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I am retired and live off my portfolio income and real estate rental income. I follow a simple investment strategy: (1) spend less than I earn; (2) use the savings to add more dividend paying stocks and rental properties to my portfolio. By doing this for many years, I've been able to grow my... More
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  • High Turnover Funds

    For years, I have owned a number of relatively high yielding international dividend growth funds - namely IDV and PID. Many of my purchases into these funds were at advantageous prices, and there are built-in capital gains that would attract significant tax liability were I to sell them.

    My problem with these funds is that they have a very high turnover rate. Managers are buying, selling, rebalancing, turning assets over in a perpetual stream that quite frankly is at odds with my own investment approach. I like to buy and hold forever, and never rebalance.

    So, I'm left with a quandary: hold the funds because buy and hold is what I do, or sell them and replace with single stocks that I can hold forever with zero potential for any turnover. I've let the market decide that for me: I sell these funds when doing so will not trigger an enormous capital gain.

    Since I bought these funds at various times, I look through my lots, and pick those lots that are showing a loss. I sell those lots in their entirety, and then use the tax-loss that I just harvested to offset an equal amount of capital gains on the lots showing gains. That enables me to liquidate positions in IDV and PID free of any tax consequence.

    Today, I used proceeds from such transactions to buy additional shares of EMR, KMI, RY, IBM, and WPC - all companies with excellent dividend growth and cheap to very reasonable valuation. I also purchased additional shares of FMO, a midstream MLP fund with a very low turnover ratio of around 6%. MLPs in general are down hard over the past year, similar to what we are seeing with energy firms like Exxon or Chevron. I take that as an opportunity to purchase midstream MLP funds, because a depressed price of oil has little impact on the volume of oil that flows through pipelines, and oil pumping volume is how most midstream MLPs are paid. It's a chance to pick up yield of 7% or 8%, as well as a source of steady income growth.

    As a result of these adjustments, I was able to swap high turnover funds for a portfolio that will have almost zero turnover, far more reliable distribution growth, and a higher yield from the get-go. Between saving, reinvesting, organic dividend growth, and opportunistic rebalancing into higher yield and higher quality yield, our portfolio income growth for this year stands at close to 4.3%, making it a particularly strong year from an income growth perspective.

    Jul 17 4:37 PM | Link | 1 Comment
  • With Pangs Of Regret, I Am Selling Chubb Today.

    I've owned Chubb (ticker CB) for years. It is a dividend champion, and has been consistently undervalued for as long as I've owned it.

    That ended today. ACE Insurance (ticker ACE) has agreed to purchase Chubb in a stock and cash deal, for a handsome premium above yesterday's closing price. I happen to own ACE as well, and have no plans to sell it.

    Chubb opened up by 35% within the first few moments of trading, and I've decided to take that as a sign. I'll effectively own some Chubb anyway through my ACE holdings, but holding Chubb as a standalone investment is no longer going to be possible. Moreover, I surmise that the price ACE is paying for Chubb is fair and reasonable - I prefer owning things at prices that are less than fair and reasonable.

    I have long maintained that the only reason why I'd ever sell any asset is if management lies to shareholders. There is one more reason to sell - your company just got bought. I don't suggest that is an automatic sell trigger by any means - the new parent company could very well be something you'd want to own. But if the buyout is reasonable and you already have a significant position in the parent company, then it could very well be a good time to sell the investment.

    I sold all my Chubb shares (with tears in my eyes), and put the proceeds into IBM, NNN, WPC, DD and KED. By doing so, I increased my income diversification, and best of all, locked in a hefty raise - CB now sports a 1.6% dividend yield, whereas the assets I just bought have a combined yield of 5.5%.

    The negative side to the story is that I have significant gains built into the Chubb shares I sold. For the Chubb shares in my IRAs, that doesn't matter, but for the shares in my taxable account, it does. I decided to harvest some losses on other positions to offset the capital gains I realized on the Chubb shares. Accordingly, I sold off some shares in IDV and TAL, and put the proceeds into AMLP, NHI and EMR. These transactions are income neutral in terms of my overall portfolio income, although I expect the stability of the income to be improved. I say that because IDV distributions fluctuate significantly, and TAL's very high dividend yield seems potentially unstable. MLP funds like AMLP and triple net lease REITs like NHI have contractual based income sources, which can be more stable than income generated from the shipping business. EMR has increased dividends steadily for over 20 years, and is a model of dividend security.

    I believe that will conclude my investment activity for the month, leaving me to read articles, earnings reports, and management discussions from our portfolio companies and funds.

    Tags: CB, TAL, IDV, DD, KED, NHI, WPC, EMR, AMLP
    Jul 01 12:37 PM | Link | Comment!
  • Mortgage Scams

    Here's an interesting anecdote. Over the last two days, I have been getting multiple phone calls from various phone numbers. Since I rarely answer my phone, the caller or callers will often leave voice messages that say things like "This is Adam from Quicken Loans! I have important information about your recent loan application! Call me at XYZ number as soon as possible. This requires your IMMEDIATE ATTENTION." When I check the phone log, the name "Quicken Loans" appears next to the phone number. I've gotten messages from at least three different "lenders" regarding recent loan applications.

    Now the thing is, I haven't applied for ANY new loans. My first thought was that maybe someone had hacked my identity, and was using it to take out fraudulent loans. So, I pulled my credit report to see whether there have been any requests by any lender to review my credit report. None. So much for the identity hack theory.

    My next thought was that this must be some sort of phishing scam. I assume that if I return the calls, the "lender" will need to verify my personal information - social security number, date of birth, whatever. And the "lender" will then promptly sell the information to the Russian mob.

    So, I went onto the White Pages and did a reverse phone number lookup. Interestingly, all of the numbers (some from Michigan, some Baltimore, some Florida) are registered to some sort of web address. The same enigmatic web address for each number. Only one of the phone numbers was actually registered to a person with an actual address, so I went onto Google maps to see where the address is located. And then, I did "street view" so I could see what the address looks like.

    It doesn't look like Quicken Loans' office. No, it doesn't at all. The address this phone number is registered to is a vacant lot in Baltimore!

    As far as the name of the person the number is registered to, who knows. Maybe some poor fool who fell for a similar scam and coughed up all his personal information which the scammer used to take out phone numbers.

    Word to the wise.

    Jun 30 6:17 PM | Link | Comment!
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