Perhaps I have a little bit too much free time on my hands, as I found myself trading another stock again this morning. Although I much prefer to employ a Buy and Hold strategy with individual stocks, I couldn’t resist the opportunity to make a move today.
I sold out all 70 shares of American Express (AXP) for $78.08/share, and closed out my position. After commissions, I netted $5,460.54. My cost basis was $5,429.95. I netted $30.59 before taxes. Woohoo, that’s enough profit for a very cheap steak dinner! 🙂
However, I instead chose to immediately put that capital to work and purchased 120 shares of Realty Income (O) for $45.97/share.
To get started, let me first explain my decision to exit out of AXP. I first purchased shares of American Express back in February, shortly after I completed a cash out refi on Rental Property #1. Looking back, I guess you could say I was a little too impulsive with utilizing the new funds, as I had not yet really formalized an underlying strategy for the new investment capital. I knew that I wanted to invest in individual stocks again, and AXP looked attractively priced. So, I made the move to buy…
Even at today’s prices, AXP still looks like a decent purchase for a long-term play. However, the stock doesn’t really serve a purpose in my stock portfolio.
Let me explain:
My goals with investing in individual stocks are two-fold:
1) Hyper-Growth (capital gains)
2) Decent/strong dividend yield
Unfortunately, AXP doesn’t really fit into either one of those categories… It’s not really a growth stock, and the current dividend yield of ~1.34% leaves a lot to be desired. With my recent move to pick up shares of SBUX, I simply felt like I had too much capital allocated to low yielding stocks in my portfolio (that also aren’t hyper-growth candidates).
Enter Realty Income and REITs. Last year, I wrote an article comparing REITs to rental properties, suggesting that the two forms of investments are inherently different and can’t really be compared. Although I still believe that, the article shouldn’t suggest that investors have to pick and choose one or the other alone. Like always, I’m a fan of diversification and believe that there is a place for both types of investments in a well balanced portfolio. And although my bread-and-butter is rental property, I’m more than happy to own some shares of a blue chip REIT such as O.
REITs took a hit today, and I used the negative news as an opportunity to initiate a small position with O. Although I didn’t quite get in at 5.0% yield, my entry point was close enough for comfort, and the purchase helped me accomplish what I really wanted to get done with the freed up capital — increase the dividend yield and overall passive income of my stock portfolio.
Yes, better entry points will likely arrive in the future, should the Fed ever get around to actually raising interest rates (I’ve been hearing about an impeding rate hike since like 2013). O is currently trading around 17.5 FFO, which is also higher than its historical average. Since the Fed tends to move as slow as molasses when it comes to these things, I’ll believe it when I see it… Chances are, any rate hike will be subtle, so who knows how much impact it will really have on the markets?
Anyway, I’m not looking to beat the market, or capture substantial capital gains with this stock. Rather, I just need the “monthly dividend company” to just keep doing what they do best — churn out monthly dividends like clockwork. 🙂