Today I bought shares of HCP, Inc. (HCP), a real estate investment trust (REIT) that has a diversified portfolio of healthcare properties. I wrote about HCP in a recent article at Seeking Alpha shortly before starting a position in the stock last week. The sell-off among REITs continued in a strong way this week, giving me a nice opportunity to average down on my nascent position.
I bought 40 shares of HCP at the price of $39.25 per share plus commission, giving me a 5.33% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $21.00 from this purchase, which will add a total of $84.00 to my annual dividend income. My forward 12-month dividend total increases to $2,671. As I mentioned above, this purchase allowed me to average down, lowering my cost basis by 3.3% and raising my overall yield on cost to 5.17%. I now hold a total of 75 shares of HCP in my Roth IRA, which will provide me with quarterly dividends of $39.38.
I am satisfied with the size of my HCP position (portfolio weight of 3.3%), so I will not be looking to buy more shares anytime soon. However, I am closely watching other REITs and would like to diversify by adding a non-healthcare REIT to my portfolio. The most likely candidate is Realty Income (O), which has finally fallen back down into fair value territory. I lack sufficient cash for additional purchases this month, though, so I will have to wait and see where things stand in September.
I don't mind sitting on the sidelines for a bit because the workload at my new job is ratcheting up. The semester does not start until next week, but I already find myself very busy with a variety of things to do. Once the semester actually starts, things will probably get worse and my time will be even more constrained. As a result, I will likely be silent on the blogging front until my next monthly review.
Nice to see you start a REIT position. Best of luck with HCP!ReplyDelete
CI: Thank you! It's nice to finally have a bit of real estate exposure in my portfolio.Delete
Nice buy. IMHO, the current selloff in REITs is absurd. I get the impression that the market thinks interest rates will skyrocket overnight, which is highly improbable given the current state of the economy.ReplyDelete
After looking at your REITs analysis, I also initiated a position in HCP. Looks like I might be averaging down as well. Good luck to us!
ADY: Good comment. In addition, many REITs did just fine in higher-rate environments in the past, so it seems very unlikely that higher rates in the near future will be severely detrimental for them. If REITs continue to fall in price because of rising rates, then I think it represents a decent opportunity for investors to open long-term positions. Congrats in joining me as an HCP shareholder!Delete
I just stumbled upon your blog looking up some information on HCP. You have done a great job with it and I love the various charts you have created!ReplyDelete
I too own some HCP shares (100 purchased @43 a couple of months ago). After coming down from a high of 57, I thought this stock would be less volatile. I like the dividend and may buy some more shares next week. I also own MO, T, CAIBX, INTC, MSFT, AND DVY.
It seems like all of the stocks have been performing poorly recently. I just keep reminding myself that the income produced over time will trump the short term fluctuations. This year I should reach $3500 in dividends.
I plan on adding COP, KO, AND CLX during the next few months.
Have you ever thought about the "dogs of the dow" investment strategy? Basically you purchase the highest yielding 5 or 10 DJIA stocks in Jan and sell at the end of the year. Typically you outperform the DJIA and own some nice paying dividend stocks at the same time.
Anonymous: Thanks for your comment -- it's nice to hear from another HCP shareholder. I agree that a focus on dividend income trumps short-term price fluctuations. As long as a company is operating well and continuing to increase its dividend, then price movements tend to become secondary considerations.Delete
I am familiar with the "Dogs of the Dow" strategy, but I do not try to implement it with my portfolio. However, if a Dow component with reliable dividend growth is trading at an attractive valuation, then I would consider adding it to my portfolio. That's how I came to own several Dow components.
Hi DGM, Always a pleasure to go back and read the initial analysis when starting a position, lately specific to HCP the stock seem to be going down, again as a long term investor not worried or concerned about price swings. However wanted to see if you had any thoughts on what should one be watching in HCP if the prices keeps going down, especially in Cap IQ reports from fidelity appears the payout ratio is over 110% wonder how that is calculated versus the value line. Thx much as alwaysReplyDelete
Anonymous: Thanks for your comment. I am not concerned about HCP. Yesterday's drop appears to be due to an analyst downgrade from Buy to Hold, but I don't give any weight to such actions. The company's latest quarterly results were good, as is the outlook for 2014. Regarding the payout ratio, S&P Capital IQ is likely using earnings as the basis for it, which is inappropriate. It is better to use either FFO (funds from operations) or FAD (funds available for distribution) when calculating a payout ratio for REITs. The payout ratio based on FFO is near 70% for HCP, which is good.Delete
If the stock price continues to drop, then I might add to my position, but I've been wanting to diversify my REIT exposure with other names in the sector.
Thanks DGM for your response. As always clear answer to the point. Much appreciated, yeah i agree same with KMI when one hedge fund analyst tweeted about the report, was a good day to buy. Thinking would it be beneficial to have few additional cols in the portfolio and update it quarterly or semi annually to see if the fundamentals still are as expected such as Payout ratio, P/E, Div growth and safety ratings from Value line (and btw thanks for pointing out was able to get those reports from our library). In other words a detailed analysis on the holdings, may be once a year to see every part of the DGM is working as expected especially as the holdings get bigger. Well can't thank you enough for keeping this blog ad free and taking time to update with your new job. Thanks.Delete
Div Investor: You're welcome -- I do what I can to make the blog an informative resource. I like your idea of having additional columns in a portfolio spreadsheet for tracking changes in fundamentals. I do it for dividend growth, but adding other metrics would be useful.Delete