Recent Buy

buyThe stock market in general isn’t offering a lot of spectacular individual values out there, and why would it? There’s just not many other asset classes out there that are all that attractive right now.

Bonds are offering historically low yields;  you’d have to go back to 1952 to find 10-year Treasury notes with yields like you see today. So odds are not on your side as a long-term bond investor right now.

Gold offers no cash flow, so anyone seeking financial independence via rising passive income is just likely not going to take a shiny yellow metal very seriously. I sure don’t! I think there are some gold connectors inside my laptop somewhere, but other than that I own no gold.

Then you have real estate. Sure, rental income can be a nice way to cash flow your freedom, but who wants to deal with the proverbial leaking toilet? Even worse is the real-life leaking toilet!

And then there’s cash. This is probably the worst investment of all as inflation will surely invisibly tax your cash pile and lead to a loss of purchasing power over time.

Equities, on the other hand, offer you a piece of real-life thriving businesses that share a piece of their rising profit with you as a part-owner (if you’re investing in dividend growth stocks like me). As such, this is the asset class I continue to load up on, and currently have almost 100% of all my worldly wealth allocated to. And my recent stock purchase is just an extension of that enthusiasm and confidence.

I purchased 70 shares of American Realty Capital Properties Inc. (ARCP) on 4/23/14 for $13.28 per share.

American Realty Capital Properties is a real estate investment trust that acquires, owns, and operates primarily single-tenant freestanding commercial real estate which it net leases to tenants with high credit quality.

This was my second purchase of shares in ARCP, with the first one coming back in August 2013 for slightly less cost per share. This was a rather small purchase for me based on my historical transactions, but this is due to capital being rather tight for me right now.

Since then a lot has changed for ARCP. They are now the world’s largest net lease real estate investment trust after completing the merger with Cole Real Estate Investments. The company now boasts 3,732 properties spread out across 49 states, plus Washington, D.C. and Puerto Rico. They have 1,071 high-quality tenants in 71 different industries with an average remaining lease term of 11 years. They have also become internally-managed, which should align well for the long-term interests of shareholders and be more cost-effective.

Some of their largest tenants (by % of rent) are Walgreen Company (WAG), AT&T Inc. (T), CVS Caremark Corporation (CVS), Dollar General Corp. (DG), and FedEx Corporation (FDX). Four out of five of these tenants have a credit rating of BBB or higher, and none of their top-ten tenants have a credit rating lower than BBB-. 83.1% of their tenants are investment grade rated.

Their portfolio of properties is spread out between four  major types: single tenant retail (51.1%), single tenant office (23.9%), single tenant industrial/distribution (13.9%), and multi-tenant retail (11.1%). However, ARCP has announced that it will spin off its multi-tenant power and shopping center business, which is valued at approximately $2.2 billion. This spin off will give existing ARCP shareholders 1 share in the new business (ARCenters) for every 10 shares they currently own in ARCP. This spin off is expected to close in the second quarter of 2014. This transaction will allow ARCP to focus on its core business.

ARCP’s growth, as I discussed previously, has been incredible and almost unbelievable. The driving force behind this growth has been Nicholas S. Schorsch, the energetic and dynamic CEO – an industry veteran. And while it remains to be seen how well this company can navigate and manage this explosive growth, I see nothing so far that points to concern.

ARCP is obviously a bet on continued economic prosperity here in the U.S., as well as commercial real estate. And since I can’t go out and buy my own commercial building and rent it out due to limitations, ARCP gives me the opportunity to not only expose myself to this market, but also do so in a heavily diversified manner.

Since being founded in 2011, rental revenue grew from $3.970 million at the end of FY 2011 to $238.796 million at the end of FY 2013. And adjusted funds from operations grew from a negligible amount at the end of FY 2011 to $0.86 per share at the end of FY 2013. And management is guiding for AFFO of $1.13-$1.19 per share in 2014 on revenue of $1.433 billion.

