Recent Buys – HCP, CZNC, and NWFL

Everyone, we have a lot of catching up to do!  While I have been busy as heck at work over the last couple of weeks, I have also been very busy putting some capital to work!  Over the last two weeks I have purchased three stocks with an average dividend yield of 4.98%, which in total added over $75 in forward dividend income to my portfolio. Which stocks did I purchase?

Purchase #1 – HCP Inc. (12 Shares, $27.12 Dividend Income)

One of the first lessons I learned as a member of this wonderful community was that you don’t always have to look far when you are purchasing stock.  At first, I was always looking for the next great investment, that hidden gem in the market, to accumulate as many positions as possible.  But as I quickly learned, sometimes the best values can been found in stocks hat you have already purchased.  After all, you have already performed the research and have determined the stock fits your investing philosophy, so why not pull the trigger and re-up a position when one of your stocks begin to slide.  And that is just what happened with HCP last week (and it may be happening again next week too).

After a recent earnings release that showed some struggles with one of HCP’s tenants, the fear of rising interest rates, and various analyst downgrades/insider transactions, HCP had fallen from its recent high of ~$48/share, to $42.13/share (my purchase price) and now to $40.34! Hence why I was talking about re-upping again.  I have been following this decline in the stock price recently, as HCP was on my watch list, and just found the decrease in price too attractive to  hold off on purchasing the stock any longer.  While there are short-term headwinds against the company, I like both the company’s long-term prospects and the industry’s long-term prospects, as the population continues to age.  The company is a Dividend Aristocrat after-all, and just announced a dividend increase last month.  My fears of short-term headwinds are usually short-lived when I am dealing with a Dividend Aristocrat.  For me, Lanny, and the majority of us in this community, we are focused on purchasing quality companies that are in the best position to pay a growing dividend.  While short-term headwinds could potentially spell trouble for a dividend if the headwinds are severe enough, the fact that company is an Aristocrat shows management is committed to growing the dividend and has weathered small periods of trouble before.  While this isn’t the only reason to purchase HCP, because no dividend is guaranteed (just look back at the list of Dividend Aristocrats in 2007 and compare it to the current list and see how many fell off), the fact that HCP just announced an increase, has a payout ratio of 75%, and the fact that we aren’t dealing with a financial crisis like the period I referenced,  provides me with enough confidence in the stability of the current dividend to re-up my position.  That coupled with the fact the company is trading at a discount compared to its peers (as shown in my watch list), forced my hand and as a result, I ended up purchasing 12 shares, adding $27.12 in dividend income.

 Purchase #2- Citizens & Northern Corporation (25.6 Shares, $26.66 Dividend Income)

The other nice thing about working so closely with Lanny and staying up to date in the community is that you don’t always have to do the research and find the gem yourself.   And about a month ago, Lanny did some digging and found a great dividend stock in the banking community.  Last month, he initiated a position in Citizens & Northern Corporation (CZNC).   There are many things to like about CZNC: great dividend, share buybacks, strong loan quality, and high ROA compared to peers.    After thinking about this investment for the last month, I really couldn’t find any reasons not to jump on the bandwagon.  I also joked around with Lanny that this purchase was meant to be, because for some reason I would randomly stumble upon article after article discussing CZNC.  Which for a small bank with low trading volume, it was very odd that articles about this company continued to find a way onto my screen (And no, Lanny was not emailing them to me in an effort to get me to buy the company).  Sometimes, you just can’t pass up on these kind of signs, right??  This week, I purchased 25.6 shares in the company using my free automatic trade at Sharebuilder, adding $26.66 in forward dividend income.   Lanny, you are no longer the only one that owns shares in this gem!

Purchase #3- Norwood Financial Corp. (18 Shares, $21.60 Dividend Income)

I know what you are thinking? Another bank stock?  Well, this purchase is very similar to my last purchase, as Norwood Financial Corp. (NWFL) is another community bank with great fundamentals.  Here are some of the key points to why I purchased NWFL, the $711m bank in Pennsylvania:

  • NWFL has a current dividend yield of 4.18%, which is currently higher than my portfolio’s weighted average dividend yield.
  • Payout Ratio is below 60%, currently sitting at 57.10% ($1.20/$2.09).
  • Dividend growth has been modest, as the last increase was 3.4%.  While the growth was low, NFWL is a higher yielding stock and the dividend growth is still outpacing inflation.
  • P/E Ratio of ~13.75 at the time of purchase.  While this is lower than the S&P 500, it is in line with the rest of the banking industry.
  • Return on Assets are 1.08%, which is in line with the rest of the banking industry.  This is lower than CZNC’s ROA, but NWFL incurred non-recurring expenses during the year which reduced the ROA.  I am expecting it to increase next year and revert to last year’s ~1.2% ROA if all other aspects of the bank remain consistent.
  • The bank’s non-performing loans have continued to decrease over the last two years, signaling improving asset quality.

So not only does NWFL pass the three metrics of the Dividend Diplomats’ Stock Screener, the improving asset quality and the strong ROA further show that NWFL is a solid bank to own.   There is one other aspect about NWFL that I love, which was another driving force in my purchase of the company.  As Lanny mentioned in his CZNC purchase article, the small banking industry is going through an intense consolidation period as acquisitions are being announced too frequently.  NWFL has can easily acquired by another bank looking to grow their footprint in PA or they can just as easily be acquired by another bank in the region.  If acquired, the premiums we have been seeing recently have been great.  And if the bank does not decide to sell, I know that I will be rewarded with a great dividend by a company with strong fundamentals that will allow it to continue to grow not only their assets in the future, but their dividend as well.  With all of these factors in mind, I decided to purchase 18 shares of NWFL, adding $21.60 in forward dividend income.

