Thursday, December 19, 2013
Dividend Increase: O
Realty Income (O) is increasing its monthly dividend by 0.2%, from $0.1818542 to $0.1821667 per share, which represents the company's 74th dividend increase since 1994 (news release [PDF]). Effective with January's payment, this counts as a dividend increase for 2014. Given that I own 110 shares of O, my monthly dividend increases from $20.00 to $20.04 and my yield on cost becomes 5.61%. The extra $0.48 in annual dividend income keeps my forward 12-month dividend total at $3,912.
Tuesday, December 17, 2013
Holiday Notice
I just wanted to let readers know that I will be away over the next two weeks to visit family and friends for the holidays. I will still have internet access, but I will not be spending much time on investing activities, so I might be silent on the blogging front for a while. However, if I happen to buy something before the end of the month, then I will write a quick post about it. I wish everyone all the best as 2013 comes to a close and I look forward to sharing my investing progress with you in 2014. Happy holidays!
Friday, December 13, 2013
Dividend Increase: T
AT&T (T) is increasing its quarterly dividend by 2.2%, from $0.45 to $0.46 per share, putting the company on track for its 30th consecutive year of dividend growth (news release). Given that I own 55 shares of T, my quarterly dividend increases from $24.75 to $25.30 and my yield on cost becomes 6.70%. The extra $2.20 in annual dividend income raises my forward 12-month dividend total to $3,912.
Thursday, December 12, 2013
Stock Bought: MCD
Today I bought shares of McDonald's (MCD), one of the largest restaurant chains in the world. My most recent previous purchase of MCD occurred over a year and a half ago (May 8, 2012), so I was pleased to get an opportunity to increase my position.
McDonald's has experienced sluggish sales growth in 2013, which has weighed on its stock price and was reflected in the most recent dividend increase being only 5.2% (announced on September 18). However, the company has taken steps to address this short-term weakness. It introduced new menu items (e.g., Mighty Wings) over the past year, revamped its dollar menu (now called the "Dollar Menu & More"), and is working on improving efficiency. Store modernization continues to occur; in fact, a McDonald's near my workplace recently finished extensive interior and exterior renovations. It looks great inside and I noticed new technology at the counter, such as electronic displays for the menu (instead of printed placards) and for orders (the order number appears on a screen when it is ready for pick-up). Outside of the U.S., the company continues its expansion in China, announcing a significant hiring initiative earlier this year. For these reasons, I continue to be optimistic about the company's growth prospects.
I think MCD is slightly undervalued to fairly valued at the current price. It has a P/E of 17.1 (vs. a 5-year historical average of 16.8), P/S of 3.4 (vs. 3.3), P/B of 6.2 (vs. 5.7), and dividend yield of 3.4% (vs. 2.9%). Using a Dividend Discount Model with a dividend growth rate of 7% (lower than the 5-year historical rate and Value Line's estimate of 9%) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $101.48. Morningstar gives a fair value of $105.00 and a 4-star rating. The average of those two estimates is $103.24, which implies an 8% margin of safety at my purchase price.
I bought 15 shares of MCD at the price of $94.84 per share plus commission, giving me a 3.40% yield on cost. (I had set a limit order a few days ago that was executed this morning before a much greater intraday decline occurred.) At the current dividend rate, I can expect to receive quarterly dividends of $12.15 from this purchase, which will add a total of $48.60 to my annual dividend income. This purchase was made in my Roth IRA using rollover money. I now have a total of 65 shares of MCD and I will receive combined quarterly dividends of $52.65. My forward 12-month dividend total increases to $3,910.
To celebrate this purchase, today I bought a Big Mac meal on my way home from work. :)
I would consider making another similar-sized purchase of MCD if the stock price declines further. It is one of the few consumer-related stocks that is trading at a decent valuation right now. I noticed that the REITs continue to sell off -- it sure is tempting to buy more of them! However, a few of the non-REIT stocks on my watch list are near my target prices, and I might buy another one before the month ends.