Since I only invest in companies that regularly pay and raise dividends, let’s take a look at ARCP’s dividend history. Dividend growth has been impressive, and continues to be so. The dividend was initially set at $0.0729 per share monthly when the company was founded in late 2011. The dividend is now $0.0833 per month per share as the dividend was raised to $1/share per year on the back of the Cole merger. This is growth of 14.3% over the course of a little more than two years. However, this growth is even more impressive when you consider the size of that monthly dividend. Furthermore, the company has raised the dividend a total of eight times since their initial dividend payment in late 2011. The entry yield on shares based on my price is 7.53%, so even very moderate dividend growth leads to a rather attractive total return.

The balance sheet looks stable; however, it’s changing rapidly as ARCP pro forma comes fully on line. Moody’s has assigned a rating of Baa3, with a stable outlook.

The valuation on shares right now is quite attractive, in my opinion. Based on TTM AFFO/share you’re looking at a P/AFFO ratio of 15.44, and based on forward guidance you’re looking at a P/AFFO ratio of ~11.17. That’s pretty solid stuff considering that everyone is concerned with the supposed dearth of attractively priced stocks in today’s market. As I always say, I’m not buying the stock market; I’m buying stocks in individual businesses, and must value those ownership stakes accordingly. I once heard it’s not a stock market, but rather a market of stocks. I tend to agree with that.

I also valued shares using a Dividend Discount Model analysis. Using a 10% discount rate and a 5% long-term growth rate shares are fairly valued at $21.00. Even lowering the growth rate down to 3% (in line with long-term inflation) you’re looking at shares being fairly valued $14.71. It would appear that I received a comfortable margin of safety on these shares, as I think ARCP should be able to grow the dividend above the rate of inflation based on rent increases and acquisitions. And even if they don’t, this should be a solid investment for me.

This purchase adds $70.00 to my annual dividend income based on the current dividend payout.

I usually like to include analyst valuation opinions on my purchases, but neither Morningstar nor S&P Capital IQ track this stock.

I’ll update my Freedom Fund in early May to reflect my recent addition.

Full Disclosure: Long ARCP, T

How about you? A fan of ARCP at these prices? 

Thanks for reading.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

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78 Comments

  1. Now I know why you are a BIG fan of ARCP at these prices. Great buy. I been adding with FRIP and plan to make my next buy if the price stay at this level.

  2. Interesting find!

    If REIT’s are what you are looking at, might I suggest you take a hard look at STAG?

    They investor in commerical real estate, and stay away from huge cities. Thus, they get CAP rates in the 9+ range.

    They pay a monthly dividend, and have shown great AFFO growth. They should be able to continue doing so for a few years.

    Here’s a presentation you might enjoy: http://ir.stagindustrial.com/Cache/1001184736.PDF?Y=&O=PDF&D=&FID=1001184736&T=&IID=4263385

    Long Term Brian

  3. Love arcp and long may they prosper, great analysis jason. Looking forward to continued dividend growth and share price over the coming years. Cheers t

  4. Nice purchase Jason! I am looking to add an REIT to my portfolio as soon as my love affair with offshore drillers ends. Congrats on the new dividends and keep up the good work!

  5. All right! I just bought this last week as well, I’m glad to hear that other investors (especially ones that I follow and respect their analysis) feel the same way that I do. The only real hesitation that I had with ARCP was that their history only goes back to 2011 so you only have a few years to really look at how they have been doing.

  6. FFdividend,

    Glad to have you on board as not only a fellow shareholder, but also one that’s happily adding here. I don’t plan on ARCP being a large position for me, but I was happy to add near my cost basis here. I think the yield and valuation makes a lot of sense here.

    Cheers!

  7. Another great buy.. REITs are priced low these days compared to stocks. Most REITs provide a decent yield (above 5%) which is definitely more than a bank pays for a savings account. REITs, besides allow an investor to get exposure to this asset class without a lot of money, allows people to be involved in real estate without being a landlord

    I own REITs and a real estate corporation in my portfolio..

