Tuesday, July 10, 2012

Roth IRA Move: Sold Some (O) to buy (HAS)

Since doing my analysis on Hasbro I've been digging deeper into the company's financials and continue to like what I see.  On Tuesday I decided to make a purchase in my Roth IRA, the problem was I didn't have cash in that account as I'm fully allocated. Something I have been contemplating though was selling some of my Realty Income (O) stock as it has been on a tear the past few years.

You may recall that Realty is the company I used to show the power of compounding.  It has been a strong performing REIT since it became a public company, and has treated me well for the past several years I have owned it.  In fact, I was lucky enough to purchase the majority of my shares in 2009 when the market was at record lows, so I'm up over 100% on my position and have been collecting monthly dividend payments along the way.

So if its been treating me so well why sell?  Good question, here's why.
  1. Although Realty has been a solid stock, it's currently violating Rule # 4.  It's average 5 year dividend growth rate is currently 3%.  Realty has barely been keeping up with inflation with its dividend increases.
  2. As mentioned, Realty's price has shot up the past few years.  Its P/E is trading at an expensive 41 (although P/E isn't as an important number for REITs).  More importantly, it's current dividend yield of 4.2% is trading much lower than it's average 5 year dividend yield of 6.0%.  This is the main figure, combined with its recent dividend growth numbers, that makes me feel the stock is trading at expensive levels.
  3. I can get the same 4.2% dividend yield from Hasbro that I was currently getting from Realty.  Plus Hasbro has a much better outlook for future dividend increases considering its average 5 year dividend growth rate is nearly 20%.  
The fact that this is my Roth IRA account and not my regular account makes it a lot easier as well since no taxable events occur with this sale.  I've doubled my money on my original investment of Realty, sold half my position, and I don't have to pay a dime to Uncle Sam.  I still have my original investment amount in Realty and will hold onto it for a little while longer.  If the dividend growth numbers do not improve though, I will have to stick to my rules and sell the rest of my position.

Disclosure: I am long HAS, O


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