Harry Domash's Winning Investing



Unloved Stock Will Pay You to Wait

As you may know, when it comes to stocks, I’m partial to dividend payers. Why?

Rather then only making money by selling your stocks to someone else at a higher price than you paid, dividend stocks actually pay you just to own them. Dividend yield tells you how much they pay.

Dividend Yield

Dividend yield is similar to the interest rate that you earn from a savings or money market account. It’s the total dividends you expect to receive over 12-months expressed as a percentage of the price you paid for the shares. For instance, your yield would be 10% if you paid $20 per share for a stock paying $2.00 per share annually.

About Real Estate Investment Trusts

The dividend payer that I’m going to describe today is a real estate investment trust (REIT). REITs are corporations that invest mainly in real estate and don’t pay federal income taxes as long as they pay out at least 90% of their income to shareholders. Consequently, REITs pay relatively high dividends compared to most stocks.

Getty Realty

Getty Realty (GTY), is a REIT that owns gas station, car wash, and convenience store properties that it leases to third-party operators on a triple-net basis, which means that tenants pay all property-related expenses. As of September 30, Getty owned 896 properties and leased 58 properties from third-party landlords in 35 states across the United States and Washington, D.C.

Getty has been around for some time, but recently started an active acquisition program intended to grow revenues and earnings. How serious is Getty about this program. So far this year, Getty has paid $140 million to acquire 32 properties. And it’s starting to bear fruit.

Even though pandemic-related issues squashed results, September quarter revenues still rose 4% vs. year-ago to $37.9 million. Funds from operations, a cash flow measure typically used to evaluate REITs, rose 9% to $0.48 per share.

Reflecting its strong performance, on October 21, Getty hiked its quarterly dividend by 5% to $0.39 per share, bringing its dividend yield up to 5.5%.

Despite all the good news, Getty is relatively unloved. Only two of the five analysts covering the REIT are advising buying. The remaining three are all at “hold,” which most market players understand means “sell.” If Getty’s acquisition program continues to be successful, eventually these analysts will notice and upgrade Getty to ‘buy,’ which will bring the stock to the attention of more market players.

If my analysis is correct, there’s plenty of upside potential here, and you’ll get pay a hefty dividend while you’re waiting.

published 11/10/20

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