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Value, long-term horizon, dividend investing, portfolio strategy
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Summary

  • Portfolio Value up 13% and dividends up over 30%.
  • Portfolio Yield and Yield on Cost both over 8%.
  • Dividends of nearly $2,000/month.

The second quarter was good to the portfolio. There was a decent increase in portfolio value helped by dividends and deposits. Most of my important metrics were up such as Yield on Cost, Portfolio Yield, and actual and expected dividends. These all bode well for my income-based portfolio.

There were many dividend increases as well that will help the portfolio moving forward. I'll also talk about the plan going forward for the portfolio. First, in the following table is the current holdings and stats.

2014, Quarter 2 Investment Portfolio

Company

#

Value

YOC

Weighted Goal

Dividends*

ConocoPhillips (NYSE:COP)

78

$6,612.06

4.30%

$10,000.00

$216.00

Kinder Morgan Energy Partners (NYSE:KMP)

178

$14,257.80

6.80%

$15,000.00

$982.80

Vanguard Natural Resources LLC (NASDAQ:VNR)

210

$6,575.10

9.32%

$15,000.00

$529.20

General Electric (NYSE:GE)

90

$2,423.70

3.78%

$10,000.00

$79.20

3M (NYSE:MMM)

21

$3,033.03

2.93%

$10,000.00

$72.00

Coca-Cola (NYSE:KO)

125

$5,223.75

3.08%

$10,000.00

$151.20

Philip Morris (NYSE:PM)

138

$12,600.78

4.42%

$10,000.00

$518.40

Procter & Gamble (NYSE:PG)

65

$5,214.95

3.28%

$10,000.00

$165.60

Leggett & Platt Inc. (NYSE:LEG)

130

$4,426.50

4.12%

$10,000.00

$154.80

Triangle Capital (NYSE:TCAP)

310

$8,193.30

7.88%

$15,000.00

$669.60

Wells Fargo (NYSE:WFC)

240

$12,484,80

3.50%

$10,000.00

$334.80

American Capital Mortgage Investment (NASDAQ:MTGE)

922

$18,762.70

13.66%

$20,000.00

$2,397.60

Annaly Capital Management, Inc (NYSE:NLY)

1025

$11,859.25

10.28%

$15,000.00

$1,231.20

American Capital Agency Corp. (NASDAQ:AGNC)

525

$12,458.25

11.25%

$15,000.00

$1,364.40

Dynex Capital Inc (NYSE:DX)

2050

$17,568.60

11.96%

$20,000.00

$2,048.40

Realty Income Corp (NYSE:O)

255

$11,344.95

5.30%

$15,000.00

$558.00

UBS ETRACS Monthly Pay 2x Leveraged Mortgage REIT ETN (NYSEARCA:MORL)

670

$15,302.80

25.89%

$15,000.00

$3,096.00

HCP, Inc (NYSE:HCP)

327

$13,292.55

5.54%

$15,000.00

$712.80

Healthcare REIT, Inc (NYSE:HCN)

190

$11,973.80

5.31%

$15,000.00

$604.80

Johnson & Johnson (NYSE:JNJ)

57

$5,917.17

3.18%

$10,000.00

$151.20

Illinois Tool Works (NYSE:ITW)

15

$1,332.90

2.42%

$10,000.00

$25.20

Target Corporation (NYSE:TGT)

112

$6,578.88

2.81%

$10,000.00

$194.40

Textainer Group Holdings Limited (NYSE:TGH)

139

$5,379.30

5.28%

$10,000.00

$262.80

McDonald's Corporation (NYSE:MCD)

30

$3,057.30

3.44%

$10,000.00

$97.20

StoneMor Partners (NYSE:STON)

396

$9,674.28

10.04%

$15,000.00

$950.40

Emerson Electric Co (NYSE:EMR)

20

$1,352.20

3.07%

$10,000.00

$36.00

Apple (NASDAQ:AAPL)

70

$6,430.20

3.34%

$10,000.00

$133.20

AT&T Inc (NYSE:T)

300

$10,608.00

5.58%

$10,000.00

$550.80

American States Water Co (NYSE:AWR)

165

$5,337.75

2.94%

$10,000.00

$133.20

UBS ETRACS 2X Leveraged Long Wells Fargo Business Development Company ETN (NYSEARCA:BDCL)

534

$14,391.30

15.85%

$15,000.00

$2,246.40

AmeriGas Partners LP (NYSE:APU)

217

$9,860.48

8.12%

$15,000.00

$763.20

Rogers Communications Inc. (NYSE:RCI)

162

$6,447.60

4.57%

$10,000.00

$298.80

Prospect Capital (NASDAQ:PSEC)

1241

$12,819.53

12.76%

$15,000.00

$1,645.20

PetMed Express Inc. (NASDAQ:PETS)

100

$1,336.00

4.35%

$10,000.00

$68.40

UBS ETRACS Monthly Pay2X Leveraged Closed - End Fund ETN (NYSEARCA:CEFL)

75

$2,211.75

17.63%

$15,000.00

$360.00

Total

 

$296,343.21

8.66%

$440,000.00

$23,803.20

      

*annual

     
      

Source: Cash King portfolio as of June 23, 2014

Here is a summary of some of the important metrics and things I watch on a quarterly basis:

 

FY14Q2

FY14Q1

FY13Q4

Portfolio Value

$296,343.21 (+13.5%)

$261,029.10 (+39.5%)

$187,078.45

Yield (Goal: 8%)

8.03%

7.58%

8.57%

Yield on Cost (Goal: 9%)