McDonald's has experienced sluggish sales growth in 2013, which has weighed on its stock price and was reflected in the most recent dividend increase being only 5.2% (announced on September 18). However, the company has taken steps to address this short-term weakness. It introduced new menu items (e.g., Mighty Wings) over the past year, revamped its dollar menu (now called the "Dollar Menu & More"), and is working on improving efficiency. Store modernization continues to occur; in fact, a McDonald's near my workplace recently finished extensive interior and exterior renovations. It looks great inside and I noticed new technology at the counter, such as electronic displays for the menu (instead of printed placards) and for orders (the order number appears on a screen when it is ready for pick-up). Outside of the U.S., the company continues its expansion in China, announcing a significant hiring initiative earlier this year. For these reasons, I continue to be optimistic about the company's growth prospects.
I think MCD is slightly undervalued to fairly valued at the current price. It has a P/E of 17.1 (vs. a 5-year historical average of 16.8), P/S of 3.4 (vs. 3.3), P/B of 6.2 (vs. 5.7), and dividend yield of 3.4% (vs. 2.9%). Using a Dividend Discount Model with a dividend growth rate of 7% (lower than the 5-year historical rate and Value Line's estimate of 9%) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $101.48. Morningstar gives a fair value of $105.00 and a 4-star rating. The average of those two estimates is $103.24, which implies an 8% margin of safety at my purchase price.
I bought 15 shares of MCD at the price of $94.84 per share plus commission, giving me a 3.40% yield on cost. (I had set a limit order a few days ago that was executed this morning before a much greater intraday decline occurred.) At the current dividend rate, I can expect to receive quarterly dividends of $12.15 from this purchase, which will add a total of $48.60 to my annual dividend income. This purchase was made in my Roth IRA using rollover money. I now have a total of 65 shares of MCD and I will receive combined quarterly dividends of $52.65. My forward 12-month dividend total increases to $3,910.
To celebrate this purchase, today I bought a Big Mac meal on my way home from work. :)
I would consider making another similar-sized purchase of MCD if the stock price declines further. It is one of the few consumer-related stocks that is trading at a decent valuation right now. I noticed that the REITs continue to sell off -- it sure is tempting to buy more of them! However, a few of the non-REIT stocks on my watch list are near my target prices, and I might buy another one before the month ends.
Monday, December 9, 2013
Dividend Increase: VTR
Ventas (VTR) is increasing its quarterly dividend by 8.2%, from $0.67 to $0.725 per share (news release). The dividend increase is effective with the December payment and represents the second increase in 2013 (there was an 8.1% increase back in February). Given that I own 40 shares of VTR, my quarterly dividend increases from $26.80 to $29.00 and my yield on cost becomes 5.17%. The extra $8.80 in annual dividend income raises my forward 12-month dividend total to $3,861.
Sunday, December 8, 2013
Stock Bought: ARCP
I mentioned previously that I made two purchases last Thursday, the first being KMI. For my second purchase I bought shares of American Realty Capital Properties (ARCP), an equity REIT that has undergone tremendous growth over the past year. It will become the world's largest net lease REIT once its pending merger with Cole Real Estate Investments is completed in the first half of 2014. The company will own over 3,700 properties that are geographically diverse and leased to major tenants such as Walgreens, AT&T, CVS, Dollar General, and FedEx. The occupancy rate is 99% and investment grade credit ratings are held by 47% of tenants (by rent).
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:
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.
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.
Friday, December 6, 2013
Stock Bought: KMI
Yesterday I made two purchases; I will report one now and the other this weekend, when I have more time. For my first purchase I bought shares of Kinder Morgan, Inc. (KMI), the fourth-largest energy company in North America and operator of an extensive network of pipelines for transporting natural gas, crude oil, and petroleum products. This was my fifth purchase of KMI in 2013.
The stock price declined sharply this week after management released its financial expectations for 2014 (news release). Management expects high, mid, and low single-digit percent dividend/distribution growth for KMI, KMP, and EPB, respectively, in 2014. There seem to be two reasons for the sell-off among those stocks. First, the dividend/distribution growth projections were apparently lower than expected by some analysts. Second, the relatively flat revenue and distribution projections for EPB were disappointing to some investors. I think the sell-off was an over-reaction and the Kinder Morgan family of companies remains well-positioned for the future. I deemed KMI to be undervalued before the sell-off, so this decline made it even more undervalued (in my opinion).
