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Tentative Dividend Taxable Retirement Portfolio 33 comments
Dividend Investing caught my eye after browsing articles back in November 2011 from notable authors such as Chuck Carnevale, David Crosetti, David Fish, David Van Knapp, and Tim McAleenan to name just a few. After doing extensive reading of articles by those above and reviewing comments from several others within the Dividend community I began evaluating my current performance of my Roth IRA which was managed by a fund manager at the urging of my financial adviser. The performance was lackluster to say the least. It mirrored the returns of the S&P but the fees at around 2% concerned me to the point that I realized not only could I take over my own account and minimize those fees but I could be successful by integrating a Dividend strategy. The difficult decision was not whether or not to begin to invest in solid companies with a long history of dividend increases but rather which specific companies I should build my portfolio around. I began to ask myself several questions.
1. Which stocks should I buy
2. How much of my portfolio should I allocate to each stock
a. Is 5% per stock smart?
b. Do I stay away from certain sectors?
3. Should I DRIP once I invest or build up the small initial dividends to re-invest with added new capital
Before we continue I want to share a little background about myself as well as my investing in order to help evaluate my decisions. I am 28 years old and have been investing in a Roth IRA since I started my first job out of graduate school in 2007. I have contributed the maximum each year from 2007 through the present and plan to continue to do so as long as I can. I work for the State Government of New Jersey. As a result of my current position I contribute towards a pension automatically. This has allowed me to be a little more aggressive with my retirement investing within my Roth. As of January 17th, 2012 I am awaiting a transfer of assets (Roth IRA) from my previous brokerage account into my Sharebuilder account where I will manage my own account going forward. I expect the transfer to be completed sometime in February and expect the balance to be roughly $21,000 in cash.
I have decided to build my portfolio around a number of core dividend stocks that I believe are either fairly valued or undervalued at current prices. Those stocks include PEP, KO, MSFT, INTC, CVX, XOM, WMT, PG, JNJ, AFL, LMT, CAT, TGT, ABT. *I am considering one small position of 5% in APPL just as a speculative buy as the cash rich company may issue a dividend at some point in the near future.
SYMBOL
Percent of Portfolio
AAPL
PEP
KO
MSFT
INTC
CVX
XOM
WMT
PG
JNJ
AFL
LMT
CAT
TGT
ABT
5
5
5
5
5
5
5
10
10
5
10
10
10
5
5
15 Companies
100
5% = $1,000
10% =$2,000
The total value of the account would be $20,000 with $1,000 in cash. Depending on the amount that the previous account is sold that amount in cash may be greater or smaller. Every month I will contribute $416.00 to the account and repurchase stocks or add to my holdings in increments of either 1K or 2K.
I would sincerely appreciate any feedback on the above tentative portfolio as well as suggestions to add or eliminate particular stocks. Once the final portfolio is completed in February I will share my holdings at that time and the purchase price etc. and follow my portfolio sharing and updating my moves.
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This post has 33 comments:
I commend you for taking your finances into your own hands. 2% is, in my opinion, way too high just for managing an account for you. Glad you had the brilliant insights to get away from that type of situation as early as you did.
I contribute to my 401(k), mainly for the 4% company match, but I am invested nearly exclusively in the S&P500 fund (0.09% fee) and a conservative bond fund (0.60%), as well as a few other small funds to round off my portfolio. 2% can eat away at your long term goals.
I might also add that I worked for the University of Washington for some time and I was also contributing to my pension. I ended up leaving my job and moving which canceled my "vesting" status at the UW. Despite believing I would receive that pension -- and scheduling my investments around it -- I ended up leaving and closing the account while rolling it over to my Fidelity account. Unless you're vested, you may want to keep in mind that your job could take you other places and that account might not fit into your overall retirement plans anymore. Just a thought.
Anyway, keep us posted buddy. Looking forward to hearing how this whole plan pans out.
