I love buying dividend stocks. The most addicting thing I have been a part of over the last 10 years is creating/adding dividend income, the best form of Passive Income (in my opinion). The old saying goes, “it’s about time in the market vs. timing the market” and I whole-heartedly believe in it. In fact, I add to that by saying the more you invest and the earlier you invest, makes all the difference. This is why I love buying stocks, dividend stocks specifically, weekly, in order to add to my wealth and forward passive income stream. We have a new plan of adding to REITs on a weekly basis for our investments. One goal is top of mind: creating passive income by owning stock in these two new REIT positions!
investing in store capital (stor) weekly
I have been buying Store Capital (STOR) consistently over the last few weeks. Then it hit me, I want to reach 100 shares, why not do it this way? Why not buy it each and every week? STOR is a publicly traded REIT that is focused on single tenant operating real estate. For those that aren’t sure about Real Estate Investment Trusts (REITs) or you are a beginner investor, just starting out, here are a few items. REITs are required to distribute out 90% of all taxable income to shareholders. You also pay taxes at the ordinary income level, as REITs do not pay corporate taxes. However, taxpayers may also be able to take a 20% qualified business income deduction on the taxable income from REITs, so there is the off-set there.
I own 70 shares of STOR at the time of this writing. Given that I tend to invest at least $300 weekly into Vanguard High Dividend Yield ETF (VYM) for my taxable account, I am reducing that investment down to 2 shares, as the share price is approximately $110. Therefore, I’ll have around $80 each week to dedicate to STOR stock. If I buy two shares of STOR stock, that takes up approximately $70. Therefore, I should (theoretically) be able to accomplish 100 shares in 15 weeks or a little over 3 months. Adding those 30 shares of STOR will be able to provide $46.20 in forward income.
Why 100 shares? Why not. Buying assets that continue to produce income is the name of the game and having a nice rounded 100 shares, sounds just about right. At current prices, that would represent almost $3,500 in capital invested. In addition, buying and owning 100 shares of STOR will produce a forward income stream of $154 or almost $40 per quarter, enough to DRIP at least 1 share.
Why STOR? They are a newly founded REIT that went public approximately 7 years ago. Warren Buffett also owns many shares of Store Capital. They have also increased their dividend each year, following the same footsteps as Realty Income (O), one of the best dividend REITs out there.
I evaluate STOR on Adjusted Funds From Operations (AFFO), which is the metric I use to evaluate all REITs, versus earnings per share.
Therefore, running them through the Dividend Diplomats Stock Screener, which is focused on these 3 metrics (with AFFO replacing EPS), this is how Store Capital looks:
- Price to AFFO Ratio: AFFO was $0.97 through 6 months/year-to-date for 2021. To keep it simple, we will simply double that and estimate that they will earn $1.94 AFFO for the year. The share price is $33.67 as of 11/19. This equates to a price to AFFO ratio of 17.35. Not expensive, not cheap. However, fairly good value here.
- Payout Ratio: STORE Capital currently pays a quarterly dividend of $0.385 or $1.54 per year. This equates to a dividend payout ratio of “only” 79%, which is lower for a REIT. Therefore, we should see signs of dividend growth for Store Capital going forward.
- Dividend Growth: Increasing their dividend since they’ve been public, Store Capital (STOR) has been fairly consistent in this department. The average dividend growth rate is right at 6%. The best part, the last dividend increase was above this average rate and was ~7%. I like where STOR is heading.
In addition, as a bonus metric for dividend investors, I look at dividend yield. The dividend yield, at the time of this writing, is 4.57%. Therefore, for every $100 invested, you should expected to receive $4.57. My REIT exposure is minimal in my taxable account, primarily due to the potential higher taxes you pay. However, due to the QBI deduction, REITs now stand a nice spot in my taxable portfolio, to complement my Fundrise investment, which is now well over $10,000!
Not done here. How about for my wife’s dividend stock portfolio?
investing in preferred apartment communities (apts)
Similarly, we were buying 3 shares of Vanguard’s High Dividend Yield ETF (VYM) weekly in her portfolio. However, as stated above, the share price of VYM has surged and it was time to add real estate exposure to the taxable dividend account! Since I was investing and buying stock in Store Capital (STOR), I decided to pick a different REIT for her portfolio. Preferred Apartment Communities (APTS) came into play! Talk about a fun ticker symbol.
Preferred Apartment Communities, Inc. (APTS) primarily operates multifamily properties, with select investments in grocery anchored shopping centers. They have over 100+ properties across 13 states in the U.S. This is definitely a different real estate exposure vs. Store Capital (STOR) and Realty Income (O). Here is how APTS stock price has performed year-to-date:
They are up almost 100% year to date. Why the heck am I still buying? First, my wife had no real estate exposure from a REIT standpoint in her taxable account. She also has $80 remaining after VYM and this way, she can invest in approximately 5 shares per week. However, how do the stock metrics look like? Well, let’s dive into the dividend stock metrics for APTS:
- Price to AFFO Ratio: AFFO was $0.75 through 9 months/year-to-date for 2021. They actually had a great 3rd quarter, earning $0.40 for AFFO. However, let’s stay conservative and kep it simple, we will simply annualize the 9 month AFFO figure. This calculates out to be $1.00 in AFFO expected for 2021. The share price is $14.13 as of 11/19. This equates to a price to AFFO ratio of 14.13 (fairly easy on this one!). APTS appears to be less expensive than Store Capital (STOR).
- Payout Ratio: APTS currently pays a quarterly dividend of $0.175 or $0.70 per year. This equates to a dividend payout ratio of “only” 70%, which is the lowest I have seen in the REIT space for some time. Therefore, we should see signs of dividend growth for APTS, especially since they reduced the payout in the pandemic.
- Dividend Growth: Sad story – they reduced their dividend during the pandemic. However, we should resume growth and see this part shining bright going forward. I just don’t see how they won’t increase the dividend. I anticipate an increase in 2022, by at least a full cent, which would be well over 5%.
Similarly, dividend investors want to know how much passive income are they to receive if buying stock into APTS? Their dividend yield, based on a payout of $0.70, is 4.95%. Therefore, for every $100 invested, you should anticipate $4.95 going forward, not considering dividend growth or cuts. Adding quite the dividend yield punch to my wife’s portfolio, that’s for sure!
We have been steadily buying them for my wife’s account and we plan to continue this for the foreseeable future, to build up a sizable position.
Conclusion
There you have it. We plan on investing weekly into these two dividend paying REITs. The plan is to invest up to $200 per week to build sizable positions into the two real estate investment trusts of Store Capital and Preferred Apartment Communities. $200 per week will add between $9 to $10 to our forward passive income total. Sticking to this strategy for at least 15 weeks could mean up to $150 in passive income added. The goal is to create passive income and reach financial freedom, we felt this would be a nice add to our investments, possibly shorting the time to the destination.
What do you think of this investment strategy? Did you learn from what we described above related to Real Estate Investment Trusts? Do you like that you can possibly offset your income by the qualified business income deduction when owning these in your taxable account? Are these two stocks to buy now or would you wait on the sidelines? Luckily, I do not think owning these shares contains too much risk, given their yields aren’t high for REITs, as well as plenty of room in the dividend payout ratio.
Cannot wait to read your feedback on our strategy to create passive income here. What other stocks are you buying in this all-time-high stock market? Leave your comments below! As always, good luck and happy investing.
-Lanny