So there we have it everyone.  Three great stocks were added to my portfolio this week.  The best part about these purchases are that it finally closes the book on my ARCP sale that occurred in early January.    I put the funds from my sale back into the market and now, I can put that transaction behind me once and for all.  What are your thoughts on my purchases?  Have you purchased any shares in HCP as REITs continue to slide?  Or are you initiating a position in a different REIT instead?

Thanks everyone! I look forward to reading your comments.

Bert

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20 thoughts on “Recent Buys – HCP, CZNC, and NWFL

  1. Bert,

    Nice job averaging down there.

    I’ve looked at HCP in the past. I haven’t really looked again recently, but the yield nearing 6% now seems fairly attractive considering the growth.

    Is HCP going to have to renegotiate its leases with HCR? What kind of impact would that have on FFO and the dividend? Again, I haven’t looked at the situation in-depth.

    Enjoy those additional dividends. 🙂

    Best regards.

    • Thanks DM, I appreciate it. Us HCP shareholders will have to keep a close eye on HCR the remainder of the year, and that is undoubtedly a major question for HCP going forward. To keep this brief, after reading a few articles, HCR is not performing as advertised as the form of Medicare reimbursements continue to shift. How deep is the problem? Will they have to reduce their leases as you raised? Only time will tell. But one of the things that I like about HCP is their diversification in the healthcare sector. While nursing homes and HCP make up a decent amount of the com[any’s FFO, they still are major players in four other areas, so the diversification should prevent the company’s bottom from falling out.

      And I’ll take you up on your offer, I will make sure to enjoy every penny of the extra dividends I will receive! As always, thanks for stopping by!

      Bert

  2. Bert,

    I am really liking the HCP purchase. I bought shares twice back in the fall of 2013 when rate jitters spooked REITS, similar to now. I probably won’t have too large of an exposure to REITS, but they seem to present good value right now along with utilities. It’s nice to find some sectors out of favor outside of just energy names.

    MDP

    • MDP,

      Thank you very much. HCP is a great company, so I will hopefully continue to re-up my position if price continues to drop. If not, I will use some funds to take advantage of potential discounts in O or another great REIT. We might as well take advantage of the current environment, right?

      I am with you, there are some great utility companies out there for you to invest in. Are you planning on investing in any right now? I have been a big fan of AEP over the ears and I am always looking at NGG.

      Thanks for stopping by!

      Bert

  3. Bert,
    Like you, I already owned some HCP and I didn’t have to think twice to add some more to pull the trigger and start accumulating some more shares fell. I am hoping it fall some more so I can add OHI into the mix.
    Great buys!
    FFF

    • FFF,

      Glad to see you pulled the trigger as well. To me, and it sounds like you as well, this was a no-brainer move. Great dividend growth, higher yields, diversification among the industry, Dividend Aristocrat, and so on. I have a feeling the REIT sector is going to be in for a bumpy ride in 2015 considering the “looming” interest rate increase. I am sure there will be plenty of opportunities to increase your position in OHI this year.

      Thanks for stopping by!

      Bert

  4. Well now! I only heard of HCP, which I agree is a good value right now. The two banks, I have never heard of. I do agree, based on the minimal knowledge I have of regional banks, that a lot are both strong dividend payers and fairly- or undervalued. I am personally comfortable with the number of banks I own, but I think it’s an area worth looking into for sure.

    • Dividend Developer,

      You do have a pretty solid weighting in the financial sector. Are you planning on purchasing HCP or any other REIT? It looks like you do not currently hold any in your portfolio There are a lot of great REITs that appear to be undervalued due to the recent volatility. Luckily for Lanny and I, we work closely with the regional bank community, which helps us find these potentially undervalued investments. As you can see by the blocky trading charts, you are not alone as this sector isn’t covered in the same way as the larger banks that you own are (which is completely reasonable!).

      Thanks for stopping by!
      Bert

      • Hi Bert, Yeah, I intend to own a few REITs, as well as buy an insurer and asset manager. Currently my watchlist has AFL or TRV, BEN or TROW, and DLR, HCP, VTR as my REIT picks. I actually own O in my tax-deferred portfolio, which I really like as a “mutual fund” of sorts, just like BBL is a “mutual fund” of basic materials. You’re definitely lucky to have that exposure to an under-covered sector; I’ll be sure to keep reading to steal some more ideas 🙂

  5. HCP looks quite attractive at this price. Norwood has a low growth rate for my liking but this is not uncommon for this sector. Great purchases!

    • DivGuy,

      HCP is definitely trading at a low multiple at the moment. It is even lower than my initial purchase price back in May 2013, and I thought I was getting a discount then! Once the price slid, throwing some extra capital at the company was a no-brainier. While Norwood does have lower growth, it does currently have a higher yield than my portfolio. Recently, my philosophy is that a new investment has to either (or ideally both) exceed my portfolio’s average yield or my portfolio’s weighted average dividend growth rate. While NWFL failed on the latter, it passed on the former.

      Thanks for stopping by. Will you by buying HCP or any of the other REITs anytime soon?

      Bert

      • I’m unfortunately not in the buying state for a couple months… I do accumulate some funds, but I have other big priorities right now. We’re planning a RV year long trip with the kids. It demands a lot of organization… one of the most important is obviously being debt free! That’s why I can’t really buy much for a while. Makes me sick at times to see great opportunities passing by… Agrh!

  6. Great job on the buys. I like the HCP purchase, can’t say I know much about the other two. Way to increase your passive income moving forward.

    • Tawcan,

      Thank you very much. Increasing your passive income is what it is all about! Let’s use the recent pullback as an opportunity to find some discounted growth stocks and really get the snowball moving!

      Bert

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