A safe 8% dividend

ARCP is a REIT that we recommended in our 10 Predictions for 2014 posting earlier in January.   As we expected this stock has moved up nicely to now just over $14 from around $12.50 when we picked it. ARCP is soon to be the largest triple net leasing REIT in the country with the shareholder approval of their merger with Cole, another big real estate company.  

ARCP invests in commercial real estate, a lot of it in single tenant operation where business is good and renters remain for long periods of time.  Size matters here as the more buildings you own the more you can leverage expenses and command cost structures.  Of course one must also be investing in good real estate and not just some real estate.  We believe ARCP is doing just that.  They just raised their dividend and now yield over 7%.

Value is what you get, price is what you pay.  ARCP is financing some of the merger with a preferred share issue symbol ARCPP.  Preferred shares have dividends that are not raised, but have preference before common shares.  Therefore they are safer and if things really go south they get their money back prior to common shares.  Not that ARCP is going to go south, just saying ARCPP is a very safe investment. 

ARCPP is sold in shares priced at $25 per share and pay $167.50 annually on a very nice monthly pay schedule.  However there is value here since the shares are undervalued right now selling at $21 per share. The reason has more to do with what is known as float than real value.  There were and are too many shares on the market currently since many Cole shareholders did not want preferred shares, but wanted to invest their buyout proceeds elsewhere.  So these people have dumped their shares on the market pushing the price artificially down.  

Your opportunity here is to buy some of these undervalued shares, collect what is basically a 8% monthly dividend, and wait for the market to sort things out and push the shares back up nearer the $25 true value.  Nice dividend and good capital gains as well.  Now we have no idea how long this might take, but we would assume less than a year.  In any case you still collect your 8% dividend while you wait.