One Year Ago
On January 1, 2015, the portfolio consisted of 22 holdings, described in this SA article. The three largest holdings were Johnson & Johnson (NYSE:JNJ), 3M Company (NYSE:MMM) and PepsiCo (NYSE:PEP). Eleven positions were closed in 2015. The closed positions are italicized in the table below.
The year-ago portfolio is presented below, with each holding's percentage of the portfolio market value on 12/31/14. The "Gain" column indicates the percentage gain or loss had the position been maintained the entire year. The yield that was in effect at 12/31/14 is presented. "TR" represents the total return for each holding, if it had been held for the entire year. These numbers do not include dividend changes during the year.
Positions Closed in 2015
Here are the 11 closed positions, with the date of the initial purchase, the cost basis at the time of the final sale, the price at which the last shares were sold, and the gain or loss (excluding dividends).
| Ticker | First Purchase | Cost | Last Sale | % Gain on Last Sale |
| NWN | 9/16/13 | 42.37 | 43.12 | 1.8% |
| CVX | 7/11/14 | 118.89 | 100.58 | -15.4% |
| STWD | 10/30/11 | 18.40 | 20.83 | 13.2% |
| HP | 11/28/14 | 58.58 | 73.41 | 25.3% |
| KMI | 6/17/14 | 35.11 | 41.64 | 18.6% |
| MCD | 9/5/14 | 93.72 | 96.08 | 2.5% |
| TUP | 4/4/14 | 72.66 | 68.16 | -6.2% |
| TCAP | 3/13/14 | 25.31 | 18.24 | -27.9% |
| HTGC | 8/6/14 | 13.83 | 10.92 | -21.0% |
| HASI | 9/29/15 | 16.42 | 16.86 | 2.7% |
| LNCO | 11/11/12 | 25.85 | 11.41 | -55.9% |
New Positions in 2015
During 2015, 14 new positions were opened. As of 12/31/15, there were 25 holdings in the portfolio, three more than one year ago. The 14 new holdings are italicized below:
| Company | Ticker | %Port | Price | Yield | Credit |
| Johnson & Johnson | JNJ | 5.2% | 102.72 | 2.9% | AAA |
| Exxon Mobil | XOM | 5.1% | 77.95 | 3.7% | AAA |
| Procter & Gamble | PG | 5.1% | 79.41 | 3.3% | AA- |
| Microsoft | MSFT | 5.0% | 55.48 | 2.6% | AAA |
| 3M Co | MMM | 4.9% | 150.64 | 2.7% | AA- |
| Wal-Mart | WMT | 4.6% | 61.30 | 3.2% | AA |
| Cummins | CMI | 4.6% | 88.01 | 4.4% | A+ |
| Merck | MRK | 4.6% | 52.82 | 3.5% | AA |
| Int Business Mach | IBM | 4.5% | 137.62 | 3.8% | AA- |
| Genuine Parts | GPC | 4.5% | 85.89 | 2.9% | A+(VL) |
| CenterPoint Energy | CNP | 4.3% | 18.36 | 5.4% | A- |
| Emerson Electric | EMR | 4.1% | 47.83 | 4.0% | A |
| HCP Inc | HCP | 4.1% | 38.22 | 5.9% | BBB+ |
| Southern Company | SO | 3.9% | 46.79 | 4.6% | A- |
| WEC Energy | WEC | 3.9% | 51.31 | 3.9% | A- |
| Enterprise Prod Prt | EPD | 3.3% | 25.58 | 6.0% | BBB+ |
| PepsiCo | PEP | 3.3% | 99.92 | 2.8% | A |
| Realty Inc | O | 3.2% | 51.63 | 4.4% | BBB+ |
| AT&T | T | 3.2% | 34.41 | 5.6% | BBB+ |
| WP Carey | WPC | 2.9% | 59.00 | 6.5% | BBB |
| Nat Retail Properties | NNN | 2.6% | 40.05 | 4.3% | BBB+ |
| Union Pacific | UNP | 2.6% | 78.20 | 2.8% | A |
| Enviva Partners | EVA | 2.5% | 18.15 | 9.7% | NR |
| Main Street Capital | MAIN | 2.3% | 29.08 | 7.4% | BBB |
| STAG Industrial | STAG | 1.9% | 18.45 | 7.5% | BBB |
| Cash | 3.9% |
Here are the 14 new positions with the initial date of purchase and the current cost basis:
| Ticker | First Purchase | Cost Basis | 12/31/15 |
| XOM | 8/20/15 | 71.61 | 77.95 |
| MSFT | 9/18/15 | 49.14 | 55.48 |
| WMT | 10/26/15 | 58.16 | 61.30 |
| CMI | 11/25/15 | 98.88 | 88.01 |
| MRK | 10/30/15 | 54.64 | 52.82 |
| IBM | 3/2/15 | 144.03 | 137.62 |
| CNP | 8/3/15 | 18.33 | 18.36 |
| SO | 9/1/15 | 42.51 | 46.79 |
| EPD | 8/4/15 | 25.66 | 25.58 |
| NNN | 5/6/15 | 36.77 | 40.05 |
| UNP | 12/15/15 | 76.96 | 78.20 |
| EVA | 6/9/15 | 16.38 | 18.15 |
| MAIN | 7/22/15 | 29.02 | 29.08 |
| STAG | 7/21/15 | 18.14 | 18.45 |
The Portfolio Experienced a Net Loss of .44% in 2015
In 2015 the portfolio companies saw a wide variation in price performance, but the net result of the buying and selling was virtually a wash for the portfolio balance over the course of 2015. Going into the last week of trading, in spite of the portfolio being thoroughly re-worked, the market value was essentially unchanged from 12/31/14. It closed the year down less than half of one percent, at .44%.
