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(This article originally appeared on The DIV-Net December 1, 2008.)

Linked here is a PDF copy of my detailed analysis of Sovran Self Storage, Inc. (SSS) (alt.1, alt.2). Below are some highlights from the above linked analysis:

Company Description: Sovran Self Storage Inc. is a self-managed real estate investment trust that owns self-storage facilities, mainly in the East, Midwest, Arizona, and Texas.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:

  1. Avg. High Yield Price
  2. 20-Year DCF Price
  3. Avg. P/E Price
  4. Graham Number
SSS is trading at a discount to 1, 3 and 4, above. If I exclude the high and low valuations and average the remaining two, SSS is trading at a 21.2% discount. SSS earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
  1. Rolling 4-yr Div. > 15%
  2. Dividend Growth Rate
  3. Years of Div. Growth
  4. 1-Yr. > 5-Yr Growth
  5. Payout 15% of avg.
SSS earned two Stars in this section for 3 and 4, above. SSS has paid a cash dividend to shareholders every year since 1995 and has increased its dividend payments for 13 consecutive years. Its one year dividend growth rate exceeded its five-year growth rate. This could indicate the growth rate is accelerating.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
  1. NPV MMA Diff.
  2. Years to >MMA
SSS earned both of the available Stars in this section. The NPV MMA Diff. of the $16,021 is in excess of the $7,500 minimum I look for in a stock that has increased dividends as long as SSS has. SSS's current yield of 9.43% exceeds the 4.61% estimated 20-year average MMA rate.

Other:
SSS is a member of the Broad Dividend Achievers™ Index. SSS is one of the largest providers of self-storage space in a consolidating industry. The company has exhibited consistent growth and has a healthy balance sheet. Near term, the weak residential market will restrict moving activity, which could lead to discounting and promotional activity. Long term, continued consolidation will gradually generate improved pricing. Risks include softening demand, slow recovery in rental rates and higher interest rates.

Conclusion:
SSS earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned two Stars in the Dividend Income vs. MMA section for a net total of five Stars. This quantitatively ranks SSS as a 5 Star-Strong Buy.

Using my D4L-PreScreen.xls model, I determined the share price could decrease to $35.55 and SSS's NPV MMA Differential would still be around the $7,500 that I like to see. At that price the stock would yield 7.14%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the $7,500 NPV MMA Differential I'm looking for, the calculated rate is -3.2%. This dividend growth rate is well below the 1.1% used in this analysis.

SSS is a stock that I would give strong consideration to if I needed to increase my Real Estate allocation and increase my portfolio's risk profile. It is currently trading less than my buy below price of $34.47.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure
: At the time of this writing, I held no position in SSS (0.0% of my Income Portfolio).

Source: Sovran Self Storage: Consistent Growth, Strong Balance Sheet