Recent Buy

buyI’m getting July started off right, with the purchase of shares in a high-quality company that has a penchant for rewarding shareholders (the owners of the company) with large and growing dividends. They say snowballs don’t roll in July. I beg to differ!

This past weekend saw July 4th, or Independence Day.

First, thank you to everyone who serves in the military and allows us the freedom we enjoy.

Second, when I think of Independence Day, I also think of a different kind of independence – independence from the rat race, wage slavery, and the constant need to exchange our limited and dwindling time for a paycheck.

And I just bought a little more independence with this most recent transaction.

I purchased 25 shares of W.P. Carey Inc. (WPC) on 7/6/15 for $59.53 per share.

Overview

W.P. Carey Inc. is a global real estate investment trust that provides services including long-term sale-leaseback and build-to-suit financing solutions.

As of December 31, 2014, the company has 219 tenants across 783 properties in 18 countries. The occupancy rate is 98.6% and the average lease term is 9.1 years.

They operate in two segments: Real Estate Ownership (71% of fiscal year 2014 revenue) and Investment Management (29%).

They were founded in 1973 but reorganized as a REIT in 2012.

Stick To The Plan

I’ve talked a lot about WPC lately, so there’s not much more I can add. I initiated a stake in the company (and analyzed the stock) back in early April and the stock has dropped incrementally since then. What does a long-term dividend growth investor do? Well, buy more, of course. I last averaged down in early June, but this is my most aggressive purchase thus far.

What I will quickly discuss, though, is sticking to your long-term plan.

I’ve been hearing a lot of noise about Greece lately. I have high-grade earplugs, but even I have a hard time ignoring the noise when the media is screaming in my ear. And that’s kind of what’s happening here with the situation in Greece.

I can tell you what’s not going to happen: Greece isn’t going anywhere. Whether or not they’re part of the eurozone in a decade is anyone’s guess, but the people and the country aren’t going anywhere. Besides, this is an economy that’s smaller than the metro Boston area. Are we really going crazy over something like that?

I can, however, tell you what is going to happen: Great companies will continue to sell more products and/or services to more people in the future. Profits will grow. And dividends will increase in turn. PepsiCo, Inc. (PEP) will still be selling potato chips and beverages in a decade. Aflac Incorporated (AFL) will still be selling insurance products to clients in the US and Japan over the foreseeable future. And W.P. Carey Inc’s properties across the world will still be used for a variety of purposes tomorrow, a year from now, and a decade from now.

The odds of any of these companies not continuing to do what they do best and make a lot of money doing it are incredibly small. And it would certainly take a lot more than some currency concerns in Greece to make that happen. I just can’t recall Pepsi ever mentioning in an annual report that their future hinged on the future of Greece. That’s probably because it doesn’t.

Either way, you can’t control Greece. You can’t control what Europe (or any other country) does. What you can control, though, is your own behavior: your spending, investing, and consistency.

So stick to your long-term plan. Ignore the noise and focus on what you can control.

Risks

WPC is truly international, so they face currency risks like any other company doing business globally.

In addition, they face interest rate risk in the sense that as rates rise the cost of capital increases. Though this is also true for almost every business out there that relies on some debt to conduct business and grow, this is exacerbated for REITs because of their structure.

Another risk is that 25% of WPC’s leases expire within the next five years. Any issues with renewals could be problematic.

Furthermore, only 26% of their tenants are investment-grade.

Lastly, although they have substantial experience in their field dating back decades, their operating history as a REIT is rather short.

Valuation

WPC’s P/AFFO ratio is currently 12.53, which I find really attractive when you consider the quality, track record, valuation, growth, and yield.

The yield is 6.41% right now. That’s obviously very appealing to anyone who’s interested in current income in the sense that every dividend dollar gets one that much closer to independence. That’s also substantially higher than the five-year average for this stock. So you’re getting a lot of yield both in absolute and relative terms.

I valued shares using a dividend discount model analysis with an 8% discount rate and a very conservative 4% long-term dividend growth rate. That’s almost half the DGR over the last decade, which gives a rather large margin of safety to account for rising rates and some of the other unique risks I touched on above. The DDM analysis gives me a fair value of $99.06.

This stock could be significantly undervalued here as it exhibits a rare and elusive combination of yield and dividend growth that are both quite high. It’s just not particularly often that you can buy a stock with a yield of well over 6% and long-term dividend growth in the upper single digits.

Conclusion

I continue to really like WPC here. It appears to be a stock on the low end of its recent historical norms in terms of valuation and yield in a market that is otherwise rather expensive. And the combination of yield and dividend growth is incredibly attractive to me.

I love the firm’s real estate portfolio. It’s incredibly diversified both in terms of industry and geography. While I love another of my REIT holdings in Realty Income Corp. (O), WPC gives me better diversification, higher yield, more aggressive growth, and a much lower valuation. All that with a dividend growth track record that doesn’t trail O by much. I’m very interested in adding to O at some point here as well, but I find WPC far more enticing at this point in time.

WPC has quickly become a rather large position for the portfolio, especially in regards to the dividend income it generates. So I’m not particularly interested in adding a lot more over the near term, but I also wouldn’t shy away from averaging down again, if given the opportunity.

This purchase adds $95.40 to my annual dividend income, based on the current $0.9540 quarterly dividend.

I usually include current valuation opinions from other analysts, but neither Morningstar nor S&P Capital IQ follow this stock.

I’ll update my Freedom Fund in early August to reflect this recent purchase.

Full Disclosure: Long WPC, PEP, AFL, and O.

Are you a fellow WPC shareholder? Have you been averaging down? Why or why not? 

Thanks for reading.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

Similar Posts

102 Comments

  1. Nice! I bought 49 shares of WPC at $63.08 last month and am looking forward to seeing how it will continue to pay me. I’ll be looking to build some more capital to buy some more if I can get it at these levels. Great job on starting the purchases early again. Looking forward to seeing what else you buy this month

  2. Its nice to see a favourite stock slowly but surely drop in price. I am not surprised you topped up. It sounds a very high-quality REIT with an excellent looking yield.

    I only hold one REIT in my portfolio at present: the UK listed Hansteen Holdings. Would like to add more sooner rather than later but I am in no rush!

    Here’s to your little bit more of freedom!

