market. The long-standing enterprise information management company has the largest cache of paper documents on the planet. And it’s converting into a data center as the world increasingly moves to digital.

With its core market slowly deflating, is Iron Mountain a good dividend stock?

The company is a giant in paper storage, and you’ve likely seen its paper shredding bins and trucks in every major city. This core operation is a big business that is responsible for holding original recordings and important documents. It’s one of the most secure storage facilities this side of Fort Knox.

The company’s flagship underground storage facility encompasses a massive 1.8 million square feet and is secured 220 feet below a limestone mine.

We examine Iron Mountain’s records to assess whether it’s a safe place for investors to park money.

Iron Mountain Was Started by A Mushroom Farmer

Iron Mountain started when mushroom farmer Herman Knaust bought a 100-acre plot of land and iron ore mine in Kingston, New York in 1936.

By 1951, he founded the company as an underground vault that could securely store microfilm in the event of a nuclear attack.

The company’s headquarters eventually migrated to Boston, Massachusetts and grew through a series of acquisitions. It continued onboarding new corporate clients, including major banks that store deposit records for long time periods.

Today, it has over 2,500 customers across three continents, and it maintains several state-of-the-art secure facilities. Much of its staff works underground, where it maintains exact environmental conditions needed to store paper, film, and more.

Its customer retention rate of 98 percent shows how much companies value its services. Over half of its boxes have been stored at the facility for over 15 years. And it’s expanding the storage business with 14 data centers strategically located around the world.

The company’s pivot to data is in response to the digitization of enterprise data, a market that cannot be ignored.

Iron Mountain: REIT or Data Center?

Iron Mountain’s core business is document storage. As a result, it has massive real estate footprint. But it’s shifting toward digital data centers as the world goes green, and that means it will essentially shift from REIT to data center.

Businesses of all sizes have been shifting toward a paperless environment over the past 20 years. The U.S. government started the push in 1998 with the Government Paperwork Elimination Act.

The larger an organization becomes, the more data it needs to store. According to HubSpot, the average enterprise stores 347.56 terabytes of data. This fueled $72.79 billion in revenue in 2020, and the global enterprise management market is expanding at a 13.8 percent compound annual growth rate (CAGR) through 2028.

But there’s still a massive paper document management industry that was valued at $5.7 billion in 2021. In fact, the market overall shrank over the past decade, however, it’s up from last year. That means Iron Mountain has time to transition its core business before it deflates, but can it?

Is IRM a Buy or Sell?

Iron Mountain spent much of the past decade as a steady dividend stock and has been a component of the S&P 500 since 2009. Its physical document storage business has great stickiness, with $4.2 billion in revenue over the past 12 months.

Its customers are major enterprises and government organizations with secure document storage and access needs. It services about 95 percent of the Fortune 500 and estimates its enterprise value at around $21 billion.

Year to date, it brought in $3.3 billion, which translated to $391 million in net income. The company continues to pour money into restructuring to meet changing storage demands. If it can sell its current base on cloud storage services before its paper storage business becomes obsolete, the company has a bright future.

However, its market cap remained relatively flat from 2005 until lockdowns sparked growth. The concern is it may be short lived.

Still, the IRM dividend is attractive to investors, so let’s discuss that.

Iron Mountain’s Dividend

Iron Mountain (IRM) had been an attractive dividend stock, but as IRM share price doubled from the pandemic crash, the yield has become less appetizing. It paid a flat dividend rate of $0.618 for the past nine quarters, a change from its past decade of steady annual yield rate increases.

It has over $1.26 billion in cash, accounts receivable, and prepaid expenses. But it also carries a large debt load, and that’s why it had to stall the dividend to maintain liquidity while pivoting to meet changing client demands.

While Iron Mountain may have a stagnant dividend, the share price growth has compensated long-term investors. Management has committed to the dividend long-term, but the total return to investors may lag alternative offerings – the data center business is brutally competitive after all.

Major tech giants like Alphabet (NASDAQ:GOOGL), IBM (NYSE:IBM), and Microsoft (NASDAQ:MSFT) are in the space and they could limit the company’s sector growth.

Is Iron Mountain a Good Dividend Stock: The Bottom Line

Iron Mountain is an attractive dividend stock – paying almost 5% annually – for investors seeking income as part of their overall investment strategy. As business is evolving to store data online it is also adapting to meet the needs of the digital storage solutions.

For investors the billion dollar question is whether Iron Mountain can convert its paper storage business to data centers fast enough. It’s racing against the clock as the paper document industry slowly but surely deflates, but it has solid partnerships with a foot in the door to upsell.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.