I decided a fun little Christmas present to myself and my wife would be an income generating asset. We by no means are living a glamorous life for middle class Americans, but at the same time, more “stuff” does not seem all that appealing. So, what better gift than a dividend paying position.
I added 14 shares of Realty Income Corp. (O) to our joint portfolio.
This investment will payout $2.52 every month. Most dividend stocks pay their dividends quarterly. However, it’s not uncommon for Real Estate Investment Trusts (or REITs) to distribute dividends monthly.
REITs can be difficult to value since you can’t follow the usual stats for a good picture of their business. A REIT essentially owns several rental properties, and is required to pay out over 90% of the net profit to investors. As such, it would look like the payout ratio and EPS are outrageous in terms of standard valuation. Instead you need to find the Funds From Operation (or FFO) and compare that to the price to get a more accurate representation of EPS. In the case of Realty Income Corp. It is currently at about 15.8 Price/FFO, which is an attractive entry price.
Additionally, it has a dividend yield of over 5.8% with a history of 19 years of dividend increases averaging over 4% per year. Most analysts are predicting that the growth may slow down with changes to interest rates and the FFO to dividend ratio is getting tighter. However, I am optimistic, and having shares of a REIT is like owning a tiny far more liquid rental property.
Anyways, money is going to be tight in January, so this may be the last investment I get to make for the next several weeks.