I’ve had an unexpectedly busy month with several buys in July. It all started when I was writing my June portfolio update article. I saw a stock “ESV” in my account that I didn’t recognize.
After calling and talking with a representative it looked legit. I immediately sold the ESV shares and was flush with cash once more.
ESV is a small offshore drilling company, I actually don’t recognize the name. The transactions took place five years ago so I’m still unclear why they just showed up now. I’ve had oil companies in the past so maybe this was related to a merger / acquisition / divestiture of something I previously held.
Anyway, looking at the FAST Graph above this is not a company I want. I don’t particularly care for cyclical companies and wouldn’t be surprised for this company to go under considering how expensive offshore oil drilling is.
I decided to add to a few of my holdings, with a few reasons for doing so. Firstly, the unexpected $6500 in my account along with existing cash left me with about $10,000 uninvested. Secondly, I have several names on my list near their yearly lows without a seemingly good reason. The names were generally some of the higher yielding stocks that I was additionally looking to add to. Thirdly, I’ve been slowly seeing if I can become slightly more concentrated – I have over 50 holdings and could stand to have more than 2% allocated per stock (if distributed even).
The first buy I made was adding another 30 shares to my Verizon holding, taking me up to 110 shares total with an average cost of $48.13.
Verizon has continued to drop lately, I only first started my position at the end of February when it was at a (then) year low. The yield has also shot back up over 5.3% with a low PE ratio. I don’t expect these telecom companies to knock the cover off the ball but they should provide a solid return.
I added 50 more shares to my holding, bringing me to 165 (170 after reinvestments). AT&T was actually one of my better buys of a large cap I’ve made. I first bought in at $32 in November of 2015 and quickly experienced a large capital gain along with a very nice initial yield on cost. Subsequent purchases have diluted that effect some, but I still have a 5.6% yield on cost.
Both AT&T and Verizon tend to trade pretty closely to one another as they are generally bought as yield investments. AT&T also crossed over 5.3%. It’s visible in the FAST Graph below there are more opportune times to buy these slower moving yield investments. Most of the time it’s prudent to just hold, collect and reinvest the dividends. Sometimes it makes sense to add, I believe now is one of them as the stock recently has dipped to a much lower multiple than it even has historically traded at.
Public Storage recently both joined my radar and my portfolio as the stock has traded back down near historical levels. Self storage units are a great investment, the macro trends remain strong though we may be at a peak of occupancy currently. The centers have very low capital requirements and essentially run themselves.
Public Storage is the big dog in this space and while the dividend yield is low for a REIT, the high valuation is a reflection that the market likes what the company is doing. With a higher valuation, new shares that are issued minimize dilution while providing the maximum amount of money for management to buy or build new storage centers. This provides a flywheel effect, lower cost of capital allows them to seek less risky plays where the cap rate can be on the lower side. They aren’t forced to look for cap rate plays in the 10-15% range that may be substantially riskier for several reasons. Funds from operation are still expected to grow at a mid single digit clip for the next several years with the dividend following suit.
Realty Income is still the top dog in the retail net lease space and for great reason. The company is a very long time market beater and enjoys a similar advantage that Public Storage does. They are able to have a low WACC (weighted average cost of capital) which allows them to seek the best properties to buy. They are able to seek lower cap rate properties because their cost of capital still affords them about 2% return on every dollar invested. A 7% capitalization rate – 5% (roughly) cost of capital leads us to that 2% figure.
Lastly, I bought more STAG Industrial. I bought a small stake over a year ago after some compelling research on Seeking Alpha by Brad Thomas. He followed that article up with another good one on the company. He expects the company to have strong continued growth into the future and is one of his top ideas.
While my initial shares were up 30% and I had over a 7% initial yield on cost, it was time to add. Having those great stats on $1000 in shares doesn’t do a whole lot to my portfolio. I added another 90 shares bringing me to 140. I like the monthly paying company similar to Realty Income. Shares today still represent an attractive investment opportunity with the growth expected. Management has also been working to lower the payout ratio which bodes well for future dividend safety.
Perhaps the market is pricing in many more future rate hikes. I added to some of my higher yielding dividend growth opportunities since they have been on sale. As mentioned before, this is allowing me to become slightly more concentrated and doubling down on some of my holdings.
These unexpected moves have provided me with an extra 8% dividend income in one month! I’ve gone from a projected $6093 at the end of June to $6568 currently.
Let me know what you think and if you are adding here.