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Value, long-term horizon, dividend investing, portfolio strategy
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I've been following many of the fantastic writers on Seeking Alpha for several years now. I signed up to be a contributor a few months ago but never could decide on material to cover that wasn't covered thoroughly by other writers. I decided like some other writers I'd lay out my portfolio I have, it's philosophy, follow through with monthly or quarterly updates and talk a little bit about the stocks I've added or subtracted from it. This would give me plenty of material to talk about as I make changes to my portfolio.

First, since this is my first article, a little bit about myself. I grew up in what started out as a poor household into a moderate household in most of my childhood years. I got into investing early on around 16 or 17 so I've been investing for half my life now (16 years). I've also invested a good amount of all my paychecks for those 16 years, roughly 30% to 40%. I was taught to be conservative in what you spend and you'll be able to save the rest.

I started out in a strict buy-and-hold philosophy with big names like GE (NYSE:GE), Merck (NYSE:MRK), and Coca-Cola (NYSE:KO). I also invested in some mutual funds as well. This worked reasonably well but not fantastic. Recently I've wanted more control over my money so I liquidated all stocks and all mutual funds close to the most recent highs. I've taken that money and I'm filtering it into this portfolio I'm building.

Portfolio Goals

The goal of this portfolio is to generate income from dividends in excess of 8%/year. I realize that is a high yield for a portfolio and realize that increases the risk. Having 30+ working years left if necessary, a lot of investing experience, great advisors (other Seeking Alpha writers), my general personality, and many other factors I've determined I can handle the risk for the increased reward. The portfolio will seek to maintain a yield of greater than 8% and a Yield on Cost greater than 9%. Eventually within the next five to ten years, ideally, the income being generated will be enough to live off of and still have some left to invest.

Portfolio Construction

First, let me talk about the tiers of stock within the portfolio. There are three tiers that the stocks fall into.

The first tier are the Dividend Growth (NYSE:DG) stocks. These don't need much introduction but the characteristics I use to select these are the following. I start with David Fisher's spreadsheet with the Dividend Champions, Challengers and contenders.

I use this spreadsheet to select them all. I filter for the industry I'm looking for. I make sure in my portfolio to have all ten industries represented to have diversification and keep the portfolio risk down. I like to have 3 to 4 in each industry, so if I'm looking for a new position I usually have an industry I'm wanting to look in. Then I filter for yields greater than 3%. Lastly I filter for Chowder Rule greater than 12%. This should give me pretty narrow list. The rest is an art really. At this point I have a list of good companies that have increased dividends, have good growth and are doing well. The rest is mostly looking for good current values or name recognition. I look at the names remaining, their current price compared to 52 week hi/lo and 50 day/200 day SMA. I look at all their price ratios and their dividend history.

The second tier are the Dividend Core (DC) stocks. These stocks yield between 5% and 10%. I pick these by starting out on David Fisher's spreadsheet via a similar process as above. The biggest difference with these is the higher yield but the picking process is the same.

The third tier are the Dividend Opportunity (NYSE:DO) stocks. These stocks yield 10%+. These stocks are what help my portfolio yield surpass the 8% mark. These stocks are picked mainly from articles, through research, etc. Most of my current stocks in this category are REITs or MLPs.

The Dividend Growth stocks are sold if their dividend does not increase every year. For example, I just sold Astra Zeneca (NYSE:AZN) a few weeks ago because they failed to raise their dividend. More about that in a later article.

The Dividend Core stocks are sold only if their yield drops below 5% or their dividend is cut several times I may review them as well for sale. The bottom line: These stocks' dividends can stay flat or even decrease depending on current and expected future yield and fundamentals, etc., of the company.

The Dividend Opportunity stocks are expected to go up and down with their dividend. As long as the yield stays above 10% I'll keep them.

The intent of the Dividend Growth stocks and the Dividend Core stocks are for dividend growth and a consistent yield base. The Dividend Opportunity stocks are there to raise the yield of the portfolio to help with the income.

Another factor I look at when picking stocks for the portfolio is trying to maintain a Beta < 0.75 for the portfolio.

In constructing my portfolio as you'll see later I do weight my portfolio. Again this is to meet the intent of the portfolio to attain an 8% portfolio yield. Dividend Growth stocks are weighted as 1, Dividend Core stocks are weighted as 2, and Dividend Opportunity stocks are weighted as 3. You'll be able to see this in the table below.

My Portfolio (as of 1 Sept.)

