Thursday, June 20, 2013

New Purchase - XOM & WPC

Anyone who follows the stock market knows equities took a huge tumble the past couple days.  REITs in particular were absolutely crushed.  Pulverized is a good description.  My portfolio lost thousands of dollars on paper, yet my income remains intact (and growing).  This is why I do not care how much my portfolio is worth.  Why should I care about capital gains if I never plan to sell?  If I cared about total return, I would literally be pulling my hair out right now.  No thanks, I don't need that kind of stress.  Focusing on income allows me to sleep at night knowing everything is proceeding according to plan.

We have to accept volatility as long term equity investors.  It can get way worse than this.  Anyone remember August 2011...?  My way to cope with volatility is to be indifferent to total return.  It works for me, although I know it sounds crazy to most people.

Anyways, last night I entered a couple buys orders not knowing equities were about to be spanked.  One for XOM, the other for WPC.  I did not expect either, let alone both, to fill.

The first buy I'll discuss is Exxon Mobil.  I'm pretty sure everyone knows this company.  It's either the largest or second largest company in the world going back and forth with Apple.  I don't feel I need to explain this purchase in great detail.  All I'll say is that I came up with a fair value of $103 and was able to purchase shares at a discount to that price.  When I calculate buy prices, I use the average of four valuation techniques: DDM, DCF, average yield, & average p/e.  I feel this purchase will be a long term winner, plus the 2.8% YOC isn't bad either.  The bottom line is that my passive income grew with this purchase.  I'm now a little closer to an early retirement.

The second purchase is a company that has been sitting on my watch list for a few years: W.P. Carey.  WPC is a REIT with unique characteristics that I find extremely appealing.  Although I may have jumped the gun buying a REIT right now (perhaps I should have let the dust settle), I feel this company is a top shelf triple net play along with O and NNN.  I would like to own all three, but honestly WPC is probably my favorite.  It doesn't pay monthly like O, but it does offer worldwide diversification and also receives revenue managing the CPA & CWI lines of private REITs.  This is my first entry into the world real estate market.

W.P. Carey was structured as an MLP for most of the time I have been watching it.  Back in September 2012 it merged with one of its privately managed REITs, CPA 15, and then was able to restructure as REIT itself (and dramatically increase the dividend).  It now does sale lease backs like O or NNN, but on a global scale.  It owns properties in Europe as well as North America.  It also manages a line of private (not publicly traded) REITs for high net worth clients.  These are known as CPA 16 and CPA 17.  Again these properties encompass more than just the US with investments extending past even Europe and North America into Asian countries including Thailand, Malaysia, and Japan.  The world is WPC's oyster.

A few properties WPC owns and leases to the occupant:

Distribution Center in the Netherlands
New York Times HQ

Google, Inc.  Venice, CA
WPC has been operating for over 40 years and has a 16 year streak of dividend growth.  In fact, WPC has increased payouts the past 48 quarters (that's every quarter for 12 freaking years!)  A streak that long is something of a rarity for a REIT and includes the great recession.  What it tells me is that management is top notch and is committed to rewarding shareholders.

I've always had a difficult time valuing REITs.  Honestly I don't know if I paid too much.  I'm not convinced today was the best time to buy a REIT either.  Interest rates are rising.  However REITs will be a part of my early retirement strategy since I will not be getting into physical real estate and WPC is one I really wanted.  It's way off the 52 week high, I guess I can take solace knowing I didn't buy at $79.  On a side note, my parents rent out a house and are having major problems with the renter which is causing headache after headache.  My dad is constantly on the phone dealing with problems when he should be going for a bike ride or otherwise enjoying retirement.  It's a tough situation and they are looking to cash out.

This purchase came with 5.0% YOC and will get me a little closer to the promise land just like the XOM purchase.

EDIT: WPC announced its 49th consecutive quarterly dividend increase while I was typing this post earlier today.  My YOC is now 5.1%, that didn't take long.


  1. Being "indifferent to total return" is a concept I'm getting better at no doubt, but it still bugs me just a little bit. I guess it's from the days where I traded stocks instead of investing in stocks like I do now. I think it's important not to let the day to day fluctuations effect you. That kind of stress isn't healthy. On days like today I prefer to think of stocks as "on sale".

    1. You gotta do what you gotta do. Back in 2008 and 2009 I was doing mutual funds and while the dollar amount seems small to me now, I couldn't even bear to log into my account at the time. It was all red. I do not want to behave or worry like that ever again. Focusing on income is a psychological tool that works for me.

  2. Nice buys. I don't have any REIT yet, but I have been looking. I'm not familiar with US REIT but have noticed O was popular among bloggers. I'll add WPC to the list of candidates.

    I too don't pay much attention to capital gains. But when a stock retreats below my cost basis, I keep telling myself had I waited, my dividend income would be higher.

    1. Yes I hate second guessing myself. I think that might happen with the WPC purchase and pretty much all REITs for the time being. On the bright side, I just noticed WPC announced a dividend increase today + I got in before it goes ex. That gives me confidence.

  3. Nice purchases. I've been interested in adding XOM to my portfolio and also getting some REIT exposure. I haven't looked at WPC, though, so your post was informative.

    1. XOM and CVX should both be just fine. I'm a little worried about COP and the lack of dividend increases however. I think for now I'll just hold COP and give it a little more time. Historically they don't always do clockwork increases.

  4. I bought a lot of leveraged S&P500 ETF's (long) on Friday, coupled with a lot of gold. Gold played out just as I expected - bottom at its 38.2 Fibonacci retracement.