Why I Bought Realty Income At Record Highs

| About: Realty Income (O)


There has been much debate about Realty Income and its present valuation.

I decided to ignore pretty much everybody and bought into the company just $1 away from 52 week highs.

I'm not worried about it and you shouldn't either, I'll explain why.

On Monday, April 18th, I initiated a small starter position in Realty Income Corporation (NYSE:O).

Yes, even amidst sky high price, pie in the sky valuations, and the threat of interest rate hikes or recession (nobody really knows) looming I spent my hard-earned money on O. Before you race to the comments to leave your messages of disgust or praise (actually praise is always welcome, type away), hear me out and let me walk you through my reasoning.


That handsome man in the picture below the title is of a 24 year old, today that Brad Pitt look-alike is just 28 years old with 29 just weeks away. I have my investing eyes focused on my retirement and am constantly seeking out and adding pieces of dividend paying companies to my portfolio. I rely on the dividends to buy more shares for me and look forward to that compounding machine running efficiently to build wealth over the next 20-40 years. Time is my strongest ally, my confidant, my security blanket and my shield; its probably time I start letting it work.

For a while I failed to fully appreciate time. I've had my eye on Realty Income for months now, since about November of 2015. From November to now the price has risen about 24% and they've paid $1.74 per share and issued three raises to their dividend. They've slaughtered the broad market as well, returning over 26% compared to the S&P 500 (NYSEARCA:SPY) coming in at .32%. I fought against time. I lost. My purchase is my admission of defeat.

O Chart

O data by YCharts

Missed Opportunities/Timing the Market

I had kept my finger off the trigger for a few months, watching the price steadily rise with very few, if any, meaningful drops during that time. Every drop was just around the corner and I would certainly be able to add at $40, when that seemed to be a foregone conclusion certainly it would drop back to $45. When it crested over $50 and approached $55 I just needed to wait for $50; so on and so forth and here we are with shares trading safely above $60 for a little while now. I had timed myself out of the market to save a few bucks. I forgot the old adage "Time in the market beats timing the market."

I had missed some chances because I had placed my money elsewhere and had nothing left to give O, that's on me. I don't keep much cash laying around, part of that is because it burns a figurative hole in my pocket and part of it is because other opportunities present themselves and timing never really works out. I'm always afraid that cash laying around is missing out on something, its one of my many flaws when it comes to investing, but it is what it is.

So combined with spending my money on other companies and listening to the crowd say "just wait for a pullback" I missed everything. Here I sit with shares purchased at $62.85 a ridiculous price and hilariously high valuation, what have I done?!

Dollar Cost Averaging

There is little doubt that O is one of those good companies that deserves a place in my portfolio as a cornerstone next to others such as AT&T (NYSE:T) and Altria (NYSE:MO). As a portfolio cornerstone I'll likely want to add more later. Dollar-cost-averaging is the easiest tactic to deploy in a young portfolio and can even negate the original purchase price over time.

Dollar-cost-averaging is only possible when you already have a position in the company, obviously. The initial purchase into any quality company at any price is much like ripping off a band-aid; rather than wait for that perfect time to do it you're usually just better served ripping it off and moving on with your life. Now that I have a position in O, adding shares will be much easier from a psychological standpoint. If you employ a DCA tactic for your core companies in your portfolio is it really possible to make an unwise purchase at any price?

My Compounding Machine

At my purchase price the dividend yield for O is 3.8%. If that yield remains constant and my only returns are the dividend that $62.85 will have grown to $162.85 in 25 years. That is excluding any dividend raises, price appreciation/depreciation or spin-offs we could see down the line. If we bump up the returns to be in line with the S&P 500 performance since 1990 of 6.8% when adjusting for inflation it grows to $342.39. These numbers are very conservative, O has outperformed the S&P from 1990-2015 and has little reason not to continue to do so. Bottom line is that with this quality company in 25 years my money will have grown thanks to compounding.

O Chart

O data by YCharts


Are there many of you who can go back 25 years and recall the price fluctuations of your long-held companies around the time of purchase? Are you still thinking how you wish you would have gotten shares $5 cheaper or are you just happy you purchased them?

Younger investors such as myself have the easiest job in the world when it comes to investing; buy good companies and walk away to go find other good companies to buy. I'd even argue we can go way overweight in a certain company and just rebalance our portfolios later on. Perhaps portfolio construction for younger investors is better suited for a different article.

If shares keep going higher I'll be a part of that, and if shares finally drop back down I can buy at that lower level if I have cash on hand. If I don't have cash on hand I still have that monthly dividend coming in to buy the shares for me. It really is a win-win situation for me.

Valuation is very important, I'm not suggesting it isn't. But at some point you just have to buy good companies regardless of the price. I didn't want to pass Realty Income over again while I had cash available so I purchased my block of shares to get my foot in the door. I'm happy I did, I've enjoyed this sense of relief since I saw my order went through. Of course, if I already had shares I doubt I would add at this level as many others presently feel toward the company. If you've made it to this point I now encourage you to leave your thoughts below. I appreciate you all reading, best of luck to you!

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Disclosure: I am/we are long O.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.