CompanyTier#ValueWeighted GoalDividends*
ConocoPhillips (NYSE:COP)DG78$5,190.90$5,000.00$18.00
General ElectricDG50$1,189.00$5,000.00$3.30
3M (NYSE:MMM)DG5$572.00$5,000.00$1.20
Philip Morris (NYSE:PM)DG81$6,914.97$5,000.00$23.10
Procter & Gamble (NYSE:PG)DG5$400.05$5,000.00$0.90
Wells Fargo (NYSE:WFC)DG240$10,262.40$5,000.00$24.00
Healthcare REIT, Inc (NYSE:HCN)DG70$4,302.20$5,000.00$18.00
Johnson & Johnson (NYSE:JNJ)DG25$2,210.25$5,000.00$5.40
Illinois Tool Works (NYSE:ITW)DG15$1,099.20$5,000.00$1.80
Emerson Electric Co (NYSE:EMR)DG20$1,239.20$5,000.00$2.70
NTT DoCoMo, Inc (NYSE:DCM)DG130$2,067.00$5,000.00$0.00
Apple (NASDAQ:AAPL)DG8$4,008.16$5,000.00$8.10
American State Water Co (NYSE:AWR)DG25$1,400.25$5,000.00$3.30
AstraZeneca PLCDG20$1,013.40$5,000.00$6.00
Kinder Morgan Energy Partners (NYSE:KMP)DC61$5,090.45$10,000.00$26.70
Vanguard Natural Resources LLC (NASDAQ:VNR)DC170$4,671.60$10,000.00$34.80
Triangle Capital (NYSE:TCAP)DC70$2,069.90$10,000.00$12.60
Realty Income Corp (NYSE:O)DC155$6,305.40$10,000.00$28.20
StoneMor Partners (NYSE:STON)DC120$2,766.00$10,000.00$23.70
AmeriGas Partners LP (NYSE:APU)DC100$4,357.00$10,000.00$27.90
American Capital Mortgage Investment Corp (NASDAQ:MTGE)DO270$5,394.60$15,000.00$72.00
Annaly Capital Management, Inc (NYSE:NLY)DO400$4,568.00$15,000.00$53.40
American Capital Agency Corp (NASDAQ:AGNC)DO220$5,020.40$15,000.00$77.10
Dynex Capital Inc (NYSE:DX)DO410$3,304.60$15,000.00$39.60
Total $88,275.93$195,000$511.80

The above table is a snapshot of my portfolio on September 1. Back in June, I began liquidating and consolidating my various stocks and mutual funds. This is the beginning result.

The first big thing to note is the dividends have been turned into monthly amounts. I spend based on a monthly budget and eventually this will replace my monthly income, so I turned dividends into a smoothed monthly amount.

The dividends reflect already paid dividends, not future expected. When I'm picking, evaluating and keeping stocks I do look at forward dividend yield but call me suspicious I don't recognize dividends and evaluate my portfolio with those dividends until I've actually received them. For this reason and because I bought considerable holdings within the last couple of months the dividends above reflect a lower (more conservative) amount than what realistically could be expected in the future. You'll note for this reason KO and DCM have $0 dividends paid.

Right now, the current yield is 6.95% which is shy of my 8% goal but as I've said the portfolio is still being constructed and I expect this to improve. It should be higher come my October update. The Yield on Cost is standing at 6.88%. This is lower than the actual yield (and goal) because a few of the mREITs were bought at a higher price and higher dividend and both have dropped. Again this should improve with next update and definitely down the road as the Dividend Growth stocks issue dividend increases. The Beta of the portfolio is 0.64 which meets my goal of < 0.75.

In the table I have the general goal or maximum amounts each stock should try to approach. As I see value in each holding I'll accumulate more until it approaches that ceiling. Once most of the stocks have approached that ceiling then I'll start to raise it. As I've commented in another article, I will not buy an overvalued stock just because it is underweight in my portfolio. I will wait until it's at most fair value but preferably undervalued.

Two individual stocks from my portfolio I want to talk about for a minute, AAPL and WFC. WFC was a leftover from the stocks I owned before. Rather than selling it and likely buying it back I kept it. I liked WFC as a DG stock and it has done well so I kept it. It is overweight but that will balance out over time. AAPL does not technically fall into my definition of a Dividend Growth stock yet but I bought it as a speculative dividend growth stock. I'm hoping with their huge cash hoard they will become a dividend growth stock.

I'm also still in the process of fully transferring and utilizing all the cash from the sales, so I've made some recent buys even since September 1 and will be making significant buys going forward. I still have yet to transfer my wife's IRA and eventually (Summer next year) when I transfer jobs I'll be transferring my 401k as well.

I'll talk more about the recent buys in my next article in the beginning of October. I plan to have an article updating the status every three months unless there are significant changes and then I'll update monthly. Likely over the next year it'll probably be monthly as I'm trying to get my portfolio built and organized and then switch to quarterly.

Disclosure: I am long AAPL, AGNC, APU, AWR, AZN, COP, DCM, DX, EMR, GE, HCN, ITW, JNJ, KMP, KO, MMM, MTGE, NLY, O, PG, PM, STON, TCAP, VNR, WFC, TGH, TGT, LEG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.