What is the “American Retirement Company?”

Sniffing out the teaser pick from Brian Hicks' The Wealth Advisory

By Travis Johnson, Stock Gumshoe, March 27, 2014

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“Since going public in 1994, this small company has single-handedly outperformed Exxon, Microsoft, McDonalds, the S&P 500, and the Dow Industrials… COMBINED!

“In that period, it out-gained both gold and silver 8 to 1…

“It crushed General Electric’s return of 462% nearly 10-fold…

“It beat the once-largest company in the world, Cisco Systems, by 220%… and the world’s largest retailer, Wal-Mart, by 493%…

“It paid its shareholders (mostly retired Americans) more income than the combined dividends of Target, Lowe’s, and Coca-Cola…

“And how about the world’s greatest investor? Yes, it even outperformed Warren Buffett’s Berkshire Hathaway by 485%!”

How’s that for an intro, eh? We all know that “past performance does not guarantee future results,” but it’s impressive nonetheless.

So what’s this all about? That intro is from a teaser pitch by Brian Hicks for his The Wealth Advisory newsletter… and it makes a nice counterpoint to the current frantic chatter about IPOs … here’s a bit more:

“On October 18, 1994, one of the greatest investments of the last 20 years went public on the New York Stock Exchange for a mere $8.70 a share.

“Only Apple has had a better return.

“It barely got any attention from big Wall Street firms — after all, it was a microcap stock… the smallest of the small. So it’s no wonder a measly 405,000 shares traded the day it debuted… and its stock never got above $8.77.”

So what was this mostly ignored company that went public 20 years ago and has had such remarkable returns for investors? Hicks calls it the “American Retirement Company” and loves the stock, and thinks it’s “about to get better.” Here’s more from Hicks:

“It’s been one of the best-performing investments of the last twenty years!

  • Every $0.25 invested in the “American Retirement Company” at the IPO has turned into $11.26… every dollar has turned into $45.07.
  • It has paid more dividends (per 1,000 shares) than pharmaceutical giant Johnson & Johnson and “big blue” IBM.
  • It has increased its dividend payout every single year it’s been public.
  • And the company has never posted a loss… even during the financial crisis of 2008–2009.

“And guess what? It’s about to get better.

“You see, the company’s business is in such high demand, it’s posting a 44% increase in annual revenue over last year’s. It’s the highest revenue in its history.”

So who’s the company? It’s a landlord. Here are some more clues:

“The ‘American Retirement Company’ is the nation’s largest supplier of space.

“That’s right, commercial real estate.

“It owns and rents out enough office, retail, factory, agricultural, and warehouse space to fill up almost 10 Pentagons. Or to put it another way, it owns so much commercial real estate, it’s equivalent to 1,076 NFL football fields…

“… the company has paid 241 consecutive monthly dividends since going public in October 1994. It has never missed a dividend payment. Ever!

“The “American Retirement Company” is so reliable and trustworthy, my parents purchased it based on what I told them.

“And I want you to own it too… and start collecting monthly dividends just like my parents.”

So who is it? Well, there is a whole passel of other clues in the spiel from Hicks, which you can see here if you’re curious, but he’s teasing a longtime income investor favorite that many of you have probably heard of: Realty Income (O)

Realty Income is an extremely shareholder-focused REIT that owns primarily small shopping centers and pads that are occupied by fast food restaurants, pharmacies and similar kinds of tenants, primarily national and regional chain stores. Over the years they’ve also expanded and acquired other kinds of properties, including auto dealerships and wineries, but the core of the company is still the “boring” stuff that got them started — the company came to life about 50 years ago by buying up the land underneath fast food restaurants, and has had a focus on consistency, gradual rent increases, and monthly dividend payments ever since.

We’ve covered the company in the past — the stock was teased pretty heavily by Tom Dyson back when he was running the 12% Letter for Stansberry in 2007 and 2008, and it has been mentioned by several other pundits over the years. They went so far as to trademark the “Monthly Dividend Company” line and continue to be very focused on delivering a growing monthly payout to shareholders, which is why so many retirees like the stock and why, I assume, Hicks has given them the “American Retirement Company” moniker.

The stock is down a bit these days, and in fact fell again just this week as they announced a secondary offering to raise capital for more acquisitions — that’s not necessarily a red flag, REITs always have to raise money for acquisitions (that is both the blessing and the curse of being a Real Estate Investment Trust … you can’t retain earnings to reinvest in new business or acquire new buildings, because the pass-through status of a REIT means you have to pay out your earnings as dividends and, in practice, the lust of investors for dividends means that REITs typically pay out more than their earnings as dividends). So if you want your REIT to grow faster than the rate of inflation, you have to accept that they’re going to make acquisitions … and to make acquisitions they have to sell new shares.

