Hey everyone the winner of the last weeks’ stock poll is Iron Mountain (IRM). It seems that the company is at the moment, one of the favorites in the dividend investing community. So let’s have a closer look at it and see if it is worth an investment.

Company Overview

The company provides information protection and storage, and related services for various media in North America, Europe, Latin America, and Asia Pacific. The company’s services comprise records management, data protection and recovery, and information destruction. The records management services include records management program development and implementation to help customers comply with specific regulatory requirements; implementation of policy-based programs that feature secure storage for media consisting of paper, flexible retrieval access, and retention management; digital archiving and related services for secure long-term archiving of electronic records; and specialized services for vital records and regulated industries, such as healthcare, energy, and financial services. The data protection and recovery services comprise disaster preparedness, planning, support and secure, and off-site vaulting of data backup media for data recovery in the event of a disaster, human error, or virus; online backup and recovery solutions for desktop and laptop computers and remote servers; and technology escrow services to protect and manage source code and other proprietary information. The information destruction services include secure shredding services; and DataDefense, which provides automatic and intelligent encryption of sensitive PC data. The company also sells corrugated cardboard storage cartons; and provides consulting, facilities management, fulfillment, and other outsourcing services. It serves commercial, legal, banking, healthcare, accounting, insurance, entertainment, and government organizations. The company was founded in 1951 and is headquartered in Boston, Massachusetts. IRM has increased it’s dividend since 8 years.

Stock analysis

Currently the share price of IRM 30.48 USD, which means the stock price is down 23.80% since one year. At the moment the company pays a yearly dividend 2.44 USD, which results in a very high yield of more than 8%. Nevertheless the payout ratio of more than 100% is a warning sign.
 

Current Valuation

As you can see the current ratios are besides of the Price/Sales ratio all below the 5 year average. Using my current method to calculate a fair share price based on the 5 year average numbers, I would get a price of 45.40 USD so from that perspective the current level of the share is fair. If I use the Market Fair Value Ratio according to morningstar I would get a priceof 32.77 USD.

Looking at the Graham Formula you get a rather lower value of 20.61 USD.

How much dividend income would I generate in next 8 years?

As you can see given the high pay out ratio I am not expecting a high dividend growth in the next 8 years. Nevertheless the yield looks tempting but let’s also have look at the financial health of IRM.

Financial Health

So let’s finally have a look at the most important part the financial situation of IRM.From a revenue growth perspective the development is quite good but unfortunately the constant increase of long term debt is a bit worrying.

• Equity Ratio: 16.41%
• Debt to Equity: 4.19

Conclusion

To be really honest given the current financial situation for IRM is not an investment opportunity at the moment. The long term debt is just too high to maintain the high dividend and it should be the first priority to reduce the companies’ debt. In other words I would expect a dividend cut sooner or later. Also I think the current market gives you better investment opportunities than IRM.

What do you think about IRM? Would you buy it at its current price or do you even have it already in your portfolio?