DRIPs- need some general and specific advice

[thefed]

I've been researching DRIPs lately, and think I'd like to invest some money in DRIPs to help diversify my portfolio.

I have two I am eyeballing, and was curious to get some reactions on the two:

LXP 7.1% yield as a result of divi's, 5% divi re-investment discount, and is at 1 year low in PPS

OHI 7.1% yield from divi's, 2% divi re-investment discount, PPS on the rise fast lately, up 30% in 2 years


Between those two, which would YOU pick, and why?


Also, when I see a 'yield' quoted in Yahoo,is that yield a direct result of JUST the divi's, or do they somehow calculate pps as well? I'm pretty sure after my calcs it's just divi's.


Also, does anyone have other DRIPs they'd like to share with the group?

[thefed]

Just an FYI, I'm leaning toward the OHI DRIP, but I suspect it may be an emotional decision based on the fact that the pps has increased well since it's inception.

The buy low and sell high mentality would lead me to buy LXP, because it's at a low. But I'm not so confident in the RE market right now. I do think healthcare is the palce to be, so that also influences my decision.

Just looking for more experienced advice.

Thanks.

[brewer12345]

What about either of these equities is appealing to you, aside from the yield? Have you built a detailed excel model that shows how they will increase cash flows going forward? Have you read the last two years' worth of 10ks, 10qs, and proxy statements?

[unclemick]

Walmart - rank 39/314 Mergent's Summer 2005 book of dividend achievers.

Anheuser - Busch - rank 185/314

29 and 30 years of dividend growth respectively - to the high side of their historical div yield.

The blinding obvious has some appeal to me - especially for a youngster(age 62) like me who's only been ER'd for 12 years.

But then again I've owned other exotics for 10 -15 years such as Consolidated Edison, Exxon mobil, SBC(now AT&T), Eli Lilly, New Plan Excel, Aetna(even after the div cut) and Union Pacific.

? An accumulator vs someone in ER - aka distribution phase would have different ideas. Why you own something is - in my mind - as important as what you own.

My Boglehead method or reasoning would put the 'perfect stock' as:

3% current yield plus 3-4% div. growth and a 30 - 50 yr track record of consistency - the last being the most difficult to wrap your mind around. Being a global company ain't a bad idea either.

[cute fuzzy bunny]

Jeez and walmart stock has just done nothing the last few years, isnt it in the mid-upper 40's after sitting in the mid 50's for a while? (Too lazy to look) That sucker has to start heading north at some point.

Heard they were going into banking. Makes sense, they might as well do banking, insurance and so forth...even just their own employees would be a hell of a customer base.

[thefed]

Quote:

Originally Posted by brewer12345 What about either of these equities is appealing to you, aside from the yield? Have you built a detailed excel model that shows how they will increase cash flows going forward? Have you read the last two years' worth of 10ks, 10qs, and proxy statements?

What more needs to be appealing other than the yield and growth? I dont totally understand 10ks, 10q's, and proxies. I can and will delve into them before i make a decision, but i found these based on other criteria...namely yield and pps trend.

And pardon my french, but WTF is a detailed excel model detailing cash flow? shouldnt they do something like that and present it in a prospectus or something?

Brewer: you are much more knowledgeable about these things than I am, so be gentle, please...but I do greatly appreciate and consider your advice.

I right now am leaning toward OHI, I've almost crossed LXP off my list. One major reason I like OHI is the shealth sector, IMHO, is a good one to be in. They invest in healthcare facilities, and with the costs of health care lately, I think that's a good thing. Plus they are trending up from a LOOOOOW point, and yields are good.

Thanks

[brewer12345]

Quote:

Originally Posted by thefed What more needs to be appealing other than the yield and growth? I dont totally understand 10ks, 10q's, and proxies.* I can and will delve into them before i make a decision, but i found these based on other criteria...namely yield and pps trend.* And pardon my french, but WTF is a detailed excel model detailing cash flow? shouldnt they do something like that and present it in a prospectus or something? Brewer: you are much more knowledgeable about these things than I am, so be gentle, please...but I do greatly appreciate and consider your advice. I right now am leaning toward OHI, I've almost crossed LXP off my list.* One major reason I like OHI is the shealth sector, IMHO, is a good one to be in. They invest in healthcare facilities, and with the costs of health care lately, I think that's a good thing.* Plus they are trending up from a LOOOOOW point, and yields are good. Thanks

Hoo-boy, well you have to start somewhere, I guess.

Its great that you are interested in individual stocks and that you are investing. However, if you are seriously going to consider picking individual issues, you'd better be prepared to do some work and get knowledgeable about evaluating companies.

When you buy a company, you ultimately are buying a packet of future cash flows. You want to have a really good idea of want those cash are and how they could change from your default assumptions before you buy the stock. I would suggest that you stick to funds until you have bought and read a decent corporate finance text (Brealey & Meyers is good and approachable) and a good intro accounting text. That way you can at least speak the lingo.

