Wednesday, October 30, 2013

Recent Buy

I try to be as open and transparent as I can with my investing decisions in order to give a real life example of what it takes in order to become financially independent through dividend growth investing.  In order to keep track of my reasoning behind a purchase and inform you all about what's catching my eye, I have my Recent Buy series.  This allows me to have a written record as to why I made a purchase for my portfolio and be able to look back and see if that holding is still serving its purpose.  On Monday of this week I purchased 40 shares of the healthcare REIT, HCP Inc.

I purchased the shares for $42.64 each which gave a cost basis of $42.84 per share after commission.  Based on the current quarterly dividend of $0.525 per share, this position carries a YOC of 4.90% and will provide $84.00 in annual dividends before future increases.  I've been wanting to get more exposure to both the health care industry and real estate, so I figured that HCP would make for a solid addition to my portfolio.

One of the reasons that I chose HCP over some of the other healthcare REITs is that HCP is very well diversified whereas most of the other ones are more concentrated in one area.  HCP primarily owns Skilled Nursing and Senior Living properties, but has exposure to medical offices, hospitals and life science as well.  Another big plus is with HCP is that they are a dividend champion having increased the dividend for over 25 consecutive years.  This area of real estate will only continue to expand as the demographic shift is something you just can't mess with.  Unless you believe that boomers will be a much healthier bunch than previous generations, the health care industry will continue to grow.  Dividend Growth Machine had a great comparitive analysis between the major healthcare REIT options and I encourage you to check it out if you're interested in that sector.

This purchase comes with some issues as the Board recently fired the CEO.  I don't like that they haven't been too candid about the reasoning other than that it's not performance related and that they lacked confidence in his leadership skills.  This has brought about a new CEO, Lauralee Martin who has been on the BoD for HCP for the past 5 years and has been the Chief Executive of the Americas division of Jones Lang LaSalle, a commercial real estate firm.  With the Board's lack of transparency there's rumors of what is the reasoning could be and most have come to the conclusion that it's actually due to his managerial skills as they stated.  There's also speculation that there could have been financial shenanigans going on; however, why would you not announce that while making the CEO firing announcement and why would you let him keep a seat on the Board?  If you wait until later to restate earnings then it's going to be putting an even bigger and undue burden on the incoming CEO.  This is obviously a big change for a great company, but I believe that the core business remains in tact so I started a small position and plan to closely monitor going forward.

My FI Portfolio's forward 12-month dividends now sit at $3,112.47 which is 88.93% of the way towards my goal of $3,500 by the end of 2013.  This purchase also increased my YOC from 3.33% to 3.36%.

I've update my Portfolio page to reflect this addition.

10 comments:

  1. Great buy, PIP. I considered HCP, but ended up going with OHI instead, even though HCP has a more diversified portfolio of healthcare providing facilities. I might still invest in HCP just so that I am diversified, but just on my watchlist for now.

    One other note, rising interest rates could present with some downward pressure on REITs as investors flee for bonds instead...which could present with more investing opportunities and better entry points (or averaging down opportunities in your case). I would still not desert this front of investing - its a great space to invest: healthcare REITs - the aging populations needs healthcare support and the demand increases by the day.

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    1. Roadmap,

      OHI is a great company too although they did freeze the dividend a few years back. But they've started growing it again so I wouldn't be opposed to investing there in the future. If my put option on O is executed in December then that will bring my real estate exposure in my portfolio up to about 7% at current levels. So I'm about maxed out on real estate until I can grow my portfolio more. The target is to be between 5 and 10%. Plus as you mentioned there's plenty of headwinds for REITs. Even though the eREITs aren't nearly as rate sensitive as mREITs, I'm sure they'll be dragged down with rising interest rates with the whole sector. I still think it's set up quite nicely over the long term with almost a 5% starting yield.

      Thanks for stopping by!

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  2. Interesting! I've not even heard of HCP! Thanks for sharing your research and knowledge.

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    1. WE,

      HCP is a pretty good company. Dividend aristocrat list, real estate with built in rent increases, exposure to healthcare. Lots to like here. The management change is worrying but I mentioned my reasons for why I don't think it's anything major but I'll be closely monitoring this one.

      Thanks for stopping by!

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  3. PIP,

    I have also been eyeing this one as I do all dividend aristocrats, and with the downturn in REITs. DGM's analysis certainly increased my interest too. Not my top pick right now so I am holding off for a lower price.

    -RBD

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    1. RBD,

      I like what they have going for them and have been watching it for several months. I've been wanting to get more exposure to both the healthcare industry and real estate so HCP covers both fronts. I'd love a lower price and we could very well get one but for now I'm happy with where I was able to get in.

      Thanks for stopping by!

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  4. Nice purchase and thanks for the mention. I am not overly concerned about the management shake-up at HCP. Given that the firing was supposedly not related to Flaherty's job performance, I suspect (and this is pure speculation) that he must have done something wrong in his personal life that would have reflected poorly on the company and undermined his leadership. Incidentally, a few days ago Flaherty resigned from HCP's Board. The company reported decent operating results the other day (including a nice increase in FAD), so I think it continues to be a solid investment.

    I hope to get more exposure to REITs, given that I own only HCP at the moment. I continue to watch O, but its valuation isn't attractive enough. DLR took a major hit today (down 15%) when it reported weak guidance, but I have a nagging feeling about it that is keeping me away. I need to take some time to update the REITs on my watch list; lately I've been focusing on stocks in other sectors/industries, particularly energy and retail.

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    1. DGM,

      The change at CEO only really bothers me because there's been very little said about the reason for the firing and that it was so abrupt. Like you, I believe that it doesn't have anything to do with operational results and that it's either truly his managerial skills or some issue in his personal life that led to the change.

      If my put option on O is executed in December then that will bring my REIT exposure up to around 7.3% of my portfolio which is about where I'd like to be. I want to stay between 5-10%. Of course I'll probably be able to pick up some more between now and then as new capital is invested but I plan on holding off on that for a little bit as I think there will be some weakness in the eREIT sector as interest rates climb. Surely they will actually start climbing again.

      Thanks for stopping by!

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  5. Wow, It is a great found here! I checked the HCP stock and it has a great yield (5%), growth (3%) and history (19 years increases). I added this stock to my watch list as a buy candidate!

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    1. Martin,

      I think it's a solid purchase but not necessarily the best value. Of course it's come down over 3% I picked up shares. It's a great company that should be able to deliver consistent DG going forward, although not the 10%+ rate that I'd love to see. Since the yield is much higher than a lot of the positions I'm invested in I'm willing to accept a lower DG in exchange for higher current income. This will help fuel further purchases. Hope to have you as a fellow owner in the future.

      Thanks for stopping by!

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