New Truck Portfolio: 6.8% Current Cash Return And 19.7% Total Return

 |  Includes: ALTV, CCG, F, PDLI, SE, SEP
by: The Wall Street Transcript

(Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.)

Over a year ago, a previous SeekingAlpha piece created a portfolio of income producing stocks that were designed to support the purchase of a new Ford (NYSE:F) truck. This article examines the results from that portfolio, makes adjustments to the holdings, and suggests what investors can do with their excess returns

As you can see from the chart, the New Truck Portfolio has a nearly 20% annualized return with almost 7% of that in continuing current cash income returns. Some minor adjustments to the portfolio are now necessary to continue this low maintenance, high return situation.

Name Ticker Sector

Price 7.4.12

Price 8.21.13

Initial Shares

Amount Invested

Current Yield
Spectra Energy SE Oil & Gas $29.11 $33.62 100 $2,911 3.6%
Spectra Energy Partners SEP MLP $30.63 $42.48 100 $3,063 4.8%
PDLI PDLI Biotech $6.75 $8.07 400 $2,700 7.5%
Veresen VSN.TO Utility $12.00 $11.93 200 $2,400 8.4%
Targa Resource Partners NGLS Oil & Gas $37.00 $49.04 100 $4,900 5.8%
Campus Crest CCG REIT $10.45 $10.49 300 $3,135 6.3%
Health Care REIT HCN REIT $59.00 $60.71 50 $2,950 5.2%

Cheniere Energy Partners

CQP MLP $23.50 $27.15 100 $2,350 6.2%
New Mountain Finance NMFC BDC $14.80 $14.55 100 $1,480 9.4%
Warwick now Alteva ALTV Telco $13.30 $7.80 100 $1,330 0%
Original Value $26,019 Current Value $29,261 Current Income $1800/year
Click to enlarge

I would recommend exiting the Warwick Valley position. This local telephone company has changed names to Alteva (NYSEMKT:ALTV), is ending its Verizon (NYSE:VZ) relationship, and has changed the location of its headquarters to a different state, and last week they even stopped paying their dividend. Luckily, we only bought 100 shares of this loser. The Oil & Gas industry equity and MLP positions have developed very favorable risk/reward characteristics. Time to sell the small telco and re-invest the proceeds into Spectra Energy (NYSE:SE).

In general, a rising inflation and interest rate environment will benefit the North American oil and gas pipeline infrastructure sector, in which Spectra is one of the biggest participants. Specific to this particular company, Spectra Energy Partners (NYSE:SEP) is buying all the U.S. based assets of Spectra Energy. This will create a cash machine for Spectra Energy as it is both the General Partner receiving significant incentive payments from SEP and the largest single shareholder in SEP, which pays out enormous cash partnership returns. The increase in yield from the asset shift resulting from this transaction should boost SE's profitability and then its pay outs to shareholders significantly.

PDLI (NASDAQ:PDLI) is coming to the end of its royalty patent cash stream. The company has derived all of its income from a series of patents, many of which are coming very close to their end date. While PDLI can continue to litigate and attempt to gain new patents, investors should exit this high yielding stock that has had 25% price returns in the last 12 months. The risk of increasing volatility is simply too great to ignore for an income based investment portfolio.

The answer here is to re-deploy the cash into Campus Crest (NYSE:CCG), which has a current yield of over 6% and has substantial organic growth in its business of supplying housing to college communities. A small participant in a niche real estate sector, the REIT should begin to generate greater pay outs in the near future.

The monthly income from this adjusted portfolio will continue to support the truck we bought last year. The excess principal returns are encouraging but for the second year of this portfolio's life, let's re-invest into some of the stocks and hope for a bigger payout next year, so we can buy some new tires and few tanks of gas.

Disclosure: I am long SE, OTC:FCGYF. 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.