I have Merlin Properties ($MRL (+1.4%) ) in my portfolio with a 50% profit. My system gives it a LOW THRESHOLD.
Why?
It’s not because of the yield, even though it’s at ~2.9%; that’s not the main issue. The problem is that the quality score is 30/100.
What does the quality score measure? It doesn’t measure whether the company is good or bad. It measures whether it fits the strategy I’ve defined: buying shares in high-quality essential services companies that pay consistently growing dividends
📉 WHY QUALITY = 30/100:
1. Three dividend cuts in 6 years. Although they were strategic (reinvesting in data centers).
2. The payout ratio is broken. By law, a REIT must distribute >90% of its taxable income. Merlin is retaining massive amounts of capital to build data centers. That’s not what I look for in a dividend REIT.
3. P/FFO of 34x. For a REIT, anything over 20x is already expensive. The market is pricing in the future growth of data centers, not the current dividend.
📈 WHAT I DO LIKE ABOUT MERLIN:
- LTV of 28.9% (excellent, among the lowest in Europe)
- FFO growing +5.1% year-over-year
- 5% discount to NAV
- 3GW of data center pipeline, 112MW already pre-leased
- 95.6% occupancy
It’s a great company. But right now, it’s more of a growth-dividend play than a traditional dividend stock, as defined by my system. The system detects this and lowers its quality rating below 50, not because it’s a bad stock, but because it doesn’t fit the strategy.
My conclusion: I’m selling it. If in 2–3 years the data centers generate sufficient FFO and restore the dividend, the quality rating will rise and I’ll take another look at it.
