I started posting my portfolio updates for two reasons. One, I wanted to get feedback from the people on SA. I respect the intelligence and experience of SA contributors and I hope people will look at the investments I pick, and make suggestions on what I may have done right or wrong, and where I can improve my thought processes and actions. The other reason is to try to demonstrate that using relatively simple techniques, and spending a relatively small amount of time, someone can manage their own portfolio and still get acceptable returns that come close to matching the returns of the market or the "expert" financial advisers out there.
I'm not out to show that I can beat everybody else's returns, or that my methods are superior to anybody else's. And I'm not trying to say that people who spend more time analyzing more data will not have better returns. I'm just trying to show that by keeping it simple, I can still control my own portfolio and have returns that satisfy my needs and desires for retirement.
I am a DGIer and I'm in the accumulation phase of my investing life. My goal is to build and maintain a portfolio of solid dividend paying stocks which raise their dividends every year. I will reinvest those dividends quarter after quarter and year after year, until I reach the point where I can retire and, hopefully, live off the dividends without having to sell any of my positions. I am targeting a portfolio yield of 4%, and a portfolio DGR of 10%. This growth rate will come from organic dividend growth, dividend reinvestment, and investing my quarterly pension contributions. If I achieve my expected DGR I expect to get a similar, 8-10% annual increase in my portfolio value due to capital gains.
I also want to have a life, so I don't want to spend hours a day doing stock research. The system I have developed takes about 1-2 hours every quarter to evaluate stocks and decide what purchases to make. Other then that I just have to keep an eye out for dividend announcements from every company in my portfolio to watch for any dividend cuts. Since SA sends out these announcements by e-mail, this is very easy to do and takes almost no additional time.
In May, I posted my most recent K.I.S.S. Portfolio update. Here are the dividend increases (decreases) since my last update.
Cracker Barrel (CBRL) declares $0.75/share quarterly dividend, 50% increase from prior dividend of $0.50. Forward yield 3.35% For shareholders of record July 19.Payable August 05.Ex-div date July 17
Target Corporation (TGT)) declares $0.43/share quarterly dividend, 19.4% increase from prior dividend of $0.36. Forward yield 2.47 % For shareholders of record August 21.Payable September 10.Ex-div date August 19.
Realty Income (O) declares $0.1815417/share Monthly dividend, 0.17% increase from prior dividend of $0.1812292. Forward yield 4.87%. For shareholders of record July 1.Payable July 15.Ex-div date June 27
Annaly Capital Management (NLY) declares $0.40/share quarterly dividend, 11% decrease from prior dividend of $0.45. Forward yield 12.31%. For shareholders of record July 1.Payable July 29.Ex-div date June 27.
Darden Restaurants (DRI) declares $0.55/share quarterly dividend, 10% increase from prior dividend of $0.50. Forward yield 4.29%. For shareholders of record July 10. Payable Aug. 01. Ex-div date July 08.
Since my last update Annaly announced a dividend cut from $.45 to $.40. Therefore I sold all 1937 of my shares at an average cost of $12.685 per share. This sale, plus dividend income from the past two months gives me $28,251 in my portfolio to invest.
Here is a quick summary of my buying screen…
- Stock is on the CCC list
- Yield equal to or greater than 2%
- Payout ratio (based on EPS) under 60%
- Chowder Rule - Yield + 5 year dividend growth rate over 12%
- 10 year uptrend in earnings (as shown on the FAST graph). This is based on my personal determination of whether or not the uptrend is adequate enough for me.
- Quality rating of A- or better from S&P. Originally I was planning on using the S&P star ratings, but I was informed that this is a measure of value, where what I was really looking for was a measure of the quality of the company. The S&P Quality Rating measures stability of the earnings and the dividend, so this fits my needs better.
- Stock appearing to be under or fairly valued based on its FAST Graph.
- For MLPs and REITs I use different criteria. First, they must have a yield of 4% or more. They usually have slower dividend growth, so I need to start with higher yield. Second, Instead of looking at the EPS trend on FAST graphs I look at the Funds From Operations (FFO) graph, to see if it has a ten year uptrend. Finally, I still use the Chowder Rule, but I modified it somewhat so that they only have to have a yield + dividend growth of 10% or more, rather than 12%, but to show consistency I decided that it must work for the 3 year, 5 year and 10 year DGR's, rather than just the 5yr DGR which is the usual Chowder Rule.
SELL CRITERIA - I only sell if the stock cuts, or freezes its dividend.
