After completing my pension rollover analysis and having the funds completely transferred to my new Rollover IRA, I began to execute my plan of building out a collection of REIT holdings (plus one BDC).
Initially, I planned to write up a detailed analysis of each purchase as I had done with my recent buy of EPR Properties.
Unfortunately, a business trip and family obligations have derailed that plan and therefore I thought it would be best to recap the basket of REITs that I bought as part of one summary.
Before diving into the details of the recent purchases, I thought it would be worthwhile to remind you about the background and a few thoughts that have influenced these purchases.
After leaving my prior employer, I received notification that I was fully vested in the pension plan and could either defer the payment to the time that I reach full retirement age, take an immediate reduced pension payment, or receive a lump sum disbursement right now. If you read my analysis, you will know that I chose the latter option.
That left me with a decision on what to invest in once the rollover completed.
As my dividend growth investing portfolio is held in a taxable account, one of the sectors completely unrepresented was REITs–as it is recommended to hold those in tax-advantaged accounts if possible.
With the REIT sector having made nice gains since the overall sector decline in the early stages of 2018, I had to acknowledge that some of my preferred positions might not be as great a value now as they were earlier in the year. However, given that I am currently unable to continue adding new capital to my IRAs, I had to decide between holding the funds where one of my desired positions was slightly over-valued or taking advantage of time in the market and steaming ahead.
Again, I opted for the latter.
Eyes wide open that this may not be the ideal scenario, however as my FIRE plans have not accounted for this money at all, losing a bit on the total return to begin generating the passive dividend income was a trade-off that I was comfortable making.
Basket of REITs
When the dust finally settled, I had added one business development company (BDC) and nine REITs to my portfolio.
Here is a summary of all of the purchases, leaving about $12 in capital in the account:
Phew, I am tired just looking at that summary. 🙂
Below I will recap each of the purchases along with a few pertinent highlights for each.
- Main Street Capital (MAIN) :: When it comes to BDC’s, MAIN is a market leader and has historically traded at a premium to NAV as compared to other options. However, that premium has been well-deserved as this is a very well-managed company. With their monthly dividend payments and dividend yield of 5.86% at time of purchase, my purchase of 50 shares will add $117.00 in forward dividend income.
- Sabra Health Care REIT Inc. (SBRA) :: Sabra Health Care has a 7-year history of paying increasing dividends with a dividend yield of 7.64% based on $1.80 payout per share. I made two purchases of SBRA, as I added a small amount after my initial purchase when the price dipped a bit more. In total, I purchased 53 shares that will add $95.40 in forward dividend income.
- Iron Mountain (IRM) :: Those that work in a large office may be familiar with Iron Mountain, as one of their primary segments of business is secure document storage and destruction. They also provide data centers, cloud services, and storage for more unique items such as artwork. They have an 8-year history of increasing dividends with a yield of 6.47% at time of purchase. My 82 shares will add $192.70 in forward dividend income.
- EPR Properties (EPR) :: You can read a more detailed analysis of my EPR purchase to understand more about the company, however my purchase of 45 shares will add $194.40 in forward dividend income.
- Uniti Group Inc. (UNIT) :: Uniti Group is focused on the acquisition and construction of communications infrastructure such as fiber, wireless towers, and ground leases. UNIT does not have a history of increasing dividends as I typically require, and therefore this is definitely a more risky holding whose adjusted funds from operation (AFFO) narrowly cover their dividend. However, at a robust 12.31% dividend yield, I was comfortable taking the risk. My 50 shares will add $120.00 in forward dividend income.
- Realty Income (O) :: The analysis from my initial Realty Income purchase still holds true, and I took this opportunity to make two more transactions–adding 40 more shares that will add $106.00 in forward dividend income. This now brings my total position to 71.236 shares.
- STORE Capital (STOR) :: STORE Capital, as their name fashions invests in and manages Single Tenant Operational Real Estate. They have over 2,000 properties across 49 states, and similar to UNIT do not appear on the Champion, Contender, and Challenger lists. They do however have a 4-year history of dividend increases with ~7% growth over recent years. My purchase of 30 shares will add $39.60 in forward dividend income.
- Simon Property Group Inc. (SPG) :: SPG is working on a 9-year history of dividend increases and has had a very respectable double-digit dividend growth over the last decade. There is risk with SPG as they invest in the retail space, specifically large malls. However, their tenants tend to be premier, top-end establishments and therefore don’t tend to suffer the same vacancy issues in lower tier malls. They maintain an A credit rating and have a respectable AFFO payout ratio of 59%, and while I would have liked to see the dividend yield a little closer to 5%, my purchase of 10 shares at 4.41% yield will add $80.00 in forward dividend income.
- STAG Industrial (STAG) :: As the name implies, STAG invests in industrial properties with over 72M square feet of space in their portfolio. They have an 8-year history of increasing dividends, however their dividend growth has been slowing considerably. STAG is another monthly dividend with a 5.05% dividend yield at the time of purchase. My 50 shares will add $71.00 in forward dividend income.
- W.P. Carey Inc. (WPC) :: W.P. Carey is one of the largest diversified net lease REITs with a portfolio consisting of industrial, warehouse, office, and retail properties. They have a very solid 21-year history of increasing dividends although recent years have seen a decrease from their 5-year DAGR of ~11% to the low single digits. At the time of purchase, WPC was yielding 6.31% and my 15 shares will add $61.50 in forward dividend income.
Wrapping It All Up
If you’re still with me after that flurry of purchases, you’ll have seen that these REITs (and honorary BDC) will add a whopping $1,077.60 in forward dividend income to my portfolio.
When initially starting my DGI portfolio and setting my goals, I was hoping to achieve forward dividend income of $500 from REITs so I have clearly surpassed that goal. As mentioned earlier, due to the fact that I will not be able to add new capital to these investments, I decided to utilize the entire rollover to cover this sector and will continue to reinvest the dividends.
This mix of investments provides a dose of long-term blue chip REITs along with a few that carry a greater degree of risk albeit with a corresponding reward of a robust yield. When it comes to REITs, there is definitely a risk of chasing yield, however I believe I’ve done my best to avoid that trap.
What do you think about these purchases?