In 2017, Buffett and Berkshire Hathaway invested $377 million in Store Capital Corp. (NYSE: STOR), a Scottsdale, Arizona-based retail and industrial property real estate investment trust (REIT) that was founded in 2011. Buffett trimmed his shares of the REIT by more than half during the second quarter of this year, which now appears to be a poorly timed move.
Store Capital announced Thursday that it has agreed to be acquired by Singaporean sovereign fund GIC and Oak Street for about $14 billion. Store Capital shareholders will receive $32.25 per share, a premium of 20.4% over the stock's closing price on Wednesday.
By the end of 2021, Store had grown substantially to own and manage a total portfolio of 2,738 properties across 49 states. One positive step Store has taken is to ensure that its tenants, which span more than 120 industries, are well-diversified. It leases its properties to mid-sized and large businesses with long-term net-lease contracts. The diversity of industries and states helps to temper risks from rent defaults during recessionary times.
Store’s recent second-quarter company report with increasing revenue and earnings per share (EPS) was well received by Wall Street, and its funds from operations (FFO) of 56 cents per share easily covers its quarterly cash dividend of $0.385 per share. The annual dividend yield is currently 5.5%. The quarterly dividend has risen from $0.31 to $0.385 during that time, a gain of 24%.
During the five-year period, Store stock has traded as high as $35.72 in 2019 and as low as $11.45 during the 2020 COVID-19 crash. It peaked again at over $35 in 2021 but has fallen back some 23% since then, as REIT stocks overall have been battered during the current cycle of interest rate hikes.
If you invested $1,000 in Store five years ago, you would have purchased 38.88 shares at $25.72 per share. Those 38.88 shares were recently priced at $28.35, for a gain of $2.63 per share, or $102.25. Over time you would have collected $6.94 in dividends for a total of $269.82. Between the appreciation and dividends, your total investment of $1,000 would now be $1,372.07. The percentage gain for five years would be 37.20%, or 7.44% a year.
However, if like many people you choose to reinvest your dividends, your original 38.88 shares would have grown to 49.31 shares. The $2.63 appreciation would have given you $129.68 and the $6.94 in dividends would have earned $342.21. Your $1,000 investment would now be worth $1,479.81. The percentage gain for five years would be 9.43%.
Looking for high dividend yields without the price volatility?
Real estate is one of the most reliable sources of recurring passive income, but publicly-traded REITs are just one option for gaining access to this income-producing asset class. Check out Benzinga's coverage on private market real estate and find more ways to add cash flow to your portfolio without having to time the market or fall victim to wild price swings.
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