There is not much information available about ARCP because it is a relatively new company and has changed substantially in a short time period. Only five analysts cover the company (versus an average of 21 analysts for its peers) and it is not a member of the S&P 500 (yet). It has not been around long enough to establish much of a dividend track record that would attract income investors. For those reasons, its stock seems undervalued at the current price. It has a P/FFO of just 11.4 (using the low point of the company's FFO guidance for 2014), which is less than peer ratios. It has a dividend yield above 7%, which is greater than peer yields. Beyond peer comparisons, I admit that it is difficult to come up with a fair value estimate for ARCP and get a firm handle on its risk profile. However, based on everything I have read, the stock appears to be undervalued at the moment and represents a compelling risk/reward opportunity.
Interested readers can find additional information about ARCP in two recent articles on Seeking Alpha and in an investor presentation about the Cole merger from last month:
- American Realty Capital Properties: A 'Monthly Dividend Alternative' To Realty Income by Achilles Research, published December 4, 2013
- American Realty Capital Properties 7% Dividend Is Nothing But Net by Brad Thomas, published November 22, 2013
- Revised ARCP/Merger Presentation, November 12, 2013 (PDF file)
I bought 170 shares of ARCP at the price of $12.92 per share plus commission, giving me a 7.25% yield on cost. At the current dividend rate, I can expect to receive monthly dividends of $13.32 from this purchase, which will add a total of $159.80 to my annual dividend income. This purchase was made in my Roth IRA using rollover money. ARCP becomes the 35th stock in my portfolio and the 4th REIT, giving me further diversification in the real estate sector. My forward 12-month dividend total increases to $3,852.
At this point I have a nice set of four REITs in my Roth IRA that make up 9.7% of my overall portfolio by market value. I mentioned in a previous post that I would cap my REIT exposure at 10%, so I will be looking at non-REIT opportunities for my next few purchases. I hope to make one or two more purchases before the end of the year, but it will depend on what Mr. Market decides to do with the stocks on my watch list.