There’s no question that 2020 has been a difficult year for real estate investment trusts (REITs) that own retail assets. At one point, STORE Capital‘s (NYSE: STOR) shares were off by around 60%. Through Thursday’s close, the year-to-date loss is “only” 24%.
Is STORE Capital on sale, or should investors look elsewhere for a better deal?
A little background
STORE Capital is a net-lease real estate investment trust, which means that its tenants pay for most of the operating costs of the properties they occupy. It’s generally considered a low-risk sector of the REIT space because leases are traditionally quite long. At the end of the second quarter, STORE’s average lease had 14 years left on it. That’s enough time to get through most economically difficult periods, even ones as uncertain as today’s.
STORE also tends to originate its own leases, so it has more control over the terms. Equally important today, however, are the insights provided by working directly with a seller that eventually turns into a long-term tenant. Effectively, the REIT has a deeper understanding of the financial position of the companies it’s dealing with.
Roughly 65% of the portfolio is leased out to service-based businesses, with another 18% or so in more traditional retail properties. Adding a bit of diversification to the mix, the remainder is in the manufacturing sector. That’s not materially different from some of the company’s larger, more established peers.
That brings up the big issue right now: STORE’s initial public offering was in late 2014.
Trial by fire
Gallery: 15 Dividend Aristocrats Stocks to Buy Now (The Motley Fool)
These time-tested dividend stocks should be on every investor’s short list
Income investors have long known the advantages of investing in Dividend Aristocrats, the S&P 500 stocks that have paid a dividend and raised their shareholder payout every single year for at least 25 years.
Their value comes from having survived through a number of economic cycles and, even during the worst times, making a priority of maintaining their dividend payments.
Here are 15 Dividend Aristocrats that every investor should consider buying now.
5 Winning Stocks Under $49 We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.
1. 3M
Before 2020, 3M (NYSE: MMM) was arguably best known by consumers for its Post-it notepads and Scotch brand of tape, but the onset of the COVID-19 pandemic put 3M on almost everyone’s tongue as it is the premier manufacturer of the N95 medical masksstyle=”text-decoration: underline”> that were in critically short supply. With the situation normalizing, investors can turn their attention again to 3M’s dividend, which it has paid for over a century and increased for the last 62 years.
3M’s stock is down 2% so far this year, and it trades at 19 times trailing earnings and analyst estimates for next year. But with a track record of surviving global calamities during its 120-year history, this stock is one to count on during future upheavals.
ALSO READ: 3 Best Coronavirus Stocks to Watch in September
2. AbbVie
Spun off from Abbott Labs in 2013, AbbVie (NYSE: ABBV) is not your traditional Dividend Aristocrat, as it rides the coattails of its former parent, which has paid a dividend for almost 50 years.
However, in the relatively short time the drug developer has been paying dividends, AbbVie has rewarded shareholders handsomely as its own fortunes have risenstyle=”text-decoration: underline”>, increasing the payout every year so that it has nearly tripled in value from the original $0.40 per share at the time of the spinoff to its current $1.18 per share.
3. Altria
Because of the addictive nature of nicotine, tobacco giant Altria (NYSE: MO) has a fairly secure base of customers to count on during good times and bad, even as the number of smokers continues to decline every year.
The company has embraced the next generation of tobacco products, marketing Philip Morris International‘s IQOS heated tobacco device as well as the on! brand of nicotine lozengesstyle=”text-decoration: underline”>.
Altria has raised its dividend for over 50 years, and despite the growing restrictions on smoking, the company just might keep paying and increasing its dividend for another 50 years.
4. Amcor
Packaging specialist Amcor (Nasdaq: AMCR) is a new addition to the Dividend Aristocrat list, having been added back in February after increasing its payout for the 25th consecutive year. The company, which makes packaging for food, beverage, pharmaceutical, and personal care products, is counting on its acquisition of Bemis last year to continue driving growth in the years ahead.
Amcor recently raised its guidancestyle=”text-decoration: underline”> for the year, saying it sees earnings rising 11% to 12% during the period. With the stock trading at 15 times analyst estimates, this suggests it may be a good value at this level.
ALSO READ: 5 Dividend Investing Tips That Could Earn You Thousands
5. Brown-Forman
Brown-Forman (NYSE: BF-A)(NYSE: BF-B), the maker of Jack Daniel’s Tennessee Whiskey, is seemingly one of the few companies that openly cultivates its inclusion on the list of Dividend Aristocrats, noting during its earnings conference calls its long history of paying a dividend.
The distiller has paid a dividend for 74 years, increasing the payout consecutively for the past 36. Although its stock carries a premium, it has been riding the wave of premiumizationstyle=”text-decoration: underline”> that’s occurring in spirits. And last quarter, it saw underlying net sales of its premium spirits portfolio grow at double-digit rates.
