This is the first update, my second article regarding my portfolio. It was started about two or so months ago with funds transferred from my Roth IRA and taxable funds I had available to invest as well. Overall I'm very impressed with the performance so far. The first article received a lot of criticism due to the rather high portfolio yield goal of 8% and a somewhat high percent (30%) of funds allocated to mREITs and other higher risk equities. Since a lot of these funds were still being allocated within the last month, the final portfolio yield and Yield on Cost (YOC) are settling but by first indications it looks promising. This will probably be my last update for about two or three months. I plan to transfer my wife's Roth into this portfolio allocation as well and I'll provide an update after most of that has been allocated with where the portfolio stands and how it's doing.
My Portfolio (as of 26 Sept.)
Kinder Morgan Energy Partners (NYSE:KMP)
Vanguard Natural Resources LLC (NASDAQ:VNR)
General Electric (NYSE:GE)
Philip Morris (NYSE:PM)
Procter & Gamble (NYSE:PG)
Leggett & Platt Inc. (NYSE:LEG)
Triangle Capital (NYSE:TCAP)
Wells Fargo (NYSE:WFC)
American Capital Mortgage Investment Corp (NASDAQ:MTGE)
Annaly Capital Management, Inc (NYSE:NLY)
American Capital Agency Corp (NASDAQ:AGNC)
Dynex Capital Inc (NYSE:DX)
Realty Income Corp (NYSE:O)
UBS ETRACS Monthly Pay 2x Leveraged Mortgage REIT (NYSEARCA:MORL)
HCP, Inc (NYSE:HCP)
Healthcare REIT, Inc (NYSE:HCN)
Johnson & Johnson (NYSE:JNJ)
Illinois Tool Works (NYSE:ITW)
Target Corporation (NYSE:TGT)
Textainer Group Holdings Limited (NYSE:TGH)
McDonald's Corporation (NYSE:MCD)
StoneMor Partners (NYSE:STON)
Emerson Electric Co (NYSE:EMR)
NTT DoCoMo, Inc (NYSE:DCM)
AT&T Inc (NYSE:T)
American State Water Co (NYSE:AWR)
AmeriGas Partners LP (NYSE:APU)
There were a lot of additions to the portfolio over the last month. Many of these additions were either adding to current positions working toward position goals and portfolio yield or adding new positions to diversify further within an industry. Positions added to were the following: Kinder Morgan Energy Partners, Vanguard Natural Resources, 3M, Coca-Cola, Philip Morris, Procter & Gamble, American Capital Mortgage, Annaly Capital, American Capital, Dynex Capital, Realty Income, Healthcare REIT, Johnson & Johnson, StonMor Partners, American State Water Co.
Philip Morris and Healthcare REIT are over their goals. However, these two were picked up at good prices earlier last month prior to establishing position specific goals. No further additions will be purchased for them unless they go on a huge sale. Wells Fargo has been held for years now and will not be added to until the remainder of the positions catches up.
New positions that were initiated were as follows: Leggett & Platt, HCP, Target, Textainer Group Holdings Limited, McDonald's, AT&T, 2xLeveraged Mortgage REIT. AstraZeneca (NYSE:AZN) was sold due to a slight drop in its dividend. With the funds from that sale, HCP was purchased for a higher yield. MORL was purchased and a position goal was set at $10,000 for it. AGNC and NLY position goals were reduced by $5,000 each. Though MORL is risky it has diversification built in and has a higher yield than NLY or AGNC. The remainder of the new positions were to diversify within an industry and to increase dividend growth stocks.
There were a lot of dividend changes in the last month. The more notable ones are listed here. McDonald's increased their dividend by 5.2%. Leggett & Platt increased their dividend by a penny, or roughly 3%. Philip Morris increased their dividend by 10.6%. Realty Income Corp. increased its monthly dividend but it was very small, as in less than a penny. American State Water Co. both split and had a dividend increase of 13%.
All the mREITs decreased their dividends. The decreased dividends are not reflected above unfortunately because as of the writing of this article, the ex dividend hasn't passed and the amounts have not hit my brokerage firm. The huge dividend cuts that the mREITs experienced will unfortunately hit the yield on the portfolio significantly. The decreases should be offset by both the increases as well as the new position in MORL. Granted MORL will have its dividend drop but it'll still be relatively high and hopefully offset the other decreases for the portfolio.
Many of the newer positions that have not yet paid a dividend reflect 0% for YOC and $0.00 for dividends. This is because of how I recognize these. I don't recognize dividends or YOC until the first and subsequent dividends. Since these have not yet paid me a dividend, these reflect 0% or $0.00. Once I receive the first dividend on these, it should increase the dividends, portfolio yield, and YOC.
Obviously any income driven portfolio is going to have rates as a key risk or concern going forward. The Fed's recent decision not to taper right now was a huge relief for the mREITs. I believe most of their book value erosion as well as dividend cuts are now behind us. Though the damage to the mREITs has been a little more than I expected, it wasn't totally unexpected or a shock. Some seem to constantly imply doomsday is around the corner for them. Since they are about 30% or so of the portfolio and I get most of my income from them, any dividend cut is at least a bit concerning. The biggest concern is whether or not the damage to the dividends are done, which I believe it is. An encouraging sign was that several of them bought back a decent amount of shares which will make their dividends cheaper going forward all else being equal.
For the non mREITs in the portfolio, rising dividends continue to be encouraging. The market seems to be stuck in a relatively narrow range over the last few months but that does not concern me much as long as companies are able to maintain and increase their dividends. A recession isn't even a concern as long as they are all able to increase their dividends. Most of the non mREITs have paid increasing dividends for at least 5 years which means they did it through the last recession.
Overall, portfolio performance was not fantastic but it could have been much worse. Portfolio yield was 6.74% which was down from 6.95% in the first article. YOC was 6.75% compared to 6.88% in the first article. On the positive side, I had roughly $2,000 unrealized gain compared to basically breakeven on the first article. Portfolio beta stayed steady at 0.64.
I expect yield and YOC to improve over the coming months for the following reasons: 1) Dividends in a handful of companies have not been recognized, notably MORL; 2) Additional investments will continue to focus on position goals. Many of the underfunded positions are higher yielding stocks; 3) Increasing dividends will continue to boost YOC.
September brought a mixed performance. Many positions were bought and I had some dividend increases but also some dividend decreases. The future looks promising, though, based on where my positions currently stand and I hope it will bring much more profitable times ahead. The next update on my portfolio will be December or January.