Recent Buy – Realty Income (O)

I figured you all would see this coming considering one of my last posts and involved performing a dividend stock analysis over one of the most population REITs in the dividend investing community and I recently featured the company on my last watch list.   But this week, I took some capital off the sidelines and put it back into the market as stock prices continue to tumble.  Time to share with you the newest addition to my portfolio, Realty Income (O)!

Why purchase Realty income

I’m not going to get into a ton of details about the metrics because a lot of the information used in my purchase decision was a key part of the stock analysis I performed last week.   So please, take some time to review the article and dive into the numbers.    Based on my analysis, what drew me to the company were the follow:

  • Realty Income’s History of Dividend Increases. Realty Income has increased their dividend for 76 consecutive quarters and is marching their way towards becoming a Dividend Aristocrat.
  • The Diversification of the Portfolio.  The numbers weren’t the only thing that jumped out at me about Realty Income.  I left my analysis impressed at not only the number of tenants Realty Income has, but the diversification among different industries.  Based on the table below, no one company accounts for more than 7.3% of the total revenue for the organization (Image source: RealtyIncome.com).  In that list, you have pharmacies, gyms, major retailers, beverage stores, wholesale clubs, movie theaters, etc.   The diversification insulates the company from any factors that may suddenly impact a sector and take down the entire REIT.  The generic example that comes to my mind is a REIT that focuses on a niche healthcare industry that suddenly faces a new law that will significantly change the niche industry in which that REIT operates.   That was the shortest way I could demonstrate why Realty Income’s diversification has me very excited.

Realty Income Top 20 Tenant Diversification

  • Investments.  The recent earnings release shows me that the company’s looking to take advantage of the current low-interest rate environment.  The company continues to invest in markets that make sense and add properties that will continue to increase their cash flow.
  • The Price Was Right. At the time of my analysis, and as some of the comments pointed out, Realty Income appeared to be trading at a slight premium.  When my analysis was performed, the stock was trading at $59.84/share and I could have purchased 39.5 shares at that price.  Based on the analysis, I decided to set an order limit at the exact price needed to purchase 40 even shares of the company.  That way, I would capture a sudden drop in the price that would further reduce the perceived “slight premium” that the company had against the broader market.  So I was able to grab the stock at the price I wanted, which was important for me.  But most importantly, I finally added the company I wanted to my portfolio!

the purchase details

I’m sure you all are ready to hear about the purchase now.  On Tuesday, I purchased 40 shares of Realty Income, adding $96.96 in projected annual dividend income to my total forward income.  I have some exciting news about the purchase as well….but I am going to save that for another post coming soon.  I can’t tell you all the good news in one post after all, right?

There was another piece of this transaction that made it the perfect fit at the time of my purchase and it involves my Roth IRA.   This purchase was for the exact amount needed to maximize my Roth IRA contribution for the year.   My preference has always been to purchase REITs in a Roth IRA because of the tax free benefits to all future appreciation, dividends, etc., which helps negate some of the unfavorable tax aspects of owning and receiving dividends from a REIT.  That’s where I own HCP and now their recent spin-off Quality Care Properties and some other high yielding dividend stocks.  So in my opinion, Realty Income and their 4.25% dividend yield at the time of the purchase were the perfect stock to buy to max out my Roth for the year.   MAN…I cannot wait to begin watching those monthly dividends start rolling in!

What are your thoughts on my purchase?  Did you purchase a different stock this week instead of Realty Income?  Do you purchase REITs in your Roth IRA, Traditional IRA, or your regular brokerage account?  What other stocks or REITs should I be watching?

-Bert

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

  1. CIao Bert,
    O It’s a good stock, I used to own it till I decided to sell to consolidate profits. With rising interest rates the case for REIT investments is less strong, as they are leveraged and debt costs tend to rise, but that doesn’t mean that the stock is not good, I am looking at possible entry points if price goes lower a little bit more. Loved the monthy payments, those were NNNNiiiiiiiicccccceeeee 🙂 ( so I hope I can jump on that wagon once more soon…)
    Ciao ciao
    Stal

    • Thanks Stal! I cannot wait to receive my first monthly dividend check; hopefully I can get as amped up about it as you. I understand the concern about the debt and rising interest rates, but I became comfortable with the amounts once I realized how cheap their capital was and the easy access they had to it. It wasn’t as if their debt consisted of short term debt that will receive quite the shock when the interest rates do begin to rise.

      Hopefully we can become fellow shareholders soon!

      Bert

    • MDP,

      Thanks! Trying to pick up some of the quality REITs on the downside. if they continue to slide..no big deal. Then I am just going to go ahead and increase my position. I have no issue building an entry level position and adding to it over time, especially in a high quality stock such as Realty Income.

