Weekly Roundup - July 9, 2016 Still No Baby Edition

Weekly Roundup filled with some of the best articles on dividend growth investing, stock analyses, personal finance and financial independence from the past week.
Happy Weekend!  Check out what's been going on in my world and some of the best articles from around the blogosphere.
Another week down and another week still without a baby.  If we had our choice we were hoping to meet our baby on 7/4, 7/5 (my half birthday) or 7/7 (surely a lucky day), but alas that wasn't in the cards which has been a big bummer for my wife because she's more than ready to get this baby out especially with the really hot temperatures we've been having around here.  The plan now is to induce on Monday, which is another great date and the original due date 7/11, if the baby doesn't decide to come earlier.
I don't make a whole lot of sales within my portfolio, preferring to buy and hold for the long term.  However, some of these moves in the markets are definitely making me at least consider trimming or closing positions.  To me the sell decision is so much harder than the purchase because now you start introducing future market action as well as the relative values between the replacement options or moving into cash.

Many companies are, at best, trading on the high end of their fair value range if not outright overvalued.  So the question becomes how much is too much to where you want to call it quits and move somewhere else.

Look at Realty Income (O) for example.  Management is forecasting for full year AFFO , the quasi-equivalent to earnings per share for a corporation, of $2.85 to $2.90.  That puts the P/AFFO around 24 for a company that typically plods forward slowly but surely.  Due to the overvaluation the yield on the shares has been pushed down to 3.42%.  Take a look at the current valuation of Realty Income compared to the 5 year average according to Morningstar.

Realty Income Valuation From Morningstar
Realty Income Valuation From Morningstar
On every single metric Realty Income is well overvalued.  The problem is that the market has been a bit overzealous in bidding up the share price ahead of where the company has moved.  From these levels there's only a few rational things to see happen, although the market can stay irrational longer than anyone expects.

  1. The share price experiences a sharp decline the bring the market valuation more in line with the company valuation.  If I hold through that then it seems like a waste of potential capital to not lock in some gains.
  2. The share price just kind of languishes here at these levels until the business value grows into the current valuation.  If I hold through that then returns would just come from dividends until the business catches up to the valuation which would lead to minimal returns.
I'm not 100% sure on what I'll do although I'm very much considering at least trimming my position some.  If you don't mind I'm curious to hear y'alls thoughts on when you would sell a high quality company due to overvaluation so please answer the question below.

Also, I'm still looking for sector/industry market returns since say the mid 90's until now or at least the mid 2000's.  If anyone knows where I can find that I'd truly appreciate it.

The Devil's Financial Dictionary by Jason Zweig (affiliate link) is a nice little time killer that gives brutally honest and often humorous definitions of different finance and investing terminology.

Today's word/definition is:
"Short-Term, adj. - On Wall Street, thirty seconds or less-as opposed to long-term, which is thirty seconds or more."
On to the Roundup

In case you missed them, here's the posts from Passive-Income-Pursuit over the past week.
Also, be sure to sign up to receive posts via email and to follow me on Twitter@JC_PIP so you don't miss anything.  I also started a Facebook page to give people another option for keeping up to date on posts and happenings with the blog.

Once again I'd like to say thanks to each and every one of you that read, commented, and shared posts from here this past week.  I think this dividend growth investing and financial independence community is amazing and the openness from everyone is awesome.  Thanks again!

Now on to the links!

Should You Celebrate When Your Dividend Paying Company Is About To Be Acquired? by Dividend Growth Investor

Life Reflection by Tawcan

Too Rich For My Blood by Income Surfer

How To Use Finviz To Find Bargain Dividend Stocks For Free by Sure Dividend

Passive Income Update - June 2016 by Roadmap2Retire

Yield on Cost - How to Calculate It and How to Apply It by Simply Safe Dividends

Dividend Income Update June 2016 by DivHut

Investing With The Masters: Ron Baron by Financially Integrated

Independence Day And Our Financial Independence Message by Our Next Life

10 Stocks I Bought Last Quarter by Retire Before Dad

Benjamin Graham On Financial Advisors by A Wealth of Common Sense

2016 Goals At Mid Year by Dividends In Hand

A Dozen Things I've Learned From Mike Maples, Sr. About Business And Investing by 25iq

Selling Three Winners by DivGro

Also, if you're looking for investment ideas, A Frugal Family's Journey keeps a list of stock analyses and recent buys from fellow bloggers.

I hope you all have a great weekend!

Image courtesy of Gubgib on FreeDigitalPhotos.net.


  1. Thanks for sharing our post....also on taking profits in overvalued companies. I hope your little comes soon, and your wife gets a break from being pregnant in the oppressive heat!

    Have a great weekend buddy

    1. Bryan,

      I haven't taken the profits yet but I'm very seriously considering it. There's some companies that just make no sense at these levels especially given their future track.

      Thanks for stopping by!

  2. Thanks for sharing your thoughts JC. I am in your boat -- should I take some profits from companies like O which are clearly overvalued? I am sitting on 100% gain and tempted to trim...

    Wishing you and the wife the best. Sounds like you are on the home stretch now.


    1. R2R,

      The sell decision is so much harder to make than the buy decision. Especially when it's due to an overzealous market rather than faltering business fundamentals. There's definitely a few positions that could be trimmed or sold out right but I haven't quite made a decision yet.

      Thanks for stopping by!

  3. It is a tough call with O. On one hand it keeps delivering. On the other, there is little margin of safety at current prices. Of course, if I sell, what am I going to buy with the money? I have reduced exposure, and O is one of those companies.

    1. DGI,

      That's what makes it so difficult. The company is performing admirably but the stock market is just overzealous right now which makes it such a hard decision. I don't want to get rid of O from my portfolio, but since I'm still many years away from FI or living off of my dividends I also know that I need to be a bit more of a total return investor to capture extra capital. It's definitely a tough decision and one that I keep going back and forth on.

      Thanks for stopping by!

  4. Thank you for sharing all these reads and for the DivHut mention too. I have been reading a lot about O and many seem to be taking profits from a name that seems to only go in one direction. I know you are not alone in a sell consideration.

    1. DivHut,

      The company is excellent and I don't want to get rid of them from my portfolio, but being several years away from living off my dividends I also know that I need to capture extra capital whenever I can. Sure it might reduce dividends in the short term, but over the long term you'll see the effects compound. The yield is down below 3.5% which is pretty crazy. I wouldn't be surprised to see them try and make a big acquisition here funded by their overvalued shares assuming they can find something that gives them good cap rates.

      Thanks for stopping by!


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