When I joined Seeking Alpha, I was a dividend growth investor in traditional dividend growth stocks; Procter & Gamble (PG), Dominion Resources (D), J. M. Smucker (SJM), AT&T (T) etc. I dripped the dividends, but had no high-yield stocks or REITs. David Van Knapp explained that he held his dividends until he got a meaningful amount and then invested them in a stock that would balance out his portfolio. Once I invested in the mortgage REITs American Capital Agency (AGNC) and American Capital Mortgage (MTGE) I found that I was unable to reinvest the large dividends in these stocks without exceeding their sector allocation in my portfolio. So I began holding these dividends until I had a meaningful amount and investing them in stocks that would balance sectors of my portfolio that were underweight compared with the SPDR S&P 500 (SPY). I detailed some of the problems with the drip in this article "Invest in Homes with American Capital Mortgage."
Last fall, Linn Energy came out with a share class that solved my IRA investment problems with UBTI and k-1 tax forms-(LNCO). I detailed my problems with investing in an MLP at that time with the article "Buy Linn Energy For The 7% yield With No k-1 Hassle." I do not drip this high-yield stock, either, preferring to save the dividends up and make larger purchases of this stock when the price is low. This MLP appears to be cyclical with a slow uptrend and I have been successful adding tranches when the price falls.
Note from the graph above (from Yahoo Finance) that LNCO usually sells at a premium to LINE the underlying MLP. A good article explaining this phenomenon is " LINN Energy Vs. LNCO: And The Verdict Is...".
I have updated my dividend reinvestment table from last fall on LINE, since LNCO has not been trading for a year yet. I consider my quarterly strategic purchases of this stock to be similar to a broker's drip plan, with the added advantage that I can pick a good price rather than purchase with the rest of the drippers. I will continue to drip until I fill out my position in the energy sector at the percentage level of the SPY.
|Stock||Date of reinvest||Div Rate||# Shares||Dividend||Drip price||# Shares pur||Total Value||Current Yield|
It should be noted from the table that the initial investment of $10k has increased to $28,880.44 in the last five years of dripping. The dividend has been increasing since 2010 and the yield has been holding near 7%. There is a current merger in progress with Berry Oil "Regulatory Approval Of The Berry Petroleum Deal Makes 7.86% Dividend Payer Linn Energy A Buy." Although I am not an expert in the energy sector, this article on Uinta Basin provides a flavor of current energy sector growth.
I have graphed the table results for a visual presentation:
Conclusion: I have been quite pleased with this investment and anticipate good dividend growth and capital appreciation with the ongoing merger and acquisition activity in the stock. There are many rumors in the MLP sector, which cause temporary spikes and troughs in various stocks. The last one for LNCO is detailed here. One should proceed with caution when investing in high-yield stocks, including MLPs. Below is a six-month chart of LNCO's price.
Although slightly volatile, the price can fall significantly as it did in 2009. The energy sector is cyclical and demand for oil and gas is quite variable. I limit my allocation to the level of the SPY and feel comfortable with that. One should perform due diligence when making any investment, especially high-yield stocks.