Should I delve in DG stocks?

[cazantyl]

My concern with ARCP is their negative EPS. Certainly their yield is extremely attractive but until that EPS can turn north of $0 I'd be afraid that the yield is unsustainable, and with an EPS that far into the negatives they'll have a long way to go before hitting even. Is there something I'm missing with REITs though that makes a negative EPS not a red flag?

[Be Here Now]

(02-25-2014, 10:10 AM)cazantyl Wrote: My concern with ARCP is their negative EPS. Certainly their yield is extremely attractive but until that EPS can turn north of $0 I'd be afraid that the yield is unsustainable, and with an EPS that far into the negatives they'll have a long way to go before hitting even. Is there something I'm missing with REITs though that makes a negative EPS not a red flag?

Yes you are missing something very important. EPS is the wrong metric for valuing REITs. The correct metric is FFO (funds from operations).

[cazantyl]

(02-25-2014, 10:22 AM)Be Here Now Wrote: Yes you are missing something very important. EPS is the wrong metric for valuing REITs. The correct metric is FFO (funds from operations).

Thanks Good to know. Is there an easy place to find FFO? Does it have any correlation with EPS? I usually use P/E as a gauge for determining a stocks current price versus their peers. I'm guessing there's a means of using FFO to do the same?

[hendi_alex]

Most all REITs report FFO on their quarterly reports. FFO is a useful gauge for dividend coverage.

[Be Here Now]

(02-25-2014, 10:26 AM)cazantyl Wrote:

(02-25-2014, 10:22 AM)Be Here Now Wrote: Yes you are missing something very important. EPS is the wrong metric for valuing REITs. The correct metric is FFO (funds from operations).

Thanks Good to know. Is there an easy place to find FFO? Does it have any correlation with EPS? I usually use P/E as a gauge for determining a stocks current price versus their peers. I'm guessing there's a means of using FFO to do the same?

P/FFO is very commonly used to compare REITs.

[cazantyl]

Thanks guys That opens up a whole new realm of REITs for me to look in to.

[hendi_alex]

Factoids is a numbers guy, who posts at Investor Village as well as being a Seeking Alpha contributor. His REIT charts usually if not always include FFO. Here is a copy and paste one such chart posted on the REIT board at I.V. For the complete post, visit Investor Village and select the REITs board message 4328.



Factoids focuses most energy on evaluating MLPs and BDCs. He is a great resource for determining how to use metrics to evaluate these businesses. Here is a link to his seeking alpha site.

http://seekingalpha.com/author/factoids/articles

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You will not that the Div/FFO is expressed as a percentage, and represents the dividend pay out ratio.

[Star]

So what do you guys do with regards to reinvesting dividends. There is a trade off, situation 1) reinvest dividend automatically, buy at any price + compounding advantage. Situation 2) Collect all dividends over a period of time (quarterly? yearly?) & invest them elsewhere or same stock when the prices are low, here we lose compound time.

This is my current dilemma, my platform takes 1% of dividends which are automatically reinvested by them. On the other hand I am in a tax wrapper so no dividends are taxed at source.

[hendi_alex]

To me, automatically reinvesting dividends represents a counter productive approach. Very few individuals would take fresh savings and have it allocated to simply reinvest at an arbitrary time and simply distributed between existing holdings. Rather, the person would usually scan the market, looking for the best possible home for that cash.

Why are dividends any different? They are fresh cash hitting the pot. Why not let them accumulate until the reach a decent size to deploy, perhaps a couple thousand dollars, and then look for the best possible home for them? People tend to look at dividends somehow differently from cash out of pocket. [Oh, I can drip this 'free money' as it represents no risk to me.] If when putting $2000 of fresh cash in the account, the investor would not buy new shares of MCD on a giving day, then it makes little sense to drip the dividends on that same day.

My approach is to accumulate cash, try to be patient, and then deploy to the very best location when opportunity arises. Buffet says to let the price come to the investor, rather than chasing price or buying at random. Drip represents just the opposite approach to this idea, as it represents arbitrarily buying no matter what the price or the value on the day of the purchase. I would only consider drip for those companies which give a 5% or better discount for participation. In those, the purchases at least represent a value to the market price.

[rnsmth]

DRIP represents dollar cost averaging into positions that have undergone extensive DD. It adds another layer of compounding to dividend growth. It mismatched way I do it. I have no problem with others doing it other ways.

[Be Here Now]

(02-26-2014, 08:45 AM)Star Wrote: So what do you guys do with regards to reinvesting dividends. There is a trade off, situation 1) reinvest dividend automatically, buy at any price + compounding advantage. Situation 2) Collect all dividends over a period of time (quarterly? yearly?) & invest them elsewhere or same stock when the prices are low, here we lose compound time.

This is my current dilemma, my platform takes 1% of dividends which are automatically reinvested by them. On the other hand I am in a tax wrapper so no dividends are taxed at source.

What I do is probably unique to me but you may get some ideas from my mad method. As a retiree I spend part of my dividends and reinvest the remainder. It is my reinvestment method that might be unique.

I reinvest all C corp dividends and all equity REIT dividends into the same companies using my broker's automatic reinvestment capability.

I accumulate all mortgage REIT dividends, BDC dividends, and MLP distributions, and spend a portion. The rest I reinvest opportunistically into whatever I want to own and is a bargain at the time.

[cannew]

Great that your considering investing for the future so early. As you have lots on your plate, but would still like to try DG investing, I'd suggest you open an account with Computershare (at no cost) and buy shares of KO, MCD and XOM (one or all depending on how much you have to invest).

You can buy these shares directly from Computershare with commission fee. You must invest a min of $500 for two and $250 for the other.

Once you own the shares you can setup your DRIP and purchase additional shares again at no cost.

Great option for beginners or kids (actually for everyone).