Recent Buy – Realty Income (O)

After a record December, I was looking to start 2018 off on an aggressive note.  I play to push my limits in 2018 and hopefully provide a lot of fuel to my investment portfolio.   Despite the fact that the market has also started off on a tear, a few opportunities have presented themselves.  After watching the price of REITs such as Realty Income and HCP (Lanny’s latest purchase) continue to fall, I knew that a purchase was inevitable.   Let’s see why I added to my position in Realty Income!

Why I added to Realty Income

This isn’t the first time I purchased shares of Realty Income.  In fact, I initially purchased 40 shares of the company in November 2016.   Once I purchased, I knew that I was going to continue to add to my position one day when the right buying opportunity presented itself.  To date, the company is down over 7% since the calendar turned and my position was suddenly in an unrealized loss position!  Heck, the company is sliding towards a 5% yield and will get there if the price continues to slide!  But I didn’t just recklessly add to my position, here were some of the main reasons why I added to my position..

First, the dividend history.  Every dividend growth investor knows this story.  Realty Income is the legendary monthly dividend income paying REIT that is on the doorstep of becoming a Dividend Aristocrat.  The company has paid a dividend for 569 consecutive months and they have increased their dividend for 81 consecutive quarters.  If you visit their website, the company is quick to highlight the pride they take in paying and increasing their dividend to shareholders.   If you are a dividend growth investor, of course you are going to love that!

Second, the company released a strong earnings release in the third quarter of 2017.  The company highlighted continued investment in new properties (56), 6.9% FFO growth compared to 2016, and management re-iterated their FFO guidance of $3.03 -$3.06 per share.  This would place the company’s final Dividend to FFO Payout ratio around 85%, which is reasonable given the fact that REITs payout a large portion of their income.   A great, great earnings release that has had me excited since it was released in October.

Third, speaking of acquisition of properties, the company reported in that same earnings release that as of September 30, the company now owns 5,062 properties in 49 states leased to 251 difference tenants.   The company’s diversification among tenants and geographic footprint is particularly attractive as it should allow the company to weather economic cycles that may impact a certain region or industry.  Some REITs are singularly focused in one industry or one niche pocket of an industry.  For example, there are diversified healthcare REITs and there are healthcare REITs that specialize in sectors such as retirement communities, skilled nursing facilities, etc.  That’s not the case for Realty Income.  While Realty Income does own single tenant properties, the type of companies and industries the company leases to is diverse.  Their Top 5 tenants as of September 30th are Walgreens, Fedex, LA Fitness, Dollar General, and Dollar Tree.  And on top of it, the largest, Walgreens, only accounts for 6.6% of the company’s revenue.   Again, the diversification should allow the company to avoid the economic swings of one specific industry.

Lastly, the final reason has nothing to do with the company. Instead, this relates to the current mood of my investment strategy.  Over the years, my wife and I have amassed a portfolio of well over 30 individual stocks.  Some positions are large (over $5,000) and some positions are small (less than $2,000).  And there are a ton of positions in between.  Rather than having a lot of positions that pay small dividends, if the right opportunity presents itself, I would like to continue to build the positions that I currently own.  For many of these companies, I have already put in the hard work research the company.  I’ve already determined that they fit my investment strategy since I own them!  Currently, I received $9ish in dividends per month from Realty Income.  I like the amount, but receiving a larger check would be even better.

The Purchase

Enough of the talk, here are the details of the purchase.  After some tax planning moves before the end of 2017, my capital position wasn’t as large as it was a month ago, which reduced the size of my purchase.  So I added 18 shares of Realty Income at $54.96 per shares, adding $45.90 to my forward dividend income.  Now, I own 60.1082 shares that produce $146.40 in annual dividend income.   The purchase was made in my Roth IRA due to the fact that dividends from REITs are taxed as ordinary income.  So the purchase in my Roth made sense to reduce the taxes paid.    The one thing about the purchase that has slightly agitated me was that the company’s price continued to fall after I made my purchase.  If I were patient and waited, I could have purchased my shares at a price in the high $52 per share or low $53 per share.  Well, the good news is that if the price continues to fall, I will continue to lower my cost basis and add to my position!   At the end of the day, I’m just happy I was able to add more shares to a quality dividend stock that has demonstrated an ability to increase their dividend over the long-term.

What do you think about my  purchase?  Are you also buying shares of Realty Income?  Or are you focusing on buying a different REIT or a stock from a different industry all together?  I know that utility stocks are also feeling some pricing pressure!

-Bert

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35 thoughts on “Recent Buy – Realty Income (O)

    • Mike,

      Thank you very much. Glad I’m not the only one that holds their REIT investments in their Roth. I’ll have to stop by your article and check it out, but it is a great point. The effort to owning a REIT is minimal compared to the blood sweat and tears that it takes to run a rental property well.

      Bert

  1. I have been planning on makeing a purchase. the thing that sucks is i dont have a job so i have to put it in the taxable account. But it all evens out in the end i think either pay more taxes now or later. Good news is yesterday they gave a decent raise again. I am lovin it as the raisin season has started again. I dont want a bunch of small payments either I want nice big 100-200 dollar days

    • Doug,

      The important thing is that you own share in a quality company, regardless of whether or not it is in a taxable or Roth account. I just saw they announced the raise and I’m considering adding a few more dollars before their ex dividend date, especially since their price continues to fall. trust me, I love receiving a large payment and want t start making sure some of my positions get close to that point. AT&T is already there and I love that feeling. One day I’ll get there for everything.