As previously noted, Annaly was sold due to a dividend cut. No other stock in my portfolio has cut its dividend yet this year.
Note about Conoco Phillips (COP) ... COP has not raised its dividend in over two years. Some consider the spin off of PSX to be the equivalent of a dividend, but even so it has been 5 quarters since the spin-off, and still no dividend increase. I was planning on selling my position in COP, but Tim McAleenan's articles have convinced me that COP has such a good dividend history, and should continue to reward its shareholders with solid dividends in the future, that even though they have not raised their dividend in over a year it is worth holding on to the shares. I still consider a dividend freeze to be an indication to sell, but I will take it on a case by case basis and consider the circumstances.
Using the 6/28/13 Update of the CCC list here are the results of my buying screen:
Out of the 400+ stocks on the CCC list, screening for payout ratio, yield and the Chowder rule brought the number down to 81 stocks. Looking at these 81 stocks with FAST Graphs brought the number down to 42. The S&P quality rating knocked out another 18, leaving me with 24 passing stocks. These stocks are Aflac (AFL), Air products (APD), Baxter (BAX), C.H. Robinson Worldwide (CHRW), Chevron (CVX), CSX (CSX), Deere (DE), First of Long Island (FLIC), Flowers Food (FLO), Harris Corp (HRS), L-3 Communications (LLL), Lockheed Martin (LMT), Medtronics (MDT), Microsoft (MSFT), Norfolk Southern (NSC), Northrop Grumman (NOC), Qualcomm (QCOM), Raytheon (RTN), Target (TGT), UGI Corp (UGI), United Technologies (UTX), Wal-Mart (WMT), Walgreen (WAG), and ExxonMobil (XOM). Of these 24 stocks I already own 18 of them. This leaves six, BAX, CHRW, FLO, NOC, UGI and XOM for me to choose from.
Here is the data and FAST graph for each of the eight stocks which passed my screen but that I didn't already own.
Chowder Rule 3yr - 4.52 + 12.7=17.22
5yr - 4.52 + 14.3=18.82
10yr - 4.52 + 9.2=13.72
Quality Rating = A+
Yield + DGR = 2.83 + 16.4 = 19.27
Payout Ratio = 47.34%
C.H. ROBINSON WORLDWIDE
Quality Rating = A+
Yield + DGR = 2.49 + 12.9 = 15.39
Payout Ratio = 38.25%
DIGITAL REALTY TRUST
Chowder Rule 3yr - 5.11 + 29.3=34.41
5yr - 5.11 + 20.6=25.71
10yr - N/A
Quality Rating = A-
Yield + DGR = 2.04 + 17.8 = 19.84
Payout Ratio = 44.55%
Quality Rating = A
Yield + DGR = 2.95 + 10.0 = 12.95
Payout Ratio = 30.96%
Quality Rating = A-
Yield + DGR = 2.89 + 8.0 = 10.89
Payout Ratio = 51.36%
Quality Rating = A+
Yield + DGR = 2.79 + 9.7 = 12.49
Payout Ratio = 25.69%
For me to open a new position I must have $11,000 available in my account. Since I had over $28,000, I was able to start 2 new positions. I had eight stocks that passed my screen (and that I didn't already own) so I needed to pick 2 out of the 8. Since my goal is to collect dividend income, and I am targeting a total portfolio yield of 4%, I picked the 2 highest yielding stocks out of the eight for purchase. These were AVA and DRL.
On July 1st I put in an order to buy $11,000 of each of these stocks. I bought the following:
- 406 shares of Avista Corp at $26.90 per share
- 178 shares of Digital Realty Trust at $60.17 per share
The remaining money was split amongst the ten stocks already in my portfolio which have the highest Percentage Above its Average Yield (PAAY). My method for determining this was discussed in this article. Those ten stocks were BHP Billiton (BBL), CSX Corp , Deere , Qualcomm , Realty Income Corp, ONEOK Partners (OKS), Plains All American (PAA), Pimco Corporate & Income Opportunity Fund (PTY), Wells Fargo (WFC) and Wal-Mart . I wasn't able to make equal dollar amount purchases of these ten stocks because the money available was not divided evenly between my Optionsxpress account and my pension account. OKS and WFC are in my OE account, which had more money left over, so more money was put into OKS and WFC then the other 8 stocks.