  3. Way to go, DM. Keep those purchases and dividends coming. The REITs and Utes are up lately – I wonder if the market is thinking that the Fed wont be raising the rates this year…the behavior sure does seem that way. Great purchase and thanks for sharing

    R2R

  4. DD,

    Glad to be a fellow shareholder!

    I think you got in at a great price, relative to the long-term earnings power and current value. You should do well there. 🙂

    Looking forward to some more purchases here in July. I won’t be nearly as active as I was in June, but I should be able to squeeze in at least two more stock buys. We’ll see how it goes.

    Thanks for dropping by!

    Cheers.

  5. TDD,

    Absolutely. I was already going to buy more WPC anyway, so I’m surely happy to spend less money. It’s just like seeing groceries, the electric bill, or gas cheaper in price. Going to pay for that stuff anyway, so may as well spend less. 🙂

    I haven’t heard of Hansteen, but I’m sure it’s a great stock. The REITs have been hammered this year. Short-term volatility is long-term opportunity.

    Best regards!

  6. R2R,

    Yeah, the market’s participants aren’t very good at forecasting where rates are going, or really much of anything else. That’s why I stick to the long-term plan and ignore the noise. 🙂

    REITs like WPC are still down fairly heavy on the year, even with the recent bounce. I was hoping OHI would drop yet again, but no such luck. But there’s always tomorrow. What Mr. Market likes today has nothing to do with what he likes tomorrow. Might decide the sky is falling and stocks drop. I can only hope!

    Thanks for dropping by.

    Best wishes.

  7. Woooahhh!! 6,41 dividend yield…great buy, for sure! I have no reit…hope some day O or WPC…we never known.
    Today I add more Unilever and Royal Dutch Shell…here in Europe, hope Greece don’t fall!!

    Cheers from Spain

  8. Javier,

    I have a feeling Greece won’t fail. They’ve been around for, oh, a couple thousand years or so. Currency might be different at some point, though. It’ll matter little over the long run.

    Nice moves there with Unilever and Shell. I’m not particularly keen on Shell due to the poor fundamentals relative to a lot of their peers, but that yield is awfully juicy. As long as they can keep paying it, that’s a nice high-yield play that allows one to roll those dividends into some other stocks. 🙂

    Thanks for dropping by from Spain!

    Take care.

  9. I just noticed, if I use Google Finance, and put in WPC, and then Compare: box put in O, click Add, then select All for the timeline, that WPC and O’s graphs are almost identical. Makes me wonder if putting a dollar in one or the other would make much of a difference over time.

  10. Adam,

    I’d strongly recommend to not use Google Finance (or any other financial aggregator site) to somehow get an accurate idea of total returns over a long period of time. You’re only looking at price changes, and if there’s anything I’ve tried to teach over the last four or so years, it’s that dividends and dividend growth make a big difference in regards to one’s total return, income, and income growth (especially reinvested dividends).

    The last 10 years of annualized total return for WPC and O (assuming reinvested dividends):

    WPC: 14.58%
    O: 12.25%.

    Source: longrundata.com

    That spread of over 2% over a decade makes a pretty large impact, depending on how much you’re investing. But the total returns for both stocks is pretty strong. But I find WPC’s lower valuation, higher yield, and stronger growth as more appealing right now, as I mentioned.

    Cheers!

  11. Great stuff Jason, nice to invest some more cash into such a high-yielding stock that still meets your criteria. Have you looked into PSA as another REIT? Yielding about 3.76% with a 20% 5-year dividend growth rate. Definitely one of the darlings in the REIT field

    Also, have you seen the yield on BAX lately? It’s now around 5.45% and has a 14% 5 year DGR. I believe their spin-off is complete and all the dividend income has remained with BAX as the original company. Have you looked into buying more? They will be one of my next 2 or 3 buys.

  12. Nice job averaging down Jason. Your are correct on the noise. Nothing we can do about Greece. Wish them the best over there. But we watch our stocks and average down when opportunity comes our way. Also if a stock on our watch list comes down Buy Buy Buy. nothing like taking advantage of stock price declines. Adding to my positions as well. Nothing like adding additional dividends to the account. again good job on WPC. Cheers.

  13. In regards to the baxalta split from BAX I still don’t have my shares in my account does anyone else have that problem

  14. EWB,

    Like I mentioned to Adam above, I’d be careful to rely too heavily on financial aggregator sites. The yield is still listed that high because the spin-off occurred, and the last declared dividend is being extrapolated out against the current share price (which dropped after the spin-off to account for the loss of BXLT). Going forward, BAX plans to pay out approximately 35% of its net income as a dividend, so the next announced dividend from BAX will thus reflect that. BAX is a fine stock, but I wouldn’t buy into it expecting a yield of 5.45%. That will be rebased.

    As far as PSA goes, it seems solid. But I prefer the higher yield that a lot of other REITS provide me to compensate for the ordinary dividend taxation. And I still get plenty of dividend growth there as well. I probably only have room for maybe one or two more REITs, so I’ll have to be pretty selective there. We’ll see!

    Cheers.

  15. Michael,

    Indeed. Wish Greece and its people very well. But their situation means very little to me, all in all. However, if the volatility with their economy extends out to the world markets (where Greece is a drop in a puddle), fine by me. Short-term volatility is my long-term opportunity. 🙂

    Have fun shopping over there!

    Best regards.

  16. Jason,
    Great purchase I’m actually thinking of buying a REIT this month and the two you mentioned (wpc and O) are at the tops of my list.
    THanks for the continued dedication,
    Rich

  17. Thanks for the article. I’m happy to own some WPC too.

    I know you’re not crazy about RDS, but from what I can see, it has reasonable debt levels, a fair valuation, and a competitive profit margin relative to peers (in addition to the juicy dividend). What worries you about their management?

  18. Yes, I agree with you in Greece and I come from Germany. You can imagine, that there is much more noice in Europe, especially in Germany as a lot of people think, we have the responsibility for this crisis. But I think it doesn´t matter if Greece will stay in the EU or they will leave: It doesn´t really hurt the economy. In Greece there is nearly no industry and the market is so small that all the other countries only think political about this country and the funny Greek politicians.

