I love FTSE 250 stocks. Unlike the FTSE 100, many go under the radar as they’re less well known. Nevertheless, they still offer exciting growth opportunities for investors.
Of those I own, Safestore (LSE: SAFE) is my favourite. The business is the UK’s largest self-storage unit provider. In the last five years, it’s up 28.9%. In the last decade, it has risen 253.3%.
I’ve been slowly adding to my position of late. I want to own the stock for a very long time. Here’s why.
No plans to slow down
The main reason I’m bullish on Safestore is because of management’s ambitious plans. The company has a strong grip on the domestic market. It has over 130 sites in the UK alone. But it doesn’t plan on stopping there.
Now, it has its eyes firmly set on Europe. Last year it added 500,000 sq ft of lettable area across 13 sites to its portfolio. This included in countries such as Spain and the Netherlands. It also agreed a joint venture with private equity group Carlyle to enter what it calls “the under-penetrated” German market.
Looking forward, the business is also taking strides to grow its development pipeline by a further 1.5m sq ft across 30 projects. As a shareholder, it’s moves like this that I want to see.
A strong track record
Another box I like to tick when buying a stock is the opportunity to generate passive income. With the money I receive from dividend payments, I reinvest it back into buying more shares. In turn, I benefit from ‘dividend compounding’. This is a key method I’m using to build my long-term wealth.
Safestore shares yield 3.9%, above the FTSE 250 average of 3.4%. While dividends are never guaranteed, I’m confident in Safestore’s payout given the growth it has experienced in the last decade. During that time, it has increased by double digits every year.
Volatile valuations
While I’m bullish, I think the largest threat to the business at the moment is interest rates.
Firstly, higher rates translate to higher rents. This could see customers let go of their storage space. To add to that, they also impact property values. We saw this in 2023 when its profit before tax more than halved due to valuation changes.
The firm also has some debt on its balance sheet, which will be more difficult to pay off right now. I’ll be looking for any updates on this in future releases.
A long-term shareholder
Regardless, I think Safestore is one of the best stocks in my portfolio. I plan to be a shareholder for years to come.
Safestore is the leader in an industry with strong barriers to entry. Couple that with its expansion plans and a healthy yield, and I see it as a smart buy for my portfolio.
The stock looks cheap, trading on a price-to-earnings ratio of just 8.4. With any investable cash, I’m keen to keep adding to my position.
This post was originally published on Motley Fool
