COVID-19 has accelerated the trend toward online shopping. And while most e-commerce stocks are overcooked, this more conservative dividend-paying play looks ripe for a big run-up.
This has been a year for the ages. Nobody could have predicted that the world would be in the throes of a global pandemic. The ensuing lockdowns caused the most sudden and severe economic crash in history. And yet the stock market is higher for the year.
You can’t make this up. The recession has had an uneven effect on different sectors, to say the least. Some industries (like energy, finance, leisure and industrials) have been decimated in this economy. But other industries are actually thriving, namely technology.
People confined to their homes are relying on technology more than ever. And these companies are cleaning up. As of the market close last Thursday, the S&P 500 was up 2.46% for 2020. But the technology sector of that index is up 24% for the year.
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Technology was already the fastest-growing sector and the lockdown economy has accelerated trends that were already in place. One notable such trend is e-commerce - and e-commerce stocks. The digital age is changing the world, and shopping is no exception. Online shopping has absolutely exploded—to the detriment of many brick-and-mortar retail stores. And the shift has only accelerated during the pandemic.
The volume of U.S. e-commerce grew 13.6% in 2018 and 14.9% in 2019. But e-commerce volume has grown more than 40% this year. Considering that consumption represents about 70% of U.S. GDP, we are talking about massive numbers. E-commerce has grown from about 5.2% of U.S. retail sales in 2012 to 11.8% this year.
And e-commerce is surging exponentially during the lockdown, as even grandmothers are buying stuff on the internet. E-commerce stocks are benefitting mightily. The biggest online retailer by far is Amazon (AMZN). That stock is up over 73% YTD, and has provided an average annual return of over 34% per year for the last 10- and 15-year periods.
Smaller e-commerce stocks like Shopify (SHOP), MercadoLibre (MELI) and The Trade Desk (TTD) have all more than doubled so far this year. As well, other industries are seeing business boom as a result of e-commerce sales. Companies that deliver these products are killing it. United Parcel Service (UPS) is up over 40% in the last three months. FedEx (FDX) has soared almost 80% so far this year.
Now, you may ask, “But what happens after the pandemic?”
E-commerce should continue to boom well beyond the lockdown. The trend was firmly in place already, and it just got turbo-charged this year.
Really, e-commerce is just getting warmed up. As I mentioned earlier, still less than 12% of retail sales are made online. The number is almost certain to grow substantially in the years ahead. Worldwide e-commerce sales totaled $3.54 trillion in 2019. That number is estimated to grow to $6.54 trillion by 2023. That’s almost a double. And that’s trillion with a ‘T’.
But the e-commerce stocks I mentioned have spiked already. You may be late to that party. That’s okay. I found a conservative dividend-paying stock that directly benefits from the e-commerce trend and the stock has not gotten overextended. It pays monthly dividends and has the incredible tailwind of the stratospheric growth in e-commerce.
STAG Industrial Inc. (STAG): A Conservative E-Commerce Stock
STAG Industrial, Inc. (STAG) is a Real Estate Investment Trust (REIT) that invests in single tenant industrial properties in the eastern and midwestern U.S. The property portfolio includes warehouses, distribution centers, and manufacturing facilities. It’s a diverse portfolio with 457 buildings in 45 different industries located in 38 states.
A couple of big things stand out about this stock. First, 43% of the properties are warehouses and distribution centers related to e-commerce. Those spaces are in huge demand and there isn’t enough supply to keep up. STAG is directly benefitting and will continue to benefit from the rise in e-commerce.
The other thing is that it pays dividends on a monthly basis. Income investors love the steady cash flow provided by stocks that pay monthly, and there aren’t a lot of them. That feature alone attracts investors. And the current yield is a solid 4.6%—not bad in a world where the 10-year Treasury pays 0.84%.
The high demand for industrial properties is also getting a boost from the surge in manufacturing activity in the country, a trend that may just be beginning. Industrial properties have huge growth potential. The U.S. market for industrial properties is estimated to be $1 trillion. As of now, STAG only has about 0.5% of that market.
Aside from the growth in demand, there is another great thing about industrial properties: they are extremely low maintenance. Accommodating people is a pain in the neck. I felt a draft. I saw a bug on the ground. Could you do something about the sun glare?
Do you know who never complains: boxes and objects?
The properties only need to fulfill the very basic needs of protecting merchandise from the elements. It’s a basic business plan, with little overhead. Plus, STAG’s properties tend to be in areas where real estate prices are very low. That makes margins high.
While the historic return has been excellent, the stock is barely positive for the year as the recovery has been unkind to the REIT sector in general. Since the IPO in 2011, STAG has returned 356% (with dividends reinvested), which blows away the 202% return for the S&P 500 over the same period.
STAG is a young and growing player in a very promising real estate niche that is likely to benefit going forward from the explosive and very predictable growth in e-commerce. But, unlike other e-commerce stocks, STAG is still cheap.
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