I bought 50 shares of KMI at the price of $32.835 per share plus commission, giving me a 4.97% yield on cost for this purchase and reducing the cost basis of KMI in my taxable account (which is where I bought these shares) by 4.3%. I combined $1,475 of new capital with existing cash in the account to make the purchase. At the current dividend rate, I can expect to receive quarterly dividends of $20.50 from this purchase, which will add a total of $82.00 to my annual dividend income. I now have a total of 275 shares of KMI (130 in my taxable account and 145 in my Roth IRA) and I will receive combined quarterly dividends of $112.75. My forward 12-month dividend total increases to $3,693. Kinder Morgan is now the largest position in my portfolio (7.0% weight), with NSC dropping to second place. Given its size in my portfolio, I will likely refrain from buying additional shares of KMI for a while.
The stock price declined sharply this week after management released its financial expectations for 2014 (news release). Management expects high, mid, and low single-digit percent dividend/distribution growth for KMI, KMP, and EPB, respectively, in 2014. There seem to be two reasons for the sell-off among those stocks. First, the dividend/distribution growth projections were apparently lower than expected by some analysts. Second, the relatively flat revenue and distribution projections for EPB were disappointing to some investors. I think the sell-off was an over-reaction and the Kinder Morgan family of companies remains well-positioned for the future. I deemed KMI to be undervalued before the sell-off, so this decline made it even more undervalued (in my opinion).
I bought 50 shares of KMI at the price of $32.835 per share plus commission, giving me a 4.97% yield on cost for this purchase and reducing the cost basis of KMI in my taxable account (which is where I bought these shares) by 4.3%. I combined $1,475 of new capital with existing cash in the account to make the purchase. At the current dividend rate, I can expect to receive quarterly dividends of $20.50 from this purchase, which will add a total of $82.00 to my annual dividend income. I now have a total of 275 shares of KMI (130 in my taxable account and 145 in my Roth IRA) and I will receive combined quarterly dividends of $112.75. My forward 12-month dividend total increases to $3,693. Kinder Morgan is now the largest position in my portfolio (7.0% weight), with NSC dropping to second place. Given its size in my portfolio, I will likely refrain from buying additional shares of KMI for a while.
Tuesday, December 3, 2013
Stock Bought: VTR
Today I bought shares of Ventas (VTR), a diversified healthcare REIT. The company owns over 1,400 properties and its net operating income (NOI) comes from seniors housing (27%), seniors housing operating assets (27%), skilled nursing facilities (20%), medical office buildings (17%), hospitals (7%), and loan assets (3%). Over half of its NOI comes from triple-net leases and 84% of revenue comes from private pay sources. Ventas is well-positioned to capitalize on the higher healthcare needs of the increasing population of seniors in the United States over the next few decades.
Ventas has a pretty good dividend track record. The 5- and 10-year dividend growth rates are 5.5% and 9.6%, respectively, and the most recent dividend increase was 8.1%, announced in February 2013. The company does not appear on the Dividend Champions, Contenders, and Challengers list because it froze its dividend in 2009, breaking a string of dividend increases that dated back to 2001. However, with a current streak of four consecutive years of dividend growth, Ventas will rejoin the Dividend Challengers with an increase in 2014. The company is in a good position for future dividend growth, with high single-digit percent growth in funds from operations (FFO) and a payout ratio (based on FFO) of just 65%, which is relatively low among REITs.
The company has a stable balance sheet, with a debt/capitalization ratio of 49% and adequate interest coverage. It has investment grade credit ratings from all the major agencies, allowing it to issue debt at low interest rates to fund new acquisitions. Value Line gives the company financial strength and safety ratings of B+ and 3, respectively.
I think VTR is undervalued at the current price. It has a P/FFO of 13.5 (using the estimated FFO for 2013), a P/S of 6.0 (vs. a 5-year historical average of 7.0), P/B of 1.8 (vs. 2.5), and dividend yield of 4.8% (vs. 4.4%). Using a Dividend Discount Model with a dividend growth rate of 5.5% (matching the 5-year historical rate) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $58.97. Morningstar gives a more generous fair value of $70.00 and a 4-star rating. The average of those two estimates is $64.49, which implies a 13% margin of safety at my purchase price.