  8. Long Term Brian,

    Thanks for the tip there. I’ll definitely take a look at STAG. I’ve heard of it before, but for one reason or another have never actually taken a good look at the company. That presentation looks pretty good.

    Gotta love monthly dividends! 🙂

    Best wishes.

  9. Tales,

    Thanks! I think ARCP is a solid investment at these prices. We’ll see how it turns out, but even very moderate dividend growth leads to a solid long-term total return because the yield is so high.

    May we and ARCP all prosper! 🙂

    Take care.

  10. Zee,

    Glad to be on the same page as you. 🙂

    Yeah, I think ARCP looks great here. This is the largest of its kind in the world. Add in a monster yield that’s well-covered and I don’t know how you go wrong.

    And I dig your last post. Nothing wrong with being lazy, and I love the reference to Office Space. One of my favorite movies. I would add to your post the idea of working smart, not working hard. The former will get you much further in life, while also allowing a lot of latitude to be lazy. It’s essentially my motto.

    Thanks for stopping by!

    Best wishes.

  11. Investing Pursuits,

    I agree completely. REITs in general are priced pretty attractively right now. While some are expensive based on their historical valuations, the yield and growth is pretty attractive for many of them right now considering where underlying interest rates are at. Although, that’s the flip side of the coin: When rates rise this may cause REITs to fall as borrowing costs rise. However, I don’t really worry about macroeconomic events like this.

    And I’m more than happy to get exposure to different types of real estate without having to go out and leverage property myself. The diversification and low barrier to entry for REITs offer a lot to like if you’re looking for exposure to real estate. I rent, so this is perfect for me. Whereas most Americans have almost all of their wealth tied up in real estate through their own home, I have much lower exposure.

    Cheers!

  12. DM,

    Thanks for the info on ARCP. I am looking to add some high yielders, but energy and utilities have spiked quite a bit recently. I already own HCP and DLR and would like to purchase more DLR. The yield looks great on ARCP and it definitely would make a great DRIPper.

  13. Dividend Pipeline,

    I noticed some of my favorite energy plays have spiked a bit recently. Although, KMI still looks good here. BP as well.

    I think quite a few REITs still make sense here. I don’t think ARCP is quite a steal because of its short operating history, but it’s quite a bit cheaper than its peer in O, and consequently offers a much higher yield.

    But I’d love to have you on board as a fellow shareholder, and it’s even cheaper now from where I added. 🙂

    Best regards.

  14. ARCP sounds like an interesting play, I’ve heard about it here and there, but your analysis is very nice. This could turn out into a major dividend play, especially since it’s got tremendous growth prospects.

    I’ve been thinking about starting a position in AMGN. It’s a leading biotech company with a low current yield but very solid dividend growth. This would be a deviation from my usual strategy of sticking to dividend stalwarts. I would be catching this company right around when it starts taking off.

    It’s risky, but hey, we’re young and we can get away with it =). Time heals wounds and has the potential to heal mistakes as well.

  15. I’ve been thinking about adding to my position in ARCP and I’m looking forward to the upcoming spinoff should allow both companies to focus on just one real estate venture. I’d really like to get a rental property or two but at this time I’m not sure if it’s all that good of an idea. I can’t devote as much time to it so I’ll be forced to give up some return in exchange for a more handsoff approach by going through a turnkey and property management company. Although they are completely different beasts since there are so many deductions available for owning property. I’m hoping to get a bit more clarity on what we’re going to do in early May when I can hopefully speak to some companies to see what they have in store. Whether we purchase a rental or not I’m still looking for more real estate exposure most likely through O, ARCP, and OHI.

  16. Nice. I opened a small position in ARCP earlier this month and I plan to add more this week. I started with VNQ, the Vanguard REIT ETF, but I appreciate the strategy of focussing on strong, well-led, individual companies within a sector. I started with O, but I plan on adding a few more, like DLR, HCP, OHI, or SKT, after due diligence to narrow the candidates and to gain a little variety among the REITs I hold.

