After scooping up some shares in 3M (MMM) last week, I didn’t expect to make more purchases this month. After all, April is usually an expensive month due to the amount of taxes I have to pay. June is also another expensive month, due to estimated taxes I have to pay on non-salary income I generate. In addition, I try to do most of the work towards maxing out 401 (k) early in the year. I leave room to max-out a quarter to third or so for the latter part of the year.
This week however I saw some weakness in a few REITs I have been monitoring. When I first discussed REITs in late 2014, I expressed my hope for declines in stock prices, similar to what we saw in 2013. Luckily, my hopes are starting to materialize. There is fear that interest rates will rise, which will reduce FFO/share, since cost of capital to acquire new properties will be higher. While interest rates will likely increase at some point in the future, I strongly doubt this will happen in the US in the near-term, especially when Europe and Japan are essentially flooding their economies with QE type stimulus.
I added to my positions in the following real estate investment trusts (REITs):
Omega Healthcare Investors, Inc. (OHI) is a real estate investment trust that invests in healthcare facilities, primarily in long-term healthcare facilities. This REIT has managed to boost distributions for 13 years in a row. The ten year dividend growth rate is 10.90%/year. Omega Healthcare Investors currently sells for 12.70 times funds from operations (FFO) and yields 6%. On a side note, Yahoo Finance shows the yield as 2%. This is incorrect - the quarterly dividend is 54 cents/share, but the last dividend that OHI paid was prorated for 1 month. I last analyzed Omega Healthcare Investors in 2013, and am working on refreshing my review. Please stay tuned.
W. P. Carey Inc. (WPC) is a real estate investment trust which 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. The company leases those properties back under long-term sale-lease back agreements. . This REIT has managed to boost distributions for 18 years in a row. The ten year dividend growth rate is 7.50%/year. W. P. Carey currently sells for 13.40 times FFO and yields 5.90%. Check my analysis of W.P. Carey for more details.
HCP, Inc. (HCP) is an independent hybrid real estate investment trust which invests in properties serving the healthcare industry including sectors of healthcare such as senior housing, life science, medical office, hospital and skilled nursing. The fund also invests in mezzanine loans and other debt instruments. . This REIT has managed to boost distributions for 30 years in a row. The ten year dividend growth rate is 2.70%/year. HCP currently sells for 13.10 times FFO and yields 5.70%. Check my analysis of HCP for more details. Despite issues with the company’s largest tenant, I think the dividend is safe and can grow over time. However, this one requires closer monitoring than the other two mentioned above.
I am not afraid of rising interest rates. Rising interest will increase the cost of capital, but they also signify the fact that business activity is better. If there is more business, companies hire more, need more space and probably will be able to afford higher lease payments. This is where examining the debt maturities of companies you are interested in investing could make sense. I know for a fact that a large portion of debt issued by companies is longer term in nature. When you sell a 10 year bond to finance a real estate purchase at a fixed rate, or when you get a 30 year mortgage, your interest rate is largely fixed. Therefore, you do not need to worry about interest rates increasing for the length of that loan term. In addition, I expect interest rates to increase gradually, which would allow companies to adapt when they need to access credit markets again.
Full Disclosure: Long OHI, WPC, HCP
Relevant Articles:
- Four Dependable Dividend Stocks I Bought Last Week
- Six Dividend Investments I Made Last Week
- Five Things to Look For in a Real Estate Investment Trust
- Are we in a REIT bubble?
- Four High Yield REITs for current income
Subscribe to:
Post Comments (Atom)
Popular Posts
-
Back in 2017, I made a bet with Warren Buffett and my friends Carl over at 1500Days and Ben at Suredividend . Buffett does not know that...
-
Warren Buffett does not need any introduction. He is a very successful investor who is in charge of Berkshire Hathaway. He has an impressiv...
-
As part of my review process, I look at the dividend increases every week. I use the following resources to compile this list, if you are i...
-
In my monitoring process, I tend to analyze companies I own once every 12 to 18 months. However, I also receive push notifications such as a...
-
One of the most common questions I receive relates about the idea of how to invest a lump-sum amount. I believe that the answer is not a one...
-
I review the list of dividend increases as part of my monitoring process. This process helps me review how the companies I own are doing. It...
-
As a shareholder, there are two ways to make profits from a stock. The first way is when you sell your stock for a gain, after it has incr...
-
The S&P Dividend Aristocrats index tracks companies in the S&P 500 that have increased dividends every year for at least 25 years...
-
A little over two years ago I launched a project , where I am trying to show readers how I would go about building a dividend portfolio from...
-
At the beginning of the 21st century most young people are told that social security won’t be there for them when they retire from the work ...
In the last couple of weeks, I have added to OHI, VTR, and WPC. REITs look good to me, too. :)
ReplyDeleteREITs have been beaten down. It is possible they will be beaten down even further, so investors like us can purchase more future income for less money today. Whether it is socks or stocks, I love a good sale ;-)
DeleteI also have recently added to HCP and WPC! Both are in my (and my wife's) ROTH accounts. Reinvesting dividends so will eventually have several thousand in tax free income from these reliable REITS, when we retire.
ReplyDeleteTax-free income for life sounds pretty sweet. Eliminating taxes in the accumulation phase is a smart strategy If you have a REIT yielding 6%, growing dividends at 4%/year, and you reinvest dividends, your total dividend income grows by more than 10%/year.
DeleteNice purchases, DGI. Those are some solid REITs and very attractive at current levels.
ReplyDeleteCongrats on adding to your dividend income stream!
R2R
Thanks for stopping by R2R. Buying REITs sure beats managing real estate and receiving the proverbial 2 AM phone call to fix the toilets. And growing the passive dividend income stream in a sustainable and tax-efficient way is the ultimate goal of every dividend growth investors!
DeleteNice buy. We hope to add OHI in our existing position in the near future. HCP is looking very interesting too.
ReplyDeleteTawcan,
DeleteThanks for stopping by. OHI has the highest expected growth of the three, so it has been a favorite of many investors. HCP however has the longest track record of dividend raises.
Good luck in your dividend investing journey!
DGI
For the purpose of providing advice to others in my family regarding dividend growth investing, I'm looking for a succint description somewhere on the web (or this blog) regarding why dividend growth matters more than current yield in the long run. Any suggestions?
ReplyDeleteUnfortunately, there isn't a one size fits all approach. You might like these articles:
Deletehttp://www.dividendgrowthinvestor.com/2013/09/the-tradeoff-between-dividend-yield-and.html
http://www.dividendgrowthinvestor.com/2014/07/dividend-yield-or-dividend-growthmy.html
And for any other questions, you might also find answers potentially by checking the archives: http://www.dividendgrowthinvestor.com/2013/03/complete-list-of-articles-on-dividend.html