Fool Me Once, Shame On You, Fool Me Twice, Shame On Me

Chip Somodevilla

I'm judge you’ve heard nan saying “all that glitters isn’t gold” and successful that discourse coming I want to talk monthly paying REITs.

As galore of you know, I’m a large instrumentality of “The Monthly Dividend Company®" amended known arsenic Realty Income (O), nan world’s largest nett lease REIT that owns a portfolio of complete 11,700 properties successful nan U.S. and Europe.

I’ve owned shares successful this REIT for complete a decade and it has go my largest holding.

Realty Income website

You cognize a institution is superior astir monthly dividends erstwhile it spends thousands of dollars to registry its trademark, meaning nan marque sanction (“the monthly dividend company”) is protected by (officially registered in) nan US Patent and Trademark Office.

I retrieve discussing nan trademark “The Monthly Dividend Company" pinch Realty Income’s erstwhile CEO, Tom Lewis, galore years agone and he told maine that these 4 words picture very succinctly what nan institution does…

…it pays monthly dividends.

So, what’s truthful typical astir monthly dividends?

Well, first off, I’m assured that organization investors attraction little astir receiving monthly dividends, and arsenic Lewis told me, nan logic that Realty Income made this motto portion of its firm personality was to nonstop a awesome to its unit investors.

I retrieve astir a decade agone Lewis telling maine astir a fictional shareholder by nan sanction of Ida May.

He kept referring to her arsenic a retired schoolteacher who was surviving successful Des Moines, Iowa, and astatine nan time, I ne'er drew nan relationship pinch nan “real Ida May” from Vermont who was nan first beneficiary of recurring monthly Social Security payments.

I was baffled because I assumed that Ida May was a existent person, however, Lewis convinced maine that Ida May was simply a characteristic that Realty Income was utilizing to opposition nan mean investor pinch nan Wall Street attack to investing.

As I began to investigation Realty Income, it became clear to maine that while Lewis referred to Ida May arsenic a fictional investor (and a retired schoolteacher), she was really symbolic of a real-life investor that depends connected monthly mailbox money (just for illustration nan real-life Ida May successful Vermont who was nan first beneficiary of recurring monthly Social Security payments).

A ray went off…

Lewis was really speaking to dependability, a conception that resonates pinch Realty Income investors.

Some of you person heard maine mention to Realty Income arsenic a “sleep good astatine night” REIT, and nan tagline is fitting since astir of america loyal Ida May fans admit blimpish guidance – little indebtedness not much – contrasted by nan much fierce attack of galore money managers.

Mutual costs besides person nan luxury of owning companies that salary mini but increasing dividends (often a sound agelong word strategy successful narration to precocious yield), but nan retiring investor nevertheless (like Ida May) can't dream to unrecorded connected conscionable societal information alone.

As I said astatine nan outset, each that glitters isn’t gold, and I would for illustration to now show you a fewer examples of copycats that tried to unsuccessfully disguise themselves arsenic monthly paying SWANs, and alternatively became an disfigured duckling.

Textbook Ugly Ducklings

The first monthly paying “ugly duckling” I would for illustration to constituent retired is simply a REIT formerly known arsenic American Realty Capital Properties (formerly ARCP). For those that don’t recall, this institution was a nett lease REIT that was externally-managed by AR Global. In October 2014 I summed up ARCP arsenic follows:

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At nan clip ARCP was trading astatine $11.94 pinch a mouthwatering dividend output of 8.4%. However, arsenic I pointed retired successful that article.

“…when you see ARCP's AFFO payout ratio (95%), you tin spot that I'm not nan only 1 emotion queasy.”

I added,

“I'm not investing different nickel successful ARCP until I spot much clarity (i.e. erstwhile nan fume and mirrors disappear).”

Well, we each cognize nan civilized to that story…just days later I followed up pinch different article:

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ARCP was a immense instruction for me, arsenic an investor, writer and Wall Street analyst, and that’s 1 of nan reasons that I’m highly much risk-averse today.

Now, fto maine explicate Ugly Duckling #2, different REIT that pays monthly, and precocious shall we opportunity “cut nan cheese”.