I believe the overall quality of the portfolio was improved in 2015 and it is better positioned for dividend safety, dividend growth and for long term capital appreciation.
Reflections on 2015 Portfolio Changes
2015 was the year I became serious about portfolio quality, particularly as expressed through credit ratings. This shift is reflected in a lower yield for the portfolio. The yield one year ago was 4.8%. At 12/31/15, the yield was 4.1%.
I sold McDonald's because of the company's stated intention to take on more debt. After I sold the stock, the price increased nicely in value but the credit rating was lowered two notches, from A to BBB+. I don't regret selling MCD but I closed the position too soon.
It always hurts to sell a stock at a loss, but in light of further declines I was happy to exit Chevron at $100.58. The Helmerich & Payne position was closed at a profit, which offset the CVX loss. I opened positions in Exxon and Enterprise Products Partners, fully aware of the risk brought on by the bear market in oil, but convinced that these two offered the safest dividends (or distributions) in their respective businesses.
I bought Tupperware because I like the business. I underestimated the impact of the global economic slowdown. I sold it at a loss but well above where TUP ended the year.
I sold Northwest Natural Gas to buy CenterPoint Energy because I believe CNP has greater growth potential. The jury is still out on this decision.
I sold several high-yielders for a variety of reasons, but the common theme was low credit ratings. Starwood Property was a longtime holding. However, I felt like the company has been in business long enough that it could have raised the credit rating from BB, two notches below investment grade.
I sold Triangle Capital and Hercules Technology too soon. These are both internally managed business development companies. TCAP had some non-performing loans and seemed less than confident about the future. I didn't understand HTGC's aggressive goals for expanding the underwriting staff and for growing the portfolio, while at the same time insisting they would be more stringent in the quality of their loans. Forward-looking statements included a caveat "if the present good business conditions prevail." I decided to give up some yield for safety.
I have owned shares of Hannon Armstrong twice. I bought several installments between July, 2014 and January, 2015 from $13.80 to $14.40, and sold it in several installments between March and August, 2015. from $17.45 to $19.50. I bought it again on September 29, 2015 at $16.42. I sold these shares on December 15, 2015 at $16.86 and applied the proceeds to establishing a position in Union Pacific. I like HASI's business model but I felt like UNP was too compelling to pass up. Time will tell whether or not that was a good move.
I bought Linn Energy (NASDAQ:LINE) in August, 2011 at $38.02. Unfortunately, I had not yet read Lowell Miller's The Single Best Investment. I could have saved myself much time, angst, and money by focusing on credit quality rather than yield. I switched to the new Linn Co (NASDAQ:LNCO) in October, 2012 at $39.02. I view this as a learning experience, and the tuition could have been less expensive: Miller's book is $27.95, hard cover. If there is any consolation about the January 2, 2015 sale of LNCO at $11.41, it is in LNCO's 12/31/15 closing price of $1.02.
I sold Kinder Morgan three days after selling LNCO.
I've written about the 2015 purchases in other articles. I added some strong companies, often with long histories of dividend or distribution growth, that were selling at deep discounts. In most cases, changes in the portfolio were aimed at improving the overall credit quality of the portfolio.
2015 Dividend Increases for Portfolio Companies
In the table below, "Announced" refers to the date an increase was announced, along with the quarterly and annual change in the dividend. "Change" refers to the percentage change reflected in the dividend increase. "Years" refers to the number of consecutive years the dividend has been raised.