    I´m sitting at home looking at the falling courses and I think: Why do I have so less money? Its a real nice opportunity to buy additional shares. I have a watchlist of about 200 shares and at the moment I would like to buy more than 100 of them because they went so nice cheap. REITs are really wonderful and your buy was an excellent opportunity to level down the overall price. Hopefully we will get some more falling courses. Even the German companies are getting now interesting and may be I will add some in the near future. But this is only one possibility of many others…

  19. Rich,

    Happy to share! 🙂

    Good luck deciding where to go with your capital. Should be a lot of fun, either way.

    Thanks for stopping by.

    Cheers.

  20. Hi Jason, Nice addition to your WPC. Might be the next one I jump on. Very juicy yield.
    I Just averaged down on my VTR yesterday. The more noise we hear about Greece, the more exciting opportunities we see in the market place 🙂
    Cheers.

  21. Jim,

    Glad to be a fellow shareholder with you in WPC. I think we’ll do really well there over the long term. If the next 10 years are anything like the last 10, I’ll be very happy.

    As far as Shell goes, it trails major peers in every category. Its growth over the last 10 years is negative, its returns on equity and invested capital are very poor relative to the likes of CVX and XOM, as is its net margin. I’m not sure what you mean by competitive margin, but its gross margin for last fiscal year was well below 20% Net margin was below 4%. CVX sported numbers eclipsing 40% and 9%. Is half competitive? In addition, last I looked, all supermajor-specific numbers relating to efficiency (reserve replacement costs, etc.) were poor relative to peers.

    I think the yield is attractive, but the business is really subpar relative to a lot of other high-quality choices. So it’s really up to the individual as to whether the yield offsets the poor fundamentals and lack of growth.

    Cheers!

  22. Phew! Glad to see that my first buy was also picked up by someone that I know is smarter than me at this too! Can’t seem to beat a 6.4% yield on impressive growth.

    I love your assessment on the Greece situation. I view it exactly the same. Everyone else can get into a tizzy about it and I encourage it because uncertainty tends to drive the costs of stocks down and allows me to get more bang for my buck. But one little country on the far southern side of Europe isn’t really much to fret about to us dividend investors. lol

    I know I probably won’t be averaging down on this WPC so. I am still in my start up acquisition mode and diversifying so I need to be branching out and making smart picks among all sectors.

    Thanks for the post and I can’t wait to start collecting this check with ya!

    Brantley

  23. olli,

    Right. It’s all noise. What currency Greece might be using in 10 years will have minimal impact on what the companies we invest in will be doing. Unless you’re investing in a Greek bank or something, this will matter very little.

    Best of luck deciding where to go with your capital over there. Sounds like you have a very lengthy watch list. Nice to go shopping with the list filled out and ready to go! 🙂

    Cheers.

  24. Jos,

    Yeah, I’m hoping this thing reaches a fever pitch, but I haven’t really seen much thus far. I was hearing over and over again about how the market would drop double digits last Monday. And then it was Wednesday. And then it was “within days”. Then it was “If the referendum is a no…” It’s all noise. People are funny. They couldn’t tell you what the lottery numbers are going to be, but they seem to have prescient superpowers when it comes to predicting the stock market for some reason. Everyone’s a fortune teller when it comes to stocks. I readily admit I have no idea where stock prices are going. But by focusing on what I can control, I can’t help but build greater wealth and income over the long term.

    Best regards!

  25. Hi Jason,

    what is your overall average yield for the portfolio?

    starting to look a lot like a a high yield stock index fund that averages about 3.2% dividend yield.

    Or a vanguard Reit Index with the same 3.2% yield?

    Have you averaged your dividend yield across all your holdings?

    love the blog

  26. Brantley,

    Glad to be a fellow shareholder here! REITs can be pretty volatile, but if you have the stomach for it, the income and growth is very appealing.

    I’m also hoping for more volatility ahead. So far, nothing. It’s been a total joke. But anything is possible tomorrow or the next day. Could wake up and see things down by 5%. Or up by 2%. Or anything else. Either way, I’ll be shopping regularly. 🙂

    Thanks for dropping by. Good luck building out your stock portfolio over there. A very exciting time for you!

    Best wishes.

  27. daniel,

    I don’t look at the overall yield all that often. Last I looked, it was about 3.45%. I think that’s pretty close to what it is today as well. I tend to mix up the stocks in terms of yield and growth, but that’s right about in line with my long-term goal for yield. I find a yield of 3.5% pretty attractive, especially if I can average 6% or 7% long-term organic dividend income growth.

    Appreciate the support. Stay in touch!

    Take care.

  28. Just discovered your website and thanks for sharing your Journey. I also bought WPC today. I agree this is a good addition to a portfolio. Greece will blow over, not so sure about China though with all the borrowed money that went into fresh IPO’s. I think there is more risk there.

  29. I received close to 7K in dividend settlement from Kraft to KHC yesterday. I will be using that money to buy in month of July. I used little portion of that to buy 24 shares of XOM today. I want to buy some REITs and I am hoping for them to go down some in month of July/August.

  30. Not sure who your broker is – but in the past it has taken my broker a week – 10 days to show a spinoff up in my account. If you wish to sell it contact them and they will help im sure.

  31. Congrats on the buy Jason! I’ve been eyeing some stocks with hunger lately… Looks like REITs are making a come back, my portfolio’s been going up nicely haha.

    Best regards
    DB

  32. Richard,

    Glad you found my humble blog. Hope you stay in touch!

    I’m pretty bullish on the world over the long haul. There will be stretches where things are volatile or concerning, but my fifty-year time horizon means I can wait all of those issues out, when they occur. 🙂

    Let’s hope for more opportunities over the near term.

    Cheers!

  33. AJ,

    Nice! Nothing like a big infusion of capital with which to go shopping for stocks. I like XOM more now than I have in some time. May start to look at some energy plays again after some large drops over the last year or so.

    I’m also hoping the REITs stay weak. I’m still not done there. Would definitely like some more OHI over the near term.

    Let’s see how it goes. 🙂

    Best regards.

  34. DB,

    Yeah, not what I was hoping to see. I was hoping that some of the REITs – specifically OHI – would drop again today. But not to be. That’s okay, though. I still see some value there, and there’s other opportunities I remain interested in. So many stocks, so little capital. Always a great first world problem to have. 🙂

    Cheers!

