Friday, July 5, 2013

Recent Buy

This morning I added a small position in Realty Income (O).  I couldn't really find a reason why but the shares took a huge hit on the open despite the overall market being relatively flat to slightly positive.  The shares actually shed over 3% very early so I took the opportunity to start a position.  I've been wanting to get a bit of real estate exposure and since I won't be making an investments into rental property anytime soon I figured a stable equity REIT is just as good.

I picked up 24 shares for $42.11 each which after commission cost a total of $1,018.59.  This gives a per share cost basis of $42.44.  Based on the current annual dividend of $2.18 this gives a YOC of 5.14%.  These shares will provide $52.32 in annual dividends before future increases or reinvestment.  One of the best things about Realty Income is that they are a monthly dividend payer.  This is great because it allows for quicker compounding due to more compounding periods should you choose to reinvest the dividends.  Management at Realty Income is very shareholder oriented and if you check out their website or annual reports they are very proud of that fact.

I've been targeting a 5% starting yield for Realty Income since in the total return should approximate starting yield + dividend growth.  Assuming 3.5% annualized dividend growth this would be a 5.14% + 3.5% = 8.64% annualized return.  I'm fine with this since the starting yield is higher and there's always the potential for higher dividend growth.  Per David Fish's CCC list, Realty Income is a dividend contender with 19 consecutive years of paying higher dividends.  I much prefer equity REITs since you're essentially becoming a partner in a real estate investment group that owns the underlying properties and leases them out.  Realty Income has rent increases built into their leases which should allow for at least inflation pacing dividend growth.

At the end of May I sold a put option on Realty Income at a $45 strike level.  If this put option is executed I'll be forced to buy 100 shares of Realty Income for $45 each, which after accounting for the premium I received will give a cost basis of $42.27 or pretty much right around where this purchase was made.  I wanted at least a 5% yield on my position in O and this purchase is working out nicely to keep that level.  I went ahead and made this purchase because O could increase back above $45 between now and expiration and I wanted to make sure I at least got a piece of this company after the big drop over the last month.

My 12 month forward dividends are now at $3,053.34 which is 87.24% of the way towards my goal of $3,500 by the end of 2013.

I've updated my FI Portfolio to reflect this addition.


8 comments:

  1. Nice pick up. I'm pretty sure that the markets got spooked by the recent treasury rate increase and reflexively dumped all things REIT, thus explaining the price drop. Oh well, that just makes it a good time to buy for value investors.

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    1. MyFIJ,

      That was my conclusion. I was just confused a bit because it had been up pre-market but then the markets opened and it shed over 3%. I didn't put 2 and 2 together with the "strong" jobs number for June and revisions higher for previous months meaning that tapering is now back in the forefront. Being an eREIT I'm still not worried about the underlying business since I'd like to be a landlord anyways. I need a bit more capital but sadly I'm kind of tapped right now.

      Thanks for stopping by!

      Delete
  2. Nice purchase on O this morning. I have 3 REIT's in my portfolio, two were down (O and HTS) and the other was actually up for some reason. Grats on getting in at a good "SALE" price.

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    1. Captain,

      I liked the purchase and am hoping that the put option I have gets executed, although I have until December for expiration so who knows. I'd like to get my REIT exposure up to 5-10% eventually but I think there's still more downside from here so there's no hurry. Plus capital is a bit light currently.

      Thanks for stopping by!

      Delete
  3. I think you won't go wrong with O. I own it for couple of years and enjoy monthly rising dividends. I am saving cash for adding more shares too. Hopefully sometimes next week I will be able to add more shares.

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    1. Martin,

      I should have purchased it a few years back but I let someone talk me out of it. Not necessarily O but just REITs in general. Oh well, live and learn and now I'll got with my gut instincts. I still like to hear other people's views on stocks I own or want to own because the more people that are looking at it the more angles it can be seen from.

      Thanks for stopping by!

      Delete
  4. This is a great buy at a great price. I've been watching this one as well, the monthly dividend. ACN took quite a wallop as well, which was also on my radar.

    Right now, I'm holding out to buy some more TSLA. It's been stubborn and rising too much for my taste. Oh well, just gotta be patient.

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    Replies
    1. FI,

      I really like the monthly dividend aspect in conjunction with the business plan that O has. I've thought of adding a bit of the growth stocks to my portfolio but we'll see what happens. Capital might be lighter than normal for purchases so I might stick to the core DG strategy until we get a significant pullback. Of course that'll just bring about the tough decision of whether to get growth or dividend growth stocks on the cheap.

      Thanks for stopping by!

      Delete