At your age you should plow EVERTHING into stocks. Dont fear market drops. They will benefit you.
As a rule of thumb, DG will get you about 10-13%/year long term, depending on the mood of the market. It will take time to accumulate wealth. However, this is the easiest, most certain path to financial independence. If you have very or little interest in investing, you should do this exclusively.
But at your age, I would allocate some amount into smaller companies. It is more difficult but with time and experience, you will be able to quickly identify companies that have good potential. Just finding a few of these can get you to your final destination much more quickly.
Have two buckets. Put about 60-70% of NEW money coming into bucket #1. This is the bucket where the companies you own will be around for a long time. (10-15 companies)
In bucket #2 place 30-40% of your new money, depending on your comfort level ( 5-6 + companies).
I won't give any recommendations because I think you have what it takes to find them.
Thanks for the encouragement my friend. I think you and I are going to enjoy some great returns. I look forward to sharing ideas and etc. I just hope Tim M. would take the step with us, at our age we have such an advantage. Pey, what are your core stocks and how much percentage of your portfolio do you allocate to them.?
@Poor
What would you specifically suggest? Investing in 5-6 companies or 10+ allocating a smaller percentage to each? And which companies should make up a foundation/core? I am really struggling with this.
I like the people who surround you in the picture!
I think selecting 10+ companies is a good idea. Some people would say that why invest in your 10th best idea? I am not sure if I have 5 best ideas. I rather have 15 good ideas so I minimize the downside.
I personally would get some foreign companies from England, Germany, Switzerland. Perhaps even Japan, France, Australia, Canada, Brazil, Spain. Look at my articles for some ideas.
P.S.- Those girls are attractive, as is my girlfriend who is not in that picture. Life is good.
I am leaning towards 10 stocks but I also wanted the Dividend to be significant. Perhaps a core of 5 stocks for the first year, and gradually grow outward is the best approach. I appreciate the idea.
I am looking more at PM due to the overseas exposure and lower regulation as a possible "core 5".
Based on current valuation, would PM, PG, INTC, KO, CVX be a better place to start. What would you substitute, change or add? With a "Core 5" I would be able to allocate $4,000 to each position with roughly $1,000 in cash with capital added monthly.
PM, PEP, PG, INTC, (XOM/CVX summer 2012).
Should I save $4,000 to invest in Oil come Summer or utilize it elsewhere?
I want to thank you for your advice. In my instablog I state that all of you have such great knowledge and willingness to spread that to others. It is really refreshing and I hope that I can contribute in near future to repay the favor.
Many of the writers here were in your shoes a year ago and you, too will be able to help others after you get more experience. I got a world of knowledge out of mbkelly75 and still learn from his every post.
No need to pay it back - better to pay it forward. :-)
I like your portfolio with the exception of KO, which I own but believe it to be moderately overvalued at the moment. I would either wait for a better entry point or replace with PEP which I think is fairly valued now. To be clear, I don't see KO as dangerously overvalued, only modestly so. The remainder all look like solid choices today.
Also, acknowledging it to be self serving, I feel that when you start using F.A.S.T. Graphs in February they will help you a lot. Otherwise, I like the smart way you approached this. Having a sound plan, and following the plan is a disciplined way to approach investing.
Congrats,
Chuck
I agree with the idea of adding PM. Another good one would be MCD, but I would wait for a pullback. If you desire more industrial exposure (beyond CAT), you should take a look at UTX.
Disclosure: I am long PM, MCD, and UTX.
I generally agree with the idea of possibly starting with a Core 5 and adding to it. Staring with 10 or more will limit you to some small positions and it would be easy to get impatient with that. Besides, you'll have great fun choosing each addition, and would have time to give them more consideration. Diversification is an important angle, which you seem to already realize.
Best of luck!
With a small portfolio like yours, I would limit the number of positions to about 5. As your portfolio grows, you can add more positions, like one per year with your new money.
