American Realty Capital Properties (ARCP) Stock Analysis Pollie Style

Today another analysis for Polliesdividend. This will not be an analysis of a Dividend Aristocrat. It is an analysis of a monthly dividend stock. It’s not hard to see the appeal of a monthly dividend, particularly if you try to live off your investments. And if you reinvest your dividends in new shares, your share count will grow faster, speeding up the process of compounding.  You can say you are building a snowball (read Dividendmantra – Snowball )

This analysis is on American Realty Capital Properties (ARCP).

Company (from google finance): American Realty Capital Properties, Inc. is a real estate investment trust (REIT). The Company owns and acquires single-tenant, freestanding commercial real estate primarily subject to medium-term net leases with credit quality tenants. The Company is externally managed by ARC Properties Advisors, LLC. In February 2013, it announced the closing of the transaction to acquire American Realty Capital Trust III, Inc. In March 2013, it announced that it purchased a TD Bank office building in Falmouth, Maine. In April 2013, it closed lease acquisitions, including nine properties located in four states plus Puerto Rico with approximately 200,000 total rentable square feet. In May 2014, the Company acquired Cole Credit Property Trust Inc.

Dividend Aristocrat: ARCP is, as I already mentioned, not a Dividend Aristocrat. Because ARCP has been founded in 2011 it is impossible to be an Aristocrat. ARCP is paying dividend since 2011, they have increased dividends for four years in a row, and therefore do not have a long track record. They can be called an “upstart”. That’s a Fail!

Dividend Yield > 2.5%: American Realty Capital Properties currently yields approximately 7.65%. This yield is higher than their competition, such as Realty Income (O) (4,81%) or National Retail Properties, Inc. (NNN) (4.29%).  This is because investors view it as a higher risk play than the other triple-net REITs. The yield of ARCP is way above the industry average of 4.9%. ARCP passed the second Pollie-code.

Dividend payout <70%: The current dividend is $1.0 and ARCP has an earnings projection of $ 0.97. The dividend payout is roughly 103%. Because a REIT is required by law to distribute a certain percentage of earnings (this figure now sits at around 90% for REITs). For this reason, it can be misleading to compare the ratios of companies operating in different industries. The payout ratio of ARCP is around the industry average. But because it is higher than the projected earnings this is a fail.

DGR 1 year > 0%: Because ARCP just begun distribution in 2011, and have been raising its dividend several time. From $0.0729 to at this moment $0.0833. This is growth of 14.3% over the course of a little more than two years. However, this growth is even more impressive when you consider the size of that monthly dividend. For this moment it is a pass for ARCP on the fourth Pollie-code.

P/E-ratio < 15: This is an easy metric that is well documented. It can be used as a quick metric to identify stocks that may potentially be undervalued. I use this to identify stocks that may be discounted compared to the overall stock market. ARCP has a current P/E ratio (normal) is around 12. This is another pass on the Pollie-code.

EPS > 0: The EPS is 2.36. So ARCP also passed the sixth Pollie-Code

ROE > 10%: Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. The current ROE is -13.7%. Another fail.

Market Cap. > 100M: No problem at this point. More than 9.906 $Mil. Another pass.

Chowder Rule > 12: Named after “Seeking Alpha” member Chowder. This is a method of identifying candidates for purchase based on a combination of yield and (5-year) dividend growth rate. When the sum of these elements is above 12%, the company presents an attractive entry point (8% for utilities). When the figure is above 8%, an existing holding is still considered worthy of being retained. Because ARCP is only trading from 2011, it is not possible to calculate the current Chowder rule. So it’s a blanc for the ninth Pollie-code.

Stock price 52wk high-25%: The 52 wk high and low are: 14.96 and 11.76. This means that ARCP will be in my buying zone when the stock price is below 13.67 ((14.96-11.76)*0,75 + 11.76).

Beta: I think it’s important to have low Beta stocks in my portfolio. This helps to have a stable income all the time, even when the market has a rapid decline. The Beta for ARCP is -0.14.

Price/book value: The Price-to-book value (P/B) is the ratio of market price of a company’s shares (share price) over its book value of equity. The book value of equity, in turn, is the value of a company’s assets expressed on the balance sheet. This number is defined as the difference between the book value of assets and the book value of liabilities. A P/B ratio around 1 can be a sign of an undervalued stock.

The P/B ratio of ARCP 1.2 When compared to Realty Income (O), which is 2, the P/B Ratio of ARCP is lower.

Conclusion: When I look at the analysis, ARCP passed 6 out of 9 from the Pollie-code. That’s not much. Normally I will pass on this stock. But…

ARCP is one of the world’s largest net lease real estate investment trust after the merger with Cole Real Estate Investments. Its total square footage will be nearly double that of Realty Income. Some of their largest tenants (by % of rent) are Walgreen Company (WAG), AT&T Inc. (T), and FedEx Corporation (FDX). 83.1% of their tenants are investment grade rated.

When I look at ARCP and after reading some recent articles on this stock, I think it can be a winner for the future. Some also say that ARCP is something that is similar to investing in Realty Income in the mid 1990s, before the company became an established REIT. Therefore this stock will be on my watch list.

What are you – the readers, thoughts on American Realty Capital Properties? Is it a buy?

Please comment on my analysis and thanks for stopping by!


4 thoughts on “American Realty Capital Properties (ARCP) Stock Analysis Pollie Style

  1. KeithX

    I bought more a couple of weeks ago. It is a risk, but the dividend yield is 3 times the S&P right now. Note that REITs will always fail your dividend payout test or they fail to qualify as REITs which has adverse tax consequences.

  2. polliesdividend

    Thanks for your comment. I agree it’s a risk, but the rewards (dividend yield) is good. And REIT’s are not suitable for using the Pollie-Code. That’s for sure.
    Let’s hope that the risk will be worth it. And ARCP will be huge in the near future!

  3. JC @ Passive-Income-Pursuit.com

    I’m holding off on adding more ARCP because I think there’s better options from a historical standpoint. ARCP has grown so big so fast that I want to see how they manage from here. They’re about 1.6% of my portfolio currently and I’d maybe consider bumping it up to 2-2.5% if the price was right.

    1. polliesdividend Post author

      Thnaks for your comment. Historically a beter REiT can be found. I agree with you. But this stock is a little bit of a risk. It can be huge.
      I bought this week 100 shares. It’s about 3% of my portfolio.
      Time will tell if this risk will pay out.


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