5 Winning Stocks Under $49 We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.
6. Coca-Cola
Despite declining soda consumption, Coca-Cola (NYSE: KO) continues to grow because of its vast portfolio of beverage brandsstyle=”text-decoration: underline”>, including remarkably popular names such as Powerade, Dasani, and Minute Maid.
Coca-Cola has raised its dividend payment for 56 consecutive years. And despite being a cash cow, its stock trades 9% below where it started the year and is more than 15% below the 52-week high it hit in February. The Motley Fool’s co-founders, David and Tom Gardner, once referred to the beverage giant as the First Federal Bank of Coca-Cola because of its strength, stability, and durability, and that continues to this day.
7. Colgate-Palmolive
The coronavirus pandemic was a defining moment for many companies, both in good ways and bad. For Colgate-Palmolive (NYSE: CL), the crisis allowed it to come out smiling. Personal hygiene took on an even greater importancestyle=”text-decoration: underline”>,style=”text-decoration: underline”> and Colgate’s many personal care products were able to shine.
Even as markets crumbled and companies slashed or suspended their payouts, Colgate-Palmolive went on to raise its dividend for the 57th straight year. Its stock reflects that resilience and is up 11% year to date. And with a global portfolio of leading products in many categories, it should be able to continue growing for years to come.
ALSO READ: 3 Stocks to Buy Ahead of a Potential Second Wave of Coronavirus
8. ExxonMobil
Oil industry giant ExxonMobil (NYSE: XOM) was hit hard by the pandemicstyle=”text-decoration: underline”> because the lockdowns that went into effect — and are still present in some countries — slashed demand for travel. With oil prices plunging to decades-low records, the markets were worried about Exxon’s ability to maintain its dividend. The stock is down 45% in 2020.
Oil prices continue to be low, but Exxon can still count on its refining and chemical businesses to carry it through the slump. Demand for fossil fuels isn’t going away, and the oil giant has prioritized paying its dividend, and increasing it, just as it has for 37 years.
9. General Dynamics
General Dynamics (NYSE: GD) has raised its dividend 29 years runningstyle=”text-decoration: underline”>. And despite the turmoil in its aviation division caused by the pandemic, it remains the fifth-largest defense contractor in the country, generating over $39 billion in revenue last year.
Support for the military certainly motivates some investors to invest in General Dynamics’ stock. But with its stock down 18% this year and trading for 12 times next year’s estimates, it also attracts value investors and those who love income, who see its payout of $4.40 per share that yields 3% annually especially attractive.
10. Genuine Parts
Although the COVID-19 outbreak resulted in people not needing to drivestyle=”text-decoration: underline”> their cars as much — which theoretically means they wouldn’t need to go to one of Genuine Parts‘ (NYSE: GPC) NAPA auto parts stores as often — the aftermarket parts retailer still has a bright future, as economic upheaval is expected to motivate people to hold onto their older cars longer.
With a proven record of growing sales in 87 out of the last 92 years, and hiking its dividend for 64 straight years, serving the do-it-yourself auto community will help Genuine Parts drive ahead in the future. Trading at just a fraction of its sales, the auto parts specialist looks like a bargain at these levels.
5 Winning Stocks Under $49 We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.
11. Kimberly-Clark
The internet meme of what doomsday preppers think they will be stocking up on (an arsenal of guns) versus what they actually hoarded (a mountain of toilet paper) underscores why Kimberly-Clark (NYSE: KMB) has seen its stock climb 32% from its March low.
The consumer products giant is the owner of Kleenex brand tissues, Cottonelle toilet paper, Huggies diapers, and other paper-based products. It has also raised its dividend, which yields 2.9% annually, for 47 straight years. It suspended stock buybacksstyle=”text-decoration: underline”> during the pandemic but maintained the dividend.
At less than 7% higher than where it started the year, and with the stock trading at 18 times analyst earnings estimates, Kimberly-Clark is a stock you might want to stock up on now.
ALSO READ: 3 Stocks to Buy With Dividends Yielding More Than 6%
12. Realty Income
Like Amcor, commercial real estate investment trust (REIT) Realty Income (NYSE: O) is another new addition to the Dividend Aristocrat rolls this year, but it is unique in that it pays its dividends to shareholders monthly rather than quarterly.
The REIT has actually paid a dividend for 51 years, making over 600 consecutive monthly payments since its founding, but it has raised the payout 107 times during that period — including most recently in June, during the recession caused by the pandemic.
Shares of Realty Income trade 13% below where they started 2020, but with long-term leases from its tenantsstyle=”text-decoration: underline”> and no one tenant accounting for more than 10% of its revenue, the REIT should have many more years of growth and income payments ahead of it.
