As far as I’m aware, nobody outside of insiders saw it coming.
Last week, the real estate investment trust (REIT) world was rocked by big news. One of its most significant players, Store Capital (STOR), was going to be bought out.
Now, I know Store very well. I’m friends with its co-founder and former CEO. And I’ve covered it dozens of times since it went public in 2014.
Store buys up single-tenant properties – 3,012 of them, in fact. As a corporate landlord, it then leases them out to 579 customers in 124 industries.
This REIT is large, influential, and profitable… The kind of company you’d expect to buy up other companies, not be bought.
So, hearing how GIC and Oak Street offered $14 billion for it surprised me. But I wasn’t shocked.
That’s because I know the real value of the companies I recommend. Here at Intelligent Income Daily, my team and I look far beneath the surface of each stock that catches our eye.
We not only want them to pay dividends. We want to know those dividends will continue – which means knowing everything about how the business behind them is run.
I know investing legend Warren Buffett does the same. This week, we’ve written a few times about Buffett, whose focus on dividend-paying stocks has made him the most successful long-term investor of our time.
Obviously, he’s far more successful than I am. However…
I hope you’ll let me brag a minute when I say I beat out both Buffett and the GIC-Oak Street team in recognizing this REIT’s true value early on.
And by looking for the same criteria, you can equip yourself to be ahead of the curve, too.
STOR’s Share Price Has Benefited From Surprising Headlines More Than Once
Back in June 2017, Buffett’s company Berkshire Hathaway purchased 18.6 million shares of STOR at $20.25 each. The stock’s price jumped from $20.77 that Friday, June 23, to $23.11 the next trading day.
Berkshire’s $377 million investment – a 9.8% stake in the company – prompted CNBC to run the headline: “Buffett’s Berkshire Hathaway Just Became One of the Largest Shareholders in an Obscure Real Estate Firm.”
Obscure to them, maybe. But not to me.
That’s because I first put STOR on my readers’ radar back when it went public in 2014. So they were already well-positioned before Berkshire’s move. And that price difference was something I’m more than happy for my followers to participate in.
The same went for 2020, when Berkshire purchased another 5.8 million shares. (Note: It has sold some of its shares in STOR as of Q2 2022, but it remains Berkshire’s 36th largest holding.)
Again, my readers and I have benefitted from those moves. But they’re not the real reason Store Capital has done so well by us.
I would have thought STOR was an excellent investment even without them noticing it.
That’s because I carefully research every opportunity. I want to make sure they not only look beautiful but actually are beautiful.
In Store’s case, it had a wide geographic footprint across 10 states. Its client list was diverse, filled with services, retailers, and industrial businesses.
And its middle-market focus allowed it to create a niche list of tenants that were small enough to warrant higher rent checks but big enough to still be stable.
Those considerations have only gotten more impressive since its IPO. Just look at the compound annual growth rates of its adjusted funds from operations (AFFO), dividend, and net income growth. Since 2016:
AFFO has grown 5.9%.
Dividends have grown 6.1%.
Net income has grown 8.1%.
That growth potential was written all over Store’s model, its management, and its execution. And so I jumped on it immediately, never thinking Warren Buffett might take notice or that it would be bought out.
STORE’s Dividends Have More Than Paid Off
That brings us to this month’s news…
When a company announces it’s going to be bought up, its share price almost always goes up. After all, the acquiring business wants to woo shareholders by paying more than current market value. And shareholders want to make the most of it.
So it’s no surprise that STOR closed at $26.79 last week on September 14, only to spike $5.33 higher on September 15.
And while it’s given up a dime or two of that since, it’s still doing better than it has since January.
Just like what happened with Buffett’s interest, I didn’t anticipate this happening. I don’t buy companies just because they could be bought out by someone else.
If that happens, it happens. But it’s not something I ever bet on.
In fact, I don’t bet at all when it comes to the stock market.
I just knew the price was right in 2014 when Store Capital first IPO-ed… and its dividend plans looked like something I wanted to be a part of.
Sure enough, including the upcoming dividend, every share purchased back then has produced $10.20 in dividends. That’s not bad for a company that ended its first market day at $19.50 only eight years ago.
In which case, if anything, I’m just sad to see that dividend go away if/when the acquisition is finalized.
Fortunately, there are plenty more fish in the sea. Keep following me to learn about more REITs and other dividend-paying stocks that keep growing year in and year out.
Happy SWAN (sleep well at night investing),
Editor, Intelligent Income Daily