Interested readers can find additional information about Ventas in two recent articles on Seeking Alpha and in an investor presentation from last month:
I bought 40 shares of VTR at the price of $55.90 per share plus commission, giving me a 4.78% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $26.80 from this purchase, which will add a total of $107.20 to my annual dividend income. The next dividend should be declared any day now and paid in late December, so I will not have to wait long for my first payment. This purchase was made in my Roth IRA using rollover money. Ventas becomes the 34th stock in my portfolio and the third REIT; I think it nicely complements my HCP position in the specialty area of healthcare REITs. My forward 12-month dividend total increases to $3,611.
Ventas has a pretty good dividend track record. The 5- and 10-year dividend growth rates are 5.5% and 9.6%, respectively, and the most recent dividend increase was 8.1%, announced in February 2013. The company does not appear on the Dividend Champions, Contenders, and Challengers list because it froze its dividend in 2009, breaking a string of dividend increases that dated back to 2001. However, with a current streak of four consecutive years of dividend growth, Ventas will rejoin the Dividend Challengers with an increase in 2014. The company is in a good position for future dividend growth, with high single-digit percent growth in funds from operations (FFO) and a payout ratio (based on FFO) of just 65%, which is relatively low among REITs.
The company has a stable balance sheet, with a debt/capitalization ratio of 49% and adequate interest coverage. It has investment grade credit ratings from all the major agencies, allowing it to issue debt at low interest rates to fund new acquisitions. Value Line gives the company financial strength and safety ratings of B+ and 3, respectively.
I think VTR is undervalued at the current price. It has a P/FFO of 13.5 (using the estimated FFO for 2013), a P/S of 6.0 (vs. a 5-year historical average of 7.0), P/B of 1.8 (vs. 2.5), and dividend yield of 4.8% (vs. 4.4%). Using a Dividend Discount Model with a dividend growth rate of 5.5% (matching the 5-year historical rate) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $58.97. Morningstar gives a more generous fair value of $70.00 and a 4-star rating. The average of those two estimates is $64.49, which implies a 13% margin of safety at my purchase price.
Interested readers can find additional information about Ventas in two recent articles on Seeking Alpha and in an investor presentation from last month:
- Ventas: Get Blue Chip Quality Without Paying For It by Dane Bowler, published December 2, 2013
- Ventas Is 'Pound For Pound' One Of The Best REITs Around by Brad Thomas, published October 15, 2013
- Ventas Presentation - NAREIT REITWorld, November 2013 (PDF file)
I bought 40 shares of VTR at the price of $55.90 per share plus commission, giving me a 4.78% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $26.80 from this purchase, which will add a total of $107.20 to my annual dividend income. The next dividend should be declared any day now and paid in late December, so I will not have to wait long for my first payment. This purchase was made in my Roth IRA using rollover money. Ventas becomes the 34th stock in my portfolio and the third REIT; I think it nicely complements my HCP position in the specialty area of healthcare REITs. My forward 12-month dividend total increases to $3,611.
Monday, December 2, 2013
Monthly Review: November 2013
November was busy as usual at work. The semester ends in about two weeks and I am looking forward to the break. On the investing front, I mentioned previously that by mid-month I completed the rollover and conversion of funds from two retirement plans with my former employer to my Roth IRA. This gave me a little over $25,000 in cash to invest, which I started to do during the month. In fact, it turned out to be one of the most active months in my investing history. Here is a review of what happened in November:
Dividends: I received a total of $240.96 in dividends from 9 stocks, as indicated on my Dividends page. This represents a 74.7% increase compared with the same month a year ago. My year-to-date dividend total is now $2,144.04, which is 30.0% higher than my year-end dividend total for 2012.
Dividend Increases: I was pleased to see dividend increases announced for the following stocks (click on each stock to see my post about the increase): Dividend increases occurred for 32 of the 33 stocks in my portfolio in 2013, with the single exception being INTC. The mean and median dividend increases were 11.7% and 10.1%, respectively, with a total of 18 double-digit percent increases.