13. Sysco
Because the pandemic shut down restaurants except for takeout and delivery, Sysco (NYSE: SYY) needed to find an alternative outlet for its food distribution business. Restaurants account for 62% of total revenue, and though business didn’t completely evaporate, it was sharply curtailed.
Fortunately, grocery store distributors were overwhelmed with demand, which gave Sysco an opportunity to break into that marketstyle=”text-decoration: underline”>. And this could allow the company to make lasting relationships that otherwise wouldn’t have been available to it.
Sysco has raised its dividend for 50 consecutive years, and with its stock down 20% year to date, this represents a rare opportunity to buy in at a discount.
14. VF
The owner of Timberland, The North Face, and Vans doesn’t automatically spring to mind as an income investor’s dream stock, but VF Corp (NYSE: VFC) has consistently raised its shareholder payout for 46 years, and its dividend yields an attractive 2.5% annually.
While its Kontoor Brands spinoff suspended its own dividend during the pandemic, VF chose to halt share buybacks and cut executive salaries rather than touch the dividend.
With clothing stores having closed during the crisis, VF’s stock is still down 25% year to date. There’s also some concern it may not maintain the dividendstyle=”text-decoration: underline”>, let alone hike it, next month (it last raised the payout in October 2019). But having come so far to protect the dividend and with retailers now reopening, it’s a good bet it will do so once again.
ALSO READ: The 4 Biggest Dividend Payouts on Wall Street
15. Walmart
Few companies so brilliantly capitalized on their being declared an essential business during the pandemic as did Walmart (NYSE: WMT). While its specialty retail competitors were forced to shut down, Walmart was able to grow not only its grocery sales but sales in other departments, too. Between its physical stores and its e-commerce platform, the retail giant recorded massive sales increasesstyle=”text-decoration: underline”> and padded its market share.
It just launched its Walmart+ membership program, a cheaper version of Amazon.com’s Prime loyalty program but with exceptional depth and breadth. It’s also exploring drone delivery of both groceries and general merchandise, ensuring it will remain relevant to consumers now and well into the future.
The stock still trades at a fraction to its sales, and its dividend, which it began paying in 1974 and started raising every year immediately thereafter, should make it a stock for all investors.
5 Winning Stocks Under $49 We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.
Dividend stocks for the long haul
These 15 Dividend Aristocratsstyle=”text-decoration: underline”> have all proved themselves over time, and even during the most difficult of circumstances, they have continued to not only make their dividend payments but also still raise the payouts.
Of course, nothing is guaranteed, but with a number of these stocks actually qualifying for Dividend King status — meaning they’ve increased their dividends for 50 years or more — it seems a good bet to invest in these dividend royalists now.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors.Rich Dupreyowns shares of 3M, Altria Group, Amcor plc, Coca-Cola, ExxonMobil, Genuine Parts Company, and Sysco. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends 3M and Kontoor Brands Inc and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has adisclosure policy.
17/17 SLIDES
That date is important, because it means STORE wasn’t public during the last recession between 2007 and 2009. The recession that started in early 2020 is the first time STORE has dealt with material headwinds as a public company. And this downturn is possibly even more difficult, because it has been driven by a global pandemic that resulted in governments shutting non-essential businesses and people staying home to socially distance. This is not a good environment for service-oriented businesses or traditional retailers.
Load Error
May was a low point, with STORE collecting less than 70% of its contractual rents. That number is now up to nearly 90%. So, for the most part, the REIT appears to be holding up reasonably well. (The collection rate at one prominent peer, National Retail Properties, dropped by nearly 50% during the worst of the COVID-19 crisis.) Add to that STORE’s conservative adjusted funds from operations (FFO) payout ratio of roughly 70% heading into the downturn, and it makes sense that STORE has been able to maintain its dividend through this very difficult period. In fact, in a show of strength, it just provided a token penny-a-share dividend increase in September.
STORE’s performance certainly hasn’t placed it at the top of the net-lease category, but it is muddling through fairly well, and on par with key industry peers like Realty Income. If this were a graded test, STORE would probably get a solid “B.” And with the stock still materially lower than where it started the year, investors might find the 5% yield attractive here.
Is it a buy?
With a heavy focus on the retail sector, STORE is probably not appropriate for investors in search of a well-diversified net-lease REIT. A better option would be W.P. Carey — this highly diversified REIT’s rent collection rates never dipped below 95%. However, if you are looking to buy a retail-focused REIT, STORE’s performance through its first real test as a public company has been fairly strong. Most investors would probably find it an appealing addition.
Reuben Gregg Brewer owns shares of W. P. Carey. The Motley Fool owns shares of and recommends STORE Capital. The Motley Fool has a disclosure policy.
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