  17. DM,

    I’ve been enjoying your blog for some time now.
    We seem to be like minded. I opened up a position on ARCP on the exact same day at a price of $13.30. I had been looking at them since last year and decided to pull the trigger.
    Also recently opened up a position on BP as well. Risks for sure, but we’ll see how it pans out.

  18. Great article! I have been trying to decide between adding additional funds to OHI and ARCP. I haven’t made up my mind yet, but I may just buy both over the new few months. I think both are fairly attractive at this point in time.

    Keep up the good work!

  19. Great minds think a like. I am also looking to ARCP. I have a large position of O for the Roth, I was thinking about adding ARCP to my taxable account. What are your thoughts on Arcp vs. O

  20. DM,

    Great buy and price on ARCP here

    Should be scooping up ARCM shares from the spinoff too once they jump through all the hoops. That will add yet another monthly dividend. Scorsch is launching these REITS non stop now with HCT and NYRT too!

    I own a little STAG too as that guy mentioned, but has kind of ran higher from where I initiated.

    I just added some WHLR thinking if they make the right moves and the dividend is safe at this price it could be a steal. Not much history and a smaller more speculative play I think has potential to pay off in the long run

  21. Thanks for taking the time to read my post, I’m glad you liked it. I’m definitely adding that in, “work smarter, not harder” is basically how I view investing, my money starts doing the work for me so that eventually I won’t have to.

  22. I’ve nerver heard this stock before, but after read your post, it looks very interesting to own. Thank you for another great article.

  23. I also added to my stack today 120 pieces with some extra discount for 12.64, making it 10€ per month in dividends. I love the montly payout, just like O 🙂

  24. What are your thoughts on Keurig Green Mountain (GMCR)? They announced a quarterly dividend of $.25 per share at the beginning of this year, are launching a cold version of the Keurig at the end of the year and they have a very exciting deal with Coke.

  25. Hey Jason! Thanks for sharing! Great review! I checked their website. It was interesting to check by state what city and property they own. Lots of properties in Texas, which is good because we are a strong state! I think I will add some to my portfolio as well.

  26. Good comments at the beginning of your article, Jason. There are a lot of choices in asset classes but all have their warts, individual stocks, included. I suppose the quick and dirty answer is to diversify. A lot of the things that don’t look great right now might look a lot better in 10 years.

  27. Interesting choice. While the dividend looks good (very good), they haven’t been putting up great numbers and as of the end of 2013 (profits – or lack of, and cash flow). Do you feel that they can continue to increase or even maintain the high dividend? I am assuming the higher reward (dividend) is worth a little higher risk.

    Forgive me if these are stupid questions – I am new to this and may be overly cautious

  28. Jason, any other REITs that you like at today’s prices? REITs are an area that my portfolio is lacking, and I have some cash looking for a good home. Thanks!

  29. Full agree. ARCP recently past figures are a joke, they look horrible. Reviewing the cash-flow statement, it seems dividend aren’t truly sound.

    I think this is a very speculative play.

    Take care guys, hope to be wrong.

  30. Spoonman,

    I think ARCP has a lot of potential, but there’s some risk there as well. That’s why I’m keeping it (along with REITs as a sector) a smaller part of my overall portfolio.

    I haven’t looked at AMGN before. Taking a quick look, it’s a pretty huge company. Maybe I’ll take a look. The dividend growth lately has been impressive.

    Best regards!

  31. JC,

    I wish you luck either way. It’d be great to have some real estate exposure either via direct rental property ownership, or ownership of a basket of high-quality REITs. I prefer the latter because I’m more of a hands-off type of guy when it comes to real estate, but I also understand that I’m sacrificing some return in exchange for the ease.

    Cheers.

  32. Greg,

    Sounds like a very reasonable plan there. I don’t personally have any index funds, but I hear that VNQ is a fantastic fund. Of course, most of Vanguard’s stuff is pretty great.

    And you have a pretty good basket there. I personally hold O, DLR, and OHI, so I’m biased there. 🙂

    Take care!