When I evaluate a stock for purchase, at a minimum I read that last couple of 10Ks (these are annual reports), the last year's 10Qs (quarterly reports), the most recent proxy statement (document that tells you about management, directors and who owns the company), any recent news, do a scan of competitors, and if I am unfamiliar with theindustry I try to learn about it. Then I build a spreadsheet that shows how the company generates free cash flow and what it does with it. I try to play with the model to see how sensitive it is to my most critical assumtions. Lastly, I calculate a discounted future cash flow valuation for my best guess, a lousy out come, and a good outcome. I compare these to the stock price and buy if the price is low relative to the range of values I have come up with.

Sometimes I zig when I should have zagged (insert CFB comment here), but mostly this keeps me out of trouble and delivers solid returns.

[Nords]

Quote:

Originally Posted by thefed What more needs to be appealing other than the yield and growth? I dont totally understand 10ks, 10q's, and proxies.* I can and will delve into them before i make a decision, but i found these based on other criteria...namely yield and pps trend.* And pardon my french, but WTF is a detailed excel model detailing cash flow? shouldnt they do something like that and present it in a prospectus or something?

Fed,

You're doing what most of us posters have done in the past-- walking onto a used-car lot, waving your credit card at the salesman, and asking "Whattya got that looks good?"

First, you haven't discussed how these fit into your time horizon and your asset allocation. If you're planning to sit on this for a decade or so then you'll probably make money on it. If you're riding the momentum then you'll also possibly make money on it, but trading requires much more knowledge & work than most are willing to acquire & do.

Let's assume that you've decided to put about 10% of your investment portfolio into REITs and hold it long enough for it to perform. If you do so, perhaps diversification among that asset class is better obtained by buying into a mutual fund or ETF. You're doing the equivalent of buying a single stock. Diversifying away the single-stock risk requires a minimum of 20 and perhaps as many as 50 stocks.

You've identified that these two have a good yield and their price is moving up, but both can be for a variety of reasons that have nothing to do with making money. Many sucky companies have a high yield because their share price has cratered and they haven't cut their dividend yet, which used to be the situation with GM. Other high yields may be due to deliberately paying out a lot of dividends to attract investors (and to enrich their major stockholders) while starving the company of the cash it needs to perform & grow. Price movement can be due to great financial performance or it can be due to various speculators buying shares, talking up the stock, and dumping them.

The basic language of stocks is the 10Ks/10Qs that Brewer alluded to. That's where you find the company's financial performance and how it's making its money. The "prospectus" isn't much more than the advertising sign over the used car lot.

Some companies do show how their cash flow will grow, as do many analysts. However very few of them have shown to be accurate enough to trust. Some ratings firms track analysts or newsletters and their long-term accuracy. However the vast majority of the analyst industry consists of opinions backed up by data-mined numbers.

Guys like you asking questions like that in a used-car lot get fleeced. In the investing world it's just as bad. Brewer's recommended some great texts, and there are also more popular guides like Investopedia.com and The Motley Fool's books. Those are the basics of looking for good companies, but that basic skill can only be improved by more studying & experience. It can be done but it's not as easy as it looks, which is why the vast majority of investors do it with mutual funds & ETFs. Even guys like Brewer who build spreadsheet models for a paycheck have been taken to the cleaners by the occasional single-stock "surprise".

On the technical side, I see LXP as a REIT that's had a good run up but has been steadily losing ground over the last year, which is why yield is now so high. There's a reason for the price drop and the recent rise hasn't really gone anywhere. If they cut their dividend then the price will drop even faster/further. So if it's such a good REIT, why has its price been dropping when assets should be getting more valuable and rents should be going up? There are reasons for the price movement but neither one of us knows why. However I'm not planning to buy it...

OHI looks like it's had a good long run and is starting to peter out. Again it may be fully priced and you may be jumping in just as it starts a similar decline. Again there's a reason but that hasn't been analyzed adequately enough for me to trust my money in there.

[wildcat]

Just buy a dividend ETF or a dividend mutual fund.

[yakers]

I don't know the companies you proposed and I have to run so I can't look more deeply. But I do want to add to the idea that if you are DRIPing over time and a long term buy & hold then different factors come into the decision. I own 6 DRIP stocks, mostly boring mid performers which pleases me greatly. BWA I bought because I know the company, their products and some of their previous officers. WEC is the power supplier in my Moms area and is a diversified power company. MOD is a small company whose products I bought and then I asked "who made this radiator?" and looked into the company & stock from that perspective. I have UST for some years, a diversified tabbaco wine company. KEY is a band with dividends and maybe a company to get bought out. Anyway, my approach is to look at what a company is and does as I expect to buy & hold 20 to 40 years and maybe leave the stocks as an inheritance. So the latest quarter doesn't mean as much as my noticing crappy products coming out of the company. My last one is HNZ, a food company.
Lots of ways to look at things, thought I'd share mine.

