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financeminister
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I entered the stock market when I was 24 through mutual funds. I started investing in stocks myself after learning and getting a feel of good & bad investments. My goal is to build an income generating portfolio through a dividend growth investment strategy over the long term. As finance... More
My company:
The Dividend Income Project
My blog:
The Dividend Income Project
  • DGI Journey: New Positions, Additions, Dividend Reinvestments And Planned Profit Taking For Building Cash 3 comments
    Aug 30, 2013 1:03 AM | about stocks: COST, CVS, CVX, TGT, WMT, TGH, DLR

    Is it time to buy yet?

    I don't know...but we've had a small pullback since last week and since the high 1700s.... yes, "small" because a normal correction would be atleast 10% but what we've had so far is what? 5%? So that's more like a "pause".

    Anyway, short post for now because I didn't update my blog for quite sometime. I've been keeping cash handy to buy on attractive dips. Even though I wanted to wait till september's taper tantrum, I felt that with the chorus of negative news, taper talk may die down and the feds may tone down their taper talk.

    So a few stocks on my watchlist started to look very attractive and I added to some positions and also started some new positions.

    New positions added: (CVS), (COST)

    CVS Caremark Corporation (CVS): I started a small position (30% of my intended final position) in CVS and will gradually fill in during sizable dips. This is a fairly new dividend growth story operating in the retail pharmacy segment. Dividends have been increased consistantly for the last 10 years. Like Walgreens, I like CVS as a growth story. It offers a 1.69% dividend yield. Though a low dividend for any dividend growth investor, I bought it early because low payout ratios and growing Earnings Per Share (EPS) make me think that this is a potential dividend growth story.

    Costco Wholesale Corporation (COST): Costco operates membership based warehouses offering members lower prices by selling select merchandise products in bulk. Costco has been a leading player in this market and has seen stellar growth over the last year. I did break my rule of going for moderate Price to Earnings ratio (PE) and payout ratio. Costco has a trailing PE of 24 and a payout ratio of 176%. However, I felt compelled because owing to increasing memberships and rapid growth plans, Costco has a guaranteed source of cash flow to sustain dividends and historically, Costco's PE has been hovering around the same mark. I bought a small speculative position in Costco (around 40% of my intended 5 year target) after Costco came down around 8% from its recent highs. Costco has a low dividend yield of 1.1% but it has been constantly increasing dividends for the last few years and I see Costco has a potential dividend growth company.

    Growth + Dividend Growth = Well balanced DGI

    So looking at my overall dividend growth portfolio, I have three blue chips that pay very low dividends in terms of yield on cost (YoC): Disney (DIS) paying 1.50%, CVS Caremark Corporation (CVS) with a YoC of 1.69% and Costco Whole Sale (COST) with a YoC of 1.1%. My expectation is that these companies will not only sustain their dividends but also grow them.

    Additions to existing positions

    You need to be able to add to existing positions when you get opportunities and see attractive dips. I did just that with three of my existing holdings. Walmart (WMT), Target (TGT) and Chevron (CVX) took nice dips so I added small amounts equally to these three positions.

    Walmart (WMT) came to the low 72s from the high 79s,

    Target (TGT) came to the high 62s from the high 73s

    Chevron (CVX) came to the low 117s from the high 127s.

    These are good dips to add on for anyone going long in this dividend champs.

    Dividends Reinvested

    I built sizable cash positions from dividends in August so I deployed them to buy shares of Textainer Group Holdings (TGH).

