Many consumers feel pain in their wallet every time they go to a gas station to pump gas. According to AAA, the average retail gasoline price is currently above $4.50 per gallon, about $1.50 per gallon higher than this time last year. That makes Memorial Day travel plans much more expensive for the roughly 36.2 million Americans hitting the road this weekend, an 8.3% increase in travelers from last year.
However, there are ways to mitigate the effects of high gasoline prices. For example, several techniques can help save money at the pump when gas prices rise. Another strategy is to earn income from gasoline demand to help offset your gas expenses. One way to do this is to invest in Getty Real Estate (GTY 1.56%), a real estate investment trust (REIT) that owns gas stations and other automotive-related real estate. Its dividend, which currently yields nearly 6%, could go a long way towards offsetting rising gas prices.
Cash in on cars
Getty Realty has more than 1,000 independent single-tenant properties where people spend money in or on their cars. These include convenience stores, gas stations, car washes, auto services, and auto parts stores. About three-quarters of its portfolio is made up of gas stations and convenience stores, while 11% is made up of traditional gas and repair locations.
Getty leases these properties to operators under long-term triple net (NNN) leases. This lease structure ensures very stable rental income because its tenants are responsible for the maintenance, property taxes and insurance of the building. Additionally, it is not exposed to gas price volatility or volumes, so Getty produces very stable income to pay an attractive dividend.
The fuel to keep increasing the payment
Getty Realty has an excellent track record of growing its dividend: the REIT has increased it at a compound annual rate of 5.4% since 2015. Growth drivers include steadily increasing rental income from its existing properties (most leases include rental rate escalation clauses of 1.7% per annum). ) and the constant expansion of its portfolio.
The REIT employs a build-and-buy growth strategy. It finances the development of new sites when interesting opportunities arise. For example, it is currently funding two new convenience stores and two new car wash developments. At the same time, it will acquire assets from other investors or directly from operators within the framework of sale-leaseback transactions; it bought 10 car washes for $42 million and three convenience stores for $8.1 million earlier this year. Getty Realty is also selectively redeveloping properties to better utilize each location and achieve higher returns on investment. It currently has five properties under active redevelopment and others in various stages of planning.
Getty Realty has great financial flexibility to continue its expansion. The REIT currently pays out less than 80% of its operating funds in the form of dividends, allowing it to retain cash to reinvest in expanding its portfolio. In the meantime, it has a strong investment-grade balance sheet, which gives it additional debt capacity to make investments.
The company should have many opportunities to continue to grow. Many operators in the automotive 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
Gasoline prices are painful these days, and many consumers are looking for ways to lessen its impact on their wallets. Getty Realty offers an intriguing way to do this by pumping money into your wallet instead of siphoning it off. That makes it an attractive option if you’re hoping to mitigate some of the impact of high gas prices.