8.66%

7.95%

8.31%

Forward Annualized Dividends

$23,803.20(+20.3%)

$19,784.40(+23.3%)

$16,041.60

Actual Dividends

$5,145.04(+33.1%)

$3,866.81(+31.8%)

$2,932.14

Cash Inflows

$23,028.46

$9,081.51

$73,488.44

Deposits

$13,669.42

$5,214.70

$63,931.70

Dividends

$5,145.04

$3,866.81

$2,932.14

Sales

$4,214.00

$0

$6,624.60

Cash Outflows

$441.16(+76.6%)

$249.83(+16.4%)

$214.60

Withdrawals

$0

$0

$0

Other Expenses

$441.16

$249.83

$214.60

Source: Cash King portfolio/articles

Portfolio Performance

The portfolio value had a decent increase of 13.5% for the quarter. Adjusted for deposits, the portfolio value increased 8.3%; still pretty impressive. Yield and Yield on Cost (YOC) also improved from prior quarter. I expect YOC to fluctuate with the overall trend being up which is what it appears to be doing. Yield will fluctuate with the market and investments but the goal remains 8%.

Due to recent investments, the forward expected dividends continue to grow at double digit rates now approaching nearly $2,000/month. Also, as expected, the actual dividends from quarter to quarter are growing at outstanding rates as well. This trend will likely continue through the next quarter as deposits continue to flow for a few more months but this will abate as deposits essentially stop in the fourth quarter. At that point, I expect high single to low double digit growth.

The expenses section consists of several expenses all in one. I saw no need to break them down but it consists of taxes, other fees, commissions, subscriptions, and interest charged on my taxable margin account. This has been increasing and I will monitor this going into 3rd quarter to determine if I can cut costs anywhere or be smarter about some costs.

Dividend Increases

WFC - WFC increased their dividend by 17% from $0.30/share to $0.35/share.

PG - PG boosted its dividend by 7% from $0.60 to $0.64.

RCI - RCI boosted its dividend by 5.1% from $0.435 to $0.4575 but it is also affected by currency rates since it is a Canadian company.

AAPL - AAPL boosted its dividend by 7.9% from $3.05 to $3.29.

JNJ - JNJ boosted its dividend by 6.1% from $0.66 to $0.70.

PSEC - PSEC continues to raise its dividend slowly by fractions of a penny.

AWR - AWR boosted its dividend by 5.2% from $0.2025 to $0.213.

TGT - TGT raised its dividend by 20.9% from $0.43 to $0.52.

O - O continues to raise its dividend at fractions of a penny as well.

Both PSEC and O are raising their dividends slowly but they pay on a monthly basis and have been raising multiple times a year.

There have been multiple dividend raises this quarter, most of them being single digit but nevertheless a raise and I expect more dividend raises as the year goes on.

Plan Ahead

I'm currently in the middle of a career change. With this career change is likely going to be a sizable cut in pay. We've cut expenses but without going through drastic measures we'll likely come up short if only looking at my income from my job.

Here is where the beauty of an income-based portfolio comes. Going forward, I plan to tap into a portion of ONLY the dividends of ONLY my taxable account to help subsidize our income along with the income we receive from our rentals.

The plan is to reduce on a percentage basis the amount I withdraw from dividends. So, if I start on withdrawing 80% of dividends then the expectation is to reinvest the rest and between growing dividends, reinvested dividends, and a pay raise in the future that I can bring that percentage down over time.

The exact starting withdrawal rate has yet to be determined since I still get paid from my previous good paying job through October. I also will be receiving a rather sizable severance package which will be invested to also help produce and grow income.

Here is the first look at our monthly dividends in only our taxable account. I plan to base the percentage off of this. I currently don't have June's figures yet since June is not over. I'll also be swapping to a six month average as well starting in July or August.

Mar 2014 - $260.29 (three month average: $464.44)

Apr 2014 - $1,204.97 (three month average: $662.67)

May 2014 - $866.71 (three month average: $777.32)

Composition Changes

Another change coming to the portfolio is tweaking the composition of it as it continues to grow. Below you can see the current composition and the new composition.

Current Composition:

Dividend Growth Champions: 35.8%

Dividend Opportunity: 64.2%

BDCs: 11.3% (PSEC, BDCL, TCAP)

MLPs: 15.1% (APU, KMP, STON, VNR)

REITs: 34.0% (AGNC, DX, MTGE, MORL, HCN, HCP, NLY, O)

CEFs: 3.7%

New Composition:

Dividend Growth Champions: 42.2%

Dividend Opportunity: 57.8%

BDCs: 10% (PSEC, BDCL, TCAP)

MLPs: 13.3% (APU, KMP, STON, VNR)

REITs: 28.9% (AGNC, DX, MTGE, MORL, HCN, HCP, NLY, O)

CEFs: 5.6% - adding one position or increase CEFL position

The biggest change with the new composition is a continued slow move to more conservative balance. It also looks at expanding ever so slightly my position in CEFs and potentially adds another dividend champion to the list to further the slide to the conservative side.

Conclusion

This year will be an extremely busy year. There have been a lot of additions and improvements in the portfolio so far this year. As the end of the year approaches the portfolio will transform slightly to become a little more conservative and it will also start supplementing my job income.

Looking into next year, we expect to pick up another rental house which should increase our rental income and therefore reduce the drain on our dividend income. I'm also hoping for a raise or promotion middle to the end of next year to also reduce the drain on the dividends. Regardless, through all the above I hope to keep the dividends rising and the portfolio growing.

Source: The Well-Oiled Cash Flow Machine Continues To Perform Beyond Expectations