The drumbeat goes on in the marketplace of ideas, with many writers continuing to proffer caution as the best strategy today. They continue to emphasize risks to the downside, including China's GDP contraction, dollar strength and the negative impact to our exporters and a slowdown in the emerging markets (mostly tied to the slowdown in China's industries, which are buying less of their raw materials for production).
In the meantime, since I began writing a series of articles the last few weeks advising investors to take note of the possibility of establishing good positions and the benefits of going shopping during corrections, the market on Monday, February 22, 2016, as expressed by the Dow Jones Industrial Average, is extending this powerful rally for yet a 5th day out of six for an additional 229 points.
^DJI data by YCharts
Over the course of six trading days, we have lifted off from 15,660 and landed at 16,621 on Monday, vaulting ahead 961 points, or 6.14%, making for a pretty powerful show of force by the bulls.
Though large market corrections usually coincide with increasing fears of an imminent recession, the economic data seems to be telling us a very different story.
Consumer spending and confidence, buoyed by a strong labor market, are driving sales and profits for dozens of industries involved with cars, housing, and entertainment. In contrast to this, we are in the middle of an earnings recession for many other industries and see this reflected in 25% stock price drawdowns in a large number of stocks.
Could a deeper stock market fall push the economy into recession as spending decisions from the boardroom to the kitchen table are delayed, causing a vicious feedback loop?
Yes, it could. But right now, there's no justification for confusing the market's valuation problem with a fundamental economic one, which remains on track for a continued recovery.
On the other side of the macro-economic coin
What we are witnessing is a clear disconnect between Main Street and Wall Street. From the 2009 bottom, Wall Street Investors profited handsomely while Main Street consumers got left behind, losing houses left and right and losing jobs. It took many workers years to recover. Many were forced to take jobs paying much less than their previous salaries.
Now, the tables have turned. During this correction, many investors feel trampled, hedge funds and institutions are losing money, while consumers benefit from growing jobs availability, higher home prices for the last three years that make them feel wealthier and increasing income from long-delayed pay raises and lower energy prices. These gains are being spent on new cars reaching record sales volume, new homes, eating out and entertainment.
The Last Thing A Retiree Wants Is To Retire From The Active World
Okay, I get it. Some people are forced to retire against their will. Ill health forecloses any real active work. Some lose their jobs late in life and can't find suitable replacements or anything superior to becoming a Wal-Mart (NYSE:WMT) greeter. But there are millions who retire by their own choice.
Some are looking to detach from the pressurized atmosphere of the office grind. Some would like to devote time to long neglected hobbies, spend more time with family and the grandkids, or travel to places they've never been, or devote time to study another field of expertise.
Within this large and growing group of retirees, there is a large contingent that has made the choice to remain active in their retirement years. In many ways, the term "retirement" itself is somewhat of a misnomer. Many of us are beginning to realize that staying active helps to keep our brains from atrophying. Doctors confirm that staying active and utilizing and exercising our brains can go a long way to deter the dreaded disease of Alzheimer's and others we fear.
Keeping up with our investments and actively managing those can contribute to a physically and mentally healthier retirement and a healthier portfolio income as well.
Being Inactive And The Cost Of Lost Opportunity
Through the course of this latest stock market correction, the debate has been ongoing between those counseling caution and calling for a greater drawdown in market averages, and those, including myself, advancing the idea that continuing to buy the dip and picking up companies with no fundamental handicaps on the cheap can reward us with extra dividend yield and income.
On February 19, a few short days ago, I wrote "This Ship Has Begun To Sail: Got Your Watch List Ready To Board." Here is an updated table from that article to demonstrate the benefits of preparing and actually using a watch list to benefit from these types of corrections, including Monday's closing prices:
Purchases Made Before The Ship Sailed
These four purchases were made a bit over a week ago. Today, it is apparent that the use of my Watch List Real Time Tracker enabled me to gain prices so good, that today, as a group, they are priced 10.18% higher. Most importantly, the yield we achieved is fully one percent higher than if all were purchased Monday. Lower price = Higher yield = higher income.
Sitting On The Fence Can Result In A Great Deal Of Lost Opportunity
Some investors have a pretty hard and fast rule they follow. They will not invest further funds in a market unless it falls 20% or more from its previous high. We came awful close to this criteria last August, and again just a couple of weeks ago. Close, but no cigar.
Since the market has not cooperated with such a serious draw down in over 7 years since bottoming on March 9, 2009, that long stretch of time represents some serious fence sitting and to my mind, some serious lost opportunity along the way.