    Plans for September:

    • Profit Taking And Rebalancing: I'm looking to book some profits on my Apple (AAPL) holdings - maybe to half before September 10th or right after September 10 depending on how sentiment goes. Apple on September 10th will be a classic case of buy the rumor and sell the news. Thanks to the Icahn lift and rumors building up towards the September 10th launch, I'm planning to sell and raise cash to buy on significant dips. I may change my plan and just continue holding if sentiment continues to stay and Apple's current move upwards turns into momentum that can be sustained. With the whole Apple saga and my general negative temperament towards technology, I'm actually looking to exit Apple completely within the next two years and will look to using capital gains from Apple and dividends as a mechanism to build cash positions and redeploy.
    • Dividend Reinvesting: I will be building a sizable cash position through dividends in the month of september a couple of pay dates fall in. I'm thinking of adding to my existing Digital Reality position (DLR)

    So my current portfolio includes:

    1. Apple (AAPL) - 2.5%
    2. Conoco Phillips (COP) - 4.8%
    3. WalMart (WMT) - 2.5%
    4. Abbvie (ABBV) - 4.5%
    5. Phillips 66 (PSX) - 2.25%
    6. McDonalds (MCD) - 3.8%
    7. Disney (DIS) - 1.75%
    8. Dynex Capital (DX) - 12%
    9. Target (TGT) - 2.6%
    10. Digital Reality (DLR) - 5.6%
    11. Chevron (CVX) - 3.3%
    12. Time Warner (TWX) - 2%
    13. Medtronic (MDT) - 2.25%
    14. Scana Group (SCG) - 4.5%
    15. Walgreen (WAG) - 2.5%
    16. Coca Cola (KO) - 2.8%
    17. Wisconsin Energy (WEC) - 3.6%
    18. Textainer Group Holdings (TGH) - 5.4%
    19. CVS Caremark Corporation (CVS) - 1.65%
    20. Costco (COST): 1.1%

    Until next time, happy investing!

    Disclosure: I am long AAPL, COP, WMT, TGT, CVX, PSX, TGH, MDT, TWX, ABBV, MCD, DIS, KO, WAG, DLR, DX, SCG, WEC.

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Comments (3)
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  • tmoney094
    , contributor
    Comments (154) | Send Message
     
    FM, do you hold Digital Reality in an IRA? I'm thinking about adding O to my Roth but I've read several articles where people state that in a non taxable account some things are still taxable....do you know anything about this?
    30 Aug 2013, 06:15 PM Reply Like
  • financeminister
    , contributor
    Comments (575) | Send Message
     
    Author’s reply » Hey Tyler, I don't hold Digital Reality (DLR) in my IRA... it's in my taxable account. To the best of my knowledge, as a REIT, DLR isn't taxed in an IRA. I had checked this up sometime ago while buying DLR while debating which account to hold the stock in. So you could recheck it again... I haven't read anyone suggesting they have different taxation rules within an IRA. MLP (Master Limited Partnerships) are taxable within an IRA when sold as they have different rules.

     

    I checked the internet looking for an IRS statement on this but my quick search got this one from WSJ:

     

    http://bit.ly/17sqZq1.

     

    "There are good reasons to place a traded REIT in an IRA. Matthew Senicola of JHS Capital Advisors, who is based in Plainview, N.Y., recommends placing traded REITs in an IRA because taxes on the dividends can be fully deferred. In a taxable account, by contrast, a large portion of the sizable dividends of REITs is treated as ordinary income, which generally subjects it to higher tax levels".

     

    I could suggest that you check with Brad Thomas who is one of the REIT experts here on SA (http://bit.ly/17sqZq2) along with verifying it from any other authoritative source.

     

    The reason I kept DLR in my taxable account was due to the annual limit within an IRA. I didn't want to be in a position where I lost principle significantly due to some fundamental business issue and if I had to exit the company, I would be left with much lower capital to buy some other company's stock. So as a strategy, I buy only blue chip stable large cap companies for my IRA. I guess if I have lots of capital flowing into my account through dividends, then I could consider buying riskier company stocks.
    30 Aug 2013, 06:53 PM Reply Like
  • tmoney094
    , contributor
    Comments (154) | Send Message
     
    Thanks for the link & research. I am definitely familiar with Brad so I'll have to ask him. It's a strange time for REIT's but I think the "Monthly Dividend Company" (O) is getting cheap and brought down with the rest of them. I have to be honest I am not completely familiar with some of the lingo that gets thrown around with REIT's but they seem like a good investment for a person with a long horizon. I understand the business just not some of the financial phrases.

     

    Hope all is well.
    30 Aug 2013, 07:56 PM Reply Like
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