That doesn’t mean the dip makes it a “no brainer” buy, of course — this is a big REIT, and they have grown their payouts much more slowly over the last year or so than they had before, it is harder and harder to move the needle appreciably upward when you’re a $8 billion company, picking up a few new strip malls every quarter doesn’t necessarily move the needle enough.

And the fact that O is overwhelmingly focused on and owned by individual investors means that they are judged almost entirely by their dividend. If they keep up the monthly dividend and keep raising it bit by bit to keep up with inflation, people keep holding their shares … but when everyone panicked last Spring about the Federal Reserve raising interest rates (which is widely perceived as hurting REITs, though over the long term that’s not necessarily the case), the stock quickly gave up the spike in gains it had enjoyed after acquiring American Realty Capital Trust and raising the dividend. That acquisition was a big one, by far the largest by O at almost $3 billion, so it took a bit of time to digest and the shares have probably been somewhat depressed by the small dividend increases combined with the general fears about REITs.

I think I’m probably more optimistic about good REITs than most people are. I don’t have any interest in the mortgage REITS, which are far too levered and interest-rate-sensitive for my tastes, but I own several REITs that own valuable properties and have the ability to consistently increase their dividend, and I think real estate is likely to remain a relatively stable long-term holding thanks to the ability of well-managed REITs to raise their rents as inflation hits or as interest rates rise… but that doesn’t mean they’ll happily sing their way through a spike in interest rates, REITs are almost all levered and it takes time for their rents to bump up in response to inflation so if we see hyperinflation or rapidly rising rates it will absolutely mean a clobbering for these stocks. I just think a more moderate future is more likely, and that well-managed REITs (and O is certainly in that category) will probably do fine over the long run.

Realty Income had a yield of about 6.5% back in 2008, and it has a yield of about 5.25% now, (it was well above the average for REIT yields back then, as it is now, but for most of the intervening years it had a yield of closer to 4% as people arguably overpaid for the perceived stability) — and the stock has risen by about 50% during that period. So that’s nothing to complain about … but during short periods it can certainly go down sharply, and when interest rates rise or REITs fall out of favor it can certainly do quite poorly. The stock is owned largely by individual investors who value it for the monthly dividend, for the gradual dividend growth, and for the shareholder-friendly management that hasn’t made big mistakes… so the competition for these shares is other “perceived as safe” investments.

The big picture, then, is that if we saw savings account or CD rates or 10-year treasury notes come back to 5% (they range from 0.5-2.75% at the moment), you can bet that people would demand substantially more for a REIT dividend than 5%, particularly if the dividend is not growing rapidly, and the borrowing costs for REITs would rise commensurately (almost all REITs have either corporate debt or mortgages as part of their financial structure to lever up their cash flow, they wouldn’t be able to pay decent dividends otherwise). So if you think we’ll see rates spike higher this year, wait to buy REITs until they do … but I personally have been buying REITs pretty consistently over the last year or so (not specifically Realty Income, which I don’t own, but others that aren’t terribly dissimilar), and I expect them to continue to be relatively solid long-term investments that help to diversify my portfolio.

If you’re looking for a solid monthly dividend and a well-run REIT, you could certainly do far worse than O — it’s not going to grow sharply, in all likelihood (optimistic anticipation of that growth, and expectation of low interest rates forever, caused the big jump to $55 last year before it fell back to $40), but you can probably count on them continuing to pay that dividend every month and giving you that 5% dividend that will likely grow by a few percent a year … and unless something really drastic happens, it’s hard to see them cutting the dividend — they’ve never cut it in their history, and the fact that they didn’t cut it in 2008 or 2009 gives an extra vote of confidence in the stability of their cash flows. It would probably take more big acquisitions to see a sharp dividend increase, too, so you’d probably be wise not to expect big capital gains from the shares.

That’s what I know about Realty Income — I don’t own it, but at the currently somewhat-depressed price after their secondary offering now might be a decent time to get in if you’ve been looking for a large and stable monthly dividend company. It won’t make you rich, but it will probably not disappoint as long as a 5% cash return looks good to you and you can ignore the fluctuating share price. Sound like the kind of thing you’re interested in? Too worried about rising rates to invest in REITs? Let us know what you’re thinking, just use the friendly little comment box below.


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45 Comments on "What is the “American Retirement Company?”"

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vivian lewis
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March 27, 2014 2:50 pm

I thought a pad was where somebody lived, not where he or she shopped.

D Goldwich
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D Goldwich
March 27, 2014 8:44 pm

PAD – Planned Area Development

Dave
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Dave
March 27, 2014 3:14 pm

Such a beatnik you are, Viv.

