Friday, December 13, 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.  Markets continue to be weak so far in December and while there hasn't been a broad market selloff, there's still pockets of value.  Some of the best current values are in the REIT sector as fears of rising interest rates have depressed prices for most of the sector.  On Thursday, December 12th I picked up 40 more shares of HCP, Inc., a diversified health care REIT.

I first purchased 40 share of HCP back in late October and was already planning to look for opportunities to average down my cost basis as I felt it was a good starting point.  As the share price has gone pretty much straight down since then I felt that it was a good time to average down my cost basis by doubling my position.  Yesterday I added 40 more shares for $35.65 each.  After commission my per share cost basis comes out to $35.85 per share.  Based on the current annual dividend of $2.10 this lot carries a YOC of 5.86% and will provide $84.00 in annual dividends prior to reinvestment of future increases.

I was down around 16% on the first lot of shares so this lot dramatically reduced my cost basis.  The new lot of 40 shares was purchased at a 16.32% discount to the first lot and lowered the total position cost basis by 8.16%.  Subsequently, the YOC increased from 4.90% to 5.34%.  Using the Gordon Growth Model with a 3.00% annual growth rate and a 8.00% discount rate gives a fair value of $42.00, which shares are currently priced much less than.  Last month, HCP announced 3rd quarter results and the results were quite good.  Funds from operations increased by 14% with FFO per share increasing by 14% year over year.  Funds available for distribution increased 22% year over year.  Given the solid growth they've experienced this year and great guidance for 2014, I expect to see a solid increase in the dividend with their next payout in February.

I also made several option moves yesterday to roll out some puts that I had previously sold.  I'll have a post covering all of the moves in a few days.

With the new HCP purchase, some reinvested dividends and an unexpected dividend increase from my employer, my forward 12-month dividends increased to $3,587.99 which is 102.51% of the way towards my goal of $3,500 by the end of 2013.  It's awesome to see my forward dividend goal get met and I'm already working toward knocking out some of the 2014 target.

I've updated my Portfolio page to reflect this change.

Are you buying in this relatively heated market or sitting on the sidelines?  How are you doing on your dividend goals for the year?

18 comments:

  1. My KMI position is down 11% so I plan to add to that, but I haven't even initiated a position in a healthy REIT like HCP, yet. (I invested in NLY when I was young and uninformed). Maybe I'll initiate in HCP before I add more to KMI...

    ReplyDelete
    Replies
    1. WE,

      I much prefer the eREITs to the mREITs, especially the triple-nets as you're essentially just a partner in a landlord trust. The mREITs are pretty much hedging mechanisms on interest rates as far as I can tell. I don't think you'll go wrong with either KMI or HCP. Although I'd probably lean more towards KMI at the moment as you're getting a high yield with higher growth and HCP will probably see some more downside or at least remain at these levels once interest rates start to increase. Just my $0.02.

      Thanks for stopping by!

      Delete
  2. Good call on HCP, PIP. I think its better valued now than it was a few months ago - investors are still spooked with the ex-CEO's firing - HCP needs to come out into the open with investors if they want to bury this and look to the future.
    Anyway, I have overexposure in real estate with my recent investments in OHI and O over the past few months. I will be looking back into HCP next year.

    ReplyDelete
    Replies
    1. Roadmap,

      Yeah, I think I was a bit hasty in my first purchase of HCP as it was just around fair value based on the GGM. It's come down a lot since then so I needed to average down. The ex-CEO firing was definitely a shock, but I don't think it was anything performance related. They knocked it out of the park with the 3rd quarter earnings so unless there's something that drastically changed I have no problems here. O is great and I'd love to add some more in the future.

      Thanks for stopping by!

      Delete
  3. Nice job averaging down on a company you like and also passing one of your goals for the year. You've made some great progress towards FI this year!

