There was more transaction activity in my Portfolio this week. Thus, it’s once again time to provide an update.
I’ve been making so many Portfolio adjustments recently that this is my 3rd consecutive ‘Recent Transactions’ post.
Similar to my moves last week, a couple of REITs were involved. I trimmed one of them and initiated a position in another.
In addition, I continued to build out a smaller position from the Healthcare sector.
All totaled, I made 3 transactions, investing a decent chunk of change, but unfortunately making little difference in my forward dividend income. I’ll let you know why coming up.
Let’s get to all the details…
Omega Healthcare Investors (OHI)
In my quest to improve the dividend safety within my Portfolio, I’ve begun trimming my holding with the worst Dividend Safety Score, as ranked by Simply Safe Dividends.
OHI comes in with a score of 40 (‘Unsafe’) after being downgraded last month. Concerns exist with respect to labor shortages and vaccination mandates impacting their staffing, occupancy rates below 80% at their facilities, and tenants that may have trouble paying rent without government aid.
I thought about exiting my entire OHI position, but given the elevated yield of OHI, replacing the dividend income would have required more of a cash investment than I would have liked. Thus, I’ll plan to exit over time. At least the trim reduced some of the exposure I had.
It’s too bad I couldn’t have come to a decision to start trimming OHI about 2 months ago, before the safety downgrade, as I would have had a chance to sell prior to the 16% price decline it has experienced since that time.
Another reason to start exiting OHI… dividend growth has been decreasing over the past few years. OHI used to provide quarterly dividend raises. However, there’s been only one dividend raise since early 2018, and that was a 1-cent increase (1.52%) back in October 2019. If OHI doesn’t provide a raise for their upcoming November dividend payment, their 18-year streak of consecutive annual dividend increases will come to an end.
On 9/23/21, I sold 30 shares at $31.515/sh, which was approximately 39.5% of my position. The sale proceeds were $945.45.
The shares I sold were ones from 11/9/2016, which I purchased at a price of $29.139/sh.
At my sale price, shares of OHI yielded 8.50%, which is over 3.5x my current average Portfolio yield of 2.37%.
The sale resulted in a long-term capital gain of $163.32. The sale also resulted in an $80.40 reduction in annual forward dividend income.
OHI retreats in its standing within my Portfolio, becoming the 4th smallest position. It’s noticeably behind Medical Properties Trust (MPW), and just ahead of newcomer NNN (see below).
National Retail Properties (NNN)
In an effort to start replacing the lost dividend income from the OHI trim, I used the sale proceeds (and some cash) to initiate a position in NNN, another REIT. I mentioned NNN in last month’s Portfolio Thoughts post, so it had been on my radar.
Similar to other Portfolio holdings of mine in Realty Income (O) and W.P. Carey (WPC), NNN is a triple-net lease REIT. This type of lease arrangement requires tenants to pay for insurance, maintenance, utilities, and property taxes. NNN serves solely as a landlord.
NNN has a well-diversified portfolio. No tenant makes up more than 5% of rent, and no industry makes up more than 20% of rent. Also, portfolio properties are spread across the U.S. with no major geographic concentrations. NNN owns over 3,000 properties across the United States. Its properties are leased to more than 350 tenants in over 30 industries.
The company was founded in 1984 and is headquartered in Orlando, FL.
Analysts expect better near-term FFO growth for NNN compared to OHI. Recent dividend growth for NNN is better as well, mainly because it’s been nearly non-existent for OHI. As for S&P credit rating, NNN has a BBB+ rating, while OHI has BBB-. The Dividend Safety Score for NNN is 70 (Safe), after being upgraded in May due to improved rent collections. This score is a significant improvement compared to the 40 (Unsafe) for OHI.
Thus, NNN is looking like a better choice on several fronts. Where NNN is trailing OHI is in dividend yield, but I’m happy to compromise there in order to improve in the other aspects.
On 9/23/21, I initiated my NNN position by purchasing 30 shares at $44.6491/sh, for a total of $1,339.47. The stock yielded 4.75% at my purchase price.
This purchase added $63.60 to my annual forward dividend income. This amount is less than what I lost in the OHI sale despite adding some cash to the sale proceeds.
Adding NNN to my Portfolio brought the number of stocks in my Portfolio to 54. It’s now 1 of 5 REITs in my Portfolio, along with O, WPC, OHI, and MPW.
NNN starts as the 3rd smallest position in my Portfolio, trailing OHI, but ahead of NextEra Energy (NEE).
As always, since this is a new holding, let’s take a quick look at the dividend growth history dating back to 2000…
Dividend growth is slow for NNN, sitting in the 3%-4% range for the longer reporting periods I show. While dividend growth had been picking up into the 4%-5% range prior to 2020, it looks like 2%-4% reflects a better expectation for the long-term.
While the growth is slow, where NNN shines is in its ability to continue raising their dividend year after year. NNN currently has a streak of 32 consecutive years of dividend increases, making it a Dividend Aristocrat.
The adjusted FFO payout ratio for NNN is approximately 73% over the trailing 12 months, which leaves it in good shape.
Bristol-Myers Squibb (BMY)
I invested some additional cash in relatively new holding BMY in order to recoup the last of the lost dividend income I recorded from the OHI sale.
This was my 3rd add-on purchase of BMY since I initiated a position last June. I keep adding because the stock looks undervalued, and the price keeps dropping.
On 9/23/21, I purchased 10 shares of BMY @ $60.683, for a total of $606.83. The stock yielded 3.23% at the time of my purchase (just shy of 1 percentage point above my current Portfolio average).
My overall cost basis continues to decline and has now reached $64.50/share. The purchase resulted in the addition of $19.60 in annual forward dividend income.
My BMY position climbed to 80.122 shares, and I plan to add again should the price decline further.
BMY is now the 43rd largest position in my Portfolio (moving up a couple of spots). It’s still behind Lockheed Martin (LMT), but ahead of Hormel Foods (HRL).
Summary
Three more Portfolio transactions were made this past week. I trimmed one REIT position (OHI) and used all the sale proceeds and some cash to establish a new REIT position (NNN). I then used some additional cash to continue adding to my BMY position.
The transactions allowed for an improvement in my Portfolio’s Dividend Safety Score while keeping my dividend income intact.
The three transactions resulted in a net investment of $1,000.85 into my Portfolio. However, my annual forward dividend income didn’t budge much – it increased only $2.80, as investment cash was needed to recoup some of lost dividend income from the OHI trim.
I recorded a long-term capital gain of just over $163 as a result of the OHI trim.
After establishing the NNN position, the number of stocks in my Portfolio rose to 54.
Do you own OHI? Do you have any concerns about the stock? Do you question the dividend safety of any of your portfolio positions? I look forward to your comments!