Lia Draper
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Lia Draper
March 27, 2014 3:31 pm

It’s not where you shop, It’s where they plop the shop that you shop IN!

paul j
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paul j
March 27, 2014 3:49 pm

REIT dividends are treated as ordinary income for tax purposes. This makes the 5.25% dividend look less attractive.

Barry
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Barry
March 27, 2014 3:30 pm

I own O and I also own UTG which is a ult. that pays a monthly div . Can you post a list of other good paying monthly divs.

Thank you

RandyK
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RandyK
March 27, 2014 3:40 pm

Talking about REIT’s and as a new income investor (retired or soon to be) I’ve been looking for a few good conservative no income based non sense newsletters that specialize in income ideas with solid citizens. What newsletters are worth checking out for a “do it yourself” investor?

Thanks in advance.

arch1
Irregular
5234
March 27, 2014 6:00 pm

Randy ; In my experience I have found no newsletter which performed better for me than my own judgement with the sole exception of Gumshoe. I have spent $1000s and on the whole have found them to be a money hole, I have never gained more than I spent on subscription costs. IMHO

deepdiver
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DeepDiver
March 27, 2014 6:02 pm

You might consider HighYieldInvesting.com and Retirement Income at stansberryresearch.com. They are both conservative in their approach.
Good luck.

Gummyfish
Member
3
Gummyfish
March 27, 2014 6:21 pm

Randy, your best investment of time and money would be to buy books on investing and read articles on investing. There is no reason to rush into putting your money on the line. This way you can develop some insight into the way investing works, develop your investing style and learn to avoid pump and dumpers. Not all newsletters are going to be honest. This is a good forum but only you will be responsible for your investment gains and losses in the end.

mark
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mark
March 27, 2014 7:04 pm

Randy:
IMHO you are much better off spending the time to study S & P reports, understand their methodology, understand their different reports, the sectors they analyze, etc., than you are to spend money and time on “expert” newsletters. Even if the “expert” advice is good, you will still want to validate what he is saying, and the best way to validate is thru an S&P rating. So you may as well just go to S&P, figure out how to create stock or fund screening tools, and find the stock or fund you like using that method. Good luck.

pcolajoe
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pcolajoe
March 27, 2014 8:31 pm

Learn using only a small portion of you assets, and invest in only a few stocks, so you can follow you holdings closely. It is going to cost you to learn, but not by paying newsletters.

pbswigert
Member
3
pbswigert
March 27, 2014 6:05 pm

Like Randy K., I’ve been looking in that area. What do you all have, good or bad, to say about Brian Perry’s Cash Machine and Bill Spetrino’s Dividend Machine. For someone who doesn’t want all that work, I notice that Dan Weiner’s (Independent Advisor for Vanguard Investors) Conservative Growth portfolio has done considerably better over the years than his Income portfolio. Like Randy, thanks in advance and comments and suggestions please .

Lia Draper
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Lia Draper
March 27, 2014 8:21 pm

Randy,
You might consider joining Am. Assoc. of Independent Investors. (AAII) ; lots of info, advice, sample portfolios, reasonable price. And then, there’s Stock Gumshoe. BEWARE THE NEWSLETTERS!

Lia Draper
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Lia Draper
March 27, 2014 8:22 pm

PS: The newsletters are in the business of selling newsletters…..that’s how they make THEIR money!

arch1
Irregular
5234
March 28, 2014 5:17 am

Lia; Bravo! Succinct & powerful.

Daver
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Daver
March 27, 2014 8:48 pm
Randy, you might also benefit from reading a few of the prose portions of the annual reports of Berkshire Hathaway which are filled with observations, insights and wisdom for investors from the mind of Warren Buffett, and the book entitled The Intelligent Investor by Benjamin Graham which Buffett claims to have been the source of much of what Buffett knows about investing. If you want to take a minimalist’s approach and do not care to follow your portfolio daily or weekly, I suggest you read Alex Green’s book entitled The Gone Fishin’ Portfolio which is summarized here http://www.investmentu.com/content/detail/gone-fishin-index-fund-portfolio. I have… Read more »
Robert
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Robert
March 27, 2014 9:47 pm

What REITS are in your portfolio

DmanFWTX
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DmanFWTX
September 5, 2015 4:39 pm

I’ve happily owned WPCarey REIT (WPC) for over 10 years, originally called CPAssoc. It has returned over 6% annual return over the 12 years or so I’ve owned it. And now the stock is down and it is looking to be something I’d take a larger position in vs other stocks or bonds I am in.
WPC is one of the highest rated REITS right now and they own a ton of diversified properties around the world. Check it out.

rosalindr
Irregular
24
March 27, 2014 11:05 pm

I like Nilus Mattive’s Income Superstars. Mattive is pretty conservative and most of his recommendations are safe and solid.