  35. Ha, ha, ha, Jason…

    I have been keeping up to date with all your recent activity, reading all your latest blogs and all the discussion comments from your many followers but haven’t had the time to ‘join in’. But when I saw ANOTHER “Recent Buy” I just had to get in a quick response. Well done mate, I did laugh when I saw it, there’s hardly enough time to keep up with the reading let alone responding 🙂

    I’m hoping to initiate a position in O and OHI but they’re not dropping enough for me just yet. It’s frustrating watching them as they seem to be holding well compared to the rest of the market…grrr! I already own a few WPC and averaged down in early June, is there such a thing as buying too many shares just because they’re the best sale around? I only ask because I am in the early stages of developing my portfolio and I am heavy with WPC (in comparison to my total portfolio weights). However, in a year or 2 (when my portfolio is 2 to 3 times the amount I have invested now) my WPC weight will have shifted totally. I wouldn’t imagine I have to worry too much about diversification at this point right? Should I just consider building WPC to 60, 70, 80 shares and finish when I’m happy, then focus on my next company? Or should I be happy with the current weight I have now and initiate / build up another company?

    Also, slightly off topic, have you any interest in the Asian market (specifically South Korea)? I ask this because I lived in Korea and it was an amazing experience & I have a love for Samsung & Hyundai 🙂 This is more of a “feeling with my heart” rather than following the numbers. I was just curious about those and KEP & PKX.. any thoughts? I’ve meaning to ask that for a couple of weeks.

    Again, well done with the purchases. An inspiration 🙂

  36. Nice buy Jason. I bought 20 shares of WPC at about the same price last week. That yield is just so awesome for a company that is growing dividends and AFFO so much! I too was hoping to add some more O and OHI this month, but they seemed to pop the last couple of days. I’ll probably buy one of the Industrial/Defense stocks I have been watching instead and wait a couple more weeks for my next pay check for the BB gun to load up fresh capital and hope REITs go back down a little on rate hike fears. Probably RTN or DOV will fit the bill for now so I can increase my exposure to some different industrial sectors and diversify. Let’s all hope for some lower buy prices when the capital is available!

  37. With the income you are going to earn from these recent purchases, I think you are going to just baseball slide your way to meeting that dividend goal. You are at less than 50% six months into the year, but I think that these purchases are going to be the reason you JUST make it!

    Sincerely,
    ARB–Angry Retail Banker

  38. Figuratively, the people in Greece aren’t going anywhere. But literally, there’s quite an exodus of talent going on. However, it is only getting redistributed across Europe. The talent is not disappearing.

    I’ll keep WPC on my radar. Maybe I’ll initiate a small stake. I could say that about a lot of companies, though, as I only own 4 right now.

    Thanks,
    WE

  39. There are people believing rate increase won’t happen until 2016, so REITs will benefit from it, might revisit the 52-week high again. Regardless where the share price goes, 6.4% yield is what we’re shooting for! 🙂 great buy!

  40. Regan,

    If you’re having a hard time keeping up with the reading, imagine how challenging it is for me to keep up with all the writing. A wonderful problem to have, however. 🙂

    As far as diversification goes, that’s really highly individualistic. Some feel comfortable with 10 stocks. Some feel better with 100. Some people like certain sectors better than others. Keep in mind, though, that diversification and exposure will change over time. Only you can know how that will change and to what level your new capital will impact that. Really depends on the individual.

    I’m not real interested in many foreign markets. I’ve discussed that here:

    https://www.dividendmantra.com/2014/11/considering-foreign-domiciled-dividend-growth-stocks/

    We’re fortunate in that many major US multinational companies already give us great international exposure/diversification. So it’s not really necessary to buy directly into a foreign market to gain access to certain industries/geographies/consumers. Stretching even lightly beyond the borders into Canada and the UK gives you so many stocks that you probably couldn’t readily buy/track them all anyhow. So it doesn’t really behoove me to go any further than that and take on additional needless risk.

    Thanks for all the support. Stick around. A lot more to come. 🙂

    Best regards.

  41. Daniel,

    Great minds think alike! 🙂

    Yeah, it’s unfortunate that the REITs have popped a bit lately. Although, there’s still value there. If a stock drops by 15% but quickly recovers by 1%, there’s still a significant drop there to look at. I always tend to look at the long-term charts.

    Best of luck deciding which way to go over there. It’s great that we still see so many individual opportunities out there in what’s arguably an expensive market.

    Cheers!

  42. ARB,

    I think you’re right. It’s going to be a close finish, but I’m staying really aggressive over here. $7,200 puts me ahead of pace for my long-term goals, so we’ll see. I’d be happy finishing anywhere near $7,000 on the year, to be honest. Really fortunate to be making this kind of progress. 🙂

    Hope all is well over there with work and everything else!

    Best wishes.

  43. WE,

    Yeah, I can’t remember the last time I read anything about Greece with any interest before the eurozone issues cropped up. Funny how the world shifts its attention whenever anything is in the media. There could be some kind of problem in Peru tomorrow and we’d all of the sudden be talking about that. There’s arguably been a talent drain going on for thousands of years over there – Greece’s incredible progress as the frontrunner of Western civilization ended some time ago. The world seems to be doing just fine. 🙂

    Thanks for stopping by!

    Take care.

  44. Vivianne,

    I’m not real concerned about rising rates. Rising rates will happen at some point, but it’s something that’ll affect almost all businesses. And REITs tend to do well in periods of rising rates, going back decades now. Clients aren’t going to stop paying rents and close up shop because interest rates rise. The world will keep on turning. 🙂

    Thanks for stopping by! Let’s hope for better deals!

    Best regards.

  45. Haha you really are a huge fan of W.P. Carey Inc, aren’t you Jason? Great company and great buy. I’m willing to bet that your next blog post will be titled “I am now the majority shareholder in W.P. Carey Inc.” 😛

    Keep those dividends rolling in.

    Cheers!

  46. Nice job averaging down Jason! I’ve been looking at doing so myself with my REITs because a lot of their share prices just continue to fall as we get closer to a interest rate hike. What will that do to their operations in the long-term? Not much would be my guess. Most eREITs should do just fine as long as it’s a slow rate increase which the Fed is targeting.

