As stock market writers, we naturally write about many different companies. However, it would not be practical for us to own every stock we discuss, so it can be interesting to see which stocks our contributors actually own in their own portfolios. Here's why three of our contributors not only own Realty Income (NYSE:O), Interactive Brokers (NYSEMKT:IBKR), and Kinder Morgan (NYSE:KMI), but also have no intentions of selling them anytime soon.
One of my biggest stock holdings, and I plan to keep it that way
Matt Frankel (Realty Income): Net-lease REIT Realty Income is one of the largest stock holdings in my portfolio, and I don't plan on selling it anytime soon. In fact, I could see myself owning Realty Income during my eventual retirement -- and I'm only 35.
Realty Income invests primarily in freestanding retail properties but also has significant office and industrial holdings. And if you're not familiar with a "net lease" structure, this is a form of real estate lease agreement that is generally used with freestanding properties. Basically, these are long-term leases that require the tenant to pay property taxes, insurance, and most maintenance expenses. All the landlord -- Realty Income -- has to do is put a tenant in place and collect a steady income stream.
If you're wondering if the retail aspect of the portfolio makes Realty Income risky, the answer is no. Realty Income's retail tenants are in businesses that are inherently resistant to e-commerce, as well as recessions. For example, dollar stores are one of Realty Income's top property types. Not only do these businesses offer bargains that are simply unmatched by online retail giants, but they actually tend to do better in recessions. Drug stores and convenience stores are another example, as they sell non-discretionary products that consumers generally need quickly.
Known as "The Monthly Dividend Company" (Realty Income actually has a trademark on that phrase), Realty Income pays a 4.6% dividend yield in monthly installments. It has paid 568 consecutive monthly dividends and increased its payout for 80 consecutive quarters. Perhaps even more impressive, the company has delivered a 16.4% compound average annual total return since its 1994 NYSE listing -- an extremely impressive level of performance to sustain for more than two decades.
In a nutshell, it's tough to find a more reliable dividend stock that pays more than 4%, especially when you consider Realty Income's ability to generate growth.
A brokerage firm with untapped growth potential
Jordan Wathen (Interactive Brokers): Recently, I've invested more in funds than in individual stocks and have actually shorted more stocks than I've bought. That means the one stock I hold right now -- Interactive Brokers -- wins by default, but I'm holding onto it because I think it can beat the market over the long haul.
Interactive Brokers isn't your average discount broker. While it provides services directly to its clients, it also outsources its growth by inking deals with upstart brokerages who white-label its trading platform and technology back end. In effect, introducing brokers pay Interactive Brokers a wholesale rate for each trade and charge their clients a higher retail price. These introducing broker relationships are a key driver of the company's account growth, which accelerated to 25% year over year in November.
Interactive Brokers is also rising in prime brokerage services for highly profitable institutional investors and hedge funds. In the first quarter of 2017, it had 207 hedge fund accounts, up from 170 in 2016 and only 55 in 2014, according to HFAlert.com. Hedge funds trade frequently, use margin to leverage their portfolios, and often lend out stock -- activities that generate revenue for Interactive Brokers. One big institutional client can easily generate as much revenue as hundreds or even thousands of small retail accounts.
With less than $122 billion of client equity spread across only 474,000 client accounts and less than 2% of SEC filing hedge fund managers as clients, it's my view that Interactive Brokers' growth is far from over, which is why I've committed to holding it for a decade -- if not longer.
The pipeline titan that's well on its way to recovery
Chuck Saletta (Kinder Morgan): Before its share price collapsed as it cut its dividend in 2015, Kinder Morgan had become one of the largest positions in our household's portfolio. After its shares collapsed, it once again grew to become one of the largest positions in our household's portfolio as we kept buying at low prices, looking forward to its eventual likely recovery.
Since its dividend cut, Kinder Morgan has been busy shoring up its balance sheet, proving to Wall Street that it can internally fund much of its growth plans, and continuing to generate billions in cash flow. While its share price hasn't yet recovered to its pre-collapse levels, the company has announced plans to start restoring its dividend in 2018.
Since Kinder Morgan's operations remained strong even as the company focused on its balance sheet over the past few years, investors have good reason to believe it can deliver its dividend plan. As it was a dividend cut that caused its shares to collapse, there's a decent possibility that its dividend recovery may be the impetus that enables its shares to retest their previous highs.
Regardless of what its share price does, however, as long as its operations remain strong and its dividend starts down its path of sustainable recovery, Kinder Morgan is a stock I refuse to sell. If its shares recover enough that they become a truly monstrous portion of our portfolio, thanks to all that buying we did during its troubles, I may consider lightening up a bit in the name of diversification. At its recent price of $17.84 per share, however, that's a long way from being a risk.
Chuck Saletta owns shares of Kinder Morgan and has the following options: long January 2018 $17.50 calls on Kinder Morgan and short January 2018 $17.50 puts on Kinder Morgan. Jordan Wathen owns shares of Interactive Brokers. Matthew Frankel owns shares of Realty Income. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool recommends Interactive Brokers. The Motley Fool has a disclosure policy.