Previously I had written about the five "Dividend Divas" and five "Dividend Monsters" that were in my portfolio. The original list of Dividend Monsters included Freehold Royalties, Ltd (FRHLF.PK), Annaly Capital Management (NLY), National Presto Industries (NPK), SeaDrill, Ltd (SDRL) and StoneMor Partners, L.P. (STON). In the two months since I wrote those articles I've added a few more positions to my stable high yielders, including five more Dividend Monsters.
When I first wrote about my Dividend Monsters, the average yield of all of the positions in my portfolio was 5.3%. Since then I've made a number of changes to the lineup, including selling some underperformers and adding some new stocks. Now, the average yield of my portfolio has swelled to be 5.68%. (OK, maybe "swelled" isn't the right word, but I still think it's an impressive increase considering there are now 32 stocks that make up my IRA's portfolio.)
In order to be considered a Dividend Monster this time around, a stock needs to meet some very simple criteria: Yield at least more than the average of my entire portfolio, and do it at a discount!
The five new Dividend Monsters are presented below. (In case you're not familiar with it, "MyMM" refers to My Mad Method, which is my way of ranking stocks on my watchlist and in my portfolio to determine which ones I want to purchase next.)
American Capital Agency
Alliance Resource Partners, L.P.
Main Street Capital Corp
MV Oil Trust
The New Beast
Annaly Capital Management was "The Beast" in my first five Dividend Monsters group, but American Capital Agency is The New Beast of my portfolio, with the highest yield of any of my positions. With the addition of AGNC, I've extended my exposure to mREITs, but diversified a bit so that all my mREIT eggs aren't in the NLY basket. And at just 1.3% of my total portfolio, there's room to add more before I get to my self-imposed 5% limit that I like to maintain for any one position.
AGNC scored well in terms of MyMM Rank when it was on my combined watchlist, and is still holding up with an MyMM Rank of 6 and a Combined Portfolio Rank of 6 now that it's part of my portfolio. Being an mREIT, I need to keep an eye on interest rates so that I don't get caught when the Fed decides to raise them (which is inevitable, but "when" is still very much unknown). Seeing as I need to do this for NLY already, it's not too much of a burden to have to keep tabs on two beasts in my stable.
Click to enlarge charts
The only problem with AGNC was, it didn't look like it was going to cooperate in the "do it at a discount" department. I had been tracking a number of mREITs for a while, and they were all edging upwards while the market was generally (and sometimes drastically) falling in recent weeks. I reasoned that any time would be a good time to get in and start collecting such a fine yield, so I picked up some shares, and the price has kept rising ever since.
It Came From Beneath the Ground
For weeks as I was monitoring it in my combined watchlist, Alliance Resource Partners, L.P., ranked #1 no matter how I weighted the MyMM spreadsheet. On both an unweighted basis and weighted in favor of high yield, low payout ratio companies, ARLP kept the top spot. I'm still bullish on coal, and ARLP has done well comparatively to other coal stocks in terms of holding its equity value. So when it dipped even further several weeks ago, I was more than willing to start adding it to my portfolio. I ended up making four purchases over a 34 day period, each one at a lower price than the previous one, for a resulting cost basis that I'm very pleased with. Since then it has gone up, so all of those purchases are in the black.
With a yield of just over 7%, it's the "weakest" of the new Dividend Monsters, but I wouldn't say that to its face (if it had one)! The only thing I need to watch out for now is how much I'm going to receive in distributions from all of the Master Limited Partnerships (or MLPS) that I'm currently holding in my portfolio, as there can be some tricky tax paperwork involved with MLPs in an IRA. I'm planning on accumulating some funds outside of my IRA with which to open a taxable trading account, and within which I will open up more MLP positions than I really should have in my IRA.
I'd been watching France Telecom for months, and it looked like it had reached a bottom finally. When I weighted my MyMM combined watchlist for high yielders and looked for "Holy Cow!" prices compared to their 52 week highs and lows, FTE jumped out and said, "Buy me!" Unfortunately, I pulled the trigger before doing my final due diligence, and missed that the company had just announced that it would be cutting its dividend in 2013. Ouch! However, even if it is cut in half, FTE's yield will still be above the average for my entire portfolio. I used cash-secured puts to purchase the shares, which dropped my cost basis even further.
I realize that the situation in Europe is grim, but there are a number of factors that make FTE attractive in addition to (or despite) its dividend. FTE is well diversified outside of Europe and in several African and Middle Eastern markets, and the French government owns a considerable stake in the company, so despite the decided left turn that the government has taken, I think that it will consider FTE "too big to fail". In any event, I'm keeping an eye on it, and if the price appreciates towards anything resembling a decent return, I'm prepared to jettison it (after I collect the anticipated September dividends) in favor of something a little more stable-- including possibly its British cousin, Vodafone (VOD).
The Developing Man
Main Street Capital Corporation is another of those recent picks of mine that doesn't quite fit the "do it at a discount" requirement, but I'd been tracking it for some time and had read quite a few positive things about this Business Development Company (or BDC). Some folks consider BDCs to be an asset class unto themselves, and picking up MAIN presented an opportunity for me to boost the overall yield of my portfolio and continue to diversify into other areas of the economy, which is something I'm always looking to do.
Despite its climb up in value during the first part of the year, it looked like it had stabilized at its current level, so I decided to go ahead and add it to my stable of Dividend Monsters. So far it's holding steady around the same price as my cost basis, despite the recent downturn in the market. I don't think we'll see its price dip much more, unless there is an overall market meltdown, in which case everything becomes a better bargain than what I paid for them. On the whole, I'm bullish on America and think we'll pull out of the current situation we're in now, and MAIN looked like the right BDC to get started with.
MV Oil Trust is another MLP that I just couldn't pass up, as it was also screaming "Holy Cow!" on my MyMM watchlist spreadsheet several weeks ago. Of all of the MLPs that I'd been tracking, particularly in the oil and natural gas space, MVO looked the most attractive in terms of its payout ratio and recent dividend (distribution) growth history. When its price took a steep dive in the May-to-June timeframe, it looked like the right time to pick some up, which I did in mid-June, and then I picked up a bunch more a week later after the price had slid even further.
I'm happy to say that since then MVO is up over 12% from my cost basis, and has even been bucking the market trend these past few days to edge even higher. I just need to watch out for how much I'm going to receive in distributions from MLPs this year, and then consider moving MVO out of my IRA and into a taxable account before I hit the $1,000 threshold that will require me to spend more time filling out IRS forms than I'd like to come tax season.
Now five more Dividend Monsters have been added to my portfolio, bringing the average yield of all of the positions in my IRA to a nice, plump 5.68%. Nnow I can turn my attention to gathering up more Dividend Divas such as Johnson & Johnson (JNJ), which I also purchased not too long ago, but which has since jumped up in price, causing me to hold off adding any more to my current position until it either drops back down to where I got into it, or its P/E improves from the 18.6 that it sits at today.
I'd love to hear about the Dividend Monsters in your portfolio! Please feel free to make a comment below and let us know what Monsters you hold, and how you feel about them.
Additional disclosure: I am not a professional investment advisor or financial analyst; I’m just a guy who likes to crunch numbers and can make an Excel spreadsheet do pretty much whatever I want it to do, and I’m doing my best to manage my own portfolio. This article is in no way an endorsement of any of the stocks discussed in it, and as always, you need to do your own research and due diligence before you decide to trade any securities or other products.