Thoughts on investing in monthly dividend stock - O

[FrugalSaver]

http://finance.yahoo.com/news/best-best-monthly-dividend-companies-172715638.html

[Ursus Major]

Realty Income is a good company, but priced very richly.  And I don't understand the allure of the monthly payment. I like the idea of investing in dividend paying stocks (and do so myself), but unless you are good at evaluating individual stocks (or have a good source for that), you might be better off with a dividend fund or ETF.

My GF is looking to invest in dividend stocks and it seems that SCHD might be a decent fit.

[FrugalSaver]

I do t really care that it's a monthly dividend. I'm more interested in the stability and 4% dividend that's growing.

The company has compounded at 17% annually for 20 years but the good times may be over.

[beastykato]

I don't have any input on that specific dividend stock, but I love dividend stocks to be honest.  I don't understand why some people don't understand the point of the dividend coming in monthly.

Yes, in the long run you would make more if dividends were reinvested or simply on capital gains because the dividends get taxed.  However, I only put 5-10% of my money into my own stock picks and the rest is indexed.  My goal is to gain CASH FLOW NOW though.   I want a steady check that helps me live better now and I don't want to have to wait until I reach my FIRE goals to benefit from my holdings.

I may just be lucky, but I'm also soundly beating the S&P index so far since I've started.  My robinhood account is currently +11.63%, while my indexes have been floating between 1-3% so far over the past 12 months.

I don't know if this will pan out long-term for me, but what I do on my robinhood account is just buy and hold major companies.  Exxon, Shell, Bp, Mcdonalds, Verizon, At&t, Pfizer, J&J, Ford, GM, etc, etc.  And because robinhood charges no fees I can buy shares as I see fit, even if it's just one share.

All I do is watch the percentages on the stocks.  When the percentages go negative 5% or more I start to accumulate more shares of that company and I continue to do so as if I'm following a falling knife.  These companies are large and many are cyclical so I do not fear they are gonna go bankrupt or anything like that.

For instance, Shell, I started accumulating in Nov 2015 at $50/share and it fell and fell, and I continued to buy batches into January and February, when it touched $36/share that was my lowest entry point .  It has since climbed back to $50/share and I'm sitting at +10.38% on that stock. 

I'm am not a sophisticated investor or company analyzer.  I'm just using common sense that if I buy a quality company that's been around for decades and average down continually, I'll eventually keeping adding "value" to my position. 

[seattlecyclone]

I don't have any input on that specific dividend stock, but I love dividend stocks to be honest.  I don't understand why some people don't understand the point of the dividend coming in monthly.

The reason is because there is no theoretical difference between dividends and capital gains. Profits that are paid out as dividends directly reduce the value of your shares compared to if that cash had been retained and used to grow the business. I prefer to decide for myself when my investments will be converted to cash rather than having that decision made for me by the corporate boards.

[PhysicianOnFIRE]

I don't have any input on that specific dividend stock, but I love dividend stocks to be honest.  I don't understand why some people don't understand the point of the dividend coming in monthly.

The reason is because there is no theoretical difference between dividends and capital gains. Profits that are paid out as dividends directly reduce the value of your shares compared to if that cash had been retained and used to grow the business. I prefer to decide for myself when my investments will be converted to cash rather than having that decision made for me by the corporate boards.

I'm with SeattleCyclone. You can create whatever monthly revenue stream you want by selling shares each month. You can select which fund / stock to sell and which lot. Or you can set it up to be done automatically to a certain dollar amount. Psychologically, it's not the same as receiving a dividend, but you can come out ahead by taking long-term capital gains at the amount and time that works best for you.

[nobodyspecial]

Profits that are paid out as dividends directly reduce the value of your shares compared to if that cash had been retained and used to grow the business. I prefer to decide for myself when my investments will be converted to cash rather than having that decision made for me by the corporate boards.

Isn't it the opposite?
If they pay you dividends and you believe in the company you can use the money to buy more stock. Rather than Apple deciding, there is no possible investment our shareholders could make that is better than Apple so we are holding the money.

There are companies for who growing isn't possible or doesn't make sense. If you are railroad or a regional utility company then paying a dividend makes more sense than just sitting on a huge cash pile or using it to buy some internet social media startup for $1Bn.
 

