Recent Sell – Realty Income Corp

Realty Income

As most regular readers are aware, I have been liquidating some of my holdings lately. This has been driven by a few different reasons – driven by a combination of market conditions, complacency in the market, lack of belief in individual holdings, the yearn for simplicity provided by index funds etc. Some of these reasons have been summarized in this post. This post captures another recent sell in my portfolio.

As the market continues to hover around all time highs, I have been thinking more about investor psychology and introspecting my own mentality. Recently I posted an article entitled “Do You Love Your Investment Holdings?” detailing how investors can fall in love with a holding and try to justify it even when the evidence points to investors to come to different conclusions instead. This can be driven by familiarity and a bias that comes with ownership of shares in a company for a prolonged period of time. This is a common pitfall that investors fall for and I came to the conclusion that I was facing the same issue with this holding. While this particular company is one that I didn’t quite love, I have noticed that most investors in the community seem to love it thanks for the dividends.

I decided to sell 60 shares in Realty Income Corp (O) @ $66.95 and close my position.

Recent Sell Decision

  • The capital gains were too good to ignore. This has been the main driving force for me to sell and book my profits. I was sitting on close to 100% in unrealized gains. The decision came down to one simple question: Do I hold this stock and wait 15 years for that amount of dividends to accumulate or take the profits now. The answer was a resounding “Book Profits Now!”
  • Realty Income is still a very well run company — and investors are more than happy to pay the premium in this yield hungry world for the stock.
  • The stock is very overpriced (about 30-40% depending on your model) and new investments cannot be justified. However, the company still see some tailwinds as GICS creates a new REIT sector — which will eventually spawn ETF rebalancing and launch of new funds; and most funds are bound to include Realty Income as one of the top holdings.
  • Other than that, I have nothing negative to share about this company. I may look at this company again in the future when better valuations present themselves.

Overall gain (including dividends during holding period of approx 2.5 years): 98%

Further Reading

Full Disclosure: Our full list of holdings are available here.

10 thoughts on “Recent Sell – Realty Income Corp

  1. You are one of the few people I’ve even seen suggest selling Realty Income. Most of the thinking is along the lines of “yeah, I know it’s overvalued. But I can’t sell. That dividend growth, baby!”

    Kudos for realizing the valuation is silly and taking your gains.

    • Haha its the sign of the times…people are bending over backwards for measly dividends and dividend growth. Realty does a good job of making a big deal out of sending an extra 0.2% your way to make it seem like you are being rewarded well. If investors are going to drive up the stock price by this much, I’ll happily sell and take my gains here.

      Thanks for stopping by and commenting
      R2R

  2. JC says:

    I’ve been thinking of doing the same thing myself for the very same reason. I have nothing bad to say about Realty Income the company, but Realty Income the stock isn’t attractive. Realty Income is at best a hold and likely in the consider trimming or selling due to valuation area. If you’re completely reliant on dividends, i.e. retirement, then I might not be too concerned because I don’t think there’s anything wrong with the company. But if you’re still relatively young, like yourself, then most investors should at least be thinking about whether they should sell. I ran through some return models on my SA article on Realty Income and assuming a flat valuation your 10 year return would be around 8.8% IRR. The problem comes if/when the valuation compresses. The 10 year IRR declines to 5.2% assuming 5% annualized FFO/Dividend growth which is frankly too much to give up. I’m not 100% sold on selling yet but I lean more and more towards it every day.

    • I hear you, JC. Agreed with those numbers…Realty is still a well run company — and theres not much to complain about. But the stock price has been driven up so much that its hard to say no to these gains. The retail space will also see some problems once the next recession hits the US….and i decided to get out now.

      R2R

  3. great timing on selling O. O has a great run since bottomed out in the $30s last year, and it was in the 60s. Today it even dropped $2. I know we dividend investors don’t like to sell, but hey, even Buffet sell his stakes sometimes. Great job!

    • Hi Vivianne,
      Good to hear from you. Its been a while.
      Yes, you can say that Im lucky that I got out in time before it fell more 🙂 Its a company that I was thinking about selling when it was $70+, but took too long to decide. Good to get out while it was still in high 60s

      Hope things are well on your end
      R2R

  4. I can’t disagree with you, though I’m not exactly in a rush to sell myself. It’s been tough to find quality dividend payers at good values, so a monthly dividend company like O is a blessing to someone for whom dividends are the end goal. Plus, there’s the fact that it’s still a wonderfully run company that probably won’t have future reinvestment opportunities for those who want that monthly dividend back.

    Still, can’t argue with those capital gains. I’m not up quite as much but I really can’t blame you for selling.

    I’m surprised the dividend bloggers aren’t burning images of you right now. After all, selling O is like insulting Muhammad AND Jesus; complete blasphemy.

    Good luck, heathen!

    Sincerely,
    ARB–Angry Retail Banker

    • Haha….it is blasphemous to pull something like this, isnt it? 🙂

      This goes to my post a few weeks ago to not falling in love with a holding or one single strategy. DGI has a time and place — but I believe that it does not apply even to good companies sometimes. If the rest of the market is going to bid up the prices this much and wants to give me their money, I’ll happily take it 🙂 Like I said, it all came down to the fact that I was getting 15 years of dividends now…and taking those profits was the most logical thing to do.

      cheers
      R2R

  5. There’s been a few articles recently suggesting that O is a sell. It’s overvalued for sure, but I love those monthly dividends. My cost basis is pretty low and I’ve been selling covered calls the past few months. I’m making enough on the calls to warrant holding this stock a while longer. But, selling O is not a bad idea in my mind.

    • Thanks for sharing your thoughts, IH. Thats a great way to juice returns. If I had enough shares I would do the same. Considering that I didnt want to buy more to eventually write covered calls on them, I decided to sell and exit.

      Wishing you the best with your strategy.
      R2R

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