Monday, March 9, 2015

Four Dependable Dividend Stocks I Bought Last Week

I made a few transactions last week, all of which included existing positions. Overall, it is getting difficult to find attractive companies to invest in these days. However, it is not impossible if you are willing to dig around a little.

I first sold my last shares of Family Dollar (FDO). The company will be acquired by Dollar Tree (DLTR) in a few months, for mostly in cash, which leaves no further upside. The company was one of my best performers ever, and has more than tripled since 2008. The sad part is that I didn’t add as aggressively as I should have. Hindsight is of course always 20/20 – in Family Dollar case however I expected fundamentals to improve, yet my valuation was often very conservative. I have held on to the shares, despite the limited upside present at this moment, since I was hoping for a correction. Market timing is a fools errand, so I guess I managed to make a few mistakes right away. Why am I saying that – to share experiences, and hopefully someone can learn from my mistakes. If you do not regularly review investments made, you will never realize whether you are making mistakes, and you will never learn.

I used those funds to add to my position in Ameriprise Financial (AMP). Ameriprise Financial, Inc., through its subsidiaries, provides various financial products and services to individual and institutional clients in the United States and internationally. The company has increased dividends for 9 years in a row. The five year dividend growth rate is at 27.20%/year, mostly due to the fact that distributions grew faster than profits. Ever since I profiled the company in 2013, I made a few purchases in it. However, the stock went up too quickly and I didn’t like the entry yield. However, I do like the company’s business model, and find assets to be sticky. I think that it has a bright future ahead, although the ride will be bumpy. If stock prices go lower, the shares will be available at even better valuations. The stock is selling for 16 times earnings and pays 1.75%. Check my analysis of Ameriprise Financial.

I also added to my position in three Real Estate Investment Trusts (REITs) on Friday. I am somewhat cautious on REITs these days however, as I believe that there is further downside. I would not be surprised if prices go lower from here, thus enabling better entry valuations. With interest rates expected to increase at some point in the near future, buying REITs today sounds like a crazy decision. The reason why I am buying REITs is in order to get broader exposure to the sector. The second reason I like REITs is because if the economy keeps improving, there will be more business activity, higher demand for real estate for rent or lease, and hopefully better rent increases when leases are renewed. Third, I do not believe interest rates will go up that much beyond 4% - 5% for the 10-year Treasury. I also think this will be more of a gradual process, that will take several years, and will not happen overnight. This would allow REITs to slowly rollover their maturing obligations over the next decade, and would not have an immediate impact for several years. The impact of potentially higher interest rates will be offset again by increased occupancy rates, and increased rent growth rates. The fourth reason is that I like the dependable rent streams, generated under the trusts mentioned below, under long-term leases. In addition, the higher current yields will provide some extra cashflow that will come in handy if the stock market has a more extended drop over the next few years. Everyone has been giddy with excitement from the successful 6 year bull market, so something “unexpected” is bound to be around the corner to shake out the weak hands. Only during downturns do many investors realize how comforting it is to count on the cash dividends, and not only on fickle capital gains.

The companies I added to include:

HCP, Inc. (HCP) is an independent hybrid real estate investment trust. The fund invests in real estate markets of the United States. It primarily invests in properties serving the healthcare industry including sectors of healthcare such as senior housing, life science, medical office, hospital and skilled nursing. This dividend champion has rewarded shareholders with a raise for 30 years in a row. The ten year dividend growth rate is 2.70%/year. The REIT sells for 13.40 times FFO and yields 5.60%. Check my analysis of HCP.

Omega Healthcare Investors, Inc. (OHI) is a real estate investment firm. The firm invests in the real estate markets of United States. It invests in healthcare facilities, primarily in long-term healthcare facilities in order to create its portfolio. This dividend achiever has rewarded shareholders with a raise for 13 years in a row. The ten year dividend growth rate is 10.90%/year. The REIT sells for 13.30 times FFO and yields 5.60%. Check my analysis of Omega Healthcare Investors.

W. P. Carey Inc. (WPC) is an independent equity real estate investment trust. The firm primarily invests in commercial properties that are generally triple-net leased to single corporate tenants including office, warehouse, industrial, logistics, retail, hotel, R&D, and self-storage properties. This dividend achiever has rewarded shareholders with a raise for 18 years in a row. The ten year dividend growth rate is 7.50%/year. The REIT sells for 13.70 times FFO and yields 5.80%. Check my analysis of W.P. Carey.

Full Disclosure: Long AMP, HCP, WPC, OHI

Relevant Articles:

Five Things to Look For in a Real Estate Investment Trust
Four Dividend Stocks for the Long Run
Dividend Growth Stocks Are Still Great Acquisition Targets
I bought this quality dividend paying stock last week
How to invest for dividends when markets are overvalued


  1. Could you explain in more detail your reasoning for selling FDO and buying AMP? I've been reading your site for 4 years now, and essentially on a weekly basis you repeat the same basic rules that lead your investment goals: never sell unless the dividend is cut (you also say in hindsight that selling has been the wrong move in close to all situations), and minimum yield of 2.5%. Selling FDO and buying AMP broke both those rules.


  2. Hi Ryan,

    FDO will be acquired for mostly in cash by Dollar Tree. This deal will close in a few months. When I sold the first half of FDO a few months ago, I explained that.

    There is much more to dividend growth investing than a few black and white rules however.

    I find low P/E coupled with earnings growth prospects trumps a lower current yield. I would never break the P/E guideline, although I am more prone to violating minimum yield requirements.

    If you look at the analysis I have done, I look for rising EPS, rising DPS, decent valuation, prospects for further advancement etc.

    Plus, didn't I say this "Hindsight is of course always 20/20 – in Family Dollar case however I expected fundamentals to improve, yet my valuation was often very conservative. " I applied this "lesson" to the situation of AMP. If it drops further, I will consider buying more.

  3. HI DGI,

    what portion of your portfolio is dedicated to REITS ?



  4. DGI,

    I too am looking to add to my underweight position in OHI right now. The recent drop-off seems like a good opportunity. However, I also am noticing that EMR seems like a bargain as well for my long term horizon. If interest rates rise in the next 12-15 months, do you think OHI will drop even further?


  5. HCP & OHI are on my watch list. I may wait for a short while before take action to purchase some shares. Thanks for sharing.

  6. I am also looking to purchase REITs for my ROTH.

  7. I already own OHI and plan to add more in near term. The recent drop-off appears to be a good buying opportunity.

  8. DGI,

    I like that you added to REIT positions on the fear of interest rate hikes, I have been looking to open positions in HCP, OHI, or O. Just waiting for the right time to get in for the long haul. Last week was a great time to pick up shares when the prices dipped. In the long-term, its almost irrelavent what price is paid if reinvesting dividends is performed for a long enough time; DCA will have its way with the average price. But I believe you like to save up cash dividends and deploy the capital on value opportunities. Either way, nice pick ups for the long term.

    Best of Luck,
    Dividend Odyssey

  9. If FED in fact starts bringing up rates over the next few rates, I think REIT stocks will be having a very hard time, companies and fundamentals might still be great, but the money shift will make the REITs go into bear markets. I

  10. Hi DGI,

    at the moment I own only one REIT, HCP. But I would buy some more.
    My problem is, that I can't find a good source for FFO numbers and especially for analysts estimations. I prefer at least 10 years history.

    Which source do you prefer for REITs FFO? Do you use only companys webpages?
    Are there any good sites for analysts estimations for the next years?



Questions or comments? You can reach out to me at my website address name at gmail dot com.

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