I think FTSE 250 stocks are some of the most exciting out there. Unlike the FTSE 100, a lot of businesses on the index are less well known. But that means I can find hidden gems that have the potential to provide me with handsome gains.
One I’ve had my eye on for some time now is Safestore (LSE: SAFE). I first opened a position in the stock last year. Today, I’m sitting on a 9.1% gain.
That’s all well and good, but that’s a short-term gain. I buy for the long run. Should I keep buying more shares?
An unloved gem?
It’s not been the easiest 12 months for Safestore. In fact, it seems the stock has fallen out of favour with investors.
During that time, 10.7% has been shaved off its price. It’s not got off to the greatest start in 2024 either, falling by 3.4%.
That said, it has seen impressive growth in the last five years. During that time, it’s up 55.8%.
Making extra money
So why are investors shunning the stock? Well, to be honest, I’m not sure. I think there’s plenty to like.
One major positive I see with Safestore is the opportunity it provides to generate passive income. It offers a 3.6% dividend yield, which is slightly above the FTSE 250 average.
However, there’s something else that excites me more. I’m attracted to the willingness the firm has shown to hike its dividend. That’s been the case for the last 13 consecutive years. During this time, the dividend grown by over 400%.
Of course, dividends are never guaranteed. However, its dividend is covered 1.6 times by earnings, so I think it should be safe.
Ambitious plans
I mentioned before that I buy for the long term. That’s another reason I like Safestore. With over 130 UK stores, the firm is the frontrunner in the domestic market. But it’s not stopping there. It has plans for international expansion in the years ahead.
In the last year or so, it added numerous development sites to its portfolio. This includes locations such as the Netherlands and Spain. More recently, it entered a joint venture in Germany. On top of that, £400m in revolving credit facility may also signal the firm is keen to continue expanding. These ambitious moves are what I like to see as a shareholder.
The drawbacks
While I’m bullish on Safestore, there are a few issues that come with the stock.
For example, the firm is sitting on around £800m in debt. Now, that’s not too bad. However, hiked interest rates will make this costlier to reduce.
To add to that, higher rates may mean property costs more to purchase and service. It may also see Safestore’s rental income take a hit as businesses opt to cut storage costs.
I’m still buying
Nevertheless, I’m still buying the stock today. And where there are short-term concerns, I see large growth in the industry in the times ahead. Investors may have been neglecting Safestore, but I see that as the perfect time to buy. If I had the cash, I’d snap up some shares.
The post I think this unloved FTSE 250 stock could be a hidden gem appeared first on The Motley Fool UK.
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Charlie Keough has positions in Safestore Plc. The Motley Fool UK has recommended Safestore Plc. 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.