Just a fewer days agone Gladstone Commercial (GOOD) trim its monthly dividend from $.13 per stock to $.10 per share, a 20% haircut. However, arsenic I pointed out, my intuition has improved dramatically arsenic a consequence of immoderate reliable lessons learned, for illustration having been ARCP’d (I utilized nan ticker now arsenic a verb).

Back successful 2021 I pointed retired that

“…one of nan disappointments pinch GOOD (since nan IPO) is that nan institution has maintained a level maturation rate. This is chiefly owed to nan costs of superior handicap.”

I pointed retired that

“…while nan 7.2% dividend output whitethorn look appealing, support successful mind that GOOD has not grown its dividend successful complete 13 years (except for nan humble summation of $.0002/month). More so, nan payout ratio is astatine precocious consequence and nan deficiency of net maturation is alarming.”

Now return a look astatine GOOD’s value underperformance since nan dividend cut:

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One different “ugly duckling” worthy discussing is Broadmark Realty (BRMK), a commercialized mREIT that we person been covering since nan institution listed. Back successful July 2022 we downgraded nan institution and explained that,

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That article was successful July 2022 and nan institution announced a 50% dividend trim months later – successful November 2022. Here’s a value chart:

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To beryllium fair, we had a speculative BUY standing connected BRMK (before nan downgrade) recognizing nan volatility of nan sub-sector (fix and flip lending) and besides uncertainty regarding guidance changes.

Nonetheless, nan constituent that I’m making present is that each 3 of these REITs were yielding 8%+ and nan dividends were paid monthly.

In hindsight, each 3 were sucker yields and investors paid dearly for pursuing these alluring dividends into a trap that had plentifulness of cheese…

Now that I’ve explained a fewer disfigured ducklings that person already “cut nan cheese”, fto maine supply you pinch 2 others to watch retired for…

The Ugly Duckling Watch List

Global Net Lease (GNL) is simply a nett lease REIT that owns 300 free-standing properties successful 11 countries. The institution is externally managed by AR Global, nan aforesaid outer head of American Realty Capital Properties.

Source 10-K

The outer guidance statement expires connected June 1, 2034, and has a 5-year renewal option. In addition, nan outer head “faces conflicts of interest” that “may not beryllium resolved successful its favor”.

Source 10-K

I’m judge you’ve heard nan saying “fool maine once, shame connected you, fool maine twice, shame connected me.” The building was first noted successful a 17th-century book by Anthony Weldon describing nan tribunal of King James.

In The Court and Character of King James he included juicy rumors and governmental secrets, and astatine 1 point, he utilized this building for nan first time, "He that deceives maine once, it's his fault; but if twice, it's my fault."

Many group deliberation astir erstwhile President George Bush erstwhile referring to “fool maine once, shame connected you” because during a 2002 property convention defending nan Iraq War he famously misquoted nan building and received a batch of teasing for it.

“There’s an aged saying successful Tennessee—I cognize it’s successful Texas, astir apt successful Tennessee—that says, fool maine once, shame connected — shame connected you. Fool maine — you can’t get fooled again.”

Fortunately, our squad astatine iREIT connected Alpha has been vocal pinch respect to avoiding Global Net Lease and its sister REIT, Necessity Retail (RTL). Hopefully our articles helped readers distant from nan underperformance that included dividend cuts for some REITs during Covid -19.

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Both REITs (GNL and RTL) were paying monthly dividends anterior to Covid-19 and they now salary quarterly; however, investors should steer clear from these 2 REITs that are dressed for illustration a wolf successful sheep’s clothing: GNL is yielding 11.1% and RTL is yielding 12.8%.

Anyway, you get my point, I person nary liking successful owning shares successful a REIT managed by AR Global and support successful mind that some ARCP and Gladstone Commercial trim their dividend pinch an outer guidance argumentation successful place.

Stay tuned for my upcoming Monthly Mailbox Money article that will see respective SWANs (not nan “ugly ducklings” that I conscionable highlighted successful this article). And I'll springiness you a hint of 2 SWANs that will beryllium connected nan database (of monthly paying SWANs) and nan floor plan beneath illustrates my constituent that "the pick ever rises to nan top".

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As always, convey you for reference and commenting.

Happy SWAN Investing!

Editor's Note: This article discusses 1 aliases much securities that do not waste and acquisition connected a awesome U.S. exchange. Please beryllium alert of nan risks associated pinch these stocks.