  33. Samwise,

    Wow, nice! I guess great minds think alike. 🙂

    Glad to have you on board as a fellow shareholder. I hope ARCP treats us right. And best of luck with BP. Even though it’s had a run lately, I think there is still some tremendous value there. Although, risks are rising in kind with tensions in Ukraine.

    Best wishes.

  34. ILG,

    I own both OHI and ARCP; however, ARCP came back down near my cost basis. The price, the yield, and the addition of new properties via all of the acquisitions made it an attractive purchase for me right now. In addition, it was a very small position for me and I didn’t have a lot of capital this month. So ARCP made a lot of sense for me here.

    Thanks for stopping by!

    Cheers.

  35. Sunny,

    Indeed! 🙂

    I think both O and ARCP are great net lease REITs, with similar tenants and property portfolios. The difference for me is that O has a much longer operating history, and has proven itself over and over again. However, this history comes at a price as O is priced quite a bit higher than ARCP, and hence offers a much lower yield. I would say, overall, ARCP is probably the higher risk/higher reward play vs. O. But I already own a nice chunk of O, and so I felt comfortable adding to ARCP on this pullback.

    I hope that helps!

    Best regards.

  36. SWAN,

    Schorsch has indeed been quite busy. I don’t know how the guy finds time to sleep. He must dream about real estate even when he is sleeping. 🙂

    I’ll have to take a look at WHLR. Seems I have a nice list of research in front of me on REITs now. There’s definitely no shortage of options here. However, I plan on keeping REITs only around 5-8% of my portfolio over the long haul, so I don’t want to go crazy. But I think there are still some deals to be had here.

    Take care.

  37. Arik,

    Even with that new dividend the yield is quite low. And the price appears a bit expensive as well. For now, I’ll keep my KO shares and hope to benefit from the cold beverage system down the road that way. However, if GMCR is able to continuously raise their dividend, and the price comes down a bit, then I might be interested. 🙂

    Take care.

  38. Dina,

    Yeah, they have more exposure to Texas than any other state. Nothing wrong with that! 🙂

    I hope you like what you see with ARCP. I’d love to have you on board.

    Cheers!

  39. DB40,

    Absolutely. Every asset class has its own unique benefits and drawbacks. I’m a bit biased and feel stocks are the best asset class for the long haul, but I can see the attractive nature of many other investments as well. If interest rates rise significantly I may even eventually buy some long-term bonds.

    Best regards!

  40. New to Investing,

    Well, you would determine a REITs profitability via using FFO (funds from operations) or AFFO (adjusted funds from operations – which back out depreciation and amortization, both of which can be significant charges for REITs. You would also want to look at rental revenue. Under a standard profitability measure, ARCP is plenty profitable and the dividend is well-covered.

    But I understand where you’re coming from, and it’s good to be cautious! I would definitely recommend reading up on how REITs work and how to determine profitability. Because of their tax structure and business model they’re a bit different than normal C corp.

    Cheers!

  41. KeithX,

    I can only recommend those I’ve taken a deep look at myself, and have personally invested in: O, DLR, and OHI. I would say DLR offers the most aggressive risk/reward profile of them all.

    I hope that helps. 🙂

    Best wishes.

  42. Manefla,

    See my response. I think the numbers actually look pretty solid, fueled by some pretty massive acquisitions. Forward AFFO guidance appears reasonable and attractive, and the dividend is well-covered.

    Cheers.

  43. It always helps to get a different perspective/opinion, and I value yours. 😉 Interestingly, I had concluded that O would be a good balance with ARCP before seeing your reply, O being more conservative and ARCP being more aggressive. DLR and OHI look pretty good, too, but so do HCN and HCP in the health care related rentals area. So many choices, it’s great to be an investor in 2014.

  44. You mention how low yields are and are buying REITs? Interesting. You are all ready down about 5% on this purchase. Interesting.

  45. Hi Jason,

    Nice write up on ARCP. I don’t own any REITs and was thinking of adding one to my portfolio. ARCP pays out a nice dividends. Do you think ARCP would be a good first REIT to add or would you recommend a different one?

