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Shares I love - Lok'nStore

Lok'nStore's latest payout suggests it may continue to grow its dividend payments.
September 3, 2015

Gervais Williams, manager of funds including Miton MicroCap Trust (MINI) and IC Top 100 Fund Diverse Income Trust (DIVI), explains why he invests in storage rental company Lok'nStore Group (LOK).

"Lok'nStore is a storage business which rents out space for personal and business use mainly in the south-east of the UK. It's a successful company that over the years has gradually expanded as it has identified low-cost sites for new profitable units. Many of these are established sites that are wholly owned by the group, and the company now has £79m worth of freehold property.

"Although it has accumulated £25m of net debt funding this, we are not uncomfortable with the scale of the debt due to the value of the freehold buildings and Lok'nStore's growing cash flow.

We often find a high price to earnings valuation unsettling as it suggests the cash flow in the business is fully priced into the shares. But in this case the underlying cash flow is rather better than might be assumed. The company has sizeable depreciation costs due to the investment made in fitting cages in new stores, as well as a policy of depreciating the freehold buildings.

Lok'nStore has been able to fund strong growth in its dividends, and its latest payout would suggest that there is more room for growth in dividend payments to come. The share price has already performed well and at a time when markets are fluctuating on geopolitical news flow, stocks with both tangible assets and growing dividend income provide real resilience in a portfolio."

Lok'nStore paid an interim dividend of 2.33p per share, up 16.5 per cent on the one it paid for the same period last year.

Investors Chronicle rates the company Buy' on the grounds that Lok'nStore is tapping into the economic recovery as well as the increasing demand for self-storage space.