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.
- 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