Updated: Jun 27, 2020
Iron Mountain Inc (NYSE:IRM) has a tasty dividend yield of 9.39% and they have been consecutively increasing their dividend for the last (10) ten years. That Iron Mountain Inc seems like the perfect bet for dividend hungry investors but the real question is whether their dividend is safe?
That in order to determine the dividend safety of any stock, the first thing that we need to identify is whether Iron Mountain Inc will be able to stand the test time?
Iron Mountain Inc was founded in 1951; it is a global leader for storage and information management services but the company may become a relic due to their outdated business model. Iron Mountain Inc derives most of its revenue from rental fees for storage of physical records, computer backup tapes and from storage-related services, alternative and more efficient technologies exist, which require significantly less space than the traditional method. Physical storage is becoming is less attractive and less profitable in today’s fast-changing technological landscape.
The core physical-storage business model of Iron Mountain Inc is becoming obsolete. Iron Mountain Inc has been unable to make the digital transformation; there have been no significant acquisitions, which would help them in securing a long-term competitive advantage.
Therefore, Iron Mountain Inc is unlikely to stand the test of time, and as a consequence, a negative effect on revenue and dividend cut is imminent.
FUTURE GROWTH POTENTIAL & DIVIDEND SUSTAINABILITY
The revenue stream of Iron Mountain Inc has remained flat for the period from 2015 to 2019; however, the most troubling aspect is the rising debt, casting a huge shadow on their ability to continue to pay dividends.
The debt is skyrocketing but that is not even the scariest part. Iron Mountain Inc. has been using debt to fund dividends. Iron Mountain Inc has been paying dividends in excess of their EPS, which is usually a red flag. That lack of growth prospects and skyrocketing debt is likely to have a negative effect on the dividend payout, therefore, in my humble opinion, the dividend of Iron Mountain Inc is not sustainable in the long term.
The trajectory involving lack of growth prospects and skyrocketing debt, the stock price of Iron Mountain Inc is likely to decrease substantially in the future and the current dividend yield is not sustainable; therefore, I would sell and never look back.