Let's compare some possible income returns achieved by fence sitters and active investors. For simplicity sake, we'll assume .1% on money market funds and a generous 1% interest rate on long-term CDs, though rates were lower for many of these past 7 years. Also, for simplicity sake, we will not assume any reinvestment of the dividends shown and assume they were used to pay the bills in retirement. Simple interest income compared to simple dividend payments. Since we are focusing this analysis strictly on income, we will not address the prodigious capital gains also achieved by the active investors during this time frame.
Share prices derived from Yahoo Finance.
Dividend data courtesy of Realty Income website
I could have chosen any number of dividend growth stocks to illustrate this comparison, but I chose Realty Income (NYSE:O) for its steady, reliable, turtle beats the hare characteristic, beloved by all dividend growth investors.
Given this presentation, which would you have preferred to experience as an investor? The calming, security blanket rendered by the FDIC on your CD, the lack of same but perceived safety of the money market account, or the small amount of risk associated with a dividend company with over 30 years history paying a growing dividend and accruing over $96,000.00 in dividend income, returning almost 100% of your original investment in dividend income in 7 short years?
As discussed earlier, this does not even take into account the capital gain involved in this investment. Growing from $14.25 per share in 2009 to Monday's closing value of $59.72, your 7017 shares would have grown from a $100,000 value to $419,055 for a capital gain of $319,055 or a 319% gain. Icing on the cake!
For the investor who sat on the fence and left his money idling in park, inflation and taxes would have yielded negative returns. Realty Income's dividend, taxed at ordinary income tax rates due to its REIT status, would have subtracted the investor's tax rate from the income, still leaving him with prodigious amounts of income. If the shares resided in an IRA, no taxes would have been due, same as the CDs if left in an IRA.
Use A Watch List To Be Proactive
Within every market cycle and every market environment, you will find some sectors in favor while others are out of favor. It is in the out of favor sectors that a value investor can find the temporarily beaten down stocks that are fundamentally sound, have temporary obstacles that will soon be overcome, or have simply been discarded by panicked investors or hedge funds and mutual funds forces to liquidate even good names to raise money for redemptions.
It is this out of favor area that offers ripe fruit to build a watch list of candidates an investor would like to make part of their portfolios if certain criteria are met.
The updated table, above, or purchases made before the ship began to sail is illustrative of the benefits of using such a watch list for the investor's benefit.
What If Your Watch List Could Talk?
Last week, I introduced a fully automated Watch List that an investor could incorporate into his tool bag of tricks. Working in real time, and updating continuously throughout the day, it allows the investor to track multiple watch list candidates according to his own criteria.
It incorporates a fully customizable target price indicator. When the target price the investor seeks to pay is within 3% of the current market price, this real time spreadsheet flashes green to alert him that his target price is approaching.
This target price percentage is fully customizable. One investor might want greater lead time and set the flashing indicator to alert him at 5%. Another investor might be more comfortable with even more advanced notice and choose to set the alert at 10% from current price.
All of the functions built into this application give greater control and data to the investor who chooses to take an active approach to his portfolio management and make determinations himself, using all the available data sets, to decide what price he wants to pay to obtain the yield and income he wants to receive.
This is what the Watch List Real Time Tracker looks like:
Watch List Real Time Tracker
Like the Real Time Portfolio Tracker, this tracker functions in real time and is updated continuously throughout the day.
Once you enter your ticker symbols, share amounts you'd like to buy and the target price you seek, this application will do everything else for you, automatically, including:
1. It will tell you the current price, all through the day.
2. It will display the target value of those shares based on your target price so you know how much the trade will cost you.
3. It'll display the real time, current value of those shares.
4. This tracker will tell you, in percentage terms, exactly how far away your target price is from the current price.
5. It will alert you, by turning green, when your target price is within 3% of the current price. This clearly focused alert will allow you to see at a glance when your targets are getting close, allowing you to decide to either execute an order, or watch in real time until it gets closer to your target.
6. Dividend amount per share.
7. Current dividend yield.
8. Dividend yield you'll receive if you buy it at your target price.
9. The annual income you'll receive from the position at your target price.
10. The percent the position will represent of total value of all your targets if bought.
11. The percent of portfolio income that the company will give you if bought at target price.
12. The day's price range, low to high, to help you monitor the range during the day.
13. The 52-week high/low range to help you see the relevance of your target price.
14. The percent your target price is from the 52-week high.
15. The percent your target price is from the 52-week low.
16. The current P/E ratio.
17. The ex-dividend date to clue you into when you must buy, before the ex-dividend date to secure the next dividend.
18. The dividend payment date, to give you information as to when you'll be receiving the dividend if you make the buy.
19. The average percent all of your watch list companies are from current prices.
20. The dollar amount you will save if all your companies hit their target prices.
21. Current average dividend yield of all watch list components.
22. Targeted average dividend yield of all watch list companies.
23. Total portfolio income if all targets are hit.
When used properly, this new tool allows you to play what if games with all of the relationships that are included. For instance, you can input any amount of target prices for all of your watch list companies and see how it would affect the dividend yield, the prices you'd pay on the number of shares you want to buy. You can change the number of shares to see the outcomes all across the data fields.
