This Is the Highest Yielder in Warren Buffett’s Dividend Portfolio
The Number One Warren Buffett Dividend Stock?
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Legendary investor Warren Buffett is known for earning huge returns for his company Berkshire Hathaway Inc. (NYSE:BRK.B) and its shareholders. From 1965 to 2017, Berkshire’s per-share market value skyrocketed $2,404,748%. And no, that’s no misprint. (Source: “Berkshire’s Performance vs. the S&P 500,” Berkshire Hathaway Inc., last accessed July 11, 2018.)
The problem is, though, that the most popular picks in Warren Buffett’s portfolio have already shot through the roof. And since past performance cannot guarantee future results, is there a way for investors to find a good return today?
Well, if you are an income investor, you would know that dividends tend to be sticky. And as it turns out, Buffett is a big fan of dividends; he currently has investments in dozens of dividend-paying companies. Today, we are going to take a look at the highest-yielding stock in Warren Buffett’s portfolio, STORE Capital Corp (NYSE:STOR).
Little-Known Stock Pays Big Dividends
For the most part, STORE Capital Corp does not really make headlines. In fact, the last time it received investor attention was when Buffett bought the company’s shares.
In June 2017, STORE Capital announced that Berkshire had bought 18.6 million shares of STOR stock through a private placement. The amount represented 9.8% of STORE Capital’s total shares outstanding and made Buffett’s Berkshire the third-largest owner of the company. (Source: “STORE Capital Announces Investment from Berkshire Hathaway,” STORE Capital Corp, June 26, 2017.)
And based on Berkshire’s latest “13-F” filing to the Securities and Exchange Commission, Buffett hasn’t sold any shares of the company. As of March 31, 2018, Berkshire still held 18.6 million shares of STORE Capital stock, which are currently worth $513.6 billion. (Source: “Form 13F Information Table,” U.S. Securities and Exchange Commission, last accessed July 11, 2018.)
The reason why most people haven’t heard of STORE Capital is that the company does not serve consumers directly. Instead, it owns and operates a portfolio of real estate properties.
Since STORE Capital chooses to be regulated as a real estate investment trust, it must distribute at least 90% of its profits to shareholders in the form of dividends. Right now, the company has a quarterly dividend rate of $0.31 per share, giving STOR stock an annual yield of 4.5%.
STORE Capital Corp Provides a Rising Income Stream
Of course, a high dividend yield could simply reflect a lack of investor enthusiasm. The thing is, though, while STOR stock had some swings over the years, its dividends have only been increasing.
You see, when STORE Capital went public, its first dividend was a pro rata payment corresponding to a quarterly dividend rate of $0.25 per share. Since then, the company has raised its payout every year. With the latest payment being $0.31 per share, STORE Capital’s quarterly dividend rate has grown by 24% since its initial public offering. (Source: “Dividends,” STORE Capital Corp, last accessed July 11, 2018.)
Those dividend hikes are backed by a rock-solid business. STORE Capital Corp focuses on investing in single-tenant operational real estate, with a portfolio consisting of 2,000 properties leased to 404 customers in 49 states. As of March 31, 2018, STORE Capital’s portfolio boasted a very strong occupancy rate of 99.6%. (Source: “Values Added By Design,” STORE Capital Corp, last accessed July 11, 2018.)
Furthermore, when the company rents out its properties, it doesn’t just ask tenants to sign a one-year lease agreement. In fact, by the end of the first quarter of 2018, STORE Capital’s lease contracts had an average remaining lease term of around 14 years.
Combining a high occupancy rate with long-term lease agreements, the company is well-positioned to generate a stable rental income stream.
Lock in a Safe Dividend Yield of 4.5%
The best part is, STORE Capital’s rental income stream is more than enough to cover its dividend obligations.
Last year, the company generated adjusted funds from operations of $306.1 million, or $1.71 per share. Since it declared total dividends of $1.20 per share for the year, the payout ratio came out to 70.2%. (Source: “STORE Capital Announces Fourth Quarter and Full Year 2017 Operating Results,” STORE Capital Corp, February 22, 2018.)
In the first quarter of 2018, STORE Capital’s adjusted funds from operations came in at $85.9 million, or $0.44 per share. Again, the amount easily covered its quarterly dividend payment of $0.31 per share. (Source: “STORE Capital Announces First Quarter 2018 Operating Results,” STORE Capital Corp, May 3, 2018.)
Due to the nature of the company’s business, STOR stock probably won’t shoot through the roof anytime soon. But with a safe and increasing payout stream, this hidden dividend gem in Warren Buffett’s portfolio deserves income investors’ attention.