The actual purchases I made of each stock were as follows:
- BHP Billiton 6 shares at $52.32
- CSX Corp. 14 shares at $23.21
- Deere 4 shares at $81.51
- ONEOK Partners 30 shares at $50.44
- Plains All American 6 shares at $56.25
- Pimco Corporate Opportunity 16 shares at $19.19
- Qualcomm 5 shares at $61.38
- Realty Income Corp 7 shares at $41.79
- Wells Fargo 35 shares at $41.80
- Wal-Mart 4 shares at $74.76
In my Optionsxpress account I pay a commission of $8.50 per transaction. But in my pension account, where the majority of my portfolio is held, I only pay 3 cents/share, no matter how many shares I buy. This allows me to buy small numbers of shares without incurring high commission costs. For example, the commission for buying 6 shares of BBL was only $.18.
Following these purchases, sales and DRIPs my portfolio looks like this:
Price (As of July 2nd)
Estimated Ann Inc
Alliance Resource Part. (ARLP)
Amerigas Partners L P (APU)
Becton Dickinson (BDX)
Boeing Co (BA)
Buckeye Partners, L. P. (BPL)
Cincinnati Financial (CINF)
Cracker Barrel (CBRL)
Darden Restaurants (DRI)
Deere & CO
Diageo plc ADS (DEO)
Digital Realty Trust
Dominion Resources (D)
Emerson Elec Co (EMR)
First Long Island Corp
General Dynamics Corp (GD)
General Electric (GE)*
Harris Corp Del
Hasbro Inc (HAS)
Illinois Tool Works Inc (ITW)
Johnson & Johnson (JNJ)
Kinder Morgan Energy (KMP)
Lockheed Martin Corp
McDonald's Corp (MCD)
Microsoft Corporation (MSFT)
Nike Inc. (NKE)
Norfolk Southern Corp
Novartis AG ADS (NVS)
Omega Healthcare (OHI)
ONEOK Partners *
Paychex Inc (PAYX)
PepsiCo Inc (PEP)
Phillips 66 (PSX)
Pimco Corporate & Income Opp
Plains All American
Procter & Gamble Co (PG)
Realty Income Corporation
Sysco Corp (SYY)
United Technologies Corp
Wal-Mart Stores Inc
Wells Fargo *
* Indicates stocks held in my Optionsxpress account. These stocks are enrolled in automatic DRIPs.
The dividends I collected for the past three months are:
- April -- $1959.77
- May -- $ 2059.03
- June -- $ 2037.02
Year to date I have collected $10,225.24. Since my last posting in May my "expected dividends received in the next 12 months" (ED12) has decreased from $25,706.08 to $23,906.79, a decrease of 6.99%. This is due to the sale of NLY, with a yield of about 12%, and the replacement of NLY with AVA and DLR, with a yield of 4.5% and 5.2% respectively. Still, my ED12 has increased from $22,475.00 at the beginning of the year to $23,906.79 today, an increase of 6.3%. It hurt to lose the income from NLY, but with the cut in its dividend (again!) I felt it was necessary to sell it. I hope that as my other stocks increase their dividends during the next year, I will make up some of that lost income.
But to be honest I'm starting to reconsider my sale of Annaly. It was great having that large dividend, and even though the price has been under pressure the past few months and it has cut its dividend twice in the last few years, it has always been a solid dividend payer, and since 1997 has returned 15% per year. During that time it has cut its dividend many times, but always raised it again when conditions became more favorable. I may decide to put NLY and another high yielding REIT with a strong long term record in my portfolio as cornerstones, separate from my buying and selling criteria.
Any opinions out there that can help me decide this?
The YTD return for my portfolio this year is 14.65%. This is compared to the S&P's return of 12.63% (as of 6/28). Although beating any particular benchmark is not a specific goal of mine, I'm still going to keep track of the S&P, just to insure, for myself, that my portfolio is not performing ridiculously poorly. My goal and my focus is dividend income, but I still want my overall portfolio value to perform reasonably well.
So far this year my portfolio is progressing well. I seem to be on track for my 10% DGR, and my overall portfolio return has been quite good. Out of 52 stocks in my portfolio this year only one has cut its dividend , and only one has apparently frozen its dividend . My portfolio yield is only 3.6% right now, but as I add more higher yielding stocks over the next few quarters I expect it will get closer to 4%. KISSing so far is working very well for me.
Thank you for reading my portfolio update. I welcome your comments and criticisms.
Disclaimer: I am not an investment advisor. Nothing I write should be considered to be a recommendation to buy any particular stock. I am simply discussing and explaining the methods I use. Every investor should do his or her own due diligence.