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Wow, I can't believe how long it's been since I last made a purchase for my IRA and reported it here on Seeking Alpha - Two whole months!

As I'd previously already made my quarterly contribution to my IRA for the second quarter of 2013, and I wasn't ready to jump ahead and make a premature contribution for the third quarter in June, all I had to work with was the dividends that had accumulated since the last time I made a purchase for this account through the end of June. I thought about making a relatively small purchase near the beginning of June, but the market was doing crazy things (crazy upwards things, by my way of reckoning), and looking ahead at what dividends I would accumulate by the end of June, I decided to wait until I had all of the May and June dividends accounted for and make a more meaningful purchase.

Of course, in trying to decide where to put my little bundle of cash, I utilized my copy of the My Mad Method [MyMM] spreadsheet to narrow down my options and help guide me in making my choice. As I knew I was going to wait until I had a two-month accumulation of dividends, I had plenty of time to plan out my tactical move with which to further my strategic objectives.

By way of a recap, for those folks who haven't been following this series and might be just joining in on the journey, I am in the process of growing a small-but-with-a-good-start traditional IRA by making the maximum contributions that I can and that I'm able to make, plus whatever dividends that I accumulate in the account along the way. The strategy that I'm employing for my IRA is commonly referred to as Dividend Growth Investing [DGI], although my particular implementation of it is a bit tailored to my personality from the more "traditional" DGI strategy. In my case, that means I have a few positions that are not necessarily Dividend Champions, Challengers or Contenders [CCCs], and some that are downright scary to more traditional DGI-ers, such as high yielding mREITs that can see their dividends (and prices) go up (and down) with the tide of the market and current sentiments that either encourage or punish investing in that segment.

But to keep it brief, I am trying to accumulate a stable of solid dividend payers that have long histories of consistently growing their dividends every year. Not all of my positions qualify as being a CCC, but I've been leaning more towards those companies with long trends of dividend growth. To that end I hold a lot of household names, like AT&T (NYSE:T), Kimberly-Clark (NYSE:KMB), Johnson & Johnson (NYSE:JNJ), Hasbro (NASDAQ:HAS) and Aflac (NYSE:AFL). There are other staple-providers on my watchlist, such as Colgate-Palmolive (NYSE:CL), which recently split its stock 1:2, but for the meantime, I'm content with the 30 positions that I currently hold.

Speaking of which, my goal is to grow my portfolio up to 50 positions, and balance the funds allocated to each such that each position represents as close to 2% of my IRA's total balance as possible. At the current 30 positions that I hold now, that target level of "parity", as I like to call it, is 3.33%, and most of those 30 positions are either at-or-above parity, or within striking distance of it. Of course, I really can't have all of my positions perfectly at parity, but most of them are just a bit over or just a bit under.

Which leads me to my next topic: Which stock[s] did I pick for this month's purchase[s]? Well, knowing that I didn't have enough funds to make an effective purchase of a new position, and being quite happy for the time being to be at and manage 30 positions, I decided to concentrate on those positions that were under parity, preferably those that were significantly under parity. Using the MyMM spreadsheet, I copied the worksheet that tracks all of the MyMM metrics for all 30 of my positions to create a "working" copy and then deleted those lines for stocks that I held that were at or over parity. I also cut out a few more where I was comfortable with their place in the parity pantheon, along with ones that I simply didn't want to add any more shares to. This left the following 12 stocks to be considered.

Orig

Weighted

Delta

MyMM

MyMM

MyMM

%

Ratio

Rank

Avg

Rank

Company

Ticker

Alloc

Reading

1

8.86

1

BHP Billiton plc

(NYSE:BBL)

2.84%

Holy Cow!

4

14.28

10

Harris Corporation

(NYSE:HRS)

3.19%

Too High

11

15.94

12

Kimberly Clark Corp.

KMB

3.14%

Too High

6

11.57

5

Lockheed Martin Corporation

(NYSE:LMT)

3.01%

Too High

7

11.64

6

National Grid, plc

(NYSE:NGG)

3.01%

Stable

8

12.36

8

National Presto Industries

(NYSE:NPK)

3.06%

Falling

2

8.97

2

Philip Morris International

(NYSE:PM)

1.77%

Buy!

9

15.20

11

Prospect Capital Corporation

(NASDAQ:PSEC)

3.23%

Buy!

10

12.84

9

AT&T

T

2.97%

Buy!

3

11.73

7

Two Harbors Investment Corporation

(NYSE:TWO)

3.02%

Falling

5

10.92

4

Universal Insurance Holdings, Inc.

(NYSE:UVE)

2.61%

Too High

12

10.86

3

Vodafone Group, plc

(NASDAQ:VOD)

2.57%

Falling

You'll note in the table above that there is an "Original" MyMM Rank, and the "Weighted" MyMM Average and Rank. I explained how to weight the MyMM spreadsheet in an earlier article, so suffice to say here that I weighted this worksheet by setting the Yield and 5-Year Dividend CAGR Ranks to a weighting of 30% (which effectively gave me a 30% weighting by the Chowder Dividend Rule [CDR]), and a 50% weighting to Percent Allocation, meaning those positions that were lower on the parity scale would rank better than their more plentiful brethren.

So looking at that table of candidates, we see that BHP Billiton (BBL) came out Ranked in first place, both in the Original MyMM Rank and the Weighted MyMM Rank. On top of that, it had a "Holy Cow!" Delta Ratio Reading, meaning that its recent price was well below the average of its 52-week high and low prices.

