Not too long ago, I initiated a new position with CAH. After that, I told myself I would wait and save up some capital since I have a few big expenditures coming up soon. Well with my birthday fast approaching, I decided to treat myself to a little early gift instead. On Friday, I started a new position with Realty Income Corp (NYSE:O). I bought 10 shares at $56.19. See more stats on O below.
Annual Dividend: $2.53
Years Paying/ Increasing: 21 years
Dividend increase from prior year 4.52%
Payout Ratio: 84.1%
P/E Ratio: 48.96
Realty Income Corp seems to be the golden child of the dividend community. They pay a 4% yield, history of increasing dividends, and pays dividends monthly! What's not to like? As you know, O has been on my watch list for some time now. Just waiting for the opportunity to buy. That opportunity finally presented itself last week when the price dipped about 5%. I just wish I had more free capital to spend!
Looking at the stats above, there are still a few areas that pull a flag. The payout ratio is pretty high, however this is an REIT so that number should be higher than typical stocks. And their payout ratio still is in the safe zone for my standards. Secondly, the P/E ratio is pretty high as well. While this is not the only factor to take into account when evaluating a stock's fair value price, it does play a role. Do I think O is overvalued even on the dip? Absolutely, I do. Then why did I buy?
Yes, current valuation is an important factor when selecting a stock to purchase. Ideally, we want to keep out cost basis as low as we can to maximize our gains. But it is impossible to time the market. We don't know when the next time the stock could be at current price, go even lower, or raise up to new highs. Even overvalued, O has a good reputation of increasing its dividends and pays monthly. The opportunity cost of not having it in my portfolio and taking advantage of the compounding, is greater than the current share price. And with being a long term investor, that cost gets bigger as the years go buy. So even though my new position is small, I am using it as a good entry point and cost basis to benchmark my future expansions.
The dividend yield of 4.47% or $2.53 annually, will add $25.30 to my yearly dividend income. That number should go up soon as their dividend increases and the monthly compounding starts. Do you also own O? Did you pick any up any O on the dip? Have you purchased any different stocks recently? What else is on your watch list?
Disclosure: I am/we are long O.