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Here's Why I Never Plan to Sell This Dividend Stock

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This real estate stock has the makings of an excellent long-term investment.

In a recent Fool Live show, contributor Matt Frankel revealed that he had added to an already large position in real estate investment trust STORE Capital (STOR). In this clip, recorded on Oct. 11, Matt discusses some of his favorite things about this REIT with colleagues Danny Vena and Jon Quast. 

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Jon Quast: Matt, let me ask you a question real fast. A real estate investment trust is required to pay out the percentage of their earnings as the dividend. Already pretty good, they're at, what did you say -- 4.7%, somewhere in there. Is it true then, because they have theaters as tenants, that earnings are maybe still down right now? As we continue to recover as an economy, those earnings will rise and the dividend should pick up as well?

Matt Frankel: Sure. Well, a couple of things to unpack with that question. Great question by the way. Real estate investment trusts are required to pay out 90% of their taxable income, which doesn't reflect the entirety of what real estate stocks make. You may have heard if you own a rental property, you get to deduct a portion of the property value each year known as depreciation. Well, real estate investment trust get to do that for their thousands of properties. So there's a lot of tax deductions that aren't actually expenses that make their earnings look a whole lot lower than they actually are.

There's a lot more to pay out than their earnings would suggest. STORE Capital likes to maintain a payout ratio in the 70% to 75% range of what's called funds from operations, which is how much they're actually making. The theaters only represent about 4% of the properties. But there were some other highly effected parts of the portfolio as well. They have some fitness center properties, day cares were shutdown in a lot of cases I mentioned already, a lot of those retail locations were shutdown. There's a time in mid-2020 you couldn't go into a Bass Pro Shops, which is one of their big tenants. It wasn't just the theaters.

Virtually 100% of their properties are open, I think it's 99.8% or something percent are open right now and are paying rent. AMC (AMC) is their biggest theater tenant, so thank the meme stock traders because they really helped that company out and AMC's paying rent now as far as I know. It was definitely hit harder than its peers during the pandemic because of the theater presence in those other businesses I mentioned. But their earnings have rebounded more since then.

Danny Vena: One of the things that I noticed about this, I went and took a look at this when you said this was one that you were going to talk about and what I found really interesting was if you look at the stock chart for STORE Capital during the pandemic, it was just hammered. I'm trying to look back.

Frankel: I already have it. I'll go ahead and share it.

Vena: Sure. Go ahead.

Frankel: The STORE Capital is the purple line?

Vena: Look at that purple line, it went from up 150% to zero. It lost essentially, a big chunk of its value. If you would have bought that stock March of last year, and obviously hindsight is 2020, but it would have more than doubled your money just over the course of the last year. That would've been a pretty smart move.

Frankel: I bought some. I don't want to say I bought it right in March, but I definitely bought it in mid-2020 when it was still on the upward end of that trajectory. You can see even with that, since its IPO was in late 2014. The pandemic pretty much knocked it back down to its IPO price essentially, which is what that 0% line means. Since then, it's recovered and more because people realized that we're not going to stop going out to stores and things like that. Pretty solid performance considering how affected this was by the pandemic. Since its IPO, it's pretty much kept pace with the S&P [500].

Vena: Now, Matt, I'm guessing that if you bought it when it was quite a bit less expensive than it was now, I'm betting that your dividend yield is quite a bit higher than that 4.6%, 4.7%?

Frankel: Yeah. That's a good point on these. One of the general goals of real estate investment trust investing is these make great retirement investments. They're really long-term investments. By the time I retire, my yield on cost on these is going to be a whole lot more than 4.7%.

Matthew Frankel, CFP® owns shares of STORE Capital. The Motley Fool recommends STORE Capital. The Motley Fool has a disclosure policy.

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