However, coming in second and only 11 one-hundredths of a percent behind BBL in terms of its MyMM Average score we find Philip Morris International (PM), a stock that I only recently got into, and which, coincidentally, had the lowest parity value out of all of the stocks in my portfolio, representing just 1.77% of my portfolio's total value. PM also had the benefit of a "Buy!" Delta Ratio Reading at the time I captured this data, and had the #2 Original MyMM Rank, making it a very attractive possibility.

Also, I could see why BBL was Ranking very well, as its price has taken a beating in recent months, making it look attractive on paper when compared to its 52-week high and low prices (as well as having great scores on most of the 16 metrics I currently use in MyMM). However, with a 2.84 Percent Allocation, it seemed to me that BBL was only below parity because of the hit it had taken to its price in recent weeks, and had, in my humble opinion, the potential to recover that on its own accord should world conditions favor it and its sector in the future.

But I couldn't just leave things at that. One of the goals of DGI-type investing is to maximize the amount of dividends that your portfolio generates on an annual basis. Using about half of the funds available to me, I could have purchased enough shares of Two Harbors Investment Corporation to bring it comfortably over the 3.33% parity level and generate the maximum amount of annual dividends for the dollars spent to acquire shares; out of all of the 12 options available to me this time around, TWO would produce the most cash, at least at its current yield.

When I compared the amount of annual dividends that PM was likely to generate to the amount of annual dividends that a parity-achieving purchase of TWO could potentially generate, TWO was clearly the better choice, potentially generating nearly 47% more in dividends than PM every year that I held those new shares, plus leaving about 40% of my funds available for another purchase, which would have added even more potential dividends to the pot. However, due to having a current Percent Allocation of 3.02% - relatively close to the 3.33% parity target compared to PM's 1.77% showing - TWO had a Weighted MyMM Rank of 7, putting it just below the middle of the pack.

In addition, mREITs like TWO, at least in my portfolio, have been taking a pounding on their prices lately. Since I just got back from a 2-week vacation, I'm not entirely sure why this is the case, but I'm guessing it has to do with the Fed letting off the gas of Qualitative Easing [QE] that I'd briefly heard of, and I want to investigate it further before I sank any more cash into any of my mREITs.

So I was left with a choice. While coming in with a Rank of #1, BBL was clearly not the best option, since it was relatively close to parity and only below parity due to a recent (and steady) decline in its price. While I like to look at precipitous price drop offs as opportunities to go shopping, I didn't think that would be prudent in the case of BBL, at least not at this time. PM came in a strong second place in both of the MyMM Rankings, and was the position that was the most below parity out of all of the potential candidates. Or, I could give the overall yield of my portfolio quite a boost by using about 60% of the available funds to bring TWO comfortably over parity, and using the other 40% of the available funds from dividends collected to buy just about anything else I felt like. However, piling more cash into TWO felt a bit like a gamble, since the dividends that mREITs produce are notorious for jumping up and down based on a variety of factors, and I couldn't guarantee that TWO, or any mREIT for that matter, would continue to be able to provide the high yield that was producing the calculated numbers in my MyMM spreadsheet.

In the end, I chose to add 36% more shares of PM to my portfolio, bringing its Percent Allocation up to 2.41% of my portfolio's total.

Was this the best choice for me to make? From a purely dividends-produced-per-buck-spent perspective, no, certainly not. However, most readers will be familiar with PM's pedigree and its place in providing exceptional returns to those who held its predecessor since sometime in the 1950s. And with a recent yield of 3.93%, it's not doing too shabby itself these days, either.

PM has a solid track record of returning value to its shareholders, and the combination of Ranking so well and having by far the lowest Percent Allocation in my portfolio at the time made it the clear choice for me this time around.

So, I placed a limit order, went off on vacation, and a little over a week ago my price was met during a nice dip in Mr. Market's recent roller coaster ride, so I picked up my shares at a price that was considerably lower than it was just a month and a half ago or so, and also lower than it is as I write this. Nice timing!

That's it for July's activity, at least early July. I expect that by the end of July, I'll have enough dividends accumulated to make a similar sized purchase as I just did last week, although that will probably happen in early August. Will I continue to add to my position in PM in an attempt to bring it up to full parity? Can I even achieve that with this month's worth of dividends? Or will something else catch my attention, such as a desire to improve Universal Insurance Holding, Inc.'s parity from its current position as having the second to worst percent allocation (and before it shoots too much higher in price)? Or perhaps getting Vodafone Group, plc, closer to parity before its upcoming bi-annual ex-dividend date in September? Only time and my obsessive tinkering with the MyMM numbers will tell, but I will be sure to report on it when (not if) it happens.

Disclosure: I am long AFL, BBL, HAS, HRS, JNJ, KMB, LMT, NGG, NPK, PSEC, T, TWO, UVE, VOD. 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.

Disclaimer: I am not a professional investment advisor or financial analyst; I’m just a guy who likes to crunch numbers and can make an Excel spreadsheet do pretty much whatever I want it to do, and I’m doing my best to manage my own portfolio. This article is in no way an endorsement of any of the stocks discussed in it, and as always, you need to do your own research and due diligence before you decide to trade any securities or other products.

Source: My Mad Method: What Next To Buy, And Why? - July 2013