Team Alpha Retirement Portfolio Update: Dividends, Diversification And Stunning Results

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 |  Includes: BKCC, BMY, CSCO, CSX, GD, GE, JNJ, KKR, KO, LNCOQ, MCD, O, PFF, PG, T, WMT, XLV, XOM
by: Regarded Solutions

There have been plenty of discussions going on about the strength of the market these days. That is not unusual of course, but many investors feel that since we have had a significant run-up since the fiscal cliff soap opera was "shelved," that the market is due for a "breather," and with that, what should be our next course of action for the "Team Alpha" portfolio?

Our Team Alpha portfolio now consists of McDonald's (NYSE:MCD), Exxon Mobil (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), AT&T (NYSE:T), General Electric (NYSE:GE), BlackRock Kelso Capital (NASDAQ:BKCC), KKR Financial (KFN), Procter & Gamble (NYSE:PG), CSX Corp. (NYSE:CSX), Realty Income (NYSE:O), Coca-Cola (NYSE:KO), Linn Co, LLC (LNCO), Wal-Mart (NYSE:WMT), Cisco (NASDAQ:CSCO), Bristol-Myers Squibb (NYSE:BMY), Healthcare Select Sector SPDR (NYSEARCA:XLV), General Dynamics (NYSE:GD), and iShares S&P U.S. Preferred Stock Index Fund (NYSEARCA:PFF).

Since I have absolutely no idea what a "breather" would look like, I have to look at several basics of any retirement portfolio strategy: Dividends and diversification.

Dividends And Diversification

I believe that our portfolio has been constructed to deliver consistent dividends at a higher than average level, while also having enough diversification to smooth over many bumps in the road ahead. While I have no idea what the future holds, I do know that the markets will go up, down and sideways. Pullbacks from highs are simply part of the process.

While market pullbacks are inevitable, it should reinforce one of our most basic strategies; buy the dips, add to the core.

When the market does actually pull back, the income seeking investors will continue to receive dividends (our yield on cost is currently 4.63%), which in turn could be used to add to existing core stocks, or to open up new positions.

One way we can focus on buying opportunities is to review our diversification within business sectors to see where we might be able to secure some solid stocks with solid dividend yields, and not throw our balance out of whack.

Currently our diversification looks like this:

Energy Technology Financial Consumer Health Industrial
XOM CSCO BKCC KO JNJ GE
LNCO T KFN WMT BMY GD
PFF MCD XLV CSX
O PG
Click to enlarge

Our current allocation goals look like this (some stocks have changed due to increased share prices in January):

Starting Lineup Allocation% Goal
O 6%
KO 3%
GE 8%
JNJ 7%
XOM 7%
T 7%
PG 6%
WMT 6%
CSCO 6%
MCD 7%
Starting Pitcher
LNCO 6%
Closer
BMY 5%
PFF 3%
Bench
KFN 2%
BKCC 2%
GD 6%
XLV 6%
CSX 4%
Cash 3%
Click to enlarge

To encapsulate the actual percentage of funds as of January 2013 into each business segment, we see the following:

1) Energy: 13.5%

2) Technology: 13%

3) Financial: 13.5%

4) Consumer: 22%

5) Health: 18.5%

6) Industrial: 15.5%

7) Cash: 4%

While there is no need to rebalance at this time, I believe that we should be looking at the technology sector to either increase an existing position, or to open up a new position in a stock that has been taken down of late, yet also offers a compelling dividend.

Where We Were And Where We Are

Let's just take a look at where we have been and where we are now.

Since 2009, the S&P 500 has risen from sub-700 to 1503, while the NASDAQ has gone from sub-1400 to 3150. A doubling of these averages in under 4 years.

Obviously, the Dow has also doubled from sub 6,600 to 13,896. All of these market metrics are significant advances from the depths of a recession that everyone felt would never end.

With January coming to a close, Team Alpha also continues on a path that has given investors very strong returns.

Stock #Shares 01-27 PPS TotValue Orig. Price
XOM 100 92/shr 9200 75
JNJ 125 74/shr 9250 62
T 250 34/shr 8500 27
GE 500 22/shr 11000 15
BKCC 300 11/shr 3300 9
LNCO 200 40/shr 8000 37
PG 100 73/shr 7300 61
KO 100 37/shr 3700 34
XLV 200 43/shr 8600 39
PFF 100 40/shr 4000 39
O 200 44/shr 8800 32
KFN 300 11/shr 3300 9
WMT 100 69/shr 6900 74
CSCO 400 21/shr 8400 18
GD 100 71/shr 7100 67
BMY 175 37/shr 6475 32
MCD 100 94/shr 9400 86
CSX 200 22/shr 4400 19
Cash Rsvs x x 6191
Tot Value x x 133816
Click to enlarge

Team Alpha continues to see stunning returns since its inception. We began this journey when the S&P 500 stood at 1162 back on November 23rd, 2011. It now stands at 1503. With an increase of roughly 22.54% in 14 months, investors who have stayed long during this period have been rewarded. Investors who have followed the Team Alpha portfolio have been rewarded with a return of roughly 33.81% including dividends.

Team Alpha has outperformed the S&P 500 by roughly 50% (if my notoriously lousy math is correct of course).

Dividends received (or ex-dividends) during the month of January has added $291 to our cash reserves from T, PG, PFF, O and BMY. The portfolio now has a cash balance of $6,191. If we continue to do nothing in the month of February, this portfolio at the current level of investments, outside of cash, will produce roughly $6,000 of income for 2013.

Now That We See Where We Have Been And Where We Are, What Now?

As I have outlined above, our diversification is solid, as is our allocations within each business sector and stock. The balance of this portfolio might not be perfect, nor does it have everyone's favorite stock, but it does have a sound mix of stocks and sectors that I believe can offset some of the inherent risks of investing in the stock market itself.

I believe that this portfolio can remain completely intact over the next month and continue to reward investors. That being said, I am contemplating a brand new core holding to add to the mix.

In my next article, I will review the stock in detail, and offer some of the more unique reasons to consider adding it to our portfolio at this time. For now, let me be very brief:

The stock I am contemplating has a forward PE of just above 9, no debt, gobs of cash, and even a pretty nifty dividend yield of 2.5% as of right now. Not only that, but the stock has gotten hammered recently with a drop of about 35% in under 6 months, even as the company continues to grow.

Next stop: Apple!

Disclaimer: Please do not use these opinions to make investment decisions. Do your own research and decide for yourselves what strategy is best for your financial goals and circumstances. The strategies suggested here are for you to consider, along with all of your own due diligence, prior to making investment decisions.

Disclosure: I am long BKCC, BMY, CSCO, CSX, GD, GE, JNJ, KFN, KO, LNCO, MCD, O, PFF, T, WMT, XLV, XOM. 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.