Realty Income

We backed off trading and owning Realty Income shares earlier this year due to the high valuation and began the look for stocks in the triple net leasing business to replace symbol O.  In the meantime we decided that the monthly dividend and the push into dividend stocks by investors looking for yield lessened the risk of a sell off in O.  So about two months ago we went back in with option positions and figured the monthly dividend made the shares acceptable. 

Since then O has done about what we expected and traded pretty much just above the $40 price level with a 4.5% or so dividend. Since O continually raises it's payout on a quarterly basis as long as the shares stayed around that price the valuation premium continued to lessen. We continue to hold options in the stock and get nice cash flow. 

In our quest to find an acceptable alternative to O we came upon a nice small cap stock, symbol ARCT.  We frankly really liked the stock, like the comparable monthly dividend, and very much liked the high grade real estate assets of ARCT.   The problem was that as we are mainly traders, ARCT had few option opportunities and when they were present the bid and ask were unreasonably expensive due to the light trading volume so we moved on just appreciating the value in ARCT. 

Last week Realty Income, symbol O, announced the purchase of the entire ARCT stock and company and frankly we are not surprised.  Not only do we consider this a good value for O, but likely a good merger for ARCT assets.  In fact the merger is immediately accretive to O profits of around 22 cents per share annually and O has said they will add 13 cents to the annual payout.  Yes, there are concerns about the merged assets since this is Realty Income's first real move into real estate such as ARCT owns, but we believe O's management is up to the task and we now like Realty Income even more.