    It’s funny how much we always hear from the financial media about the calamity du jour. They absolutely bombard us with a couple concepts over and over again. I can’t blame them because saying everything will be fine doesn’t get ratings, but you nailed it that we’re talking about an economy that is the size of metro Boston. Is that really going to turn the tide of the global economy? Maybe, but doubtful.

  47. The yield of WPC has been increasing the last couple of months. Is it coming to a point where it might become unsustainable like what happened with ARCP? Of course ARCP had accounting issues, but their yield approached closer to 7-8% before the accounting issues started to unravel and now the company has suspended its dividend.

  48. ZTZ,

    Ha! I can only wish of such a situation. I certainly wouldn’t mind owning that large of a chunk of W.P. Carey (or any company, for that matter). 🙂

    Fortunately, I only need a very, very small slice of a few companies to get me to where I want to be. We’re lucky in that regard.

    Thanks for stopping by. Hope all is well!

    Best wishes.

  49. ….And people will still be eating Hershey Bars! All my cash flow is going toward HSY shares. Just too good of a company and rarely at a discount!

  50. JC,

    Absolutely. We hear what the media wants us to hear. I like Buffett’s approach. He ignores most of it and spends the majority of his days reading financial reports. A lot more can be learned there than on any financial “news” program. 🙂

    Thanks for stopping by, bud. Hopefully, the noise irritates enough people and we get some more volatility. Haven’t seen much thus far.

    Cheers!

  51. DGJ,

    Yield is a function of a stock’s price and the actual dollar amount of the dividend. That has nothing to do with sustainability. The sustainability of a dividend is directly related to the ability of a company to pay it. Yield fluctuates every single day. A company’s ability to pay its dividend (which relates to profit) doesn’t. I’d recommend a bit more reading on yield, how a dividend is paid, and how REITs determine profitability.

    An accounting scandal at ARCP has about as much to do with WPC as Coca-Cola’s case volume has to do with BHP Billiton’s iron operations. Said another way, they have nothing to do with one another. Unless ARCP and WPC share faulty accounting practices and I’m not aware?

    Furthermore, accounting scandals are pretty rare, and don’t really have anything to do with a stock’s yield. An accounting issue is a function of mismanagement, plain and simple.

    Take care!

  52. Brian,

    Agreed. I don’t think the world will lose its taste for chocolate, regardless of what happens in Greece. 🙂

    Best regards!

  53. Jason,

    I know simplicity is your goal, but have you ever considered adding a covered call options sales strategy to your system? You could approximately double your annual income on stocks you have over 100 shares of (and likely hit ~15k-18k/year goal within a year or so) while assuming no added downside risk. The only thing you’d be giving up would be participating in explosive price appreciation (which is rare and not a part of your strategy anyways). It seems like you are leaving a lot of income on the table with such a large portfolio of long positions.

    Just wondering.

  54. Certainly value to be had in the sector. Even OHI is sitting near 52 wk lows and I believe 6.2% yield today after a few point rise in the past few days.

    We’ll surely have a lot of big jumps in both directions for quite some time. Like you said somewhere above, if it comes down 10% and goes back up 2%, it’s still most likely a decent price.

    Nice thing about WPC, OHI, and to a lesser extent VTR and O, is that a 5% yield that’s growing at even 4% per year is quite likely to offer some fairly sizable returns, due to how much the holding pays out capital that you can reinvest. Apart from a secular decline in the industry or a change in tax laws or other major component, hard to see how things will change significantly. At this point, we pay full ordinary rates anyway, so not sure what could even happen there. Maybe a small corp. tax rate, but I’m not holding my breath.

    There was a time not too long ago that all dividends were taxed at ordinary rates, and people still invested their money. I’m eyeing OHI right now as it’s one that I do not hold yet. I don’t want to go too heavy on REITs, but will probably add in a few more over time. I suppose if that’s where the value is for some time, I may overweight a bit more.

  55. Ravi,

    Yeah, I definitely think there’s value in the REITs after some substantial weakness over the last seven or eight months. Some have recently rebounded a bit, but we’re still talking big drops YTD and flat prices going back a year or more for some of these high-quality names.

    I listed some total return numbers above for O and WPC, and you can see that there is really attractive total returns to be had here. When you combine a high yield, low valuation, and significant dividend growth, you get the prospects for really strong total returns. Assuming a static valuation, the sum of the yield and dividend growth will likely be a proxy for your total return. So you can see where a yield of 6% and growth in the high single digits as being really, really compelling.

    We’ll see how it goes. Hoping for more volatility!!

    Thanks for stopping by.

    Best wishes.

  56. Yes awesome tool, thanks for linking it. I’ve been looking for just such a tool for the past several days and wasn’t able to find anything. And Jason you are correct, dividend payout growth is more important than almost anything else, as long as the stock’s value isn’t falling faster than the payout is growing.

  57. Jason,

    Its been awhile, but I feel compelled to spill my next planned purchase based on this article.

    First let me start off by saying that I followed in your Gilead foot steps with a purchase last week. I put it on my watch list about a month ago when you first mentioned it. I am amazed at the cash flow that it is bringing in and it’s current share price. I’m still trying to perfect my own stock picking formula but I have recently shied away from using EV/FCF as some companies (especially telecoms) look way overpriced due to their liabilities. I have now shifted my focus towards Market Cap/ FCF. It’s very similar to the PE ratio but as you and I both know, Cash Flow is what pays the bills. Along with this metric I make sure that the company I am analyzing is able to safely cover it’s interest expenses related to the debt. GILD rocks this measure in comparison to others on my watch list with a current MC/FCF ratio of 8.5 and interest coverage of 35.

    However, I’m not really receiving many dividends with these low yield purchases this year. it’s hard to complain when the purchases include DIS, gotta love the dividend raise and move to a semi annual dividend. I know my portfolio is lacking yield recently and I started looking towards high dividend stocks to boost my portfolio. Like WPC my next prospective stock purchase is also a REIT.

    This prospective stock purchase has been able to generate over $200M in FCF each of the past two quarters, which looks to be the company’s baseline when its not spending money on acquisitions. This number gives me a projected yearly FCF of $800M, At a current market cap around $7.7B this makes the MC/FCF ratio equal to 9.625 (I think this ratio might be close to the calculation of the AFFO). That’s pretty cheap considering the company is a REIT which doesn’t need to spend significant amounts of money to maintain it’s cash flow for years to come . It can use the FCF to pay down debt which will reduce future interest expenditures or it can pay it back to the shareholders. Also based on the most recent quarter’s financials it can adequately cover its interest expenses with a coverage ratio above 3.

