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Long only, value, long-term horizon, dividend growth investing
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Well, we had an interesting Friday as the markets dropped significantly in the final hour of trading. I'm contemplating the same thing everyone else is, as far as if this is the start of a correction that many believe is long overdue, perhaps.

Currently, our retirement portfolio consists of only four companies; Coca-Cola (NYSE:KO), International Business Machines (NYSE:IBM), Wal-Mart (NYSE:WMT) and our newest position Marathon Petroleum Corp. (NYSE:MPC). The focus in this portfolio is to find long-term companies that we can grow positions in over a lifetime. We plan on reinvesting dividends until retirement. The main focus is on accumulating as many shares as possible. Our current portfolio is as follows.

Q1 2013

Q1 Div.

Q2 2013

Q2 Div

Q3 2013

Q3 Div.

Q4 2013

Q4 Div.

Shares Purchased

Total Shares

Increase

KO

73

0

61

0.5054

0

0

0

0

134

134.5054

0.38%

IBM

0

0

23

0

0

0

0

0

23

23

0.00%

MPC

0

0

29

0

0

0

0

0

29

29

0.00%

WMT

8

0

8

0

0

0

0

0

16

16

0.00%

IBM and Wal-Mart will be distributing dividends in June and Coca-Cola in July. Marathon Petroleum was not acquired before ex-dividend so no increase in shares until next quarter. Remember the basis for this portfolio is to accumulate as many shares as possible on any budget, then reinvest those dividends to purchase more shares. The plan is to have accumulated enough shares by retirement in order to retire only on dividends alone and not have to sell shares for income.

What if the Market goes up?

This is what we ultimately want to happen over the long term. The value of the positions in the company increase as the company grows. One criterion for this portfolio is that the company must have a solid share repurchase program. As the company repurchases shares, our total percentage of ownership increases as well; this leads to an increase in share price.

Another reason to look for value stocks is I plan on leaving the portfolio to my children. Granted there is a chance some or all of the companies I invest in will not be here in the future. If this happens, we will address it when and if it happens. We are looking for companies that have a strong history of increasing dividends.

For arguments' sake let's say a company has a yield of 2%. You back up the truck and buy shares of Company X. Company X plans on raising its annual dividend 7.5% annually. This means that the yield on cost for those shares will double every 10 years. In 10 years those shares will have a 4% yield on cost, then 8% after 20 years.

What if the Market goes down?

We want to see this as well. On a market pull back, we get two advantages that others see as weakness. First, if we are sitting on cash and watching a company, we want to see a pull back in order to open or add to a position. Not necessarily because we got the best price. We can't time the markets so we do not know if the price will continue to go down or back up. I've set up a way to gauge how many shares I can reasonably purchase based on the weekly 50 sma. Once I am able to gauge the number of shares based on the moving average I will buy into the stock.

Second, if we are waiting for a dividend to pay out, we want a pull back so that when we reinvest, the dividend buys more shares. Obviously, the lower the stock price the more shares we can purchase. Dividends are based on the number of shares owned, not simply a percentage of equity.

Looking Forward

In my humble opinion we are overdue for a correction. Not only are we overdue but I am looking forward to it as I have about six companies on my list that have seen fantastic runs in the past seven months. I'm looking forward to what the next couple of months have in store for us as I eagerly await the opportunity to open new positions.

This portfolio is very slow but we already knew that. Over time as dividends are reinvested and capital is added to the portfolio, we will see an exponential increase occur. The portfolio is based on compounding and buying into companies that have a long history of returning value to its partners.

Source: Footsteps Of Buffett Retirement Portfolio: Time For A Correction