Warren Buffett Loves This High-Yield Dividend Stock. Is it a Buy?

Do you like dividends? If so, you’re in good company. Warren Buffett, the CEO of powerhouse investment company Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B), is fond of them too; Berkshire’s equity portfolio is stuffed with companies that pay their shareholders on the regular.

One stock in particular stands out. Not only does it have the fourth-highest yield of all 46 stocks in the portfolio, but Berkshire’s position of more than $800 million gives Buffett’s company a big 9% holding in the company. Read on to find out why Buffett and his team are all-in on this high-yield stock (which currently tips the scales at 4.7%).

A great store of value

Let’s pull the curtain back: The stock in question is Store Capital (NYSE:STOR), which has the distinction of being Berkshire’s only real estate investment trust (REIT). As a retail REIT, Store Capital owns and leases retail properties, specifically those operated by single tenants.

But uniqueness in a portfolio and obvious affection from the investing master are not sufficient reasons for us to put money into a stock (plus, we should remember that Buffett has had his share of misfires — for example, with troubled food giant Kraft Heinz). So let’s explore whether or not Store Capital is a worthy buy for the average investor.

Buffett has always been drawn to companies with straightforward business models and reliable growth. Store Capital certainly ticks those boxes; in the pre-pandemic days, it did a fine job of increasing its revenue. In fact, it managed to nearly double its top line from 2016 to 2019, from just over $376 million to nearly $700 million. Adjusted funds from operations (or AFFO, the most meaningful profitability metric for REITs) leaped even higher, rising from $246 million in 2016 to $463 million in 2019.

REITs are obligated to spend the vast bulk of their net profits on shareholder remuneration, which is why their dividends tend to be generous relative to other types of companies.

Store Capital is no different, and thanks to that rising AFFO and bottom line, there always seems to be room for an increase. The REIT has boosted its quarterly dividend at least once annually since going public in late 2014. Across that not-quite-seven year stretch the payout has ballooned from slightly over $0.11 per share to the present level of $0.36.

The coronavirus pandemic crashed hard into the retail sector, leading to store closures and a general reluctance among customers to leave their homes to shop. That would have been devastating for Store Capital had it not been so widely diversified. The company has properties in 49 states, only one of which (Texas) comprises over 10% of the total dollar amount of that portfolio. The REIT is even more assertive in hedging its tenant list; no single renter is responsible for more than 3% of the total.

As a result, compared to many other retail REITs (and the retail industry in general),…