Roz

Dave
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0
Dave
March 28, 2014 1:21 am

The various Cabot subscription services are also 100% straight-arrow, in my experience. No crazy hype.

hagar
Member
3
hagar
March 28, 2014 5:53 am
I “bit” and listened to the pitch by Stansberry’s Doc Eifrig over the last week and last night, only to find that his “Sell Puts” (on conservative stocks) approach newsletter cost from $2700 to $5000 per year depending on the “deal” — not for me. I do think Stansberry’s “Investment Advisory” newsletter is worthwhile. He provides a portfolio with a buy, sell , hold and a TRACK RECORD, and uses a stop loss. But you still must do your DD. I have done well with some of his picks, and have not lost money (so far) on any of his… Read more »
Baktun Bandit
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Baktun Bandit
March 28, 2014 8:08 am

Guys
What’s wrong with right here, or become an irregular. I read the free Gumshoe reports for a couple of years, then decided that all this free info i was getting was more than i was paying elsewhere, so i joined up as an irregular. Well worth the small amount, especially since we get the free stuff to. Travis, keep up the awesome work. I truly appreciate it.

Nick
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Nick
March 28, 2014 1:21 pm

Thanks Travis, nice article!
Can someone share his thoughts on Gyrodyne Company of America pls? Their div/yld seems out of a fairy tail and their graph looks strange as well(too sharp a decline)… Also some recent news pointed they are transferring assets to a another entity so I wonder is this a scam or was it a gold mine which is now buried in the ashes or is it still a buy? Thanks guys, enjoy your weekend!

clayce32
Irregular
0
clayce32
March 28, 2014 2:27 pm
Hey Travis and all fellow investors, I need some opinions or guidance here. This is for my dad who I am buying out of our family business this summer. His Situation. * 60 years old and retiring * No prior investments but getting $2.5 million for business free and clear after taxes. * Would like to be able to invest this without touching the principal (wouldn’t we all) * Needs $100,000 a year to live on for next 20 years * What would you do I know this is very open ended, but just wanting to get a direction, we… Read more »
clayce32
Irregular
0
clayce32
March 28, 2014 3:08 pm

Thanks Travis.

RandyK
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RandyK
March 28, 2014 7:39 pm

Thanks for all your thoughts, I may just have to join the irregulars to catch up on Travis’ stock picks. As for reading, I have been spending an enormous amount of the time at the library lately doing research (DD). I thought retirement was suppose to be less stress full. I have to say, retirement scares me, that guaranteed trade off every month is gone but new stresses begin.

arch1
Irregular
5234
March 28, 2014 10:07 pm

Randy; I think the entertainment alone is worth the cover charge. the butter & bacon is a plus to be Irregular. Being retired means you never get a day off eh?

eugene11803
Irregular
8
eugene11803
March 28, 2014 11:42 pm
A few dividend paying stocks I like with good finances that have taken a drop in price: SDRL – they lease oil drilling platforms. They are currently paying about 10% TAL – they lease cargo containers on ships. Great business. Someone wrote a bad article and it took a dive about a month ago. 6% yield My favorite and largest holding is ORI. Old Republic is a title insurance and financial company that has great numbers and yields close to 5% Great chart! And BX – Blackstone is a huge financial company with a 6% yield. Great chart! Look at… Read more »
aterosin
Member
6
aterosin
March 29, 2014 9:20 am

O is a great stock to have in a retirement acct. Another great site for Dividend Stock Investing is seekingalpha.com.

Frenchy
Irregular
555
Frenchy
March 29, 2014 11:38 am

Simply posting.

bohomamma
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0
bohomamma
March 29, 2014 4:09 pm
I have found the articles on Seeking Alpa to be, for the most part, very well written and thought provoking. They have a host of guest writers from the field. If you do your own DD with what you read from their free newsletters ie. global or sectors articles, and alerts, you will find them to be incredibly helpful. These articles have helped me to pick good, and sometimes GREAT stocks early, and as an early retired person (from downsizing) I have to try to grow the little bit I was able to save in an online IRA. They have… Read more »
robtcohen
Irregular
8
March 30, 2014 12:11 pm
I hereby with the usual caveats suggest NEW YORK MORTGAGE, which apparently is mostly invested in office buildings. But why such is prudent escapes me, because there are empty condo buildings, which could become “office buildings” too. Hey, I have a little New York Mortgage, and thus can bash myself with the negative worst of toutings. “Obsolete” real estate may become a fast feed vendor trailer pad with a parking lot. And if that doesn’t gel, then seemingly a food trailer is portable, and the vacant real estate a nominee for used car lot candidacy. Perhaps, urban/suburban zoning is the… Read more »
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