It was only last week that my Special Situations portfolio acquired shares in CareTrust REIT (NASDAQ:CTRE), and I'm back to add more this week. I just sold two positions in my portfolio to make room for this acquisition, and I'm adding in the rest of my available capital -- about $1,000, or 1% of the portfolio -- to buy more of the stock.
To recap the situation
I went through the details in the original buy recommendation, but I'll highlight a few here again and try to clear up some confusion about the special dividend. CareTrust was recently spun off from The Ensign Group, and it took virtually all of its former parent's health care properties and is leasing them back to Ensign. Now its rental revenue is tied exclusively to Ensign, but over the coming years the company will diversify its exposure -- not only by operator, but also by geography and property class.
The special situation arises out of CareTrust's conversion to a REIT. As part of that, the company must pay a dividend -- the so-called earnings and profits purge. As the company has announced, that payout will total about $5.88, with one-quarter of the payout in cash and the rest in stock. The payout is taxable, and in my previous article I suggested the value of buying the stock in a tax-free account over a taxable account. That practice also gives you a higher effective dividend yield, and higher upside, too.
The payout is slated to occur on December 10. As I noted in my original article: "Because of special exchange rules governing such large distributions, the stock will go ex-dividend the day after the payment, which occurs on Dec. 11." On December 11, the stock will trade without the dividend and you will not be entitled to it. Let me repeat: If you buy the stock before the ex-dividend day, you will receive the dividend. The company's press release is unambiguous, but many investors get tripped up here, because of the unusual nature of the payout.
Foolish bottom line
My Special Situations portfolio is buying CareTrust, adding $1,000 -- or about 1% of the portfolio. The sizable, taxable dividend helps set up a compelling buy price, if you can get the stock in a tax-advantaged account. For more on CareTrust, follow me on Twitter: @TMFRoyal. And check out my dedicated discussion board. If the stock continues to drop from here without some kind of fundamental change, I expect that I will continue to buy more.