My Dividend Portfolio: The Good, The Bad

It has been close to three years since I started dividend focused investing. If I look at this from a 30 year+ investing cycle for individuals, then these three years may look like nothing. However, the continued anxiety and slide in one's portfolio value will turn our hair gray. I am learning that there will be winners and losers in our investment portfolios. All we have to do is minimize the losers.

Sysco Corporation (SYY): SYY was one of the most non-glamorous stocks when I had initiated my position. My current dividend yield on cost is 5.35%. As of March 2009, my total return has been 13.1% including dividends (my analysis).

Johnson & Johnson (JNJ): I had waited for close to one year to initiate a starter position in this company. It was worth the wait, and as the saying goes, every company will come down at some point in time. Its price has again come down and I am tempted to add some more, even though it has reached my allocation level. My current dividend yield-on-cost is 3.4%. As of March 2009, my total return has been 6% including dividends.

Consolidated Edison (ED): My objective was to just get a utility stock in my portfolio, and hence this was a no brainer purchase. I bought it during the market boom when slow growers like utility stocks were out of favor. I had read a lot about utility stock being less volatile and a slow grower, well this was a real example for me. My current dividend yield-on-cost is 6.9%. As of March 2009, my total return has been 12.9% including dividends.

Duke Energy (DUK): This was the second utility stock purchased during the same period. My current dividend yield-on-cost is 7.14%. As of March 2009, my total return has been 10.31% including dividends.

Health Care Property Investors Inc. (HCP): I had initiated a starter position in August 2006. Since then I have added twice to my allocation level. My current dividend yield on cost is 7.19%. As of March 2009, my total return has been 9.4%, including dividends.

Reality Income Corporation (O): This was my second REIT holding. My current dividend yield on cost is 6.83%. As of March 2009, my total return has been 8.3% including dividends.

National Retail Properties (NNN): My third REIT holding was in NNN. My current dividend yield on cost is 7.74%. As of March 2009, my total return has been 9.9% including dividends.

Beneath every rose lies a thorn. My portfolio resembles this proverb. The above holdings were the roses, while the thorns have been BAC, GE, WFC, WL, and C. While I sold C and WL, I continue to hold BAC, GE, and WFC. These stocks have not only suspended their dividends, but their stock prices also have gone for a toss.

Even if the markets turn back up, my hair will continue to remain gray!

Disclosure: The author owns BAC, GE, WFC, SYY, JNJ, ED, DUK, HCP, O and NNN.

Comments

[PastTense:]

So, what are your current recommendations for someone wishing to start dividend focused investing now?

May 01 03:02 PM

[Lightway:]

There was nothing you could have done about those financial picks, so don't beat yourself up too much about it. Financial stocks can and SHOULD have been the ultimate boring equities, but thousands of articles have already been printed about the debacle of mortgage backed securities, so I won't go into it here.

On the flip side, the low valuations right now make it a great time to pick up some undervalued companies.

PastTense, check out some of the articles by Dividends4Life, and Dividends Growth Investor, as some starting points ideas on how to screen for good dividends stocks. Cliff Wachtel also has some great, detailed articles on dividend/income vehicles, spread across several asset classes.

Here's also a nice starting point from Scott's investments, which is an all ETF asset allocation type of income portfolio.

seekingalpha.com/artic...

I personally mix a large holding of dividend stocks, bond ETF/CEFs, REITS, MLPs, and a couple of CANROYS. I use Folio so as to minimize my trading fees. This makes better sense for me than owning an actively managed mutual fund, which often has high fees, and can be inflexible and slow to react to changing conditions.

There are alot of really seasoned, intelligent authors here on SeekingAlpha that offer some good starting points for building your own income based portfolio.

May 01 07:08 PM

[Lightway:]

PastTense,

Here's some links to some dividend focused authors:

seekingalpha.com/autho...
seekingalpha.com/autho...
seekingalpha.com/autho...
seekingalpha.com/autho...

May 01 07:17 PM

[YoYoMama:]

Please search for articles by Cliff Wachtel on Seeking Alpha. Of all the dividend focused authors, he has the most followers.

May 02 09:43 AM

[Old Trader:]

PastTense,

Oil/gas pipeline MLPs are another area that generates high yields, and they're less affected by oil/gas prices than one might think, since they generate fees based on usage, rather than the price of whatever flows through them. To an extent, they're somewhat like a utility, in that their rates are regulated, and there are barriers to competition. The downside is that they tend to be capital intensive.