    If you haven’t been able to figure it out, the stock is ARCP. The stock that blew up Seeking Alpha this past winter. Well in spring it received a clean bill of health with financials and land deeds that were thoroughly inspected for authenticity. On top of that, the previous board of directors were booted out and we should now have a board that has no conflicts of interest (see previous Chairman Nick Schorsch). Also the new CEO took the time to state that he wanted to understand what was going on with the company before he started handing money away in the form of a dividend (A+ for making a tough decision, but a smart one for the companies longevity). He said that he wants the dividend policy to be similar to peers and afford ARCP the opportunity to build cash reserves for acquisitions. We can toss out the rule that REITS have to pay out 90% of its earnings as that figure includes losses from depreciation which makes the company appear unprofitable and thus have no liability to pay anything. I suspect that when he states he wants to maintain a dividend policy similar to peers he means on a payout ratio related to FCF as it would be crazy to try to match other REITS based on yield with disregard for the underlying financials. Based on this suspicion, I would assume a divided payout ratio compared to FCF between 60% – 80% would provide the company a sizable income stream to put towards future acquisitions. This would represent a yearly dividend between .50 cents and .70 cents per share. Compared back to the stocks current price around $8.50 that represents a projected dividend yield between 5.9%-8.2%

    The dividend is due to return, otherwise the stock price will reflect the missing dividend by increasing in value. A consolation prize that I am willing to accept. I’m betting that an announcement will be made in regards to the dividend by this time next month and the opportunity to get in this cheap will have passed. If the route taken by the CEO is to choose the .70 cent dividend (80% payout to FCF) the stock will have to appreciate to $10.92 to equal the same yield as WPC right now at 6.41%. I am pleasantly surprised that this stock is near the all time lows again. I had this stock represent 15% of my fledgling portfolio at the beginning of the year as I felt that weighting was the right amount to risk due to the uncertainty in the financials. Due to my other purchases this year the stock now only represents 10% of my portfolio. I will gladly INVEST (no longer risk) another $1500 to double down my bet / purchase right after the scandal (for a cheaper amount with the addition of clean financials). The fountain has been inspected and cleaned, now investors are just waiting for the dividends to start flowing out.

    TayDiggsMoney

    Ps. I know you have been hurt by stock, but one of your first posts that I read mentioned that you should forget the name and never develop an emotional attachment to stocks. Let bygones be bygones and I suggest you take a look for yourself.. Also I heard they are planning on changing the name so maybe this issue will be moot..

  58. Jason,

    I had read that, I guess my question is more specific to a selling covered calls strategy, which is by far the safest/easiest/most conservative options strategy. You wouldn’t be risking anything different than you would already by owning the stock, other than the potential to miss out on a single day crazy (and very rare with dividend stocks) growth event. In the normal case if you really liked the stock, you could just buy it again the next day. For this, you’d be gaining *significant* income (essentially a doubling of all dividends), which is your underlying goal.

    I have a ton of respect for your investment style and I think this flows ideally with it. I just want to know why you don’t consider this? 🙂

  59. TDM,

    Right. I do the same thing. I try to balance out those low-yield/high-growth stocks with the higher-yield/lower-growth stocks. I try to make sure all three “stages” of dividend growth stocks are well represented in the portfolio, keeping in mind that the dividend growth from the likes of GILD, V, and DIS should eventually allow those stocks to produce meaningful income in, say, a decade or so. It’s just a balancing act between income now and income later.

    As far as ARCP goes, not my cup of tea. Not an emotional attachment or detachment, but I’d maybe circle back around once they can develop a long-term track record there. So far, the record is short and poor. Until I see at least five years of solid operations, real underlying FFO/AFFO growth, and dividend growth, I wouldn’t be interested. The stock was already becoming less attractive to me, though I kept buying because of the valuation/yield. But the track record is so short and so poor that I see no reason to really buy in. Too many other stocks offering really compelling combinations of quality, yield, valuation, growth, and track records for me to be interested. But I wish you the best of luck there. The less shares I’m buying, the more for you! 🙂

    Cheers.

  60. Merle,

    I addressed that question in the post I just linked. There’s absolutely no need to complicate matters with covered calls, or leverage, or anything else. Straight up saving and buying equity the way I’m doing it will provide you freedom. Adding risk, additional taxes, and additional fees to something really simple is nonsensical, in my view. But that might work for you. Doesn’t for me.

    You act as if selling covered calls just doubles your income and adds no risk. That’s absolutely not true at all. It’s basically just a short-term bet on where the stock price is going to be at some future point in time. And you might be really limiting your long-term upside as well. Just not interested in potentially selling stocks that I’m interested in holding on to for the next 30 years. My goal isn’t just current income. It’s sustainable income and growth of that income for decades to come, on the back of profitable and growing operations. It’s not making a bet on which way a stock is going to go.

    Just not an interest of mine. And I find it completely unnecessary. But more for you. 🙂

    Take care.

  61. DM,

    Holy Crap. That’s a SUBSTANTIAL addition to your dividend income and a way to average down on them, great job. The yield is high, that’s for sure, BUT are right in line with their 5 year average, you know? Not a asset here and think its a great way to take advantage of the pullback from mr. market. If they drop another 5% do you purchase more or is there a point where you are satisfied with your holding?

    -Lanny

  62. Lanny,

    Yeah, it’s fantastic to add nearly $100 to the annual income all in one fell swoop, that’s for sure! 🙂

    I would definitely be interested in adding more WPC if it falls further. Another 5% or 10% drop would probably mean I’m buying up another 20 or 30 shares. Might cap it at that point, though. We’ll see how it goes.

    Thanks for stopping by. Let’s keep it up!!

    Best regards.

