Timothy Lutts — a leading growth stock expert — is the chief analyst and editor of the s...
STORE Capital Earns a Vote of Confidence from Buffett
12/21/2018 5:00 am EST
Stocks with high, sustainable yields, realistic growth and defensive characteristics might not give you anything to brag about in 2019, but when they help you retire with cash to spare a decade or more from now, you’ll have plenty to crow about, forecasts Brett Owens, income expert and editor of Contrarian Outlook.
STORE Capital (STOR) is a stock I think can leg it out not just through 2019, but through 2029 and beyond. This is a decidedly under-the-radar pick that you may not have heard of, but it is primed to become popular over time as Wall Street gets wise to their total-return potential.
STORE Capital is a real estate investment trust (REIT). “STORE” stands for “single-tenant operational real estate” – in other words, it’s a single-tenant commercial REIT. It’s a triple-net-lease REIT to boot, which means that tenants aren’t just on the hook for rent, but also for taxes, insurance and maintenance costs.
The upside for the REIT in this arrangement is that its operational results become a lot more stable and predictable, as they’re no longer dealing with the variation in those other costs.
STORE is interesting in part because of its wide tenant list — it spreads out 412 customers in 109 industries across 2,084 properties in 49 states. In fact, its top five tenants only account for 12% of its base rent, which is tiny compared to a lot of its peers.
Also, while other commercial REITs focus on larger tenants, most of STORE’s tenants are smaller in nature; the companies typically generate between $10 million and $1 billion in annual revenues.
I also like STORE’s practice of actually buying up properties from many chains, then turns around and rents those facilities back to the selling companies. And naturally, the steady dividend growth since its 2014 IPO.
But the clincher for STORE is the vote of confidence from Warren Buffett and his Berkshire Hathaway (BRK.B) holding company. Buffett became the company’s third-biggest shareholder in June 2017 when he spent $377 million on a 9.8% stake in the company — a rare REIT buy for Berkshire, which makes it all the more notable.
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