May 02 09:50 AM

[Dave Shafer:]

Thanks for the article. I too have started a dividend portfolio to go along with my Berkshire Hathaway Bs going back over 8 years. The two main parts are currently HCN [a health care REIT] which now yields almost 12% on my cost and MMP [a oil/gas pipeline master partnership] that yields over 10% on my cost. I choose to not be as diversified as you are, but am very sorry I did not put more money into my income portfolio when things were rocking for me a few years ago. I am about 1/4 way to my goal in income production, but have 20 years to make it!

Once again thanks for the article.

May 02 10:11 AM

[thisbusiness:]

For the lazy dividend investor, how about the Alpine fund: ADVDX? I have a small position in it and figure they'll be as good or better than me at finding good dividend stocks. However, I'm always curious about others thoughts about this fund as it is not your traditional buy and hold forever approach.

May 02 11:59 AM

[Scooter-Pop:]

MUCH Better yields in Preferred's!! Numerous are selling a Discount to their NAV and many pay monthly (Great DRIP opportunity).

May 02 12:28 PM

[Smackdown:]

I can't give any credibility to a supposed dividend investor who doesn't hold or consider MLPs. Why are there none in Dividend Tree's portfolio? Midstream fee based MLP stocks are some of the best performing investments for the last 10-15 years and are up as much as 40% YTD. Alerian MLP index is up 510% for 13 years. That is over 30% a year. Steady increasing dividends, fairly recession proof monopoly businesses, big tax deferrals, inflation protection due to FERC tariff CPI increases, etc etc. Please explain how you call yourself a dividend expert posting advice and no MLP picks?

May 02 04:45 PM

[Smackdown:]

Agreed!! Been actively managing preferreds since the fall bloodbath. Loaded up in Feb/March at bottom. Sold off some for as much as a 200% profit. Plus collecting huge double digit interest. Much much safer than common stock IMO.


On May 02 12:28 PM Scooter-Pop wrote:

> MUCH Better yields in Preferred's!! Numerous are selling a Discount
> to their NAV and many pay monthly (Great DRIP opportunity).

May 02 04:46 PM

[Smackdown:]

Dividend Tree, you would be well advised to sell your financials immediately and replace with withe requity preferreds or cap trust preferreds from the same company. Take BAC for instance, why on earth would you hold it when you can sell and pick up something like Countrywide trust preferred for around 11 a share. Interest payment is 1.75 or north of 15%. It is senior in the cap structure for BAC and above the regular preferred, TARP funds, and junior 10 year cumalitive trust preferreds. Lets see... BAC at 9 with no yield and chance of massive dilution if they convert regular preferreds, or my suggestion which is debt on the books and several layers senior to the common. Best example for BAC was the fact that their equity preferred with libir adjusting dividend, BAC-PE, was trading beneath the common stock for weeks. It pays a minimum $1 a share and will be increased based on libor plus a spread. Sure it is the lowest of the preferreds, but much much safer than the common and paying over 10%. Please explain how billions of shares of BAC traded at higher prices than this preferred. Now it is a little higher. Still I would not buy BAC with my enemies money if I could buy exponentially safer securities in the same company with HUGE cash flow.

May 02 05:01 PM

[tswafford:]

The countrywide trust preferred seems to be what one should look for. With the countrywide name, it is not on most investors radar. I have been building a large position in a wachovia preferred (wnapr) currently at 14.85 and yields 12.2%. It is now funded by Wells fargo. It is a perpetual and cannot be called before 2022. This stock was $1.50 on 9/29/2008. An investor in these stocks has to monitor the health of the common very carefully. I hate stop orders but there is more risk for the uninformed. Give us more suggestions. I find some nuggets in these comments.

Tom

May 02 11:38 PM

[tswafford:]

I liked your countrywide trust comment. A suitable MLP for IRA's is Kinder Morgan Partners (KMR) or KMP for non IRA's. It is down now but yields about 10%. I suspect a 10% yield will be hard to beat with a common stock portfolio given the current recession and the level of government debt.

Tom


On May 02 04:45 PM Smackdown wrote:

> I can't give any credibility to a supposed dividend investor who
> doesn't hold or consider MLPs. Why are there none in Dividend
> Tree's portfolio? Midstream fee based MLP stocks are some of
> the best performing investments for the last 10-15 years and are
> up as much as 40% YTD. Alerian MLP index is up 510% for 13 years.
> That is over 30% a year. Steady increasing dividends, fairly recession
> proof monopoly businesses, big tax deferrals, inflation protection
> due to FERC tariff CPI increases, etc etc. Please explain how
> you call yourself a dividend expert posting advice and no MLP picks?

May 02 11:45 PM

[Lightway:]

I have KMP and am very happy with them.

