My Mad Method: What Next To Buy, And Why? - November, 2012 Update

Includes: PSEC
by: J.D. Welch

Since the last time I reported on what I would be buying to add to my portfolio, the elections have been held and the market has reacted the way I thought it would given the outcome. Also in that time, enough dividends have accumulated that I am once again able to make a modest purchase of some stock to either bolster an existing position in my IRA's portfolio, or attempt to initiate a new position in my portfolio in my efforts to get my IRA up to a total of 50 positions.

As it turns out, with what I currently hold, the middle of November is a real gold mine of dividend payments. On either November 14th or 15th, I will receive dividends from the following companies:

  • Alliance Resource Partners, L.P. (NASDAQ:ARLP) - 7.750% yield, Quarterly
  • BreitBurn Energy Partners, L.P. (BBEP) - 10.268% yield, Quarterly
  • Crescent Point Energy Corporation (CSCTF.PK) - 7.225% yield, Monthly
  • Freehold Royalties, Ltd. (OTCPK:FRHLF) - 7.981% yield, Monthly
  • Hasbro, Inc. (NASDAQ:HAS) - 3.894% yield, Quarterly
  • Main Street Capital Corporation (NYSE:MAIN) - 5.865% yield, Monthly
  • Vanguard Natural Resources (NYSE:VNR) - 9.001% yield, Monthly

In addition, I will receive a small dividend payment from Apple, Inc. (NASDAQ:AAPL) on November 16th, but I'm not sure I can wait that long to make my next purchase, and to be honest, the dividends I get from AAPL won't make much of a difference in what I'm planning on buying next.

Having all those monthly dividend payers sure smooths out my ability to pick up new shares of stock, which acts as a kind of dollar cost averaging for fleshing out my portfolio. And while in comparison the quarterly dividend from HAS isn't much to write home about at a 3.894% yield, the quarterlies from ARLP and BBEP are nice and fat, given their yields of 7.750% and 10.268%, respectively. (Don't get me wrong, though; the yield from HAS isn't shabby by any stretch, and the company is well on its way to becoming a Dividend Contender!)

Since I've maxed out my annual contributions to my IRA already, and nothing I currently hold has done anything to cause me to want to sell any or all of it, all that I have are my dividends to work with. But that should be quite enough to further one of my goals, that of trying to get as many of my 28 existing positions up to the "parity" level of a 3.57% allocation of my total portfolio as possible. My other goal of adding new positions will have to wait until I can throw more money at a new company (or two) than just my monthly dividends will allow.

This time around, I'm once again going to be adding to my existing position in Prospect Capital Corporation (NASDAQ:PSEC). It's currently just a 2.33% allocation of my total portfolio, which puts it pretty far behind the 3.57% parity mark than almost everything else I own (and care about). So with what I have at my disposal (and as long as PSEC doesn't spike up by quite a bit between now and Friday morning), I'm going to be adding about 17.0% more to the shares of PSEC that I already own.

This move will bring PSEC to a 2.88% allocation, which is definitely a step in the right direction. And because PSEC also pays its dividends monthly, I will start benefiting from this addition to it in the form of future dividends sooner rather than later.

In addition to taking a hit in price as a result of the elections and the effects of the looming "fiscal cliff", PSEC also had a big chunk taken out of it since the first time I bought some of it, as a result of a secondary offering of shares a few weeks back. This is normal for Business Development Corporations [BDCs], and is the means by which they can raise more capital in which to invest in their clients. BDCs need to pay out at least 90% of their profits as dividends (distributions) in order to enjoy their tax status, so secondary offerings, and the dip in price that follows, shouldn't be cause for much concern.

In my case, the recent drop in PSEC's price is a good thing, as I'll be able to lower my cost basis with this next purchase by a fair amount, while at the same time the company shows no signs of having trouble paying its dividend going forward. In fact, according to the announcements I recently received via my brokerage house, PSEC is slowly inching its monthly dividends up by small but steady increments, from $0.10165 per share payable in November to $0.101675 payable in December, $0.1017 payable in January, 2013, and then $0.101725 payable next February. Slow and steady wins the race!

That does it for now. I don't expect anything earthshaking to happen that will cause me to sell off any of my other existing positions, and the way the payout schedule looks I won't be in a position to make any more meaningful purchases until two thirds of the way through December. I'll have almost twice as much by then as I'll have by the 15th of this month, so that should allow me the opportunity to be a bit more diverse than just making the single purchase that I'm this time around. Of course, who knows what the market will do between now and then, so it remains to be seen where I'll put those dividends when the time comes. Until then, best of luck with your own investments!

(Please keep in mind that I am not an investment professional or advisor; I'm just a regular guy trying to manage my own IRA's portfolio so that I can eventually replace my regular paycheck with the income from dividends from my investments when I retire. The purpose of this article is not to promote any one stock, but to document my process and journey of selecting stocks for my portfolio and, hopefully, watching it grow.)

Disclosure: I am long PSEC, AAPL, ARLP, BBEP, CSCTF.PK, OTCPK:FRHLF, HAS, MAIN, VNR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: I am not a professional investment advisor or financial analyst; I’m just a guy who likes to crunch numbers and can make an Excel spreadsheet do pretty much whatever I want it to do, and I’m doing my best to manage my own portfolio. This article is in no way an endorsement of any of the stocks discussed in it, and as always, you need to do your own research and due diligence before you decide to trade any securities or other products.