    ReplyDelete
    Replies
    1. AAI,

      It feels great to knock off one of my out-standing goals for the year. At the end of 2012 my forward dividends were jut $1,770 and in 2013 I'll receive almost $2,550 and have forward dividends around $3,600. That's some great progress, but nowhere near as good you made this year. Hope you have a great rest of 2013!

      Thanks for stopping by!

      Delete
  4. Pursuit,

    Great job averaging down on a high quality holding! Few things I love more in life than being able to add to a holding at a cheaper price. Well, besides collecting my dividends. :)

    Keep up the great work, my friend!

    Best wishes.

    ReplyDelete
    Replies
    1. DM,

      I think HCP will treat me quite well over the next decade. The combination of the CEO being fired kind of abruptly and the threat of the end of tapering and thus rising interest rates has really hurt the share price, but I'm not worried. I'm not sure which I like more, averaging down, collecting dividends, or dividend increases. That's a tough one!

      Thanks for stopping by!

      Delete
  5. Nice call on HCP. I bought 100 shares of KMI recently, and the stock continues to go down! All good, will DRIP it.

    Keep up the great work.

    Mark

    ReplyDelete
    Replies
    1. Mark,

      I like KMI and also purchased some more shares last week. I only picked up 40 more as they're a sizeable position for me but in the accumulation phase I'm fine with pushing my target weights a bit as the opportunities present themselves. I really like HCP because it's both RE and healthcare exposure. RE is very steady, despite the period from 2007, and healthcare is just going to continue to grow.

      Thanks for stopping by!

      Delete
  6. Looks good. I noticed HCP took a tumble lately. Next month's deposit will be placed in my ROTH so I'll be on the lookout for REITs and Canadian banks. I'm only going to add one more REIT and HCP might just be the one. I just have to hope the share price stays depressed a little longer. Best wishes!

    ReplyDelete
    Replies
    1. CI,

      HCP has taken quite a tumble and I wouldn't mind adding more in the future but for now it's at a good sized position. HCP is a great REIT despite the sudden ousting of the CEO. Given the knockout 3Q results, it definitely wasn't for performance issues. I don't think you'll have to worry about the share price changing too much from here. With the taper rumors swirling, I don't expect to see much increase in the REIT sector. Not sure if there will be more downside or not, but I would be surprised to see REITs in general recover by 10%+.

      Thanks for stopping by!

      Delete
  7. I purchased some more HCP after our discussion a few weeks ago also. The thing is getting hammered by the market but I can't figure out why - almost seems like over the long run a company that invests in medical buildings will be a homerun!

    ReplyDelete
    Replies
    1. Evan,

      Well I think a lot of the downward pressure is coming from the expected end or at least slowdown of the taper. Rates should rise when that happens which in theory will make it more difficult for eREITs as they have to finance most of their acquisitions with debt. Higher interest rates = higher interest payments = lower rental profits. Or so the theory goes. That and the CEO mess didn't really help. Real estate and healthcare? Sign me up. I'd add more but I can't get too weighted towards REITs, plus I'm trying for at least one rental property next year.

      Thanks for stopping by!

      Delete
  8. Yes, HCP is definitely a great Company.
    Vantas is only number 2 after HCP.
    In 2014 I will also buy HCP :-)

    Best regards
    D-S

    ReplyDelete
    Replies
    1. D-S,

      I have to agree with you on that one! I think HCP can hold a great spot in a portfolio, although the dividend growth won't exactly be tearing it up. From what I've read, Ventas should probably have higher DG, of course you can always own both!

      Thanks for stopping by!

      Delete
  9. Good job averaging down, looks to be a strong support in the $35 range. If this pans out to be the bottom, you're in for one hell of a ride on the way back up.

    Good luck and take care my friend.

    ReplyDelete
    Replies
    1. Mil,

      I purchased for the steady and growing dividend, but I'm never opposed to selling should the valuation get out of hand. Although the plan is to hold these shares forever. I needed to average down as I purchased the first lot way too early.

      Thanks for stopping by!

      Delete