| Ticker | Announced | Quarter | Annual | Change | Years |
JNJ | 4/23/15 | .70 to .75 | 2.80 to 3.00 | 7.1% | 53 |
| XOM | 4/29/15 | .69 to .73 | 2.76 to 2.92 | 5.8% | 33 |
| MSFT | 9/15/15 | .31 to .36 | 1.24 to 1.44 | 16.1% | 13 |
| PG | 4/17/15 | .644 to .663 | 2.57 to 2.65 | 3.0% | 59 |
| MMM | 12/16/14 | .855 to 1.025 | 3.42 to 4.10 | 20.0% | 57 |
| WMT | 2/19/15 | .48 to .49 | 1.92 to 1.96 | 2.1% | 42 |
| MRK | 11/24/15 | .45 to .46 | 1.90 to 1.94 | 2.2% | 5 |
| IBM | 4/28/15 | 1.10 to 1.30 | 4.40 to 5.20 | 18.2% | 20 |
| CMI | 7/14/15 | .78 to .975 | 3.12 to 3.90 | 25.0% | 10 |
| GPC | 2/17/15 | .575 to .615 | 2.30 to 2.46 | 7.0% | 59 |
| EMR | 11/3/15 | .47 to .475 | 1.88 to 1.90 | 1.1% | 59 |
| SO | 4/20/15 | .525 to .5425 | 2.10 to 2.17 | 3.3% | 14 |
| WEC (1) | 10/15/15 | .4225 to .4575 | 1.69 to 1.83 | ||
| 12/3/15 | .4575 to .495 | 1.83 to 1.98 | 17.2% | 12 | |
| CNP | 1/26/15 | .2375 to .2475 | .95 to .99 | 4.2% | 10 |
| HCP | 1/29/15 | .525 to .545 | 2.10 to 2.18 | 3.8% | 30 |
| PEP | 5/5/15 | .655 to .7025 | 2.62 to 2.81 | 7.3% | 43 |
| T | 12/18/15 | .47 to .48 | 1.88 to 1.92 | 2.1% | 32 |
| O (2) | 4/14/15 | .55 to .5685 | 2.20 to 2.27 | ||
| 6/16/15 | .5685 to .57 | 2.27 to 2.28 | |||
| 9/9/15 | .57 to .5715 | 2.28 to 2.286 | |||
| 12/15/15 | .5715 to .573 | 2.286 to 2.29 | 4.1% | 22 | |
| EPD (3) | 1/6/15 | .35 to .37 | 1.40 to 1.48 | ||
| 4/8/15 | .37 to .375 | 1.48 to 1.50 | |||
| 7/7/15 | .375 to .38 | 1.50 to 1.52 | |||
| 10/10/15 | .38 to .385 | 1.52 to 1.54 | 10.0% | 18 | |
| WPC (4) | 3/19/15 | .95 to .9525 | 3.80 to 3.81 | ||
| 6/16/15 | .9525 to .954 | 3.81 to 3.816 | |||
| 9/17/15 | .954 to .955 | 3.816 to 3.82 | |||
| 12/10/15 | .955 to .9646 | 3.82 to 3.86 | 1.5% | 18 | |
| UNP | 2/5/15 | .50 to .55 | 2.00 to 2.20 | 10.0% | 9 |
| NNN | 7/15/15 | .42 to .435 | 1.68 to 1.74 | 3.6% | 26 |
| STAG | 5/4/15 | .3375 to .345 | 1.35 to 1.38 | 2.2% | 6 |
| MAIN (5) | 2/25/15 | .51 to .525 | 2.04 to 2.10 | ||
| 4/23/15 | .275 supplemt | ||||
| 8/5/15 | .525 to .54 | 2.10 to 2.16 | 5.9% | 5 | |
| 10/21/15 | .275 supplemt | ||||
| EVA (6) | 7/29/15 | Pro-rata .4125 | 1.65 initial | ||
| 10/21/15 | .4125 to .44 | 1.65 to 1.76 | 7.0% | New | |
| Total |
(1) WEC raised the dividend twice in 2015 as part of the merger with Integrys.
(2) O paid a monthly dividend and raised the amount quarterly.
(3) EPD raised the distribution each quarter.
(4) WPC raised the dividend each quarter.
(5) MAIN paid a monthly dividend and raised the dividend twice. MAIN also paid a semi-annual supplemental dividend.
(6) EVA initiated a distribution and raised it once.
Five Questions I Ask Myself
In a conversation with Charles Gooch, I mentioned some questions I'm asking myself about the portfolio as we move into 2016:
- Has the quality of the portfolio improved during the past year?
- Is the portfolio's income safer now that it was a year ago?
- Does the portfolio have greater total return potential now than a year ago?
- Is the portfolio a better relative value versus a year ago?
- Are my long-term goals now better reflected in the portfolio's design compared with a year ago?
I believe the answer to all these questions is "Yes."
Four Goals for 2016
- Stay focused on quality as Job 1.
- Execute fewer trades.
- Prudently grow the portfolio's average monthly income.
- Continue to ask the five questions above.
Your Responses and Ideas
I am eager to hear from you. I welcome your comments and suggestions and your ideas and goals for 2016.
This article is part of the journal of my effort to design a retirement income portfolio. It is not intended as a recommendation to buy or sell any security. I offer this as part of Seeking Alpha's ongoing community conversation about stocks to study and how to design a portfolio. Please do your own due diligence.