[JPatrick]

I've been using CIN for about a Brazillion years.* It's a boring utility that will likely merge with Duke Power soon.* Frequent div increases and the DRIP program is 100% free, yes 100% free.
I put my end of month leftover bucks here.* Always have at least $25 and sometimes $200, but normally about $75.* This stuff adds up
I'd tell you how many shares I've picked up this way, but I get short of breath every time I look at the total. 8)

[thefed]

Brewer, you must not have really sensed my sarcasm (often it is ahd to portray thru the internet).

Of course there's more to it than pps and yield! But as I mentioned, I filtered and got these and a few others that met certain criteria.

Truthfully, I do not like reading 10k's and 10q's 8-k's etc, but I do. It seems OHI's news and press releases are very abundant, and thus harder to sift through.

What do you all think about Moody's? I just read a Moody review and rating, and was just curious about the reliability of its data.


Thanks all of you for your input.

[wildcat]

Question Fed - Why do you want to do DRIPs with REITs? Don't you worry about taxes?

[maddythebeagle]

I invest in several drips as part of my taxable stock investments. These 2 are reits. You are aware that carrying them as a taxable investments isnt a great idea since their dividends are not qualified. If you want reit exposure, I would do an index fund in a 401k or roth.

Also, you have to put some effort into drip investing (records, etc.) and the costs of setup of your first share can be a hassle and many plans are switching to high fees. I think you are better off with index funds.....If you look up something like sharebuilder (4 bucks per investment...you can buy etfs or if you want individual stocks though them and forget all of the individual drip account statements).

[thefed]

I was planning on asking the tax questions next! lol. you all beat me to it.

Can i hold something like this in a simple IRA? what would the tax ramifications be....anything different than a regular fund or stock?

[wildcat]

fed -

I am really not trying to come off as a smart ass in my attempts to help. Your op said you wanted diversification, no? REITs could provide that to your portfolio which is presumably stocks, correct? DRIPs via regular equities (read non-REITs) will probably not provide with any additional diversification. Safety, yes, but not diversification unless you hold zero large cap stocks. If you seek diversification in REITs I recommend buying the index and holding it in a tax sheltered account.

[thefed]

Wildcat: I never took you as being a smart ass

I might be a little more confused now than ever, so I'm going to quit posting for a bit...I think some of my points are being interpreted wrong.

Maybe a fresh look in the morning will help!


Thanks again for everyone's comments!

[brewer12345]

Quote:

Originally Posted by thefed Brewer, you must not have really sensed my sarcasm (often it is ahd to portray thru the internet). Of course there's more to it than pps and yield! But as I mentioned, I filtered and got these and a few others that met certain criteria. Truthfully, I do not like reading 10k's and 10q's 8-k's etc, but I do. It seems OHI's news and press releases are very abundant, and thus harder to sift through. What do you all think about Moody's?* I just read a Moody review and rating, and was just curious about the reliability of its data. Thanks all of you for your input.

thefed, by all means, ask away. I suspect that giving advice to those who ask ranks second to the posters here only to ogling 8008135. If you are seriously interested in building a portfolio of individual stocks, I (and others) will be happy to share what we have learned.

On the reading of SEC documents: I know it isn't all that exciting or fun sometimes, but I have come to a realization. Namely, I have a limited amount of capital and there is a nearly unlimited number of investment opportunities, so I try to be pretty thorough before I will commit my precious capital. The fact that I tend to shoot for the moon and buy beaten down stuff makes me doubly interested in doing my research. My advice would be to take your time and make sure you understand what you are getting into befor you buy something.

On Moody's:

Not too long ago, I used to work for a rating agency (wink, wink). As rating agency staff, I had access to management of the companies I rated and was considered an insider, so I could be (and often was) told things that were not common knowledge. As such, I had a serious information advantage over outside investors. I also focused very narrowly on one industry, compared to what I now do as a buy-side research analyst (I look at everything from oil tanker companies, to catastrophe reinsurers, to glass container companies). So I was a narrowly focused specialist with access to insider knowledge. With all those advantages, I would say that Moody's et al. are generally pretty accurate on the ratings they issue. However, they also tend to be slow to move. So when a company improves, they will commonly be 6 to 12 months behind in upgrading a rating. When a company deteriorates, they are usually a little faster in issuing downgrades, so maybe they are 3 to 6 months behind the curve. There are a lot of reasons for these lage, but its real.

[cute fuzzy bunny]

Quote:

Originally Posted by thefed I never took you as being a smart ass

Nobody likes a smart ass.

But everybody likes a little.