Sep 29 2014

My Latest Buy: RSO

stock_buyI’ve had my eye on Resource Capital Corporation (NYSE:RSO) for some time and didn’t move to buy until its price dipped to nearly its 52-week low (always a good tactic). I pulled the trigger on 120 shares at $5.32 per share, and then again for 120 shares at $4.895 (taking advantage of the usual post-payout drop in a stock price). Unlike the vast majority of my positions which are CEF/ETFs, this stock is a REIT (Real Estate Investment Trust), so RSO is certainly a deviation from my usual CEF/ETF strategy. RSO is now my 14th holding (including my employer’s stock grants), so I’m closer to my diversification goal of having 20-25 positions.

I picked RSO for the following reasons:

Yield. At the time of purchase, I got RSO at an impressive yield of 15.04%. Is this high yield sustainable? It should be. With an EPS of $0.40 and dividend of $0.20, the payout ratio should be large enough to maintain the dividend. However, to limit risk, I won’t go out on a limb for this stock and so I’ll keep its weight in my portfolio to under 3%. Unlike my earlier investments, I will resist the siren song of high yield and not let myself get too enamored with this stock.

Consistent dividend. The dividend has held steady since 2012, so I believe it should hold steady a while longer (but dividend cuts often come when you least expect).

Institutional ownership. 42% of RSO stock is held by institutional investors such as banks, insurance companies, retirement or pension funds, hedge funds, and mutual funds. That indicates a moderate to high degree of confidence in RSO.

RSO has its downsides, and here is what gives me cause for concern:

Age. RSO is only eight years old, so it has not been tested by multiple economic booms and busts. However, it has survived the current Great Recession, which was worse than the usual recession that comes around every decade.

Sector. We’ve seen the real estate market go through significant ups and downs in the past decade, so the real estate sector isn’t without volatility.

Quarterly. Again, this isn’t so much a strike against RSO, it’s that I prefer monthly over quarterly dividend payouts.

Finally, with this stock acquisition, my projected average monthly dividend income increases to $515.18. 🙂

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