Entering text into the input field will update the search result below

STORE Capital: Maintaining My Buy Rating

Oct. 12, 2020 6:24 PM ETSTORE Capital Corporation (STOR)33 Comments
Kody's Dividends profile picture
Kody's Dividends


  • Last month, STORE Capital delivered a 2.9% increase in its quarterly dividend from $0.35/share to $0.36/share.
  • Given the challenges that STORE Capital endured through the first half of this year, I find it impressive that the company's diluted AFFO/share only declined 5.1% YoY.
  • STORE Capital's steadily improving rent collection and proportion of properties that are currently open bode well for the company's operating results in the second half of this year.
  • Adding to the case for an investment in STORE Capital is the fact that shares of the stock are trading at an 11% discount to fair value.
  • Between its 5.1% yield, 5.0-6.0% annual AFFO/share growth potential, and 1.1% annual valuation multiple expansion, shares of STORE Capital are positioned to exceed my 10.0% annual total return requirement over the next decade.

As I have noted time after time in my articles, the COVID-19 pandemic and its interruptions to the global economy have reiterated the importance of investing in the highest quality stocks at or below their fair value.

One such stock that I believe fits this profile is STORE Capital (NYSE:STOR).

I'll be revisiting STORE Capital's dividend safety and growth potential for the first time since I last covered the stock in June, discussing operating results for the first half of this year and STORE Capital's risk profile, as well as STORE Capital's stock price relative to my fair value estimate of its shares, which I believe overall justifies my continued buy rating on shares of the stock.

STORE Capital's Dividend Remains Safe, While Its Long-Term Growth Potential Remains Strong

While I believe it is always wise for investors to examine the safety of a stock's dividend, I believe it is especially important to do so when a stock's yield is significantly higher than the S&P 500's 1.69% yield, as is the case with STORE Capital's 5.15% yield, which is why I will be measuring STORE Capital's AFFO/share against its dividends/share payout through the first half of this year.

Through the first half of this year, STORE Capital generated $0.93/share in AFFO against $0.70 in dividends/share paid out during that time, for a relatively sustainable AFFO payout ratio of 75.3%.

While this is materially higher than the 67.3% AFFO payout ratio through the first half of 2019 (according to data sourced from STORE Capital's Q2 2020 earnings press release), I believe that STORE Capital's dividend remains rather safe for the foreseeable future, given the significant COVID-19 related headwinds endured by STORE Capital and its tenants year to date and STORE Capital's resiliency despite these challenges.

When I take into consideration that

This article was written by

Kody's Dividends profile picture
Hi, my name is Kody. I run Kody's Dividends. As you might guess, this is a blog primarily documenting my journey towards financial independence using dividend growth investing as the means to transform the dream of financial independence into a reality.I am forever indebted to this community because it helped me transition from simply being an investor to being an analyst for The Motley Fool back in June 2021 under my real name of Kody Kester. As a display of my gratitude, I will still be writing one article a month for SA starting in July 2022.

Analyst’s Disclosure: I am/we are long STOR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (33)

long stor
Kody's Dividends profile picture
@tmtoner Thanks for the comment. It's great to hear from a fellow STOR shareholder.
William Darusmont profile picture
You jinxed it! -2.3% today Kidding...about the jinx that is :-)
Thanks for the article - very informative and well written. Long STOR, I added significantly to my position during market lows in Mar/Apr.
Kody's Dividends profile picture
@btwulkan Thanks for the comment and I'm pleased you found value in the article. I actually initiated my position in STOR back in March and I'm glad I did. Congrats to you as well on adding to your position at such an opportune time.
Thank you for another excellent article.
Kody's Dividends profile picture
@The Exception My pleasure. I'm glad you enjoyed the article.
Long STOR.
Kody's Dividends profile picture
@Schamul Thanks for commenting. It's a pleasure to hear from a fellow STOR shareholder.
Long STOR and dripping inside a Roth. Will add more under 24.
Kody's Dividends profile picture
@market_tk Thanks for the comment.
BalancedDietExtraProtein profile picture
Good article. STOR is one of the only stocks offering steady capital gains on top of a nice dividend, love it. LONG STOR
Kody's Dividends profile picture
@BalancedDietExtraProtein I'm glad you found value in the article and thanks for commenting.
"... Adjusting for the uptick in average weighted shares outstanding from 228.2 million in Q2 2019 to 248.3 million in Q2 2020 ..."

10% dilution is an "uptick" ? Will there be another "uptick" next year ?

Q/ What am I missing ?
Kody's Dividends profile picture
@PSG6C Yes, an uptick in the share count is share dilution as ypu indicated. Depending on STOR's cost of equity (currently just over 5%, which is below its return on equity and average weighted cap rate) we may possibly see more share issuances similar to that from 2019 to 2020.

Given that STOR is a REIT and relies on both debt and equity offerings to expand its portfolio as part of its business model, as long as the company is able to grow its AFFO in excess of share dilution, AFFO/share will grow, which will also be beneficial to the share price.

As the economy continues to bounce back over the next year, I suspect that STOR's AFFO/share growth will revert to its typical upper mid-single digit clip annually.

Thanks for the questions.
Long STOR in three different accounts. Was a buy in mid to low 20’s. I like management- but in this market, a company can do everything right and still get creamed. I’m happy to hold long term, it’s market cap and crazy times could make this more volatile than you’d expect.
Kody's Dividends profile picture
@j2d2 Thanks for the comment.
STOR has Mr. Volk so it’s top notch :-)
Kody's Dividends profile picture
@MasterFranko Thanks for commenting and I couldn't agree more. Volk and company know what they're doing.
I agree, as $STOR is the Blue Chip of REIT's imho. They're a nice addition to anyone's REIT portfolio. Love the quarterly dividend.

arthur_bishop1972 profile picture
@Novavax Op Warp Speed STOR doesn't pay a monthly dividend...it's quarterly.
@Novavax Op Warp Speed I think you have them mixed up with another company. Their divvy is quarterly
Thank you @arthur_bishop1972 @proctormap for the heads up...it was $O that I was thinking of which pays a monthly dividend.

Ciao my friends.

@Kody's Dividends

"....stock's yield is significantly higher than the S&P 500's 1.69% yield, ...."

This is the first article I have read that compares a REIT's yield to that of the S&P 500's !!
Kody's Dividends profile picture
@rob123 I know that by their very definition as a requirement to maintain their legal status, REITs often do have yields much higher than the broader market, but it can be a relevant point in cases where the yield is many, many times higher than the broader market. Obviously, in this case, I believe STOR's yield doesn't translate to a yield trap, and the AFFO proves that point. Thanks for the comment.
William Darusmont profile picture
Interesting how a penny is more impressive expressed as a percent on a stock.
Kody's Dividends profile picture
@William Darusmont Thanks for the comment. Given the circumstances, I definitely don't mind a 3% raise from STOR this year. Whether it's a penny or a dime, a 3% raise is 3%.
William Darusmont profile picture
I agree, but even a small decline in price wipes that out and more.

I ran a screen going back to mid 2017 some months ago. The winners were O, OHI, MPW, DLR, PLD. Originally, SPG and IRM were on the list but failed in the recovery. Common characteristics: Enterprise value of $6 billion or more, AND dividend of 6% or LESS.

Greed is good...but not in REITS.
@William Darusmont how many months ago? Like....feb? Before covid? Are your " winners" still winners? Talk about pennies and raises being wiped out. How did O, OHI, MPW, etc all do?

Full disclosure....in long many of those names but....a bit of hate on STOR but then you post those other names?!?! Haha.

Am I misinterpreting your post, sir?
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.