30 and Under Portfolio (you can find the first part of this article here.)
2013 was a great year for me as an investor as I found Seeking Alpha, discovered the Dividend and Growth (DGI) strategy, and began to invest and create my own portfolio I've named the "30 and Under Portfolio". I introduced this portfolio three months ago in my first article in this series and wanted to provide an update on its status and my personal analysis of the market.
The approach and goal of this portfolio remains the same as outlined in the initial article: I will invest in dividend growth stocks by employing the DGI strategy of letting the dividend reinvest itself and focus purchasing decisions on long-term growth opportunities. Stocks in this portfolio should ideally be held for at least twenty years.
Achieve market value of:
Generate avg. monthly dividend of:
Portfolio Activity Update: Two new purchases since the last article
(Purchases of Philip Morris and Johnson & Johnson)
I try to complete each purchase at $5,000 to minimize transaction fees and limit the number of trades.
1. Philip Morris International Inc. (PM)
PM fits the portfolio due to the 4%+ dividend, international diversity, and the growth of the industry. Due to strong economic growth in developing countries, I believe cigarette consumers will increase their spending on their smoking habits by purchasing premium brands. I believe PM will have a good outlook in the next decade.
As of 02/20, PM is trading at $79.71. My initial purchase was on 11/29.
2. Johnson & Johnson (JNJ)
I was ready to purchase JNJ when I wrote the last article. I have since purchased the investment at $86.40. JNJ is one of the core holdings that many Dividend Growth Investors hold.
As of 02/20, JNJ is trading at $92.38. My initial purchase was on 10/03.
Overweight Position with Pembina Pipeline Corp (PBA)
The elephant in the room is the overweight position in PBA. In order to resolve this issue, I plan to perform the following corrective actions:
- Stopping DRIP for PBA - All of the PBA stocks are enrolled in Dividend Reinvestment Plan (DRIP). Instead of reinvesting the dividends gained through DRIP into PBA, I plan to use the monthly dividends to purchase other dividend stocks.
- Reposition - When a stock hits my "buy" alert and I am out of funds, I plan to reposition the PBA holding by selling part of it to purchase other dividend stocks.
Both of these proposed measures will not resolve the overweight position overnight. The DGI strategy requires time, and as such, the repositioning of my holdings will take time as well. Check into my next update to see how the situation progresses..
The total 12 months dividend income for the 30 and Under Portfolio increased to $5,115.21 from $4,841.18. If I want to achieve my final goal of $2,500 monthly dividend, I will need a $30,000 yearly dividend.
- The average monthly dividend is currently 17% of the final goal.
- The average monthly dividend is $426.26, which is about a $20 increased from my last update. This is still far from my goal of $2,500 monthly dividend income, but because my focus for this portfolio is for long term holdings (20+ years), I am prepared to be patient.
Review of Previous Predictions
In my initial article, I reviewed the portfolio and shared my thoughts on how the holdings would perform. Let's take a look at some of my predictions and see how they hold up.
1. Prediction #1:
"American Capital Agency Corp. (AGNC) is another risky play for me... I only purchased with $3000, [although I] normally purchase each investment at $5,000. I purchased it for the low entry point and the dividend it pays."
(3 Months Ago)
(AGNC Total Values 3 months ago and currently)
I knew AGNC was too good to be true, despite the 15% plus dividend and the pickup of a nice 10% gain in the first week. As I previously mentioned, AGNC dropped with the rest of the REIT market. Fortunately, I did not lose much, thanks to the dividend payments. I believe the REIT is a good long-term investment, despite facing some issues with the rising interest rate in the short term.
2. Prediction #2:
"BP PLC (BP) is a pick that bothered me for awhile; I knew I had to hold either one of Chevron Corporation (CVX), Exxon Mobil Corporation (XOM) or BP. As a long term investor, I think BP will bounce from the current low in the long run, but it hasn't yet. I will need to see if this pick will work out for my portfolio later."
BP was at $41.85 3 months ago and has since increased to $48.69, for a 14% gain. I am still interested in adding XOM or CVX to the portfolio, but I want to increase the diversification of the portfolio first since BP is one of my bigger holdings at $10,000+.
"Be Fearful When Others Are Greedy and Greedy When Others Are Fearful" - Warren Buffett
I have a confession. I am scared to invest in the current market. I know no one can time the market, but I find most of the stocks I want to purchase to be really expensive.
I want to own Wynn Resorts, Limited (WYNN) or Las Vegas Sands Corp. (LVS), but at the current rates (WYNN at $223.50; LVS at $80.59 as of 02/20) I think I will wait. Caterpillar Inc. (CAT), The Clorox Co. (CLX), The Procter & Gamble Company (PG) and Wells Fargo & Co. (WFC) are must-buy targets, but are significantly overvalued. I want to see a 15% correction before purchasing these stocks. Another problem is the interest rate which is ahead of the market - rumor alone can cause major market swings.
The current state of the market is not conducive to significant additions to the portfolio since my "Must Buy" stocks are overvalued and what the interest rate is ahead of the market. Compounding this situation is the market's vulnerability to major market swings caused by rumors.
With this in mind, I am considering scaling down the purchasing point from $5,000 to $2,500-$3,000 for each purchase. I am also considering decreasing the amount of money to invest each month and save 50% of the money in cash. Cash is not a good investment, but is a safe temporary solution until the market settles to a more reasonable and stable state.
Sometimes the best action in the short term is no action at all, especially in an unpredictable market that is overpriced. It will take some time to monitor changes in the marketplace and develop a safe and profitable course of action, but as previously mentioned, the 30 and Under Portfolio is focused on long-term goals and requires thoughtful and non-reactionary activity.
Note: I named the portfolio "30 and Under" because I hoped to attract investors near my demographic (unmarried people under/around 30). Typically, the majority of investors utilizing the DGI strategy are outside of this demographic and are usually more established or patient, since the strategy appears to be ideal for retirement. I want to see how popular DGI is among investors around my age group and to meet investors who share the same interest.