All you have to do is type different numbers into the cells and every imaginable outcome is displayed automatically for you on this interactive, live, updated, real time tracker.
You can compare P/E ratios of other companies in the same sector as your target to determine if your target company is overvalued or undervalued in relation to its peers. Just type in the tickers of some of their peers and see how it compares to your target company.
You can input any tickers, any number of shares you choose, and any target price to see the effects on any of the above 23 functions. The amount of data provided automatically will help you determine better timed prices to yield the outcomes that YOU want to achieve.
If you think this new watch list tool can help you in your planning, maintenance and management of your portfolio while everything is on auto-pilot for you, please send me a direct message. This tool is available to readers for a very nominal amount and at a substantial discount for subscribers.
Real Time Portfolio Tracker
The New, Real-Time Portfolio Tracker
For those interested in a powerful utility to track their own portfolios in real time, I've created the Real-Time Portfolio Tracker that will perform all of the following functions automatically, without any effort required of the user:
1. Once you enter your stock tickers, the tracker will automatically update the prices of each of your positions throughout the day.
2. It will display the current price of your equities, grabbed all day from a finance site.
3. It will display the amount you invested in each equity.
4. It will update the current total value of each position throughout the day.
5. This tracker will show you your percentage gain or loss on each position in real time.
6. The tracker will automatically grab the correct annual dividend amount from a finance site.
7. It will display your current yield based on the moment's price.
8. It will show you the yield you received based on the price YOU paid.
9. It will tell you how much annual income each position is paying you.
10. It will break down in percentage terms, how much value each position represents of your overall portfolio based on current prices.
11. Most importantly, it will tell you what percentage of total portfolio income each position pays to you.
12. It displays the total amount you have invested in your portfolio.
13. It gives you a total portfolio value, updated all day long.
14. The tracker will tell you, automatically, what percent your total portfolio is up or down from purchase.
15. It will display the current total portfolio dividend yield as well as the total portfolio yield on cost.
16. It will tell you your total portfolio capital gain or loss.
17. Lastly, it will display the remaining cash left in your portfolio available for investment.
This Real-Time Portfolio Tracker is a very powerful tool that will allow the investor to stay current and up to the minute on every important aspect of his portfolio. Used creatively, it can point to positions that need topping off or trimming in order to arrive at a portfolio that throws off equal amounts of income from each position.
If you think this new tool can help you in your planning, maintenance and management of your portfolio while everything is on auto-pilot for you, please send me a direct message. This tool is also available to readers for a very nominal amount and at a substantial discount for subscribers. I have already provided these tools to a great many readers and subscribers and the feedback has been extremely favorable.
Subscription Portfolio Recap
When we first began the premium subscriber portfolio on November 1, 2015, just 3 ½ months ago, our overall portfolio yield was 5.77%. The comparable figure to our yield on cost, based on all of our purchases has grown today to 6.72%. Since the portfolio has increased considerably in capital appreciation, the current dividend yield based on Wednesday's prices is 6.30%. The tracker also indicates that the subscriber portfolio has gained 6.66% in capital appreciation compared to a 4.62% loss by the Dow and a 4.82% loss by the S&P 500 index over the same period.
The Real Time Portfolio Tracker allows us to see at a glance how our annual income on the portfolio has grown and what we have so far. We can also quickly learn that when we add this period's dividend income to our beginning commitment to this portfolio and subtract the amount we've already invested, we can see the balance still available to invest for upcoming opportunities that come our way.
As we see how the quarterly income has grown, we can infer our new annual income. We can also see from our dividend table that 13 of our companies have recently increased their dividend payments. These increases and the payment of the dividends will form the foundation of our compounding of income based on their reinvestment.
The Portfolio Income Tracker Spreadsheet
To help my subscribers stay focused on income production, at no cost, I provide them with a spreadsheet I've created that allows them to track the exclusive subscriber portfolio we manage. It is available to non-subscribers for a nominal amount. It also allows investors to input their own portfolio holdings, share amounts and dividend amounts. The formulas I've built into it then figures their annual income from each component, shows the current yield and totals the portfolio income.
It looks like this:
Portfolio Income Tracker
If you feel this spreadsheet would be a useful tool to track your own investments and income, and would like to have one, simply send me a direct message on Seeking Alpha, and ask for the Portfolio Income Tracker. It is free for subscribers and will be provided to other readers for a very nominal amount. I'll be glad to email you one for your use. Just send me your email address in a direct message.
