Warren Buffett: Can He Still Pull a Rabbit Out of His Hat?

Warren Buffett can still spring a surprise in 2020. The legendary investor might also be thinking of investing in REITS like the SmartCentres stock. The dividend earnings will enable investors to cope with inflation.

| More on:
edit Real Estate Investment Trust REIT on double exsposure business background.

Image source: Getty Images

The coronavirus changed the investment landscape in 2020 that even the GOAT (greatest of all time) of investing was caught off-guard. Warren Buffett is not a magician, yet everyone is wondering if the goat can pull a rabbit out of his hat. The billionaire investor is fearful but might spring a surprise and do a hat trick soon.

Impeccable track record

Berkshire Hathaway was the symbol of stability for five decades. Buffett’s conglomerate has attracted mostly high-quality shareholders. These people bought into the value investing approach for long-term results. This shareholder base was with him every step of the way.

Today, however, Buffett’s empire is shaking. The value of Berkshire’s stock portfolio is shrinking. The company sold Buffett’s hand-picked equities, particularly airline stocks, and posted a net loss of nearly US$50 billion.

Anticipating a hat trick

Over the past four years, Buffett did not find a large company worth buying. Instead, he amassed stocks that passed his criteria. But some of the choices before is tarnishing his image. The future prosperity of his shareholders is under threat. Will they walk away this time?

Notwithstanding the speculations, Berkshire Hathaway still has US$137 billion in the war chest.  It is for this reason that people are anticipating Buffett’s next moves. He might perform a hat trick in the second half of the year.

Berkshire is not known for buying real estate investment trust (REIT) units. Buffett might be looking at this sector next. From a taxation perspective, it is more efficient for individuals to own REITs. Similarly, rental income tends to rise with inflation. Buffett is always warning investors to guard against inflation.

Value stock for consideration

If you were to apply Buffett’s strategy, SmartCentres REIT (TSX:SRU.UN) should pass as a value stock. More importantly, the rental business of this Walmart anchored REIT is faring better than many companies during the pandemic.

SmartCentres is transitioning to become a fully diversified REIT. Its intensification advances to mixed-use development were evident in Q1 2020. The funds from operations (FFO) and adjusted cash flow from operations (ACFO) increased by $7.7 million and $10.7 million compared to Q1 2019.

Walmart is the lead tenant in 75% of SmartCentre’s shopping center portfolio. Also, 60% of the tenant base operates essential businesses. The occupancy rate is a high 98%. COVID-19 did not hamper economic activity.

Customers can practice social distancing while purchasing everyday needs at outdoor centers. Aside from shopping centres, SmartCentre derives revenues from storage facilities and office buildings. Because the tenants are well-financed national retailers, rent collection in May should be the same as 70% in April.

You can earn rental as a true landlord. This real estate stock pays a 9.2% dividend. A $20,000 investment can generate $1,840 in passive income. Why buy a rental property when you earn income with less money out?

Defensive stance

Warren Buffett hasn’t lost his magic touch. His investment philosophy hasn’t changed. Perhaps they are short-sighted and impatient. The legendary investor is sitting on a large pile of cash but taking his sweet time.

When the market is too risky, your stance should be defensive. Buffett is putting up a stonewall defence.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool recommends Smart REIT and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares).

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »