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Recent Buys

Recent Buy – Realty Income Corp (O)

Realty Income Corp

    Not too long ago, I initiated a new position with CAH. After that, I told myself I would wait and save up some capital since I have a few big expenditures coming up soon. Well with my birthday fast approaching, I decided to treat myself to a little early gift instead. On Friday, I started a new position with Realty Income Corp (O). I bought 10 shares at $56.19. See more stats on O below.

 

O Stats

Annual Dividend: $2.53

Yield: 4.47%

Years Paying/ Increasing: 21 years

Dividend increase from prior year 4.52%

Payout Ratio: 84.1%

P/E Ratio: 48.96

EPS: $1.14

 

    Realty Income Corp seems to be the golden child of the dividend community. They pay a 4% yield, history of increasing dividends, and pays dividends monthly! What’s not to like? As you know, O has been on my watch list for some time now. Just waiting for the opportunity to buy. That opportunity finally presented itself last week when the price dipped about 5%. I just wish I had more free capital to spend!

 

    Looking at the stats above, there are still a few areas that pull a flag. The payout ratio is pretty high, however this is an REIT so that number should be higher than typical stocks. And their payout ratio still is in the safe zone for my standards. Secondly, the P/E ratio is pretty high as well. While this is not the only factor to take into account when evaluating a stock’s fair value price, it does play a role.  Do I think O is overvalued even on the dip? Absolutely, I do. Then why did I buy?

 

    Yes, current valuation is an important factor when selecting a stock to purchase. Ideally, we want to keep out cost basis as low as we can to maximize our gains. But it is impossible to time the market. We don’t know when the next time the stock could be at current price, go even lower, or raise up to new highs. Even overvalued, O has a good reputation of increasing its dividends and pays monthly. The opportunity cost of not having it in my portfolio and taking advantage of the compounding, is greater than the current share price. And with being a long term investor, that cost gets bigger as the years go buy. So even though my new position is small, I am using it as a good entry point and cost basis to benchmark my future expansions.

 

    The dividend yield of 4.47% or $2.53 annually, will add $25.30 to my yearly dividend income. That number should go up soon as their dividend increases and the monthly compounding starts. Do you also own O? Did you pick any up any O on the dip? Have you purchased any different stocks recently? What else is on your watch list?

 

18 Comments

  1. Nothing wrong with an early birthday present!
    We have had our eyes on REIT’s a long time, but could never buy it with are former broker.

    I wonder though, what kind of effect an increasing interest rate by the FED will have on these kind of stocks. Nevertheless they pay a great dividend.

    1. That is too bad you couldn’t buy them with your former broker. They usually have nice high yields so it is nice to have a few present in the portfolio. The way I see it, interest rates have always gone up. Long term, I don’t see it being a huge factor, companies just need to adjust to it. However, it causes dips in the short term which makes great entry points to buy. Thank you for your comment.

  2. You are not alone buying O. Seems like it’s too hard to ignore at current levels. While I don’t hold O I know of its great reputation as a monthly dividend payer and raiser. For now, my REIT focus is on the health sector. Some action going there though. CCP spin off is merging with SBRA.

    1. O is definitely on many people’s watch list right now and I have also seen a few take advantage of the current levels. REITs in every sector are getting hit pretty hard right now so can’t go wrong throwing a little capital at it. Still waiting on the QCP spin off to start paying dividends. Thanks for the comment.

  3. My eyes are also on the REITs (personally more on HCP), but I didn’t pull the trigger yet. I think many people buy them as a bond substitute, so the increasing FED rate is a big competition.
    I think we will see a bit lower levels, in which case I’ll definitely jump in. When you’re talking about 4-5% yields in the sector, a 10% drop in the share price means 0.5% increase in the dividend yield which is pretty good.
    Regarding the high payout ratio, I wouldn’t worry about it at all; REITs are legally obliged to do so.

    1. Yep, I agree with your payout ratio statement. That is why I’m not worried about it. They are still in a very manageable level. The REIT sector is getting hit pretty hard so there are so many appealing buys. I already own HCP so I wanted to pick up something that paid monthly. As always, I appreciate your comment.

  4. Congrats on the buy and future birthday! You explained in better words then myself why I also bought this stock. I saw the same dip as you and initiated a position in O with 5 shares @ 55,35. Great to see someone else do the same thing (kinda validates my thinking since I’m still a beginner)!

    1. Congrats on the buy yourself, my friend. We all have to start somewhere. Smart of you to pick some up early in your investing days to give it more time to compound. Should make for a nice long term hold. Thanks for the comment.

    1. Yeah I have seen a lot of others pick some up on the dip as well. I’m a big fan. Mainly because of the monthly payments which would be a first for my portfolio. But with increasing dividends and an over 4% yield, even better. Should make for a nice long term hold if they can keep their history going. Cheers!

    1. I’m glad to finally add a monthly dividend payer to my portfolio. That will help a lot with growth moving forward. Thanks for your comment.

    1. Thanks Bert. Seems to be a popular stock in the community. I am liking it so far. Just a small position to start but a great entry point. Hope to purchase more as time goes on.

  5. Realty Income is one of my favorite stocks in my portfolio. Even though my account has registered a small loss, I’m not worried. I love the monthly dividends it pays out and I like the fact that it’s a stable company. I think you made a great choice.

    1. Thanks! I agree it is a great company. And don’t worry about your “loss” as it is only on paper. You haven’t lost anything if you haven’t sold. So as long as you are holding for long term and reinvesting those dividends that will turn positive in no time.

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