This High Yielding Warren Buffett Stock Is Being Acquired – Here Are 2 Great Replacements To Buy
At Warren Buffett’s Berkshire Hathaway is about to lose one of its high yielding dividend stocks. STORE Capital (STOCK 19.89%), a high-dividend-yielding real estate investment trust (REIT), has agreed to be taken private by GIC and Oak Street. Because of this, Berkshire and other investors who rely on STORE to provide them with passive income will need to find a replacement.
Two great options for Dividend-seeking Buffett followers to consider are Real estate income (O -3.03%) and WP Carey (WPC -1.52%). Here’s why investors who own STORE should consider moving their product into one of these two excellent dividend-paying alternatives.
ring the cash register
GIC and Oak Street have agreed to acquire STORE Capital in an all-cash transaction, valuing the REITs at $14 billion. They pay $32.25 per share in cash. This price represents a premium of 20.4% over the REIT’s share price on the day before the announcement of the transaction and a premium of 17.8% over the share price during the 90 last days.
The acquirers are acquiring a REIT focused on single-tenant operational real estate. It owns more than 3,000 properties across the United States, net-leased (NNN) manufacturing, service and service-oriented retail tenants. It focuses on profitable properties at the unit level, making them operationally essential for the tenant.
This emphasis on profitability and stable net leases, where the tenant is responsible for the building’s maintenance, property taxes and insurance, are factors that prompted Warren Buffett to buy stocks. They strengthen its ability to pay a constantly growing dividend.
Berkshire Hathaway originally invested $377 million in STORE Capital in 2017, acquiring a 9.8% stake in the REIT. While Buffett’s company has since trimmed its position, Berkshire said it held nearly 7 million shares at the end of the second quarter. This represents about 2.5% of STORE’s outstanding shares, valued at more than $185 million before the announcement of the acquisition, or about 0.1% of Buffett’s portfolio.
What should investors do next?
STORE Capital expects its deal with GIC and Oak Street to close early next year. It should be noted that STORE Capital has 30 days to search for a potentially higher offer. However, under the terms of the pending transaction, STORE Capital will pay a dividend for the third quarter and then suspend further payments. For this reason, investors looking for income will eventually need a replacement unless another REIT outbids the current buyers.
Real estate income is a great option to consider. Like STORE Capital, it is a net-lease REIT focused on owning operationally critical single-tenant properties. It has a much larger portfolio of over 11,400 properties in the United States and Europe that are leased to tenants in 72 sectors, primarily in the retail and industrial sectors.
Realty Income shines with its ability to pay a steadily growing dividend. The REIT has grown its payout 117x since going public in 1994. Realty Income is also distinguished by its monthly dividend. It is currently yielding 4.6%, making it a fairly fair trade for investors withdrawing money from STORE Capital, as the redemption premium of around 20% will push its implied value. dividend yield drops to 4.8%.
Depending on their initial cost, investors could earn a similar amount of passive income by reinvesting the money they receive from the STORE deal into Realty Income. Meanwhile, this revenue stream will likely increase as Realty Income expands its real estate portfolio.
WP Carey is another great option for income seekers. It offers a slightly higher initial dividend yield, currently around 5%. It offers more diversification than STORE and Realty Income, with a portfolio of operationally critical real estate in the retail, office, warehouse, industrial and self-storage sectors, secured by net leases. This diversification helps reduce risk while providing a wider range of opportunities for potential acquisitions.
WP Carey also has an excellent track record of growing its dividend. The Diversified REITs has increased its payout every year since its IPO in 1998. The company has a strong financial profile, which gives it the flexibility to continue to grow its portfolio so it can continue to increase the dividend.
Don’t worry about Buffett’s only REIT being acquired
STORE Capital’s decision to go cash will see investors lose a lucrative passive income stream. While this doesn’t affect Warren Buffett’s dividend income as much since STORE is a small part of Buffett’s massive portfolio, it likely represents a much larger loss of income for other investors.
The good news is that there are great potential replacements in Realty Income and WP Carey. Both offer attractive dividends backed by similar properties that they should be able to continue growing for years to come. This makes them great options for current STORE Capital investors who want to continue earning passive income from real estate.
Matthew DiLallo has positions in Berkshire Hathaway (B shares), Realty Income and WP Carey. The Motley Fool holds and recommends Berkshire Hathaway (B shares) and STORE Capital. The Motley Fool recommends the following options: $200 long calls in January 2023 on Berkshire Hathaway (B shares), $200 short puts in January 2023 on Berkshire Hathaway (B shares) and short calls of $265 in January 2023 on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.