It's dividend time!
Why I’m letting go of my monthly dividend.
Realty Income promotes itself as “The Monthly Dividend Company.”
Call up the company’s website, and it’s the first thing you see.
“For more than five decades,” the site reads, “we have invested in people and places to deliver dependable monthly dividends that increase over time.”
The company is a real estate investment trust, or “REIT.” It generates income from its portfolio of more than 13,000 properties it owns and leases to commercial clients such as Dollar General, Walgreens, 7-Eleven, Walmart and other household names. Realty Income boasts of distributing 643 consecutive common stock monthly dividends over its 55-year history and increasing its dividend 123 times since going public in 1994.
I’ve invested in Realty Income, ticker symbol “O,” since November 2022. I raced to purchase shares of the company less than two months into my stock market investing journey. I couldn’t resist its monthly dividends. But after receiving my latest payout from Realty Income last Friday, it’s time to say goodbye to my monthly dividend. I plan to sell my shares any day.
It’s going to be a tough transition. I grew accustomed to seeing money land in my brokerage account on schedule each month. Seeing dividends pop into my portfolio helped me to fall in love with investing. Routine payouts were my final push. They were the carrot I needed to change my mindset and deploy my capital differently. Cash dividends showed me how my money could easily make more money.
I’ve collected $48.99 from Realty Income over the 14 months I’ve received its dividends. That doesn’t sound like much. Until you compare it to the 45 cents in interest I received from the bank after nine months of letting one institution hold six times more money.
I own only 17.8 shares of Realty Income, currently valued at $1,017.72. Initially, my plan was to hold the stock long term. I wanted to accumulate shares, kick back and collect monthly dividends into my old age. They would be reinvested, compound, lead to more equity and larger dividend payouts.
I’m only selling because I have overlap in my portfolio. It’s a problem I created by gobbling up dividend companies and one I’ve been correcting since last January.
Rather than keep Realty Income, I’ve decided to sell it and fold the money into the Vanguard Real Estate ETF, ticker symbol VNQ. I’ve been a stakeholder in that fund for two days longer than I have been in Realty Income.
The problem is VNQ holds Realty Income in its portfolio. Realty Income makes up 2.53% of the VNQ, making it the fund’s ninth-largest holding. However Realty Income’s stock performs, I’ll ride with it in the VNQ, which pays quarterly dividends.
All that’s stopping me from unloading Realty Income is I’m in the red. The stock price closed at $57.20 on Wednesday. My average purchase price is $60.09. I’m down 5.09%, or $54.53.
I don’t like selling at a loss.
Last week, Realty Income came within 30 cents of my average purchase price. I could have unloaded it and ate about a $10 loss. Only I was holding out for this last dividend, a $4.55 payment I’m quite proud to collect.
Eventually, I’ll roll my VNQ position into my total stock market fund, which is the anchor in my long-term portfolio. It’s part of my goal of reducing my positions and relying on an index fund to carry my account — while kicking back quarterly dividends.
I’m down to 23 holdings, 13 of which pay dividends.
I’ve earned $708.54 in dividends, from 94 payouts in my long-term brokerage since the first arrived on Nov. 1, 2022. My daughter Parker’s account has collected $341.83 in dividends.
I’m still trimming the fat in my portfolio. But we’ll keep investing in dividend companies and keep watching how our money is making us more money.
Can’t get enough Money Talks?
Love to see you simplifying your investments down! I started out with a mash of 10 or so different ETFs, perfectly calibrated to get the exposure I desired. I've since pared things down to just 3 or 2 funds depending on the account type and limited options within my work retirement plan.
Simpler is almost always better when it comes to investing. Pick something sensible, I'm partial to VT, the Vanguard Total World ETF, and then just let it ride and worry about other things. Having all this stuff written down will help when you feel the need to tinker.
Edited to add: if you feel the time is right to switch, you should just switch. Even if you sell at a minor loss, you're still deploying that capital into productive assets and the price will rebound eventually. Anchoring to certain price points is a well known behavioral finance problem that you should try to avoid so you don't hang onto investments too long waiting for the mythical right time.