Wednesday, March 2, 2011

What to do with Getty, symbol GTY

Income investors flocked into Getty Realty because it pays a big dividend and has increased the dividend by a little bit each year for almost 5 years. Getty, symbol GTY caught my attention last year because of its 8.6% dividend yield. Like all income investors, I wanted a piece of that income so I too bought GTY at about $22.50.

Getty is a real estate investment trust. It owns convenience stores and retail motor fuel stores. Getty has good fundamentals in that it has only a .21 D/E ratio. Both sales growth and income have increased over the past few years. It has increased the dividend each year but only by a very small amount. It is structured as a master limited partnership and pays out almost all of its earnings.

Since last January, GTY's stock price has soared to $28.85. Sounds good, doesn't it!

So what happened today when GTY lost 6 points and is back down to where I bought it? Getty's major tenant is Lukoil. Lukoil informed GTY that it transferred it's ownership to an unrelated company and that company is going to pay the rent late.

A late rental payment is a big alarm to me. Is the payment late because the new party does not have the money? Is it late because they intend to use the money for another purpose? They say they will probably make the payment on March 7 instead of March 1. What if they continue to delay?

What to do with Getty? Sell. We income investors cannot hold a company whose major tenant is delinquent. I got out at the same price I paid and I got the big dividend for one year. I am lucky to have made the 8.6% and now I will move onto something else.

This is the lesson to be learned, when the dividend is a lot higher than a typical dividend machine, something is fishy. Keep your eye on these companies. Know about them and when their business is dependent on only a few income streams be very, very cautious.

Dodged a bullet.

Very Truly Yours,