Contributions: I contributed $2,275 in new capital for investment, which was deposited in my taxable account. My year-to-date contribution total is $17,490, which is an average of $1,590 per month. I excluded the rollover money from my contribution total to avoid distorting the results, but it is included when calculating my portfolio's annualized return.
Transactions: I made six(!) purchases during the month (click on the transactions to see my posts about them):
Portfolio: My portfolio (taxable account and Roth IRA together) consists of 33 stocks and has a market value of $129,209.60 (including cash), which is a 29.3% increase over last month's value. Not surprisingly, the bulk of the increase is attributable to the influx of rollover money. The combined value of my 403(b) and 401(a) retirement plans is $4,287.60, all of which is invested in a low-cost S&P 500 index fund.
Seeking Alpha: I did not publish any new articles on the investing website Seeking Alpha. However, I earned $12.19 from page views of previous articles in November, increasing my year-to-date total to $1,140.68.
Looking Ahead: December will be great for dividends, thanks to many stocks in my portfolio paying out in that month. It is possible that a dividend increase (effective in 2014) will be announced soon by T; beyond that, I am not expecting any other announcements until the new year. I will likely contribute some new capital to my taxable account, although given my above-average expenses in December, it might be less than $2,000 (but enough for one purchase). I still have plenty of rollover money left to invest, so I will likely put more of it to work. I continue to like the valuations of REITs; in the interests of diversification I am looking at companies that I do not currently own (specifically, ARCP and VTR). In other areas, I would not mind increasing my positions in CVX, MCD, PM, or TGT. The only potential new position in my sights is IBM. As always, I will post about any purchases soon after they happen.
Dividends: I received a total of $240.96 in dividends from 9 stocks, as indicated on my Dividends page. This represents a 74.7% increase compared with the same month a year ago. My year-to-date dividend total is now $2,144.04, which is 30.0% higher than my year-end dividend total for 2012.
Dividend Increases: I was pleased to see dividend increases announced for the following stocks (click on each stock to see my post about the increase): Dividend increases occurred for 32 of the 33 stocks in my portfolio in 2013, with the single exception being INTC. The mean and median dividend increases were 11.7% and 10.1%, respectively, with a total of 18 double-digit percent increases.
Contributions: I contributed $2,275 in new capital for investment, which was deposited in my taxable account. My year-to-date contribution total is $17,490, which is an average of $1,590 per month. I excluded the rollover money from my contribution total to avoid distorting the results, but it is included when calculating my portfolio's annualized return.
Transactions: I made six(!) purchases during the month (click on the transactions to see my posts about them):
- 60 shares of KMI [R]
- 20 shares of CVX
- 55 shares of O [R]
- 30 shares of TGT [R]
- 40 shares of HCP [R]
- 55 shares of O [R] (again)
Portfolio: My portfolio (taxable account and Roth IRA together) consists of 33 stocks and has a market value of $129,209.60 (including cash), which is a 29.3% increase over last month's value. Not surprisingly, the bulk of the increase is attributable to the influx of rollover money. The combined value of my 403(b) and 401(a) retirement plans is $4,287.60, all of which is invested in a low-cost S&P 500 index fund.
Seeking Alpha: I did not publish any new articles on the investing website Seeking Alpha. However, I earned $12.19 from page views of previous articles in November, increasing my year-to-date total to $1,140.68.
Looking Ahead: December will be great for dividends, thanks to many stocks in my portfolio paying out in that month. It is possible that a dividend increase (effective in 2014) will be announced soon by T; beyond that, I am not expecting any other announcements until the new year. I will likely contribute some new capital to my taxable account, although given my above-average expenses in December, it might be less than $2,000 (but enough for one purchase). I still have plenty of rollover money left to invest, so I will likely put more of it to work. I continue to like the valuations of REITs; in the interests of diversification I am looking at companies that I do not currently own (specifically, ARCP and VTR). In other areas, I would not mind increasing my positions in CVX, MCD, PM, or TGT. The only potential new position in my sights is IBM. As always, I will post about any purchases soon after they happen.
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