Alot of people are shy to get into MLPs, because of the K-1 tax form, but I found this to not be such a big deal. And if you don't want to go about picking out individual MLPs, KMP/KMR is a good way to go. LINE and PWE are also favorites, though PWE is the more controversial of the two.

Also thanks to all the posters for the information on the Countrywide trust, this is the first time I have heard of them. I've also been eyeing some preferred ETF/CEF vehicles, but haven't really found them appealing, though it appears a few here are buying preferred shares straight out. My worry with that in the financial sector was the risk of converting preferred shares into common. I simply don't have enough information yet to make an informed decision, nor understand this area well enough, but probably some more astute investors here can navigate for some great returns.


On May 02 11:45 PM tswafford wrote:

> I liked your countrywide trust comment. A suitable MLP for IRA's
> is Kinder Morgan Partners (seekingalpha.com/symbo...) or
> KMP for non IRA's. It is down now but yields about 10%. I suspect
> a 10% yield will be hard to beat with a common stock portfolio given
> the current recession and the level of government debt.
>
> Tom

May 03 06:22 AM

[Lightway:]

Sorry, I got KMP mixed up with KYE. (Kayne Anderson Energy Total Return Fund). KYE is a CEF which invests in multiple MLPs and Canroys. KYE is the CEF I was mentioning above, that might be a good vehicle to use if you didn't want to pick out individual MLPs or Canroys. It is a little more tricky to calculate your initial cost basis with, has been beat up alot lately, but yield is currently at 12%.

It also uses a 1099 tax form, so you don't have to worry about filling out a K-1.

I'd be interested to hear some other opinions on KYE.

May 03 06:31 AM

[HowieDad:]

KYE currently sells at a 6.8% premium, above its historical discount. Its generally a good idea to buy closed end funds like KYE when selling closer to their historical discount.

Another idea for generating income on your dividend producing portfolio is to sell covered calls on your positions.

May 03 11:15 AM

[macsmart:]

If you're a dividend investor, why are you still holding those stocks that have discontinued their dividends? Sell them and put your money to work. Buy MLP's that do storage and transportation such as ETP, EPD, PVR, MMP, making them less susceptible to energy prices. They are increasing their dividends.

The K1's are just not that big a deal.

Or some closed end funds, such as IGD and ERH faithfully pay dividends monthly.

May 03 12:43 PM

[Smackdown:]

BAC common is trading over 50 cents higher a share than the BAC-PE preferred. That is an IMMEDIATE swap idea. Sell the at risk common with no dividend for a 10+% yielding inflation protected preferred, senior in the cap structure. And take dollars out. Please, anyone, explain what possible reason someone could have for keeping BAC over BAC-PE, in this environment (unless they are really gambling on some BS technical move)

May 04 05:57 PM

[Lightway:]

I've been reading lots of speculation about many preferred TARP bank shares having to stop payment on dividends, or being shotgun forced by the government to get conversions to common.


On May 04 05:57 PM Smackdown wrote:

> BAC common is trading over 50 cents higher a share than the BAC-PE
> preferred. That is an IMMEDIATE swap idea. Sell the at risk
> common with no dividend for a 10+% yielding inflation protected preferred,
> senior in the cap structure. And take dollars out. Please, anyone,
> explain what possible reason someone could have for keeping BAC over
> BAC-PE, in this environment (unless they are really gambling on some
> BS technical move)

May 04 08:26 PM

[Smackdown:]

Exactly. No matter how you slice it, you'd have to be a moron to buy BAC over the preferred which is at a discount. The precedent for conversion is in favor of the senior preferred. Citi preferred holders got 7.3 C shares for each preferred. BAC is trading higher than the preferred. This is crazy to the nth degree.


On May 04 08:26 PM Lightway wrote:

> I've been reading lots of speculation about many preferred TARP bank
> shares having to stop payment on dividends, or being shotgun forced
> by the government to get conversions to common.

May 04 09:28 PM

[joey balls:]

Please learn how to write. Here's an example:

"My objective was to just get a utility stock in my portfolio, and hence this was a no brainer purchase. I bought it during the market boom when slow growers like utility stocks were out of favor. I had read a lot about utility stock being less volatile and a slow grower, well this was a real example for me.

STOCKS.
Not STOCK.

I complain because it is throughout your article.
THIS IS JUST AN EXAMPLE.

Please do not post things unless you compose in proper ENGLISH.

Thanks.

May 05 10:26 AM

[Social Media:]

@ joey: can you teach me english tooo? opps, i made mistake didn't i? small e, wrong spelling of too, and small i !! what a jerk,

comment on author's post about investing (that's the purpose) and not the english. it does not change premise of the post? or does it ? go teach you english somewhere else, what a moron....

May 08 03:38 PM