For my second purchase today I bought shares of Realty Income (O), a large and diversified retail REIT. I provided some information about O in a post last week when I started my position. The continued decline in the stock price motivated me to average down by doubling my position.
I bought 55 shares of O at the price of $38.44 per share plus commission, giving me a 5.66% yield on cost and reducing my cost basis by over 1% to below $39 per share. At the current dividend rate, I can expect to receive monthly dividends of $10.00 from this purchase, which will add a total of $120.00 to my annual dividend income. This purchase was made in my Roth IRA using rollover money. I now have a total of 110 shares of O and I will receive combined monthly dividends of $20.00. My forward 12-month dividend total increases to $3,486.
What can I say? I continue to think there are good buying opportunities in the REIT sector, so I figured I might as well take advantage of them. That said, HCP and O are now relatively large, equal-weight positions in my portfolio (3.4% and 3.3% weights, respectively), motivating me to look more closely at other REITs from this point forward. However, I'll likely cap my REIT exposure at a combined weight of no more than 10% of my portfolio. I'm investing rollover money more quickly than I anticipated, but I'm happy to do so if I can find stocks trading at attractive valuations.
O is certainly looking a lot cheaper lately. Nice job averaging down. You've been on a bit of a buying frenzy this month it seems.ReplyDelete
Captain: Thanks! I think this has been my most active month since I started investing. It's nice to put a lot of money to work!Delete
I did the same thing and I will be buying more if the stock continues lower. I think O is a really good and safe investment. Pays the dividend monthly and the rate is great (reaching 6%), so why not reap cheap money when others are foolishly dumping it.ReplyDelete
Martin: I feel the same way. As far as I'm concerned, O becomes even more attractive as its price goes down.Delete
Nice buy! Whereas the rest of the market is sitting at 52 week highs, O is at the bottom. Enjoy that close to 6% dividend!ReplyDelete
FIF: Thank you! I agree, O and other REITs are good investment opportunities relative to the rest of the market right now.Delete
Why do you have bought "O" again - and not a NOT-REIT-company?ReplyDelete
Do you not be afraid when the Fed raised interest rates, that then gets O (or your HCP position) problems?
D-S: I don't know when the Fed will raise interest rates or exactly what the effects will be on REITs. Is there a possibility of further declines in the stock prices of REITs? Yes, but I don't know when or by how much. Will there be declines in the operating results of REITs? That's unclear. Higher interest rates will increase borrowing costs when REITs issue debt to fund acquisitions, but M&A activity is not going to grind to a halt. I think the large and established REITs with relatively high, investment-grade credit ratings and stable balance sheets -- such as HCP and O -- will do okay in a higher interest-rate environment. Bear in mind that they did okay pre-2008 when 10-year treasury yields were consistently above 4%; in fact, the dividend growth streaks for HCP and O extend back into the 1990s, when interest rates were much higher.Delete
Thus, I am aware of the risks posed by higher interest rates, but I try not to let that scare me away from otherwise attractive investments. If the stock prices of HCP and O languish or go down over the next year or two, then that's no big deal to me. As long as the companies continue to operate reasonably well, their stock prices will eventually recover. In the meantime, I will collect over 5% of my investment in dividends every year, an amount that is likely to increase modestly over time.
I was long O about a year or so ago. When they got at $40. I had a great run up and never expected them to hit $55.ReplyDelete
I'm waiting for a 6% yield before getting back. Thats not far off.
PMU: Thanks for your comment. A 6% yield for O would be very attractive and I would be buying more at that point.Delete
Nice job here. I think REITs make a lot of sense in this market considering their valuations. O is one of the bluest of the blue-chips in this realm, and plus you're getting almost 6% yield. Even with little growth that's pretty attractive.
DM: Thanks, and I agree. Even though REITs are out of favor at the moment, I think they represent reasonable income-generating investment opportunities, especially for investors with long time horizons.Delete
I added to my position in O yesterday and the next round of purchases would probably be set for the $34 area as it's now around 1.8% of my portfolio and I should be adding some more shares in December with a put option that should be executed which will take it up to around another 4% or so.ReplyDelete
PIP: That sounds like a reasonable plan. Given that I'm capping my REIT exposure at 10%, and HCP and O have weights of 3.4% and 3.3%, I am open to either increasing both of those positions by 50% (bringing them up to 5% weights) or establishing a similarly weighted position in a different REIT. However, I might take a breather from REIT purchases for a little while.Delete
To me it seems like a good grab, I'm watching the price continue to tick down and itching to buy. That said, I see O has recently been downgraded by both Thompson Reuters and Market Edge, which is likely part of the reason for the sell off. Curious to hear your thoughts regarding the cause of the selloff.ReplyDelete
Michael: Thanks for your comment. I don't think the sell-off is related to anything in particular about O. It seems to reflect an overall trend in the REIT sector. As for the downgrades, I generally ignore them unless the firms provide compelling reasons for their decisions.Delete