“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.”
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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.
I thought a pad was where somebody lived, not where he or she shopped.
PAD – Planned Area Development
Such a beatnik you are, Viv.
It’s not where you shop, It’s where they plop the shop that you shop IN!
REIT dividends are treated as ordinary income for tax purposes. This makes the 5.25% dividend look less attractive.
Very true, but the average REIT yield is down around 3%.
I was just doing some tax research and ran across the tax advantage for REIT’s:
“Capital Gains Distributions
Capital gains distributions (also called capital gain dividends) are paid to you or credited to your account by mutual funds and other regulated investment companies)and REIT’s….
Report capital gain distributions as long term capital gains, regardless of how long you owned your shares in the mutual fund or REIT.”
So you see it increases the yield on the investment since you will be taxed at a lower rate.
For a better explanation, please see:
http://www.investopedia.com/articles/pf/08/reit-tax.asp
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
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.
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
You might consider HighYieldInvesting.com and Retirement Income at stansberryresearch.com. They are both conservative in their approach.
Good luck.
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.
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.
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.
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 .
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!
PS: The newsletters are in the business of selling newsletters…..that’s how they make THEIR money!
Lia; Bravo! Succinct & powerful.
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 been retired 5+ years and do a bit of both — trading frequently in one of my sub accounts and holding index funds in another.
One thing is certain — everyone needs to learn enough about investing and managing their own retirement funds; no one has a greater interest in them than you! Even if you choose to use a professional, you still need to keep a watch on what he/she is doing to ensure your objectives are being met as much as possible.
What REITS are in your portfolio
ROIC, RYN, MPW, COR
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.
I like Nilus Mattive’s Income Superstars. Mattive is pretty conservative and most of his recommendations are safe and solid.
Roz
The various Cabot subscription services are also 100% straight-arrow, in my experience. No crazy hype.
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 recs that I have bought.
Bryan Perry’s “Cash Machine” is pretty good, but you still must do your own DD.
I own no REITS, but will now take a look.
Thanks Travis.
Good points, it’s hard to decide how much a newsletter is worth to any one individual — if you can learn something from a letter and get some interesting ideas, you can easily justify $50-100 a year, less than a newspaper, even if the picks don’t all make you lots of money. For $2,000 or more the specific performance becomes a much bigger issue, I’d say, and it’s hard for even an expensive letter to get readers in and out of illiquid plays like options at any kind of reasonable price.
By the way, for anyone looking at newsletters and their overall performance and whether or not they lost you money, do keep in mind that a plain ol’ index fund is up close to 50% over the last two years. I’ve personally done worse than the market for much of the last few years.
Hello Travis:
….”a plain ol’ index fund is up close to 50% over the last two years”…
May I ask which one (oneS) you are “teasing”… suggesting…?
Thank you.
Also I wonder if you would have some suggestions in Hong Kong (where I have my broker account and pay no or very little taxes as I reside in Taiwan). If I receive dividends from the US … I have to pay taxes (at least even I suppose withholding taxes, as I am not Us citizen, and not reside=ing in the US).
Eddy
Not teasing anything, sorry, just referring obliquely to the basic broad market indexes — my favorites are the Vanguard ones because they’re often a hair lower in cost, but most of them are extremely similar and cheap, either total international stock index or S&P 500 index.
Thanks, Travis.
Eddy
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.
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!
Don’t know this one, you’d have to dig through the filings to figure out what’s really happening but it looks like the company is liquidating and, in the process, spinning off a portion of asset to some other company that’s being spun out (or maybe has been spun out). There’s sometimes value to be had in these kinds of confusing situations, but you have to really figure out exactly what has been sold and what’s left for shareholders. The huge past dividend was the liquidation of most of their assets, that won’t happen again.
Thanks, helpful enough!
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 would like to build our own dividend driven portfolio that can pay 4-5% income, any help is appreciated and thanks for everything you do for us do it yourselfer’s.
C3
There are a wide variety of things he could do, I’d urge him to talk to a fee-only financial planner to talk about different options and run different models. It would be extremely easy to make way more income than that, for life, with an immediate annuity and basically just create a pension for him, but that uses the principal… A basic indexed 50/50 portfolio of high-grade debt and blue chips probably only yields about 2%. I’d talk to a financial planner, and make sure he thinks about taxes and knows whether wants to run a portfolio and have investing be his part time job, or whether he just wants to set a simple path and stick to it (or have someone else do the work for a fee).
Travis; Good advice & something I wish I had followed. My meager portfolio looks like it has been stabbed all over with all the red. About the only green shoots are my short positions on green technology. My own protest to pump & dump.
Thanks Travis.
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.
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?
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 your IRAs and money markets – some had the nerve to send me statements where I earned $5 on a $100,000 deposit. Move your $ out!
I like O too, may be a good bet, but as interest rates go up (there in no where else they can go), the price will likely go down.
BTW – I no longer read investment books to learn more. I focus my time on my job and my family (and basketball). Picking investments is a full time job for an expert. I read columns and newsletters from financial people I have confidence in, see if their picks meets my criteria (no pennies, must be on a major exchange, no thinly traded, no commodities, no biotechs with trials, etc…..), look at the chart (is it going up), look at the volume and the general economy and see if the investment makes sense.
I recommend the FREE newsletters from Cabot and Mr. Market (Google Mr. Market is Huge). Worth every penny. I stop following newsletters that have lost me money (Money Morning & Cabot Top 10) and don’t read blogs or message boards (except this one). Follow these rules and you will improve your stock market success!
O is a great stock to have in a retirement acct. Another great site for Dividend Stock Investing is seekingalpha.com.
Simply posting.
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 been the single best source I have found that costs me nothing and my email doesn’t get spam from them.