    Thanks,
    Frank

  46. Thank you for the follow up. I will look into it further. I am definitely interested in adding some higher yielding dividends to my (small) portfolio.

  47. KeithX,

    Thanks for the vote of confidence! I really appreciate that. 🙂

    It’s definitely great to be an investor right now with not only so much choice, but so much accessibility. We’re blessed.

    Best of luck deciding where you want to go. And I definitely think O and ARCP compliment each other well as the two big players in their space.

    Cheers.

  48. Dave,

    If I were a short-term investor that was interested in trading in and out of stocks this would concern me. However, I’m a long-term investor. I’m not interested in what ARCP as a stock does over the next 30 or 60 days. I’m interested in what ARCP the company does over the next 10 or 20 years. It’s a different perspective, and it seems that we don’t share it.

    Take care.

  49. Frank,

    Thanks so much! Glad you liked the post.

    I’m not sure I’d recommend ARCP as a first REIT, but this also depends on your portfolio size, time horizon, and risk tolerance. If you’re looking for a net lease REIT, O is a safer choice right now, albeit priced more expensively and with less yield. I’d say O is a classic REIT for a dividend growth investor, and one of the most reliable blue chip stocks in this space.

    I hope this helps.

    Best wishes.

  50. DM!

    I really like this purchase for you. It’s a great company with excellent management and I like that they’ve already grown so much since you’ve owned them.

    I was wondering if you’d end up biting and buying something this month. Looks like the monthly streak is still on. Thanks for fun read and detailed analysis.

    Have a great week!

  51. Hey Jason,

    It’s not that I want to challenge you but how can you explain that ARCP show a negative return of -22.95% over the past 12 months and a negative return of -1.02% since 2011. It looks the company stock price doesn’t reflect the unbelievable growth you are talking about. There must be an explanation but I don’t know this company so I’d be interested in your theory about this very bad result on the stock market (the Nasdaq did +65% since 2011). FRT and O (two other REITs with a similar small cap) showed returns of +29.55% and +35.59%.

    thx for the explanation 🙂

    Mike

  52. The one days drops and surges make stocks fun!

    I also entered ARCP in the past month around $13.4/share. It’s a bit lower now, but with a monthly dividend it will settle into a nice average cost (I am reinvesting dividends through my brokerage in most holdings). Regardless, a .05% difference in yield is nothing to gripe about. It’s the 5 yr gain that I care about, and the 10 yr gain i care about even more!

    I’ve also been impressed with a runup recently in AAPL, BP, and MO. If AAPL continues its run to $650 pre-split, I may offload some/all and take gains. and put it into something else. It would take 20 years for AAPL dividends to reach something like ARCP dividends.

    I’ve recently been looking into not just dividend growth stocks, but also some dividend GROWTH stocks. The difference being a stock with huge capital appreciation upside, but at least an okay dividend which pays me to wait. That’s how I viewed my entry into AAPL and GM. We’ll see how it plays out.

    The ultimate goal is, of course, strong and growing cash flows over the years with a little turnover when things get to frothy or losses don’t seem to turn around.

    As always, a pleasure on your site.

  53. Would you rather buy a stock that just recently went up 20% or one that just went down 20%?

  54. Ryan,

    Haha! It looks like the streak is still on for now. I have a feeling my streak might end here next month or soon thereafter, unfortunately. But I’ve got some big plans ahead and I’m excited for what tomorrow brings. 🙂

    I think ARCP is a winner for the long term. It’ll likely remain volatile for a little while as they swallow acquisitions and interest rates fluctuate, but I’m worried about the next 10-20 years rather than the next 10-20 months.

    Cheers!

  55. DividendVet,

    Nice buy there! Really glad to have another long-term investor on board here. 🙂

    Enjoy those hefty dividends. I know I will!

    Best wishes.