  63. Some thoughts about Greece (from Estonian perspective; Estonia faced -15% GDP drop in 2009 and was forced to really serious austerity / budget cutting, today we are healed and everything is OK, same goes for our neighbours in Latvia)

    While Greece is only 2% of eurozone GDP then the real story lies in understanding the rules and acting accordingly. If Greece is doing the Grexit then what stops other PIIGS countries to do the same? Ok, Portugal and Ireland are almost OK (IRL is in great growth!), but what about Italy and Spain? This is why leaders are stressing about Greece, not that it is so important to keep. And if euro will go down then it also impacts USA (import-export really important between Europe-USA). Still, some rules were agreed when Greece adopted euro. Now when bills should be paid, they are screaming that they don’t like to pay. You and Claudia aren’t going to restaurant, eating all the good things in there and when it’s time to pay your bill you argue loudly that it is not acceptable and it is affecting your dignity, are you? 🙂

    Let’s now imagine that you bought WPC (what you have done). And now it just goes down and doesn’t pay you any dividend and files bankruptcy. But because JNJ, PM and KMI are heavily invested in WPC, then those players are also not able to pay dividend anymore. This is the reason why Greece is being treated as it is.

    Just a fun fact: Greece has defaulted 9 times for the last 200 years.

    Anyway I love what you are doing here. This is incredible how you are building up your portfolio and I seriously hope that you will be findependent ASAP. You are a true motivator!
    It is right that we can’t think about thing that we can’t control. Still we must emphasize that those uncontrollable things might impact our doings.

  64. Tauri,

    Thanks for the perspective. Much appreciated!

    I get how the economics of the situation work, but the fact of the matter is just that I’m not particularly concerned about it. I frankly agree with a lot of people that think that sharing a common currency across so many disparate countries (with disparate cultures and attitudes toward money) is a bad idea. And it might make sense to see Greece exit, followed by others. Studies show that married couples have a hard time sharing money and frequently argue about money; it shouldn’t be a surprise then that Greece can’t agree with other countries in regards to spending.

    Either way, life will go on. The world will continue to turn. The sky won’t fall. 🙂

    Best regards.

  65. Jason,

    Well done. I picked up 1k shares of WPC last month at $62.10 so you are getting an even better deal. After much research, including your comments, I too think it is a solid company and worth the price.

    Yesterday I pulled out the pocket lint and initiated a purchase of NOV with 100 shares at $44.18- although there is volatility and risk, it seemed like to good of an opportunity (just over a 4% yield and a bit under book value). Like you, I believe the oil companies will be much less prominent 20-30 years from now, as the fuel mix shifts towards renewable energy and away from fossil fuels. But it should be a good investment over this time period.

    Now my biggest challenge is reloading the BB gun- it will be several more months before I can put down large investments. Too many stocks, too little capital. Of course I acknowledge that’s a first world problem and one that is a good one.

    -Mike

  66. I’m a little concerned as to why WPC trades at such a discount to REIT peers. It may be simply due to the international exposure and the discount associated with that uncertainty.

    Good to see you averaging down on the name, though. That yield is looking mighty ripe.

  67. Mike,

    Hey, I’d gladly exchange my lower purchase price on this last lot for your 1,000 shares. 🙂

    In all seriousness, I think our cost basis is pretty similar. And I think that’s great. If I can load up on WPC in the low $60s, I’ll gladly take it (and I have).

    NOV is one I continue to think about. One wonders how low it can go, but the valuation here is pretty compelling if you think the company has any growth at all left in it over the next decade or so. It’s not far off from where it was in 2008, and that was the lowest previous valuation over the last 10 years. But the company is larger now, so that’s really interesting. I sometimes think of a tax-loss strategy of unloading a few shares to buy back a few down the road. But then I think of just loading up a little more on it because it’s just such an attractive investment.

    Keep up the great work there. At least when you unload your BB gun, you REALLY unload it! And I think we can both agree that you’re hunting with something a bit more advanced than a BB gun with that kind of capital.

    Best regards.

  68. ToughMother,

    Glad it helped! 🙂

    I’ve shared it a few times now, but it always helps to get a look at the actual research.

    Cheers.

  69. Jason,

    Nice purchase, juicy yield. I am not yet particularly knowledgeable enough about how to evaluate REIT’s so I have passed up investing in them at this time. Buffet says its important to stay within your circle of competency and I believe in that. When I acquire a little more knowledge about their business operations, I think I will join the mix as well.

    With iron ore touching new lows, do you think you will average down more on BBL? I know China has been dealing with major weakness, and this may lead to further lowering, but BBL in the mid 30’s seems like quite a bargain. I do worry about declining coal usage over the coming decades, along with changes in petroleum use. However, I don’t see iron ore going anywhere, and BBL certainly leads when it comes to that.

    Guy

  70. Hi Jason,

    Not sure where to post this question. But have you ever looked at Textainer, TGH, mentioned in Fisher dividend list.
    What are your thought on this company, both general and in the light of the recent share price drop (today even -6%!)?

    Thx
    Philip

  71. Eric,

    I think part of it is the structure of the business, since they have the investment management side of the house. But if I were scared any time the market discounted one stock relative to peers, I wouldn’t have a portfolio at all. 🙂

    The yield is definitely appealing here. They don’t need much growth at all to provide me with the kind of return I’m after.

    Cheers!

  72. Guy,

    I know what you mean there. I didn’t invest in any REITs until I had already been at it for a while. Just didn’t understand the structure until I really dug in. But once I did that, I found it quite easy to understand the nature. That said, they’re not for everyone.

    As far as BBL goes, I’m topped up there. If I were to buy any more, it would only be through at tax-loss strategy where I sell an earlier lot and buy the same amount down here (after waiting the appropriate time). But I’m also quite comfortable with the price I paid relative to the valuation at the time and what I feel is the long-term earnings and dividend growth power of the business. The only way to know how it turns out is to check back in a decade or so. We’ll see. 🙂

    Cheers!

  73. Philip,

    I’ve never been able to wrap my brain around that one. Highly leveraged and very poor free cash flow.

    I’ve had it recommended a few times now, but I just don’t get it. Outside my circle of competence. Falls into the “too hard” pile.

    Take care!

  74. Covered calls has same theoretical risk profile as short puts. A put is a call and a call is a put.

    Long stock + short call = all downside risk of stock falling to zero (in theory) offset by premium collected. No participation above short strike.

    Short puts = all downside risk of stock falling to zero (in theory) offset by premium collected. No participation above short strike.

