Thursday, July 31, 2014

Recent Buy

Whenever I make a new purchase for my portfolio I feel it's only fair to get a post written giving all of the juicy details. I want to be as transparent as possible with my journey to reach financial independence through dividend growth investing. Being open about the moves I make allows for better discussion with all of you and helps spread ideas around as well as letting me create my own "investing journal" to chronicle why I purchased a company in the first place and that way I can revisit if something changes and make the decision on whether to continue owning the company or not.

Earlier this week I wrote about another rental propportunity that I happened to find.  Given the right property in the right location you can generate a lot more cash flow on a monthly basis by investing in real estate.  However, my big concern with going that route is being adequately diversified.  The approximate $25k that I'd need for the downpayment on that property would only net me on property and require the use of debt or I could continue to build ownership stakes in 5-10 companies.  Since I'm still a little undecided on rental properties as an option right now, I still like to invest in real estate investment trusts (REITs).  So yesterday I added to one of the best run REITs out there, Realty Income (O).



I purchased 36 shares of Realty Income for $43.75 per share.  After commission my per share cost basis works out to $43.97 per share.  Based on the current annual dividend of $2.19 per share these shares will provide $78.97 in annual dividends and carry a YOC of 4.99%.  I previously owned 55.685 shares at a per share cost basis of $40.16 so this purchase was made at about a 9.5% higher price than my cost basis.  My total position in Realty Income now carries a cost basis of $41.66 which is an increase of 3.7% from before this addition.

Realty Income doesn't fit the high or even moderate dividend growth camp but it does provide a solid current yield at around 5.00%.  I try to balance out my portfolio with some high current yield positions to help spur on the overall growth of my portfolio.  Another thing that I like about Realty Income is that it's a fairly stable business with built in rent increases.  Earlier this month Realty Income announced their Q2 results and they were quite good.  Adjusted FFO were up 8.5% per share year over year.  You need to look at funds from operation as opposed to earnings per share for REITs due to the large non-cash items that negatively effect earnings.  It's similar to looking at the difference between cash flow versus earnings because depreciation is a drag on earnings but does not effect actual cash flow.  Even better news out of the quarterly report was that guidance for FY 2014 was raised which should continue to lead to further dividend growth.  Plus what's not to like about a company that proudly displays their dividend history on their investor relations page and refers to itself as "The Monthly Dividend Company".

I'll gladly buy more on further weakness in the share price but there's no telling when that might come.  So in the meantime I'll just sit back and collect my dividends from this great company.

My forward 12-month dividends are now up to $4,660.70.  That's 93.21% of the way towards my goal of $5,000 by the end of the year.

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

16 comments:

  1. Congrats on the purchase. I have a small exposure to ARCP in the realty space. O looks great and would be a great addition to the portfolio especially at an yield of 5%. Will keep an eye on this.

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    1. DGJ,

      O is great and there's not many other REITs with the kind of operational history and shareholder friendliness of O. I've also got some ARCP although I'm not looking to add to it right now.

      I need to make a final decision about a rental property because the numbers look great but it's the lack of diversification that is troublesome. Of course I can pick up diversification through the REITs that I own but I still feel like it's a huge asset that could quickly become a huge liability. Decisions decisions.

      Thanks for stopping by!

      Delete
  2. PIP,
    I own ARCP and HCP in the REIT space. I don't really have room in my taxable account today, but O will likely be there some day. I do have some exposure to it in a REIT ETF. Are you looking at YUM today? I missed the big dip this morning, hoping to pick some up today.
    -RBD

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    Replies
    1. RBD,

      I saw YUM and I'm not sure what to do. I want to add to my position but man, 2 food quality issues in less than 2 years in your main growth market is concerning. I'll probably end up averaging down though.

      I'm probably looking at adding OHI to my REIT mix as well and then just build up those positions. Although I want to see a bit more from ARCP as they're still a company in flux. Lots and lots of movement going on there.

      Thanks for stopping by!

      Delete
  3. Congrats on adding some solid dividend income, JC. I am considering adding more to my portfolio. Just waiting to pull the trigger

    R2R

    ReplyDelete
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    1. R2R,

      Looks like I was a bit early on O but I'm still happy to add at a 5% yield. Next add will probably be at <$41 if we see that, would love to add <$40 but who knows what Mr. Market will do. Although today was a great day for long term investors and I added to 3 positions.

      Thanks for stopping by!

      Delete
  4. Good purchase. I was looking at O a while ago but ended up going with OHI instead due to DRIP. Because O pays monthly dividend, it'd require more capital to be eligible for DRIP.

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    1. Tawcan,

      I'm hoping to add some OHI to my portfolio as well but it seems a bit expensive right now. Although OHI has a discount if you DRIP don't they? O's monthly dividend sure is nice and it's great to start receiving something within a few weeks of your purchase.

      Thanks for stopping by!

      Delete
  5. You picked one of the best REITS grats. REITS are a great way to diversify especially with their monthly steady payouts. Hell it beats being a landlord in many cases.

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    1. A-G,

      I figured I should go with one of the best run and get some stability. The returns are generally a lot higher for owning rental property but the headaches are also a lot higher.

      Thanks for stopping by!

      Delete
  6. JC,

    Nice buy here. I'm a big fan of O. I'd love to see it fall below $40 again before I pick up more, but it should be a great long-term play.

    Keep up the great work!

    Best regards.

    ReplyDelete
    Replies
    1. DM,

      Yeah I was probably a bit early on this purchase but no worries. If it dips down below $40 I'll be adding again. That's the good thing about having lots of savings to invest each month. Even if I don't get the best price to start off with there's usually reinforcements coming that can let me average down.

      Thanks for stopping by!

      Delete
  7. JC - Way to add some solid income (yielding essentially 5%) to your annual dividends. I like O and have it on my watch list, but unfortunately I am somewhat overweight in the real estate sector already.

    Wishing you continued success in your journey! AFFJ

    ReplyDelete
    Replies
    1. AFFJ,

      I can't blame you for not adding to your real estate exposure but I really like O for the long term. Should be a great and steady payer even though growth won't be spectacular but it should still keep pace or be slightly ahead of inflation.

      Thanks for stopping by!

      Delete
  8. Hi JC:
    Trying one more time to comment. I agree with Mantra that O is more desirable in the $40 range (our current average cost). We have the stock sitting at about 2.3% of our div holdings. I would like to bump that up to about 4% or so. I'm feeling like I'll wait for a better deal though.

    REIT's are about as far as I will venture into the world of real estate. Maybe I'm lazy, but I don't want to deal with the hassles of being a landlord. Sometimes just taking care of our house is a pain :-).

    ReplyDelete
    Replies
    1. Steve,

      Finally got your comment. My average cost after this new purchase is up to $41.65 so I'll definitely be adding if it gets under $40. Actually I'd be tempted to make another purchase on the way to $40 and then below.

      Real estate and REITs are two completely different beasts. REITs are definitely the lazy man's way to go and of course that's why the yields aren't as high. But it's much harder to get diversification through real estate whereas REITs offer it right off the bat. I'll probably still look for opportunities but I think I might lean more towards REITs instead of actual real estate.

      Thanks for stopping by!

      Delete