[onecoolcat]

I don't have any input on that specific dividend stock, but I love dividend stocks to be honest.  I don't understand why some people don't understand the point of the dividend coming in monthly.

Yes, in the long run you would make more if dividends were reinvested or simply on capital gains because the dividends get taxed.  However, I only put 5-10% of my money into my own stock picks and the rest is indexed.  My goal is to gain CASH FLOW NOW though.   I want a steady check that helps me live better now and I don't want to have to wait until I reach my FIRE goals to benefit from my holdings.

I may just be lucky, but I'm also soundly beating the S&P index so far since I've started.  My robinhood account is currently +11.63%, while my indexes have been floating between 1-3% so far over the past 12 months.

I don't know if this will pan out long-term for me, but what I do on my robinhood account is just buy and hold major companies.  Exxon, Shell, Bp, Mcdonalds, Verizon, At&t, Pfizer, J&J, Ford, GM, etc, etc.  And because robinhood charges no fees I can buy shares as I see fit, even if it's just one share.

All I do is watch the percentages on the stocks.  When the percentages go negative 5% or more I start to accumulate more shares of that company and I continue to do so as if I'm following a falling knife.  These companies are large and many are cyclical so I do not fear they are gonna go bankrupt or anything like that.

For instance, Shell, I started accumulating in Nov 2015 at $50/share and it fell and fell, and I continued to buy batches into January and February, when it touched $36/share that was my lowest entry point .  It has since climbed back to $50/share and I'm sitting at +10.38% on that stock. 

I'm am not a sophisticated investor or company analyzer.  I'm just using common sense that if I buy a quality company that's been around for decades and average down continually, I'll eventually keeping adding "value" to my position.

I just got into Robinhood and buying individual stocks myself.  I only have $100 in it atm as its just my play money for the time being.  I have the same mentality as you, I look for big companies that have been around for a long time that are having a difficult week or month.  I know it can all change with the blink of an eye but I bought Apple at $93.96 on 4/30/2016 and its up to $100.35 now and I got a $.57 dividend!  In my first month my RH account is +7.57%  but again, I can be -10% come Tuesday morning, haha.  Its still fun and I'm doing the same strategy as yourself so good luck to us!

[Thinkum]

I do t really care that it's a monthly dividend. I'm more interested in the stability and 4% dividend that's growing.

The company has compounded at 17% annually for 20 years but the good times may be over.

I have this stock in my portfolio as well as OHI. They have been really good thus far. They (O) has increased their dividend year after year. I think REITs are a good part of any portfolio.

[Vagabond76]

Realty Income is my top individual holding, and one of seven dividend-growing companies that I consider to be core holdings.

I first bought it about 4 years ago and added several lots over the next 2 years, when the share price dipped to around $40.

I also reinvest all of the dividends.  Once I retire. I will turn off the reinvestments and easily live off the dividend income.  My total return is just under 150%, and my annual yield on investment is 9.85%.

A note on taxes: As a REIT, a portion of the dividend is taxed at ordinary income rates and a portion is nontaxable return of capital. In 2015, 76% of the dividend was taxable while 24% was nontaxable. At my marginal tax rate of 25%, my effective tax rate on the dividend was 19%, which is only slightly higher that the 15% tax rate of qualified dividends. If you are in a higher tax bracket, your effective tax rate will be even lower.

[Greenpez]

Realty Income is my top individual holding, and one of seven dividend-growing companies that I consider to be core holdings.

I first bought it about 4 years ago and added several lots over the next 2 years, when the share price dipped to around $40.

I also reinvest all of the dividends.  Once I retire. I will turn off the reinvestments and easily live off the dividend income.  My total return is just under 150%, and my annual yield on investment is 9.85%.

A note on taxes: As a REIT, a portion of the dividend is taxed at ordinary income rates and a portion is nontaxable return of capital. In 2015, 76% of the dividend was taxable while 24% was nontaxable. At my marginal tax rate of 25%, my effective tax rate on the dividend was 19%, which is only slightly higher that the 15% tax rate of qualified dividends. If you are in a higher tax bracket, your effective tax rate will be even lower.

 Any reason you hold O over VNQ? Is it just a monthly vs quarterly div?

[Vagabond76]

Any reason you hold O over VNQ? Is it just a monthly vs quarterly div?

