Lok'n Store ups dividend despite earnings slump

Shareholders who locked in this self-storage operator’s dividend yield a decade ago are likely to feel pretty pleased with themselves. Lok'n Store (LOK) announced in its results for the year to 31 July that it would increase its annual payout by 10.1 per cent, marking the 12th consecutive year it has upped its dividend. 

The move aligns with its policy of growing dividends based on asset value growth, with net asset value (NAV) per share up by 1.4 per cent. However, it does come despite a 61.4 per cent plunge in earnings per share (EPS), which Lok’n Store said was due to increased energy costs, higher interest rates and more shares in issue following an equity raise.

LOK’s dividend remains covered by earnings, but the opposite movements of EPS and NAV raise questions about whether the dividend policy might work in a scenario where EPS fell even further while NAV continued to grow. The company told Investors’ Chronicle that such a scenario has not happened yet. It added that it is comfortable with the cash it has available for distribution but keeps its dividend policy “under review”.

Meanwhile, revenue nudged up, which the company put down to “strong demand” for self-storage, but vacancy in its portfolio also nudged up, although LOK insisted this was due to the speed of the growth of its portfolio.

We remain bullish about the underlying demand for Lok’n Store’s services, which has helped it to grow at such speed so far. It remains a minnow, however, compared with Big Yellow (BYG) and Safestore (SAFE), so this means it has more scope for growth. Investors should be mindful of its vacancy rate or any further cost increases hitting EPS. But, on balance, we maintain our rating. Buy.

Last IC view: Buy, 864p, 11 May 2023