The Fill-The-Gap Portfolio
I began writing a series of articles on December 24, 2014, to demonstrate a real live construction and management of a portfolio dedicated to growing income to close a yawning gap that so many millions of seniors and near retirees face today.
The beginning article was entitled, "This Is Not Your Father's Retirement Plan." This project began with $411,600 in capital that was deployed in such a way that each of the portfolio constituents yielded approximately equal amounts of yearly income.
The FTG Portfolio Constituents
Constructed beginning on 12/24/14, this portfolio now consists of 18 companies, including AT&T, Inc., (NYSE:T) Altria Group, Inc., (NYSE:MO), Consolidated Edison, Inc. (NYSE:ED), Verizon Communications, Inc. (NYSE:VZ), CenturyLink, Inc. (NYSE:CTL), Main Street Capital Corporation (NYSE:MAIN), Ares Capital Corporation (NASDAQ:ARCC), Reynolds American, Inc. (NYSE:RAI), Vector Group Ltd. (NYSE:VGR), EPR Properties (NYSE:EPR), Realty Income Corporation, Sun Communities, Inc. (NYSE:SUI), Omega Healthcare Investors (NYSE:OHI), StoneMor Partners LP (NYSE:STON), W.P. Carey, Inc. (NYSE:WPC), Government Properties Income Trust (NYSE:GOV), The GEO Group (NYSE:GEO) and The RMR Group (NASDAQ:RMR).
These portfolio constituents represent an example of where retired investors with excess cash above what they need to pay the bills, near-retired investors and younger investors can constantly source cash to use as dry powder to make new investments. When stocks fall to better timed entry points, they can buy shares in order to grow portfolio income.
The FTG Portfolio closed up .59% Monday. The S&P 500 index is showing a loss of 4.82%, the Dow Jones Industrial Average is sporting a 4.62% loss and an 8.72% loss for the Nasdaq composite index is indicated, year to date. By comparison, I am pleased to report the FTG Portfolio is ahead, year to date, 3.62%. This means we are enjoying 8.44% of outperformance compared to the broad market, and we continue to be running solidly in the green while the rest of the market continues to be awash in red ink. Again, we have also achieved all-time highs for the portfolio since inception.
We began with $411,600 on December 24, 2014, added a $6500 IRA contribution in 2015 and another $6500 contribution in 2016, totaling $424,600 in invested capital.
As you can see from the chart below, the FTG Portfolio has grown to a record amount, $462,575, for capital appreciation of $37,975, or 8.94%. This compares very favorably to the Dow Jones Industrial Average, which is down 7.82% and the S&P 500 Index, which is down 6.55% in that same period, from 12/24/14 to date.
The FTG Portfolio Close, Monday, February 22, 2016
Plan of Action - Portfolio Management
Our aim is to get the most bang for our bucks. We will look towards any further weakening in the markets as our developing opportunities to buy more income for the portfolio at cheaper prices, gaining higher yield along the way.
We are in no hurry here. We will follow our playbook just as we did with the recent W.P. Carey and The Geo Group purchases on a 4% dip, which yielded us 9% on this private prison REIT. We've done the same with our recent purchases of Omega Healthcare Investors, Apollo Investments (NASDAQ:AINV), and Welltower (NYSE:HCN). We'll pick our spots, and when those entry points arrive, we'll pounce. Thursday, additional positions were taken in W.P. Carey at a 9% sale giving us a 7.53% dividend yield.
The Fill-The-Gap Portfolio for 2016 presents a new beginning, an opportunity for retirees, near-retirees and new, younger millennial investors to start the process of making their transition to dividend growth investing in some of the safest, most predictable, long-paying, high-payout companies in America.
For younger millennial investors willing to be open to ideas to further their financial education, this portfolio represents a solid foundation. For them, and all pre-retirees and retirees, this model of portfolio construction is offered as a foundational way to build retirement income for the future that addresses inflation head on. The dividends in this portfolio will continue to grow in such a way that future income will not be degraded and decimated by inflation. On the contrary, purchasing power will be preserved, unlike what would befall an investor buying 0% T-bills today or negative interest rate T-bills next week as discussed in those articles I penned.
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If you found this article, the concept and investment results interesting and intriguing, I invite you to read the other articles in this series. Stay tuned for further articles that will introduce additional sectors and names to further diversify a portfolio for continued ballast and mitigation of risks to any one sector.
Should you be interested in reading any of my other articles detailing various strategies to enhance your returns on a dividend growth portfolio, you will find them here.
As always, I look forward to your comments, discussion and questions.
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Disclaimer: This article is intended to provide information to interested parties. As I have no knowledge of individual investor circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended.
Disclosure: I am/we are long ARCC, CTL, ED, EPR, GEO, GOV, MAIN, MO, OHI, O, RAI, RMR, STON, SUI, T, VGR, VZ, WPC.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.