I like the triple-net lease business model and diversity of O's holdings in terms of states, tenants, and industries (such as drug stores, shipping facilities, automotive, and childcare. VNQ isn't a very diversified ETF. While it has 150 companies. 8% of the fund is in Simon Property Group--I'm not a fan of the shopping mall business model. The top 10 holdings account for 35% of the fund. Compare that to VTI, whose top holding (Apple) is 2.1% and the top 10 holdings account for 15% of the fund.

[Spitfire]

I do like O, but I opted for the vanguard REIT index instead for the added diversification as a more "set and forget" option.

[Greenpez]

Any reason you hold O over VNQ? Is it just a monthly vs quarterly div?

I like the triple-net lease business model and diversity of O's holdings in terms of states, tenants, and industries (such as drug stores, shipping facilities, automotive, and childcare. VNQ isn't a very diversified ETF. While it has 150 companies. 8% of the fund is in Simon Property Group--I'm not a fan of the shopping mall business model. The top 10 holdings account for 35% of the fund. Compare that to VTI, whose top holding (Apple) is 2.1% and the top 10 holdings account for 15% of the fund.

 Thanks for the in depth response! I guess I would want a significant yield advantage to go with one company over a fund, but your reasons make sense.

[mrpercentage]

I think it's over valued at the moment. It's a dividend stock so look at the five year historical yield average. That will give you a quick picture. Because it's a REIT and is taxed at a regular rate. That means it needs a higher yield then qualified dividend competitors.

Love the stock though. That's my 2 cents

[PhysicianOnFIRE]

Realty Income is my top individual holding, and one of seven dividend-growing companies that I consider to be core holdings.

I first bought it about 4 years ago and added several lots over the next 2 years, when the share price dipped to around $40.

I also reinvest all of the dividends.  Once I retire. I will turn off the reinvestments and easily live off the dividend income.  My total return is just under 150%, and my annual yield on investment is 9.85%.

A note on taxes: As a REIT, a portion of the dividend is taxed at ordinary income rates and a portion is nontaxable return of capital. In 2015, 76% of the dividend was taxable while 24% was nontaxable. At my marginal tax rate of 25%, my effective tax rate on the dividend was 19%, which is only slightly higher that the 15% tax rate of qualified dividends. If you are in a higher tax bracket, your effective tax rate will be even lower.

I hold REIT (Vanguard Index Fund) only in Roth because of the tax implications. Dividends (and capital gains) are subject to state income tax, and a net investment income tax of 3.8% for high earners. Because of the state taxes (which are often progressive) and the ACA / NIIT, the taxes increase in higher income tax brackets. For really high earners, the LTCG / qualified dividend tax is 20% + 3.8% + state income tax (highest being CA at 13.3%) For more, see Tax Drag: What a Drag it is Getting Taxed

Best,
-PoF

[chasesfish]

One of my favorite stocks pays a monthly dividend:  Entertainment Properties Trust.  (EPR)

It looks expensive, but its never looked cheap in the years I've owned it.  They primarily do sale/leasebacks on Movie Theatre properties.  Banks and Life Insurance companies don't like these properties because they are special purpose and EPR has carved out a nice portfolio and tends to increase the dividend 3-5% per year.

[Vagabond76]

One of my favorite stocks pays a monthly dividend:  Entertainment Properties Trust.  (EPR)

It looks expensive, but its never looked cheap in the years I've owned it.  They primarily do sale/leasebacks on Movie Theatre properties.  Banks and Life Insurance companies don't like these properties because they are special purpose and EPR has carved out a nice portfolio and tends to increase the dividend 3-5% per year.

Realty Income owns several movie theaters.

The company has a really diverse portfolio of properties.  That won't protect investors from bad management doing stupid acquisitions or cooking the books, but 22 years as a public company and 47 years of total history is worth some level of trust.

[chasesfish]

EPR pays 1.4% more and carries almost identical leverage to Realty Income

EPR runs at 50% liabilities to net worth.  Realty Income is 45%.  The difference is likely because EPR has been around longer and its properties are at a lower cost basis.

There's nothing wrong with realty income, but I think there are better stocks out there.  4% is too low for a REIT in my opinion, you can buy nice operating companies in the high 2%/low 3% range that pay dividends under a preferred rate with a better chance for increases.