I just made a massive buy order in my dividend stock portfolio. I increased the size of a highyielding position by 50%. I'm talking about Realty Income (O), the monthly dividend company. Of course, this move comes with risk, and I look forward to sharing those risk factors in the video today.
Timestamps:
0:00 Introduction: I just increased my position size of my Realty Income (O) position by 50%.
0:23 Check out the pinned comment for my Patreon.
0:43 SEGMENT 1: VALUING REALTY INCOME
0:44 20Year Treasury is at 5.146%. This is a somewhat risk free (or at least reduced) proxy.
1:12 When I buy a REIT, like O, I have to compare to the Treasury yields.
1:27 Realty Income is a bondlike proxy.
1:39 KEY POINT: The value of Realty Income (O) is in the leases, more than the real estate itself.
2:00 SEGMENT 1A: BELLAGIO LEASE EXAMPLE (5.2% Cap Rate)
2:18 The cap rate is just slightly higher than the 20year longbond, although there are modest rent escalators.
2:59 Realty Income is in longterm leases.
3:27 RISK: If rates skyrocket, the value of O's longterm leases will plummet.
3:55 If interest rates double, the value of the lease will get cut in half, and the REIT will fall in value.
4:30 IMPORTANT: I'm making the calculated bet that interest rates have probably peaked.
4:58 SEGMENT 2: MY REALTY INCOME PURCHASE (Metrics Analysis)
6:10 I back into a Price/AFFO of roughly 12.59. This is a great value, in my opinion.
6:48 I love their monthly distributions. These make budgeting easy.
7:05 The distribution yield is a staggering 6.16%.
7:35 Realty Income (O) is a bondlike proxy, but it yields more than the Treasury and has builtin increases (yieldoncost).
7:52 Over the last 5years they have increased the distribution by 3.03% per year, on average.
8:08 Key Point: Bonds reset. We don’t know where interest rates will be in 20 years.
8:28 I look at O as a "forever yield".
9:13 Diluted AFFO per share is growing over time. New shares are productive.
9:24 How Realty Income raises capital for investments.
10:08 AFFO per diluted share has increased with a CAGR of 5.1%.
10:53 Balance Sheet Analysis (Shareholders' Equity Looking Great)
11:25 O is trading at a Price/Book of 1.11. This is a key reason that I purchased more units.
11:53 RISK: If interest rates go way up, this could affect the value of their assets.
12:41 SEGMENT 3: EARNINGS REPORT METRICS
12:42 Balance Sheet Analysis
13:46 Historical FFO and AFFO
14:13 SEGMENT 4: PROS AND CONS OF REALTY INCOME (O)
14:27 PROS
14:28 Starting yield of 6.16%
14:40 Bondlike proxy with no expiration date, and builtin increases (yieldoncost)
15:00 Love the AFFO per diluted share is growing
15:16 PEequivalent in the 12s
15:23 1.11 price/book
15:30 Occupancy is ~98%+
15:47 CONS
15:51 $16.5 billion notes payable, interest rate risk, and debt interest rate risk against their leases.
19:10 Taxes with REITS are different than with qualified dividends. More tax complexity.
20:05 Check out my Patreon in the pinned comment.
20:53 DISCLOSURE AND DISCLAIMER
DISCLOSURE: I am long Realty Income (O). I own this stock in my personal dividend stock portfolio. I'm also long Treasuries.
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