Many consumers are feeling pain in their pocketbooks every time they head to a gas station to pump gas. According to AAA, the average retail gas price is currently over $4.50 a gallon, about $1.50 a gallon more than this time last year. That’s making Memorial Day travel plans much more expensive for the estimated 36.2 million Americans hitting the road this weekend, an 8.3% increase in travelers from last year.
However, there are ways to lessen the sting of high gas prices. For example, several techniques can help save money at the pump as gas prices rise. Another strategy is to earn income from gasoline demand to help offset your gas spending. One way to do that is by investing in Getty Realty (NYSE: GTY), a real estate investment trust (REIT) that owns gas stations and other auto-related real estate. Its dividend, currently yielding nearly 6%, could go a long way toward offsetting higher gas prices.
Cashing in on cars
Getty Realty owns over 1,000 freestanding, single-tenant properties where people spend money either in or on their cars. These include convenience stores, gas stations, car washes, auto service, and auto-parts stores. About three-quarters of its portfolio consists of gas stations and convenience stores, while another 11% is legacy gas and repair locations.
Getty leases these properties to operators under long-term triple-net (NNN) leases. That lease structure provides it with very stable rental income because its tenants are responsible for all maintenance, real estate taxes, and building insurance. Furthermore, it has no exposure to gas price volatility or volumes, so Getty produces very stable income to pay an attractive dividend.
The fuel to keep growing the payout
Getty Realty has an excellent track record of growing its dividend: The REIT has increased it at a 5.4% compound annual rate since 2015. Growth drivers include steadily rising rental income from its existing properties (most leases feature rental rate escalation clauses of 1.7% annually) and the steady expansion of its portfolio.
The REIT employs a build-and-buy growth strategy. It funds the development of new locations when attractive opportunities arise. For example, it’s currently financing two new convenience stores and two new car-wash developments. Meanwhile, it will acquire properties from other investors or directly from operators in sale-leaseback transactions; it purchased 10 car washes for $42 million and three convenience stores for $8.1 million earlier this year. Getty Realty also selectively redevelops properties to make better use of each location and earn higher investment returns. It currently has five properties under active redevelopment, and others in various planning stages.
Getty Realty has ample financial flexibility to continue expanding. The REIT currently pays out less than 80% of its funds from operations in dividends, enabling it to retain some cash to reinvest in expanding its portfolio. Meanwhile, it has a solid investment-grade balance sheet, giving it additional debt capacity to make investments.
The company should have ample opportunities to continue expanding. Many operators in the auto service industry currently own their real estate. They could unlock that value by selling it to a REIT like Getty Realty.
A high-octane dividend
Gas prices are painful these days, and many consumers are looking for ways to reduce its impact on their wallets. Getty Realty offers an intriguing way to do that by pumping cash into your wallet instead of siphoning it away. That makes it an interesting option if you’re hoping to ease some of the impact of high gas prices.
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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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