      Bert

  2. It looks a lot better here below $60 than it did in the mid-$60s or even the $70s like a few months back. However, I still wouldn’t do an outright purchase here, because the valuation is still a big excessive to me. I need to check on the updated numbers but P/FFO on a forward basis is still around 20x which is pretty high for a company that is likely to deliver in the area of 5% annual FFO/sh growth. Also with the rate hike likely looming, I don’t know how much more if any downside there will be since just about everyone expects one to be announced, but that does play a small factor given Realty Income’s dependence on debt. Although in all honesty another 0.25% hike isn’t going to do much if that trickles down, up?, to Realty Income’s interest rates. To me the valuation still isn’t there yet to purchase but I am considering alternative ways to get exposure to Realty Income. Love this company though and really hope to add more shares to my portfolio.

    • Thanks JC. Yes, I’ve been waiting for the company to dip into the $50s for quite some time. Couldn’t believe the run up that took the stock into the $70s earlier. You’re in the ballpark with the P/FFO numbers; that’s about right with the P/FFO numbers. I’m interest to see the growth rate with the level of investments the company has engaged in while taking advantage of the low interest rate. In terms of the rate hike, I think O’s ability to borrow at a cheap rate and their high credit quality should allow them to not feel the wrath of the rate hike. Their interest rates are low and are moderate-long term in nature, so a rate hike shouldn’t result in a sudden shock for the stock.

      I hope you are right and the price falls. I would love to continue to add to my position and lower my cost basis. We will both be running to our brokerage if the price continues to slide haha

      Bert

    • Lou,

      I personally think they have some room here. Their payout ratio (in terms of Div to FFO) is not as high as others in the industry. I’d be concerned if the dividend hikes resembled ARCP fro ma few years ago, but I see a major difference there.

      Bert

  3. Congrats on the buy. It’s one of my favorite stocks. Maybe the monthly dividends have something to do with it. With the recent price reduction I’m getting almost 1 share a month on DRIP. Times that by 12, it really adds up.

    • IH,

      Thanks! It is the one stock I have always wanted to own but never got around to it. Now…that’s no longer the case. DRIPing is accelerated that much more. Every freaking fractional share counts haha

  4. I like O – one of my favorite REITs and I like the fact that you put it in your Roth IRA. You definitely need a tax advantaged account to take full advantage of REITs. I’ve got a good amount of REIT holdings in my Roth IRA as well and the past few weeks have seen those tumble so I’ve been buying a bit more but I still believe REITs in general are a bit overvalued as the search for yield drove their price too high. Long term this is for sure a good buy but there may be some more short term pain on any REITs. I’m sure you can handle that though and can buy more monthly with the payouts you’ll get.

    • Sounds like we have the same strategy with putting REITs in our tax account. Holding REITs in my regular account would alter my investing decision for sure. What other REITs are on your radar if the market were to continue to tumble?

      Bert

  5. This is one of my favorite stocks. I have owned it for some time and it has paid off for me. This was a good buy. The valuation is secondary on a stock like this. It is about steady income. Congrats on the purchase.

    -Brian

    • Brian,

      Glad that I am a fellow shareholder now! Excited to be a part of the Realty Income shareholder club haha I like the take about the valuation; I’m very, very excited about the long term prospects of this company and the dividend checks I am set to receive for many years.

      Bert

    • I’m not in the business of trying to time the market or my purchases. Can’t predict the future Christian. I made the right decision and the time and I would have made the same decision 100 times out of 100. Downturns represent an opportunity to increase my stake and I will continue to evaluate this as an option.

      Bert

      • Trying to time the stock is a tough call but when the stocks are behaving badly it’s best to wait and look at similar situations. If you pay too much for a stock it can cause uncalled for stress when it falls badly,

  6. Hi,
    Just in my opinion not the best time as the fall in price is not sufficient to consider it for a buy. please look at the corrections it undergoes when rising interest rates. Agreed it has locked lower interest rates for coming time but would consider it if the price falls further 15 % or so

  7. Hey,
    I’m pretty new to investing. I bought 36 shares of O a few days ago at $55.94. Looking at the big picture and with dividends reinvesting over the next 20 years or so, it was an easy call. As for me, I look for the things I can control like buying good companies. I believe O is a good company. I’ll leave the timing stuff up to those who know, or at least think they know, a lot more about it. Last week I also added to my position in JNJ. Feeling good about that one, too. Anyway, love your site, very inspiring.

    Randy

    • Couldn’t agree 100% more with you Randy and love your investing philosophy. Prices may fluctuate in the short term, but in the long run, will you really remember your entry price or the fact it fell 5% the next day? Dividend investing is a long term game! Like you, I’ll leave the charts and timing up to the technical experts and I’ll just keep doing my research, find good dividend growth stocks at a reasonable price, and continue adding them to my portfolio.

      Take care and hopefully we will be interacting more here on our site!

      Bert

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