In the 1940s, Herman Knaust, a son of German immigrants and an irrepressible entrepreneur, earned a good living growing mushrooms in an abandoned mine located in Iron Mountain near Germantown, N.Y. At the time, Knaust’s company, Knaust’s Cavern Mushrooms, was the largest mushroom producer in the world.

The mushroom business was good, but not good enough. Knaust thought he could do better.

Knaust knew that his mine offered the optimal conditions to grow mushrooms, but he also thought that it could offer the optimal conditions to store documents.

[ad#Google Adsense 336×280-IA]The investment thesis appeared logical enough: The Cold War era was accelerating to full frenzy, and many companies sought to preserve vital records in the event of an atomic blast.

After spending $500,000 to upgrade his mine, Knaust opened the Iron Mountain Atomic Storage company in 1951.

Knaust hit pay-dirt. Business was brisk from the get-go, and it remains brisk to this day.

The name Iron Mountain Atomic Storage gave way to Iron Mountain Inc. (NYSE: IRM) many years ago.

One storage facility has given way to many. Iron Mountain’s real estate portfolio comprises 1,350 facilities in 45 countries. Iron Mountain claims 220,000 customers, including 94% of the Fortune 1,000, making it far-and-away the industry leader in document storage.

Knaust’s orginal storage business continues to grow. Last year, Iron Mountain closed on the $2 billion acquisition of U.K.-based Recall, the second-largest document-management company in the world. Recall gives Iron Mountain a broader geographic footprint and exposure to emerging markets.

Iron Mountain Dividend Grows

The good news for income investors is that the company’s dividend keeps pace with the business growth. What’s more, the Iron Mountain dividend is guaranteed to keep pace going forward.

For most of its 65-year history, Iron Mountain was organized as a typical C-corporation, but that changed in 2015. Shareholders voted to reorganize the company into a real estate investment trust (REIT). By converting to a REIT, Iron Mountain must now pay at least 90% of taxable income to investors. This has led to a substantially higher dividend and a substantially higher dividend yield. Iron Mountain currently pays a $2.20 annual per-share dividend that yields 6.1%.

Iron Mountain might be the perfect dividend stock in today’s market: it offers a high yield coupled with dividend growth.

Iron Mountain began paying a $0.0625-per-share quarterly dividend in 2010. Today, the quarterly Iron Mountain dividend is paid at $0.55 per share. Over the past six years, the Iron Mountain dividend has grown at a 44% average annual rate.

The Appeal of Special Dividends

There’s more to the dividend story: Iron Mountain will embellish its high-yield dividend with the occasional special dividend. In 2012, it paid a $4.06-per-share special dividend; in 2014, it paid a $3.62-per-share special dividend and an extra $0.255-per-share dividend.

But could the move to the clouds eventually drain Iron Mountain’s economic moat?

Digital storage, one imagines, could transcend Iron Mountain’s business.

That said, digital storage is ultimately physical, requiring machines and buildings. And let’s not overlook that physical paper is frequently the back-up to ethereal digital. On average, Iron Mountain’s existing customers generate additional paper records at a faster rate than old records are destroyed or permanently removed.

In addition, much of the paper must be kept for a minimum number of years. Some Iron Mountain customers plan to keep their records stored for three-quarters of a century. Other clients – government agencies that store birth certificates, for example – have no plans to remove their documents.

Separately, Iron Mountain has developed another area of storage expertise: the storage of data that doesn’t belong in a data center. Iron Mountain stores master recordings for Sony Music Entertainment; it holds the video archive of World Wrestling Entertainment (NYSE: WWE).

Records storage is a vital and vibrant business. Iron Mountain can manufacture growth organically and through strategic acquisitions. The industry is highly fragmented with thousands of competitors in North America and around the world.

Iron Mountain provides not only the opportunity for significant share-price appreciation in a unique REIT niche, it also provides significant dividend growth at a high starting yield.

— Steve Mauzy

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Source: Wyatt Investment Research