Wednesday, March 11, 2015

Recent Buys

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.

On Friday, March 6th I made two purchases, both in new positions.  I know I'm trying to build up cash, but I promise to slow down my purchases.  I just couldn't help myself after taking 3 months off.  Let's just call it an itchy trigger finger.  Of course there's much worse things that I could do with this capital than continue to build up my dividend stream.



The first purchase was in shares of Omega Healthcare Investors, Inc. (OHI).  I purchased 40 shares at $39.00 per share.  After commission my per share cost basis came to $39.20.  Based on the current quarterly dividend of $0.53 per share these shares will carry a YOC of 5.41% and provide $84.80 in annual dividends before any future increases or reinvestment.

Much like my recent purchase of Ventas, Inc. (VTR), I'm bullish on REITs especially those tied to the health care sector.  The health care industry as a whole should continue to be one of the faster growing segments of the economy as the population, in general, ages.  With more innovations in health care, people are living longer and fortunately/unfortunately that means more costs for health related issues.  So there's definitely a large tailwind pushing the health care sector along.  There might be some short term pain once interest rates start to rise, but I believe that this won't be an issue for any solidly run REIT in the long term.  Plus any short term weakness in share prices that aren't related to the fundamentals of the companies just gives investors better opportunities to buy on the dips.

Omega Healthcare Investors has a 13 year history of rewarding shareholders with increasing dividends.  Considering that spans the financial crisis that's a pretty big feat.  They actually have an 11 consecutive quarter streak going currently as well.  Management at OHI is withholding guidance for 2015 until the AVIV REIT deal closes, but based on 2014's numbers FFO came in at $2.71 per share and adjusted FFO came in at $2.53 per share.  Based on the current quarterly dividend of $0.53 the FFO payout ratio sits at 78.2% and the aFFO payout ratio is at 83.8%.  The P/E ratio is not a good measure of value for REITs but instead it's common to use the P/FFO or P/aFFO.  Based on 2014's numbers, I purchased shares at 14.5 P/FFO and 15.5 P/aFFO.  With the AVIV REIT deal set to close and be accretive to FFO, I expect to see continued high dividend growth from OHI.

At the end of 2014, OHI's 1 year dividend growth rate was 8.6%, 3 year dividend growth rate was 9.2%, 5 year dividend growth rate was 11.0, and the 10 year growth rate was 10.9%.  Using the Gordon Growth Model to calculate the value of OHI using the currently annualized dividend of $2.12, a 10% discount rate and 5% constant growth rate, shares are valued at $44.52.  My cost basis is at an 11.9% discount to the this price.  At my purchase price of $39.20 per share, a 10% discount rate, and the current annualized dividend of $2.12, OHI would need to grow distributions at a 4.36% rate to be fairly valued.

The second purchase was telegraphed if you read my most recent stock analysis on Seeking Alpha.  I purchased 20 shares of T. Rowe Price, Inc. (TROW) at $82.5499 per share.  After commission my per share cost basis came to $82.95.  Based on the current quarterly dividend of $0.52 these shares will carry a YOC of 2.51% and provide $41.60 in annual dividends before any future increases or reinvestment.

I'm pretty bullish on TROW and asset managers in general.  They're kind of a quasi-toll road company.  While I personally believe that most investors can do well investing in index funds or on their own if they want to put in the time.  The key is they need to put in the time which most people aren't willing to do.  That's just fine by me now that I'm an owner of a great company with a 29 year streak of rewarding investors with growing dividends.  Also people, in general, will pick a financial advisor or asset management company and stick with them.  It's just too much hassle to change.  If you're bullish on the US and global stock markets and economic output to increase over the long-term then asset managers could be a great investment opportunity.  I won't go into too much detail on the value I see in T. Rowe since I just recently did a full write up on the company.  You can check out the full stock analysis here.

The great thing about the timing of my purchase of TROW is that it's in time for the next quarterly dividend, which was recently increased by 18%, and also the $2 special dividend that will be paid in April.  The special dividend is essentially a quick 2.4% rebate on my purchase price and will bring my effective yield for the first year up to 4.92%.

My forward 12-month dividends are now at $5,405.74 for my FI Portfolio.  Total taxable accounts', Loyal3 and FI Portfolio, forward dividends are at $5,460.92.

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

19 comments:

  1. Thanks for the update. I am bullish too on the healthcare sector in general. With the babyboomer population aging, healthcare REITs are likely a great way to go. I only own VTR now, and, unfortunately, didn't take the opportunity to add more to it this year. (I purchased CVX, EMR, and recently TROW with all the allowed Roth contributions.) I'll definitely have to consider adding more to it in the future.

    Also, thank you for your recent TROW write-up. I had been eyeing a number of asset management companies (BEN, BLK) and your analysis, among one or two others, helped a lot.

