Retirement Strategy: The Goals Of The Dividend Investor For The Long Haul And A Corrected Update

by: Regarded Solutions

It has been over a year since we began our journey with the initial launching of our Team Alpha portfolio. Since that time, we have had significant gains over the last 12 months (see the special section below). What we have not done is to review the goals of a retirement portfolio such as the one we have, so I feel that this article should clarify those goals, and new readers can decide to invest the way we have.

Our portfolio now consists of Exxon Mobil (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), AT&T (NYSE:T), General Electric (NYSE:GE), BlackRock Kelso Capital (NASDAQ:BKCC), KKR Financial (KFN), Procter & Gamble (NYSE:PG), Intel (NASDAQ:INTC), Realty Income (NYSE:O), Coca-Cola (NYSE:KO), Linn Co, LLC (LNCO), Wal-Mart (NYSE:WMT), Cisco (NASDAQ:CSCO), Bristol-Myers Squibb (NYSE:BMY), Healthcare Select Sector SPDR (NYSEARCA:XLV), and General Dynamics (NYSE:GD).

Goals Of Dividend Investing For The Long Haul

Everyone has a different opinion on what the "long haul" is, so let me just offer my opinion; the long haul is for those investors who are seeking a more secure financial future.

So what does a "financial future" look like?

  • A young family planning for an early retirement.
  • A couple who are close to, or already in retirement.
  • Folks who want to be able to work if they want, or not work if they want, as they reach retirement age.
  • Investors who want to be able to maintain their lifestyle without angst.
  • Folks who need more income later in life to cover essentials, or even the "extras."

I could go on forever, but the point is that every investor should reflect on what they want their own financial future to look like. For our purposes here, investors who seek income via healthy dividends in a variety of stocks and sectors are seeking "alpha" for a more secure retirement.

Nothing ever can be guaranteed, and when investors decide on the path of dividend investing, due diligence and regular monitoring is a must.

The ultimate goal is to have a consistent stream of income which can either be re-invested or used to pay expenses.

What Is The Team Alpha Approach?

By having a core group of stocks which are consistent dividend payers, as well as having several dividend "opportunity" stocks and a touch of growth oriented stocks, we have tried to balance the portfolio to have a dividend growth investment strategy with some "spice."

Stocks like JNJ, XOM, WMT, KO, T, PG, O, GD, and BMY have a remarkable track record of raising dividends every year and not missing a payment (GE was among these until a few years back, but I believe they are now back again). These stocks are the stalwarts of any dividend growth portfolio. Obviously, there are many other stocks that fit this criteria, and each investor will find ones that they like better than the ones that are in this portfolio.

The dividend "opportunity" stocks like KFN and BKCC offer a higher yield than most other stocks (over 10%), but have a history of cutting dividends, as well as raising them, depending upon the business climate. These 2 stocks are business development companies, or BDCs, which tend to thrive in better times (economic expansion) than in bad times (economic contraction). We selected these stocks to replace the agency mREIT stocks we sold off, since the Fed has taken an overly aggressive approach in the MBS market. I feel confident that the economy will expand going forward, and the BDCs can profit as well as shareholders. The mREIT sector is facing too many headwinds for the risk tolerance of many folks who are close to or in retirement. That could change, but for now we feel good about our choices.

INTC and CSCO are new to the better paying dividend world, yet both could offer some capital appreciation as well. They also need to prove themselves as dividend winners and time will tell if they achieve that goal. The portfolio needed some tech sector stocks and these two fit the needs for better dividends as well.

LNCO is a newcomer that brings a wonderful dividend in the energy sector. It is actually a "holding company" for Linn Energy (LINE) and offers a far easier tax structure for dividend payments.

Finally, XLV which is an ETF with broad exposure to a wide range of healthcare stocks. This gives the portfolio some added strength in a sector that could see capital appreciation with the new "Affordable Care Act" law.

What Is The Bottom Line

Right now, the mix of stocks gives us a 4.62% return based on current dividend yields. If one were to begin investing in these stocks with similar allocations as we have in the Team Alpha portfolio, an income seeking investor can receive about $4,620 per year as income on each $100,000 invested.

In this article, you can review the details, but for your convenience the chart below gives an overview. The portfolio is well balanced and diversified and is worthy of any income seeking investors' "watch list." Dividend investing in stocks such as the ones we have in the Team Alpha portfolio, should be considered by those investors who seek income with a lower risk profile.

*A Mistake Now Corrected*

In the previous article, we showed a 20% gain in 12 months. After a comment from a Seeking Alpha subscriber and commenter suggested that we take a look at why we dropped by 7%, we saw a math error in the BMY numbers. If you compare this chart to the one in the article noted above, you will see a discrepancy of $5,630!

I fixed the problem here, and we are now proudly showing a 23.3% gain over 12 months. That beats the S&P 500 by over 33% during the same time frame.

Stock #Shares 10-31-pps TotValue Div. Yield
XOM 100 91/shr 9100 2.60%
JNJ 125 71/shr 8875 3.50%
T 250 35/shr 8750 5%
GE 500 21/shr 10500 3.10%
BKCC 300 10/shr 3000 10.50%
LNCO 200 39/shr 7800 7.20%
PG 100 70/shr 7000 3.30%
KO 100 37/shr 3700 2.70%
XLV 200 40/shr 8000 2.00%
INTC 200 22/shr 4400 4.20%
O 200 40/shr 8000 4.50%
KFN 300 11/shr 3300 8.40%
WMT 100 75/shr 7500 2.10%
CSCO 400 18/shr 7200 3.10%
GD 100 68/shr 6800 3.00%
BMY 175 33/shr 5775 4.00%
Tot Yield x x 0 4.62%
Cash Rsvs x x 13567
Tot Value x x 123267

In future articles, we will delve into each stock as events warrant. We will also discuss the ongoing fundamentals of each stock so that everyone is kept up to date. If there are issues with any stock, we intend on discussing it here, prior to making any decisions.

Since this is a team effort, we rely on everyone's feedback and input. Join us!

Disclosure: I am long XOM, JNJ, GE, T, O, KFN, BKCC, WMT, KO, GD, XLV, LNCO, INTC, CSCO. 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.

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