Getty Realty: A 6% Dividend Yield Growing 5% Annually From Gas Station Real Estate

Summary

• Gas station real estate has surprisingly delivered very strong rent collection numbers.
• GTY has reported robust cash flow growth in spite of the pandemic.
• GTY has a dividend yield of 6% and just raised the dividend by 5%.
• I rate shares a buy with 40% total return upside.
• I do much more than just articles at Best Of Breed: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

At first glance, you’d think that Getty Realty (NYSE:GTY), a net lease REIT of gas station properties, would be struggling during a pandemic that has dramatically reduced car travel across the country. The reality could not be further from the truth, as GTY has experienced minimal impact from COVID-19, at least as far as rent collection is concerned. GTY was able to report 9.3% AFFO per share growth in the latest quarter, and on the backs of strong results even raised the dividend by over 5%. GTY maintains a low leverage balance sheet which helps to compensate for any potential secular headwinds facing the gas station segment. With shares yielding in excess of 6%, shares are a buy.

The Resiliency Of Gas Station Net Leases

When you look at the tenant list below, what do they all have in common?

(October Presentation)

The better question might be, what’s the difference? GTY is a pure-play on gas station net lease properties, which at first might sound like exactly what you do not want to own during a pandemic. It turns out that in spite of people staying at home, GTY has been able to produce strong results. Whereas net lease REIT peers have seen rent collection rates dip significantly in the past several quarters, GTY has not seen rent collection dip below 96%, and rent collection was 98% for the month of October. GTY has even been able to grow AFFO per share by 6.2% year to date.

Aren’t gas stations struggling? Perhaps many gas stations are reporting lower profits from fuel sales, but many of GTY’s tenants include a convenience store component:

(October Presentation)

Readers may be surprised to learn that gas stations derive the majority of profit from their convenience stores, as convenience store margins have remains steadily strong over

Analyst’s Disclosure:I am/we are long GTY. 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.