“Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.” — Warren Buffett
One of the most important duties of our team is to keep bad ideas from creeping into your portfolio–bad ideas like American Realty Capital (ARCP). Accounting issues at American Realty Capital have recently cost its stockholders dearly, with the REIT’s shares down 30% from the announcement. Only after the fact did brokerage houses JP Morgan, BMO Capital and Capital One downgrade the REIT’s shares. Even some of the most-read REIT authors on blogs had bought into ARCP’s hype. Not us. Realty Income (O)—nicknamed the Monthly Dividend Company–remains our standout dividend growth REIT pick, and investors have flocked to its shares amid the chaos. Realty Income’s shares are now breaking out thanks to an excellent October run, as shown below.
Realty Income’s third-quarter results, released October 29, reminded us of the strength of the REIT’s fundamentals, which support its recent stock price gains. In the period, revenue advanced nearly 17%, as adjusted funds from operations increased more than 22% thanks in part to organic strength in rents (up 1.4%) and portfolio occupancy (up 20 basis points, to 98.3%). Realty Income’s September dividend increase marked the 77th time the company has increased its monthly dividend and the 68th consecutive quarter. The annualized amount of its dividend is now ~$2.197 per share (or a ~4.75% yield). Since 1969, the REIT has paid 530 consecutive monthly dividends and over $3.1 billion in total dividends. Our position in Realty Income in the Dividend Growth portfolio is not going anywhere. We value shares at $60 apiece, and we see both capital appreciation and dividend growth in the future.