Retirement Strategy: An Update Of Our 'Team Alpha' Portfolio That Continues To Outperform

by: Regarded Solutions

As we head into the final quarter of 2012, it is important to understand where we have come from with the "Team Alpha" portfolio, as well as where we are headed.

We began our journey back on November 23, 2011 with the first installment of this series (here is the first installment). You will note that we began with only 5 stocks; Exxon Mobil (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), AT&T (NYSE:T), General Electric (NYSE:GE), and Annaly Capital (NYSE:NLY).

We progressed with our investment philosophy of buying mainly mega cap, blue chip, dividend winning stocks that would pay us a stream of income as well as having the potential for capital appreciation. It was not long before we had a solid core portfolio that set us on our path.

In this article, we unveiled our portfolio that was developed by our readers and ourselves. Our requirements were as follows:

Basic Requirements For Our Portfolio

  1. Large cap, blue chip companies
  2. Well-financed with very large cash reserves
  3. A history of regularly meeting or beating earnings estimates at least 90% of the time
  4. A history of consistent dividend payments over the last 5-10 years at least (with very few exceptions)
  5. A history of dividend increases over a period of 5-10 years (with very few exceptions)
  6. A minimum yield of 3.00% annually (with one exception)
  7. An ESS rating of neutral, bullish or very bullish, no exceptions
  8. Very limited overlap while being extremely well diversified

These requirements have not varied aside from the addition of several equities that might be considered risk oriented, or "value" stocks such as Bank of America (NYSE:BAC), which in our opinion offered a very compelling valuation for strong upside potential. Thus far, we have been correct and we have profited.

September Trades And Activity

Team Alpha made just a few trades in September, which we believe adds depth to our portfolio, as well as potential. We added more shares of Cisco (NASDAQ:CSCO) as well as our first ETF in the healthcare sector with Healthcare Select Sector SPDR (NYSEARCA:XLV).

As noted in this article about the healthcare sector:

"Rather than buying some individual stocks within this sector, we can achieve our main goal of dividend income with an ETF. Not only would that give us the diversity and balance we desire, but capital appreciation is probable as well.

The "Affordable Care Act", which is now Law, has also given many areas of the healthcare sector even greater opportunities for both revenue and earnings growth. Selecting one or two stocks that will benefit the most would be a daunting task."

Here are our recent trades:

Trades Made In September Shares Cost
Paid 18 for CSCO 200 3600
Paid 39 for XLV 200 7800
Cash Redeployed 11400
Click to enlarge

A handful of stocks have gone ex-dividend, which we also have added to our cash reserves; GE, NLY, AGNC, O, KO, BAC, XLV netted a total of $446.00 in dividend income.

With our added stocks, as well as our dividends, here is what our Team Alpha portfolio looks like as of 9/30/2012:

Stock #Shares 9-30-PPS TotValue
XOM 100 92/shr 9200
JNJ 100 69/shr 6900
T 100 38/shr 3800
GE 100 23/shr 2300
NLY 300 18/shr 5400
BAC 300 9/shr 2700
PG 100 69/shr 6900
KO 100 38/shr 3800
SO 200 46/shr 9200
INTC 200 23/shr 4600
O 150 41/shr 6150
AGNC 150 35/shr 5250
WMT 100 74/shr 7400
CSCO 400 19/shr 7600
MMM 100 93/shr 9300
BMY 100 34/shr 3400
XLV 200 40/shr 8000
Cash Rsvs x x 23929
Tot Value x x 125829
Click to enlarge

Our portfolio now consists of Exxon Mobil, Johnson & Johnson, AT&T, General Electric, Annaly Capital, Southern Company (NYSE:SO), Procter & Gamble (NYSE:PG), Intel (NASDAQ:INTC), Realty Income (NYSE:O), Coca-Cola (NYSE:KO), Bank of America, American Capital Agency (NASDAQ:AGNC), Wal-Mart (NYSE:WMT), Cisco , 3M Company (NYSE:MMM), Bristol-Myers Squibb (NYSE:BMY), and Healthcare Select Sector SPDR .

Results And Actions To Take Now

Over the course of 10 months, Team Alpha has increased in value by nearly 26% (25.82% to be precise). During this same time period, the S&P 500 has risen from 1215 to 1441. An increase of nearly 19% (18.6% to be more precise).

Without Apple (NASDAQ:AAPL) to help drive our gains, we handily have beaten the S&P by nearly 7 percentage points, or almost 40%. While this is a small sample size of course, it shows how strong a diverse portfolio can do compared to the market indexes. Not only that, but we have complete control of our portfolio, and can move swiftly to take advantage of opportunities, as well as rebalancing when we need to.

Our cash position of roughly 17% is a fair amount to have if our stocks happen to pullback. We can add on the dips judiciously and expand our portfolio even further. This will allow exponential growth going forward, and the dividends received will insulate us from market sell offs, while maintaining our required stream of income.

We also need to monitor the covered calls we wrote last month. Several are close to the strike price, and we will wait until the very last moment to decide whether we will roll the options over, or let our stocks be called away and re-buy them on the next trading day.

The Bottom Line

It is never too late to begin investing with a dividend growth strategy (plus some spice) to insure a better future for yourself and your family. A 26% return in 10 months has been achieved without much fan fare.

To beat the major market indexes (S&P 500) by nearly 40% is quite an achievement. To do it without the high flying hot stocks is simply wonderful.

We have just gotten started as well.

Disclosure: I am long XOM, JNJ, GE, T, NLY, O, AGNC, CSCO, INTC, MMM, BMY, KO, SO, BAC, WMT. 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.