  56. Mike,

    Great question there. And I don’t mind being challenged. We’re all in this together. 🙂

    As far as your returns go, it all depends on your time frame. For instance, I just ran returns from September 21, 2012 to now and ARCP is up 5.46% to O’s 2.83%. And that’s before counting dividends. So ARCP handily beat O during this time frame.

    What’s my point?

    My point is that you can pick out any time period and show how one stock is performing better than the other. But that’s not the purpose of long-term dividend growth investing. The point is to invest in high-quality businesses, collect the passive dividends, and reinvest. Repeating these steps over and over again will almost surely lead to greater wealth over the period of many years. Worrying about why Mr. Market isn’t in love with a particular stock is really of no concern to me, and as well it’s not within my control. Focusing on a business’s fundamentals is within my control, and that’s why I focus on that. If anything, Mr. Market being depressed about a certain stock only provides a long-term investor a unique opportunity. Thus, I took that opportunity and bought shares in ARCP.

    Cheers!

  57. invertirporfundamentos,

    Thanks for stopping by.

    I’d be careful with oil trusts. From what I understand you’re buying into a trust that distributes all of its cash flow to owners as its assets deplete. In addition, there are tax considerations. I don’t follow BPT, but that’s from my basic understanding of oil trusts in general.

    Best regards.

  58. Ravi,

    I’m with you completely. I’m not worried about the next 10 months. I’m worried about the next 10 years. And I’m betting that ARCP will deliver over the next decade with their portfolio of high-quality properties and tenants.

    As far as stocks with greater growth potential, I try to mix it up. I have some stocks with higher growth profiles like IBM and ITW to balance out the higher-yielding stocks with lower growth profiles like ARCP. Then, of course, there are the “sweet spot” stocks like JNJ, KO, PEP, PM, and the like where you’ve got 3% or so yields with a 7-10% growth profile.

    Thanks for stopping by. And it’s a pleasure to have you here. 🙂

    Cheers.

  59. The movement is not important. What’s matter is the explanation. I would buy Helmerich & Payne (HP) ( +86% over past 12 months) instead of Radioshack (RSH) at -53% over the same period. It has nothing to do with past performance, just the fact that HP has a brighter future.

    Another example would be Mattel (MAT), I’m not sure it is a good pick even if the stock lost about 20% of its value recently. The stock price is going down for a reason.

  60. Hey Jason,

    I agree with you that we can pick up dates here and there and compare stocks forever to find which one is best. I was more curious to know why ARCP had been down so sharply in a very positive and enthusiast market. I often think the market is wrong on many companies during a bear market, but I always wonder why a stock is not following the parade during a bull market.

  61. Hi Jason,

    I recently discovered your blog and have been hooked ever since. Keep up the great work!! 🙂

    I re-balanced my brokerage accounts to add-on more long term dividend paying companies. i currently have a portfolio of 33 stocks. however, i struggle with deciding how to allocate my $1,500 monthly contribution across these stocks? how do you determine what stocks to re-invest in on a monthly basis?

  62. Mike,

    Ah, okay I see what you’re saying.

    I can only speculate as to the stock price, but I think there’s a few reasons. First, you have the rising interest rates which affect companies like ARCP who rely heavily on financing. In addition, higher-yielding stocks typically don’t fare well when interest rates are rising sharply because other investment options open up. Then there’s the short operating history. I think that’s a big reason it trades at a discount to O. At some point their operating history becomes lengthy (unless you think they’re going out of business) and this discount will disappear. Combine that with rapidly rising AFFO/share and you have a recipe for a stock that has a lot of potential.

    Best regards!

  63. T.Elliot,

    Thanks so much! I’m really glad you enjoy the blog. I try hard to make it a great spot. 🙂

    That’s a good question regarding new investments. I take a lot of factors into consideration when I’m allocating fresh capital. I first consider my own portfolio of stocks before I consider new ones. It wasn’t always this way, but when you get up to 30-40 stocks then you already have a great basket of companies that you’ve done your due diligence on. From there I’m considering valuation, yield, quality, and weight. For instance, if I wasn’t already so heavy in PM I would have loaded up on it around $75-$80 per share recently. Unfortunately, it’s already a large part of my portfolio so I only bought 15 shares, and even that was begrudgingly so. Options ebb and flow as the market goes up and down. Sometimes, opportunities are plentiful. Other times, it’s more difficult. I take what the market gives me and try to seek out the best values I can. You’ll learn your comfort zone as time passes, trust me.

