Lok'n Store(LSE: LOK) hardly stands out as an income investment. At first glance, shares in this self-storage giant look expensive with a below-average dividend yield, but there's more to this company than first meets the eye.
Indeed, I believe one of the most attractive qualities about Lok is its dividend growth record. Over the past six years, the payout to investors has risen by 100% or around 15% per annum and City analysts have pencilled in annual double-digit growth for the next two years.
This rate makes the company, in my opinion, a fantastic income play. And I believe dividend growth could surpass City forecasts in the years ahead as Lok ramps up its store expansion policy.
Investing in growth
Today it reported the acquisition of two further freehold sites to add to its development pipeline, one in Cardiff and one located in Cheshunt, Hertfordshire. Both of the sites are located in what the company describes as "busy" locations.
With the addition of these stores, Lok has a development pipeline of nine landmark stores. According to management, this "pipeline adds 39% to owned freehold trading space and 54% to the managed store portfolio, delivering a total of 32% increase to overall trading space."
Looking at this pipeline for growth, it is no surprise that the analysts expect the company's earnings per share to increase by around 30% over the next two years.
Another attractive quality of the business is the fact that its CEO, Andrew Jacobs owns almost 19% of the company. I am big fans of companies where management holds a significant stake because it means they are highly incentivised to produce the best returns for investors, and not put the enterprise in a position that may jeopardise their wealth and reputation.
In this case, it seems Jacobs is also as much of a fan of dividends as I am, which is great news for income investors. In the announcement revealing today's deals, he declared "we are producing predictable growth in dividends for investors from...an increasing asset base and strong balance sheet."
This commitment to dividends helps Lok stand out as one of the market's top dividend stocks. I also believe it more than makes up for the below-average dividend yield of 2.6% offered by the shares.
If Lok isn't your cup of tea, then perhaps Secure Income REIT(LSE: SIR) might be a better buy.
Secure Income was founded by property entrepreneur Nick Leslau, who remains one of the company's largest shareholders. In total, management owns 16.4% of the business, a stake worth £140m at the end of December 2017.
The real estate investment trust was founded with the goal of providing a secure, steady income for investors backed by property. And looking at the company's current property portfolio, there's no reason to believe that it cannot accomplish this goal. The group has protected itself from the risk of vacancy by sticking only to long-term lets with strong covenants. The weighted average unexpired lease term is 22.2 years, and there are no break options, which should enable it to sail through any property market storms.
At the same time, 58% of the company's contracts with lessees have fixed annual uplifts in rent of at least 2.8% per annum. The remainder of the portfolio is on RPI-linked agreements with annual and five-yearly rental revisions.
Put simply, Secure Income has constructed one of the most defensive property portfolios around, and you can take advantage of this today.
Living up to expectations
Shares in Secure Income also look to be much more appropriately valued than those of Lok. The dividend yield is a respectable 4%, and management is always on the lookout for new assets to buy, which will increase the group's net asset value.
Last year it registered net asset value growth of 14.5% which, together with dividends paid, equated to a total shareholder return of 19%. Secure Income certainly looks to be living up to its name.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.