    ReplyDelete
    Replies
    1. Scott,

      Health care has a great tailwind and I want to get more exposure to both the REIT side because of the higher yields and the product/service side like JNJ, MDT, BDX, BAX... I own 3 of those, only missing out on BDX. I hope to fix that in the future but I can't justify paying current prices for it.

      I'm glad you liked the TROW analysis. It's good to get back to researching companies and sharing my thoughts/ideas. I'm bullish on the asset managers long term as well.

      Thanks for stopping by!

      Delete
  2. Great buys, JC. If I remember correctly, youve been looking at OHI for a while now and good to finally have you as a fellow shareholder. I am thinking of adding a second one to my portfolio and debating between HCP and VTR. I like VTR more than HCP, but HCP is slightly better priced...I guess I have the classic 'buy decent company at good price vs. good company at decent price'.

    I havent looked much into TROW but seems to be a popular one with the rest of teh community.Thanks for sharing your purchases.

    Best wishes
    R2R

    ReplyDelete
    Replies
    1. R2R,

      Yeah I was looking at OHI for a long time before I finally added the shares to my portfolio. It's been a long time coming. I think VTR is doing very well and there's more room for growth compared to HCP.

      Thanks for stopping by!

      Delete
  3. We own OHI and looking to buy more once we have some US cash. HCP is another one that we're looking at.

    Great buys. :)

    ReplyDelete
    Replies
    1. Tawcan,

      I now have OHI, HCP, and VTR in my portfolio so I like my healthcare real estate exposure and won't be looking to add any more companies to the mix. I wouldn't mind bumping up my RE exposure though I'll probably try and wait until we get that rate increase sometime this year. WPC looks good and O is always a solid bet.

      Thanks for stopping by!

      Delete
  4. Great buys, JC. I'm a huge fan of both businesses and would love to own both. I also like that you're nibbling on the REIT's lately just in case they don't drop more. The yields are awesome. I want a little more exposure in that sector and hopefully I'll have some more cash soon. Best wishes to you and the family!

    ReplyDelete
    Replies
    1. Ryan,

      For long term effects on the REITs I don't think rate increases will be an issue as long as it's not crazy to fight hyperinflation. If we get the slow steady increases then share prices of REITs may or may not react. Historically it's inconclusive. But the important thing to remember is that the share price action doesn't necessarily correlate to the results of the companies themselves which is why I've been starting positions in REITs and if they drop big then I'll just add more.

      Thanks for stopping by!

      Delete
  5. Nice buys there JC. TROW is getting lots of love in the dividend blogging work and rightly so. Recent dividend raise and a great company to own

    ReplyDelete
    Replies
    1. Gareth,

      I just wish I had bought TROW earlier. I'm really bullish on the asset managers long term.

      Thanks for stopping by!

      Delete
  6. My eyes are keen on REITs as well, particularly OHI right now, I like the div growth and the recent price drop made valuation attractive in my eyes. I bought HCP recently and OHI would compliment it I believe. Thanks for sharing your recent buy JC!

    ReplyDelete
    Replies
    1. F2FF,

      OHI looks great and I love their streak of quarterly increases. HCP is solid as well but I expect OHI and VTR will probably perform better but HCP will be more stable.

      Thanks for stopping by!

      Delete
  7. Good buys JC. Both stocks are solid with nice perspective. As a new starter, I haven't looked into these two sectors in details, but both stocks are on my watch list.

    ReplyDelete
    Replies
    1. Money Unbinding,

      Congrats on getting started with DGI. I think you'll love it if you don't already. If you have any questions poke around my blog or any of the other great DG blogs. If you can't find the answer then shoot me an email/comment and I'll see what I can find.

      Thanks for stopping by!

      Delete
  8. JC,

    Nice grab there on TROW. And glad to have you as a fellow shareholder! :)

    I may need to up my exposure to the healthcare REITs at some point. OHI has been a great performer thus far. Wouldn't mind owning a little more.

    Cheers!

    ReplyDelete
    Replies
    1. DM,

      For a higher growth component I really like VTR but HCP has the track record. There's always so many great companies and never enough capital.

      Thanks for stopping by!

      Delete
  9. Hi JC! Was looking into potentially getting some OHI for my RothIRA and ended up in your blog. I am confused though regarding OHI dividend : quarterly div seems to be 0.36 according to https://www.google.com/finance?cid=656445 . Did OHI cut a bit their dividend?

    ReplyDelete
    Replies
    1. FabSavings,

      OHI paid a partial dividend due to the Aviv REIT acquisition. The total payout will be the same but they wanted to pay the OHI shareholders from before the merger their portion of the dividend and then will pay the remainder of the dividend to all shareholders of OHI after the acquisition closes.

      Thanks for stopping by!

      Delete