    Best wishes!

  64. Glad to see you adding ARCP on this dip. That capital is producing twice the income of the typical DGI stock. Since income is what you are after this stock matches your objective. Capital gains come and capital gains go just as quickly but dividends pay the bills.

    I suggest you expand your REIT holdings and also venture into the world of BDCs while they are on sale. PSEC is the stock for you and you can pick it up now on sale yielding 12%. That is four times the income of your average holding. It would take 17 years of holing a typical DGI stock to reach that YOC. And of course your PSEC would have paid for itself 4 times over in the same time. PSEC and FSC also pay monthly. That would help even out some of your smaller income months.

    Thanks for listening and keep up the good work.

  65. Gene,

    Thanks for stopping by. Appreciate the perspective there.

    The only thing I’m hesitant about regarding BDCs is the fact that you don’t really know what you’re investing in.

    Since you’re recommending PSEC, can you tell me what businesses PSEC invests in? What’s their portfolio look like? What are the odds that they can continue to pay out their dividend, or perhaps even raise it? What’s the 10-year story? I ask these questions because I’ve been stumped by BDCs when I’ve looked at them in the past. I’d love to get a 12% yield, but I also know in my heart there’s no free lunch. You’ll see that yield is typically that high because there is concern about the stock’s future, or the fundamentals don’t make sense.

    At any rate, I appreciate the thoughts. I agree that it’s great to get the income right away, but at the same time I’m more concerned about the long-term viability of continued rising payments.

    Cheers!

  66. Viisikymppisenä eläkkeelle,

    TUP is an interesting pick. The dividend growth has been impressive, and the valuation seems reasonable. However, I’m no fan of the direct sale model. They’ve obviously done incredibly well with it, but something about it just irks me.

    Otherwise, seems like a great choice. High quality products, brand name, global presence. I haven’t taken a good look at the financials, though.

    Cheers!

  67. Josh,

    Consider that when you invest in BNS, TD, WFC, or SBSI you do not know the particulars of every loan they make. You invest in them because in the past management has made more good choices than bad and the result is profits and dividends.

    Like your bank stocks, with BDCs you are investing in managements ability to make good decisions. PSECs portfolio consist of 125 companies in a broad variety of industries. The list can be found on their website. Most of these are privately held and do not disclose financial info.

    PSEC has a track record of making more good decisions than bad and of paying the dividend. Even in the Great Recession they did not cut even though the stock went to $6.

  68. Gene,

    I’m not quite sure I’d be comfortable comparing a BDC to a bank, as they’re completely different businesses. However, I get your point. And you’re right: Every investment one makes is a bet on management to make the right choices.

    However, because of the nature of the businesses that PSEC invests in (private), I just don’t have the numbers that I’m looking for to be comfortable. For me, it’s much easier to explain in about 20 words what WFC does, while I might have a more difficult time with PSEC.

    I hope it turns out to be a fantastic investment, but it just doesn’t work for me.

    Cheers!

  69. I read many comments but I didnt see this question. Can you explain why they have a negative return on all categories Net profit margin, return on assets, return on equity? This is all based off 2013 data, and why do they only have 12 employees if they have such a large market cap? Seems very odd to me.

  70. RichUncle EL,

    I suspect a lot of their numbers are pretty heavily skewed right now because of all the acquisition activity. When things settle down it’ll be easier to compare them to peers.

    As far as employees go, you’ll find a dearth of employees at a lot of REITs like this. You can look up every employee at Realty Income Corp. (O) on their website, and I think there’s only like 60 or so. It’s not like they’re producing anything. They’re simply managing and acquiring properties.

    Best wishes!

  71. Pingback: Recent Buy

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