I like to buy based on yield/payout ratio and select the highest ones. Based on that ratio, here is the order of value I would put your stocks. CVX, LMT, MSFT, AFL, INTC, XOM, TGT, WMT, KO, CAT, JNJ, PEP, PG, ABT
From that order, then I would look at diversification. I would buy CVX, INTC or MSFT, AFL, TGT or WMT, KO or PEP, LMT or CAT, PG, JNJ or ABT.
Based on diversification, I would pick CVX, INTC, AFL, WMT, PEP, LMT, PG, JNJ as an 8 stock portfolio. This is pretty well diversified. Oil, tech, financial, consumer, consumer, industrial, consumer, drug. Looks a little consumer heavy. Could drop WMT & PEP. Now we're down to six stocks. Oil, tech, financial, industrial, consumer, drug. That would work for me. Nicely diversified.
Now this is just my opinion on the portfolio I would select based on your initial selections. CVX, INTC, AFL, LMT, PG, JNJ.
The next step is to try to buy these stocks at the best price possible. None of these stocks are overvalued at their current prices. This portfolio has an average yield of 3.5% with an average payout ratio of 37.5% so on average you are very near a P/E of 10. The 5 year average dividend growth rate is 12.5%. These stocks look cheap to me at their current prices, but . . . They all are well off their 52 week lows. This is a dilemma. I believe IN THE LONG RUN you could not go wrong buying these stocks at their current level. Buying into a portfolio with a forward PE of 10.61 that grew dividends at 12.5% for the past 10 years is not overpaying. But, each of these stocks may be 20% above their lows. What to do?
If it were me, I would jump in and not look back. The portfolio is cheap based on its long history. Many of these stocks are up significantly from their 52 week lows, but again they are still cheap. I do not believe anyone can predict where the market will go. I just buy the best values when cash is available and stay 100% invested. This portfolio appears to have a higher likelihood of going up than down in my opinion.
Again, this is just my opinion. And others will give you theirs and may even pick on my thinking. I tried to think out loud and share my thinking as I stepped through this process. It is your decision as to what to do. Norman's comments above would suggest to wait for a pullback before buying. I can't say this is a bad idea, but we will only know in hindsight if you should buy now or wait for better prices.
I wish you the best of luck with your decision.
Or am I thinking too hard on this one? haha
I would suggest taking the rest of the day off and sleeping on it. If you're purchasing these companies for the long haul, one more day isn't going to make a huge difference, right?
Honestly though, they're both great companies and I can't see you going wrong with either.
No rash decisions here, just doing my DD and getting some ideas.
Pey is probably correct. However, two points, GE has a much higher debt level, and GE did cut their dividend in 2009 and 2010 because earnings fell. Of course that was primarily due to their finance business. Valuation is very important, but only one of many important factors to consider.
Chuck
I would do that swap but not just for valuation reasons. I stopped trusting Jeff Immelt when (a) he cut the dividend weeks after he said he wouldn't, and (b) he started cozying up with politicians in DC rather than running the business.
So here is where I am at the current moment.
LMT, AFL, CVX, INTC, PM
Deciding between JNJ and PG. Based on current prices, JNJ wins due to DivYld (3.5 vs PG's 3.2) and 5 yr est total return of (11.5% vs. PG's 10.6%)
So it looks like
LMT, AFL, CVX, INTC, PM, JNJ
My next decision is to decided whether to put 15% towards each and 10% cash for a future purchases or purchase all 6 with full 100% of portfolio.
I am even thinking about writing an article discussing Dividends and the effect a shrinking population may have. Have to do some research first though.
Keep plugging away!
Dave
http://seekingalpha.co...
Also, please don't forget to add me to follow me. I plan on publishing a few articles here and there.
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$PM or $LGF or $AFL Where would you start a position first.
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Would you start a position in $LGF at these prices? I think it still has about 30% upside in it this year (a buyout will be even higher).
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