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Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK) has a reputation for picking stocks of wonderful companies at fair prices, and its recent investment in Ulta Beauty Inc. (NASDAQ:ULTA) underscores its confidence in both the company and the retail sector.
While investing directly in Ulta stock, as with Berkshire Hathaway, is certainly an option, another strategic way to generate income from the company is to own shares in one of its largest landlords.
Now trending:
Kimco Realty Corp.
Kimco Real Estate Corp. (NYSE:KIM) is one of the largest owners and operators of high-quality, open-plan grocery shopping centers and mixed-use properties in the United States. As of June 30, the Company owned ownership interests in 567 properties with a total leasable area of approximately 100 million square feet.
Ulta is one of Kimco’s top 20 tenants. It has 56 locations totaling approximately 531,000 square feet and accounts for approximately 0.8% of annual base rent. Other notable tenants include TJX Companies, Home Depot, Ross Stores, Amazon/Whole Foods and Burlington Stores.
“Collect rent”
REITs like Kimco are required by law to distribute a large portion of their taxable income to their shareholders as dividends. By owning Kimco stock, investors are essentially “collecting rent” from Ulta and its other tenants through these dividends.
Kimco currently pays a quarterly dividend of $0.24 per share, which equates to an annual dividend of $0.96 per share. At the time of this writing, the stock yields about 4.3%.
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Kimco is committed to maintaining a dividend payout ratio of approximately 80% of its adjusted operating fund. As the company generates higher income from existing properties through rent increases and the expansion of its real estate portfolio, investors can expect dividend payments to increase.
In fact, Kimco has increased its regular annual dividend payment every year for the past two years and also declared a special dividend of $0.09 per share in December 2023. With the 4.3% increase last October, the company is on track to record its third consecutive year of an increase in 2024.
So, if you are interested in gaining exposure to Ulta but don’t want to invest directly in the company, buying shares of Kimco Realty would be a good option.
Better returns than some REITs?
The current high-yield environment offers incredible opportunities for income-seeking investors to earn tremendous returns, but not through REITs.
Arrived Homes, the investment platform backed by Jeff Bezos, has launched its Private Credit Fund, which offers access to a pool of short-term residential real estate-backed loans with a target net annual return of 7 to 9 percent, paid out to investors monthly. In July, the payout was 8.1 percent. And the best part? Unlike other private credit funds, the minimum investment in this one is just $100.
With long-term rates falling and short-term rates remaining high, there’s a unique opportunity to invest in fix-and-flip loans before yields fall. Check out Benzinga’s favorite high-yield deals.
This article How to collect rent from Buffett’s latest investment – Ulta Beauty – and do this originally appeared on Benzinga.com