      Take care,

      Bert

  2. Excellent buy Bert!!! I recently bought 188 shares of O myself. 🙂 Gotta love The Monthly Dividend Company! Glad to be a fellow shareholder. Can’t wait to start collecting dividends. I also recently beefed up my utility sector by buying ED and adding to SO. Great way to start 2018. Congrats on the buy! 😀

    • HOLY SH&T MDD!!! 188 shares…..my goodness. That monthly dividend is going to be awesome haha THAT’S WHAT I’M TALKING ABOUT. Utilities are also on my, and Lanny’s short list here. Some attractive high dividend yielding stocks are finally starting to decrease in price…it is about time.

      Bert

  3. Hey Lanny,

    we are on the same page;-)…i just added another 50 shares of Realty Income to my position. the blogpost will be out in a few days! – i own now 250 shares of that rock solid company. Nearly all REITs got under pressure because of general market conditions and that presents a good opportunity in my opinion. First- dividends of Realty Income just got raised again 4%. the dividend history is flawless and they’ll generate solid profits even if interest rates get higher. should the share price fall some more, i’ll add more shares.

    Greets
    DividendSolutions

    • Dividend Solutions,

      Looking forward to reading you post about the purchase as well. That is one heck of a position and those monthly dividends must be SWEET! You’re right, this is a great opportunity indeed and I plan to fully take advantage of it. I’m less concerned about O than others for all the reasons you cited in your comment.

      Bert

  4. Recently bought some as well. If treasury notes get up to that “magic” %3 number I could see more selloff in REITs as people move out of “bond like” REITs in to something “safer”.

    Realty Income also just announced a %4 dividend increase from .2125 to .219!

    • DJ,

      Congrats on the purchase! Definitely understand the trend, but I’m comfortable adding to a solid, diversified REIT such as O. They’ve survived higher interest rate environments and proved they can grow their dividend in such a climate. I’ll be okay in the long run!

      Bert

  5. I’m right there with you, Bert. Retail REITs all have my attention right now, and Realty Income is the cream of the crop. With the most recent tax reform, retailers are poised to benefit immediately, and owners of retail real estate are bound to benefit, as well. On the diversification front, while O is mainly a single-tenant retail REIT, they also have commercial, industrial and agricultural properties, as well. Great purchase!

    • Perennial,

      How’s it going?? Thanks for adding your comment about the further diversification. I focused on their largest portfolio, but they definitely operate in other sectors. You raise a great point. O’s tenants are benefiting from the better tax environment which will only further help O in the future. Great angle and I like it. Are you planning on adding O anytime soon?

      Bert

  6. Bert,
    Big fan of O myself. Had it for over four years. All it has done is pay me very nicely. Enjoy it. It really is starting to get to the sweet spot of price, and if it continues downward even a little more it will go from obvious buy to screaming buy.
    – Gremlin

    • Gremlin,

      Glad you are a big fan here! Do you have a price point in mind for when you are finally going to take a leap and purchase more shares? I’m glad they have treated you so well and I hope they are going to for a long, long time.

      Cheers,

      Bert

    • P2035,

      OHI definitely has a juicy yield, but I’m in the mood for good ole reliable Realty Income. I know a lot of investors were on the OHI bandwagon at the end of 2017. What do you like about it (other than that yield)?
      Bert

  7. Good buy! I believe Realty Income is undervalued right now and am tempted to add more shares, but it is already my largest position. Macroeconomic concerns can affect the share price in the short term but as the company continues to grow and the dividend continues to increase, the share price will eventually catch up.

  8. Good call on buying in a Roth to take advantage of the tax rules! In the long run, this was a great decision especially if you plan to add to your position. I have been watching O and hope to add one day, but just don’t have the funds yet =)

    -TDM

  9. I like the purchase, Bert. I’m certainly watching O, but feel like a have enough REITs for now. However, if the price got under $50 I’d probably make a small add to my position. Way to kick off the new year… boosting the dividend income!

  10. REITs have been struggling and I’m certainly keeping an eye on a few of them O included since my asset allocation % in that class has dropped. I’m thinking there’s a bit more pain ahead as REITs never perform well in the initial stages of a rising interest environment. I think eventually they catch up with raising rents but I may hold off on any big purchase until I see the downtrend reversing. If I could get O at like 15-16 P/AFFO then I’d definitely be in but that would require some further price reduction.

  11. Nice buy. No wonder why you jumped at this opportunity for a great monthly dividend payer. I picked up some myself and can think of at least another 5 people in the dividend community to take advantage of the opportunity as well. Should provide some nice dividends and growth going forward. Got it just in time too as they just announced a dividend increase as well. Win!

  12. I’m a huge fan of Realty Income. So much so that the company currently represents 7% of my portfolio. I really should pay more attention to the stock market. Didn’t realize that O was falling in price. That’s great for my DCA strategy. Good luck on the purchase Bert and excellent write up of course on O.

  13. Love the purchase. I wouldn’t stress not getting in at the exact rock bottom. That happens to everyone. If it makes you few better I recently got in at $55.68. You got in at a great price. And that Dividend is going to be sweet every month. Great company great value. I may go back to the well here if the price stays down.

  14. Great time to get in on O. The price is continuing to fall and coupled with a great yield and a solid portfolio of properties, you can’t go wrong.

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