    If your reader is interested in buying the stock anyway, short puts is one way to reduce cost base, but he/she has to be committed to take delivery of the stock if it falls below the short strike.

    Not for the faint of heart.

  75. Touche!

    Thanks for the pointer.

    I’m not sure if I ever shared this with you before? If I did, sorry for posting it again but I was just checking my phone bill / data & Republic Wireless is the way to go – frugality. Anyway, I re-read this again today and it reminded me of some of the stuff you have recently been posting (7 year life cycles etc.)

    http://pwk.republicwireless.com/guest-post-j-moneys-7-money-lessons-from-7-years-of-blogging/?utm_source=learn_link&utm_medium=email&utm_campaign=promos&utm_term=member&utm_content=2015-03-31_J-Money&unique_id=57849688

  76. Regan,

    Thanks for sharing that! I came across it at some point or another, and it definitely fits in well with living multiple lifetimes. Even if you don’t really radically change your life at some point or another, just being able to is really a gift. I crave flexibility.

    I looked into Republic some time ago before settling on Aio/Cricket. I pay $25/month all-in and I don’t have to worry about VoIP drawbacks. And the network (AT&T) is robust. Works for me. 🙂

    Cheers!

  77. As you stated… it’s about sticking to your long term plan. The reality is that we are investing in companies that will most likely be around in a decade or two or longer even. Being able to add to a quality company, especially during all this market turmoil will “pay off dividends” in more ways than one. “Buying a little more freedom.” I still have not made a July buy. I knew this month would be a little slower after a heavy June. But that’s OK. Still 3 weeks to go.

  78. DH,

    Definitely, bud. Still three weeks to go. Plenty of opportunities to put some capital to work. 🙂

    We’ll see how it goes with WPC, but I’m very happy to be in a position to add almost $100/year to my dividend income all in one shot. Pretty excited for the long-term possibilities here.

    Thanks for dropping by!

    Best regards.

  79. Hi Jason,

    I am back to say congrats again. Big news on my end, I am going to have my first back to back $100 months (credit goes to the Kraft merger). I am thinking about starting a blog. I have been putting it off for some time; but I do enjoy the writing as I can unwind from work. I digress though.

    The reason for my post besides a congratulations to your dividend team, is that I wanted to see if you knew the reason for WPC previous dividend cut.

  80. Mike,

    That’s fantastic! Congrats on hitting three figures back to back. What’s great about dividend income milestones is that, unlike portfolio values, it basically sets a new floor for you, where that’s the new base from which to grow and set even higher milestones. And as those floors rise, the absolute growth increases even if the relative growth slows. The power of compounding at work! 🙂

    I’m not sure what dividend cut you’re referring to in regards to WPC. Care to elaborate?

    Take care!

  81. Mike,

    I’d strongly recommend not using third-party sites like that for dividend information.

    If you go to WPC’s investor relations site, you’ll see that the 1/15/14 dividend included an $0.11 special dividend. So it’s not that the dividend you’re referencing was less, it’s that the prior dividend was unusually high. No dividend cut here.

    Cheers!

  82. Hello DM,
    That is again a nice buy.
    I have a lot of companies in my order portfolio which are equal to yours.
    I have one company that seems valued attractively and that is Textainer Group Holdings (TGH).
    I am planning to extend my position and averaging down the current position.
    Do you have an opinion on that company?

  83. carson,

    You may want to poke around the blog a bit more. You’ve asked similar questions before and I’ve done my best to answer them.

    We all have different means, but we’re all trying to maximize the potential of those means. 🙂

    Cheers!

  84. Impressive to see you sticking to your plan DM even though the stock prices continue to increase! Have you thoughts about adding any more BBL to the portfolio? Starting to look cheap now 🙂

  85. Martin,

    Sticking to the plan is where it’s at. Prices fluctuate. But my dividend income only knows one direction: up! 🙂

    I’m maxed out on BBL. I’ve decided to cap it there. I might buy a little more with the plans to offset those shares with a tax-loss strategy, but that would be it. I plan to own no more shares than I currently do on a net basis. It’s a commodity play, and it’s really too heavy already. But I felt the value was too compelling to pass up, an I’m pretty happy with my overall cost basis relative to the long-term earnings power and income/income growth potential. We’ll see how it goes!

    Cheers.

  86. Great buy with WPC! I bought some a few month ago and may consider adding soon.

    Hey, I wanted to know what you think about Total as a dividend stock? Current dividend yield is really attractive at about 6%. I see the history of the dividend is not the perfect always up-up-up kind but it has been consistently there for the last 10 years…

    Thanks Jason

  87. Fabsavings,

    Glad to be a fellow shareholder with you here. I really like WPC. Hoping it drops a little more so I can stock up once again. 🙂

    Total isn’t my favorite oil play, to be honest. Poor fundamentals and a dividend that is heavily taxed by the French government means it’s totally off my radar. I was invested in TOT years ago, but sold because I think there are better domestic plays. Shell has several similar metrics, but at least you collect the full dividend if you go with the B shares.

    Cheers!

  88. Purchasing shares in a very promising REIT is absolutely a great way of investing your money and watch it grow and pay you back. Moreover, sticking to your long term plan is paramount in a bid to achieve financial independence at an early stage of your life. It helps you keep your eyes fixed on the goal in the long run.

  89. have you studied about Brookfield Asset Management Inc (BAM) before?
    Lou Simpson from GEICO has invested it quite a lot…

  90. leon,

    That’s definitely an interesting business model there. The subsidiaries appear to be solid and I like the exposure to infrastructure and renewable energy. Not consistent enough for me, though.

    Cheers!

  91. Weeeell, WPC is down $250 as of right now. Certainly appears to be a good time to add a few to the pile. It’s a relatively low-volume stock, DESPITE our current tumultuous market. I see that as a relatively good sign of people wanting to stick with it, collect dividends and let cooler heads … well… remain cool. 😀

  92. robdiesel,

    Yeah, if you have room in the portfolio for it, feel comfortable with the risks, and have capital, I think WPC is a great REIT to pick up here. It’s pretty much a full position for me, though. I’ll probably be looking to round out some other REITs, especially OHI. But WPC is a world-class business, best I can tell.

    Have fun shopping over there!

    Cheers.

Leave a Reply