As of right now, our new portfolio of dividend income stocks, or the BTDP, has out performed the S&P 500 in just 5 months. At first, I was using this portfolio as a way of demonstrating how a stock only portfolio could outperform an ETF only portfolio, but it has quickly become another very popular portfolio for investors seeking direction and a plan.
The update for the experiment can be read right here, but this update is intended to highlight the progress of the BTDP in and of itself.
The BTDP Increases Smartly In August
The BTDP consists of the following stocks: AT&T (NYSE:T), Exxon Mobil (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), Coca-Cola (NYSE:KO), Procter & Gamble (NYSE:PG), Altria (NYSE:MO), McDonald's (NYSE:MCD), Chevron (NYSE:CVX), Apple (NASDAQ:AAPL) General Electric (NYSE:GE), Ford (NYSE:F), Microsoft (NASDAQ:MSFT), Wal-Mart (NYSE:WMT) and Pfizer (NYSE:PFE), Annaly Capital (NYSE:NLY), American Capital (NASDAQ:AGNC), and BGC Partners (NASDAQ:BGCP).
August was a good month for equities in general. When that can be combined with an increasing income stream, it becomes quite clear that dividends do matter for and during retirement.
Let's look at the portfolio, in full, as it stands through August:
As you can see, the portfolio has increased by about 11.1%, while the S&P 500 has increased by about 8.4% (1848-2003). One could argue that the portfolio began after a weak 1st quarter, but the facts are still the facts.
With a total value of nearly $124k and an income stream of nearly $5k, this portfolio is producing on both sides of the coin; growth and income. It is filled with mostly dividend champion stocks and does not have any high flyers, like Facebook (NASDAQ:FB) or Twitter (TWTR), etc., which are not part of any dividend growth portfolio that I know of.
The stocks that are highlighted in green mean that the share price is now at or close to my target price to either add to a current position or even begin one. Yellow means the stock is on my watch list to consider adding, and red means I am fine with what I already own.
To the far right, I have also noted the target prices to sell 1/4 of a position and 1/2 of a position... as of now, nothing has been reached. I might add that the sell prices are just suggestions for me if I wanted to book profits, rebalance, reduce exposure, and redeploy into other stocks so that my income continues to increase, not decrease. Keep that in mind when selecting what stocks you want to sell and when, and which ones you want to buy or add to.
My Ultimate Format Is Simple To Employ
Several months back I displayed my own personal strategy for all to see.
Let me be very clear about this: Nothing is perfect, nor risk free! That being said, I learned a long time ago that keeping investing simple took many of the headaches, and most of the mystery out of investing for me. Using my own approach, I found that it took much of the fear and confusion away as well, so I felt it would be helpful for some folks if I shared my approach.
To reiterate for some newcomers, here are the basics:
- The 52-week high and low prices are updated as of 8/29/2014 as are the target prices to buy or add shares in each stock.
- The target price is to be used as a guide, and actually more for adding on dips rather than opening positions. The reason for that is that I believe it is more important for the long-term investor to put money to work sooner than later, and the actual first purchase share price is of minimal value compared to the effect that compounding of dividends will have over a lifetime.
- Of course, there are investors who will prefer to wait for lower prices to open positions and if that is what you choose, then you can certainly use the target price as a guide to at least give you an idea of a fair price.
- The target price is the mid-point between the 52-week high and low, and while you might never get the lowest price, you probably will never pay the highest price either. Since the forward P/E metric goes in conjunction with the current share price, your own P/E ratio will be lower, no matter what the circumstance if that is the price you use.
- The beauty of this simple approach is that all numbers are flexible. An investor can either wait for the target price, or pick a price anywhere in between that matches their risk and confidence level to have that good feeling of knowing you bought a stock at a price you are comfortable with.
- This approach is only suggested for mega cap, blue chip, dividend paying stocks with a very long history behind them. I do not suggest this to be used for higher valuation riskier growth stocks, because there are no historical patterns with most of riskier stocks. They are simply too volatile.
The selling of stock, or taking profits is perhaps more difficult than buying a stock. The figures at the end give target sell prices and suggested percentages to be sold. Here are the basics:
- When a stock rises by 50%, consider selling 25% of your stake in that position.
- When a stock rises by 100%, consider selling 50% of your stake in that position.
- The beauty of this approach is that you have a simple plan to rebalance, as well as a guideline to use if you are prone to taking profits.
- The ultimate is when a stock as doubled and you sell 50% of your position, keep your original investment intact, book the profits, and let the "house money" run.
- When selling shares within a position, an investor can either add cash to reserves for an eventual pullback, or re-deploy the cash right back into other stocks that offer similar value for shareholders. In this case, it is all about the income from dividends.
Only you can determine if this approach makes sense for your circumstances, but I do know that it has worked very nicely for me, without using charts or graphs, or tricky technical analysis, which for me was never very reliable and confusing.
I truly hope you have been enjoying this journey.
Disclaimer: The opinions of the author are not recommendations to buy or sell any security. Please remember to do your own research prior to making any investment decision.
Disclosure: The author is long AAPL, BGCP, CVX, F, FB, GE, JNJ, KO, MCD, MO, MSFT, NLY, PG, T, TWTR, XOM.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.