Seeking Alpha

Stephen J Melny...'s  Instablog

Stephen J Melnykevich
Send Message
I am a 30 year old with a full time job working for state government. I am interested in retirement and dividend investing. I became interested in investing and personal finance following graduation from Graduate School where I earned an M.A. in Psychological Counseling. I learned about the... More
  • Tentative Dividend Taxable Retirement Portfolio 39 comments
    Jan 17, 2012 1:10 AM | about stocks: KO, MSFT, INTC, CVX, XOM, WMT, PG, JNJ, AFL, LMT, CAT, TGT, ABT

    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.

Back To Stephen J Melnykevich's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (39)
Track new comments
  • Pey Shadzi
    , contributor
    Comments (550) | Send Message
     
    Sounds like a solid plan to me.

     

    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.
    17 Jan 2012, 10:21 AM Reply Like
  • poortorich
    , contributor
    Comments (2322) | Send Message
     
    Snow

     

    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.
    17 Jan 2012, 12:11 PM Reply Like
  • Stephen J Melnykevich
    , contributor
    Comments (1312) | Send Message
     
    Author’s reply » I do plan on investing 100% into stocks. Right now I am leaning towards choosing 10-15 stocks and then re-evaluating further investments either back into the 2 that are undervalued or completely separate stock.
    17 Jan 2012, 02:00 PM Reply Like
  • poortorich
    , contributor
    Comments (2322) | Send Message
     
    Snow
    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.
    17 Jan 2012, 02:39 PM Reply Like
  • Stephen J Melnykevich
    , contributor
    Comments (1312) | Send Message
     
    Author’s reply » @ Pey

     

    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.
    17 Jan 2012, 12:30 PM Reply Like
  • Guraaf
    , contributor
    Comments (1571) | Send Message
     
    Hi snow wave,
    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.
    17 Jan 2012, 01:54 PM Reply Like
  • Stephen J Melnykevich
    , contributor
    Comments (1312) | Send Message
     
    Author’s reply » Thanks for your suggestion. I actually just got done reading your 9 stocks from Germany article and noticed you had commented on my instablog. Funny Coincidence. My hesitancy with investing in foreign companies lies with both my lack of knowledge in tax issues as well as fundamentals of a company based outside the US. I will however evaluate further.

     

    P.S.- Those girls are attractive, as is my girlfriend who is not in that picture. Life is good.
    17 Jan 2012, 01:58 PM Reply Like
  • Norman Tweed
    , contributor
    Comments (7480) | Send Message
     
    snowwave83--You are to be congratulated for taking your retirement account into your own hands. I have written several articles on mid-cap stocks for young dividend growth investors, you might want to look at them. In addition, you might want to look at high yield stocks dripped through a brokerage account (no fees). I have started my grandchildren's college fund accounts with T, AGNC, PM, UL and BBL. By buying a significant position, each time you invest and dripping that you can build up a 10 stock portfolio in a year or two. We are coming to the end of the business cycle and there will be a correction around the end of this year. Also, there is usually a summer correction, like 2011. You have time to build the portfolio slowly. The stocks you have picked are good. PG was my first dividend growth stock and although I only could buy 20 shares in 1980, the drip and strategic purchase in 2001 has made it into a 3 position stock for me. I like your 5-10% positions. When the portfolio gets larger, you may want to increase to 30 stocks and have positions of 2-5%. I am especially impressed with INTC and bought 2 positions last summer at 4% yield point. JNJ and ABT are both good stocks, I will be buying ABT at 4% yield for my grandchildren's portfolio, probably this summer.
    17 Jan 2012, 02:19 PM Reply Like
  • Stephen J Melnykevich
    , contributor
    Comments (1312) | Send Message
     
    Author’s reply » I appreciate the comment.

     

    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.
    17 Jan 2012, 02:41 PM Reply Like
  • Norman Tweed
    , contributor
    Comments (7480) | Send Message
     
    snowwave83--I am buying PM today at the 4% yield point for my granddaughter's college fund. The 5 you have selected are good. CVX projects lower earnings for next year (probably to go along with the end of the business cycle). It's a pity MCD won't come down to a 4% yield point--I would replace KO with that, I think KO is over priced too. I would buy in this order: tobacco, beverage, home care (PG), medicine. Oils are cyclical and should be bought at a high yield point. NUE is another one that is cyclical--I bought it last summer at 4% yield.
    17 Jan 2012, 02:49 PM Reply Like
  • Stephen J Melnykevich
    , contributor
    Comments (1312) | Send Message
     
    Author’s reply » Norman-- You read my mind regarding PEP over KO, I just really feel KO is such a great company but like you and Chuck state; it is currently fair to moderately valued and there are better options. I will wait until KO hits a better yield point before picking it up. MCD is another great company but is certainly overvalued at this point. So you feel that entering Oil in summer may produce a better yield?

     

    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.
    17 Jan 2012, 03:05 PM Reply Like
  • Norman Tweed
    , contributor
    Comments (7480) | Send Message
     
    snowwave83--I am holding funds in both of my grandchildren's accounts for bargains, hopefully after the first quarter. I have held off on oil for over 3 years and missed 5% yield on COP. However, there was always a better bargain around to eat up the funds.

     

    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.
    17 Jan 2012, 03:14 PM Reply Like
  • Robert Allan Schwartz
    , contributor
    Comments (16284) | Send Message
     
    "I hope that I can contribute in near future to repay the favor."

     

    No need to pay it back - better to pay it forward. :-)
    17 Jan 2012, 06:04 PM Reply Like
  • Chuck Carnevale
    , contributor
    Comments (7260) | Send Message
     
    snowwave83 ,

     

    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
    17 Jan 2012, 02:55 PM Reply Like
  • Stephen J Melnykevich
    , contributor
    Comments (1312) | Send Message
     
    Author’s reply » As soon as my fund transfer is completed I will be purchasing a basic membership to evaluate my plan before making the purchases. I would love to be able to have a premium membership to track my current portfolio at that time but I feel I should wait until that $480 p/year is not so much a large percentage of my current portfolio.
    17 Jan 2012, 03:08 PM Reply Like
  • Dividend Growth Machine
    , contributor
    Comments (1595) | Send Message
     
    That looks like a pretty good list to me. WMT and TGT overlap quite a bit, so you might want to go with just one of them (or bump WMT down to a 5% weight).

     

    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.
    17 Jan 2012, 03:13 PM Reply Like
  • David Fish
    , contributor
    Comments (8620) | Send Message
     
    I think the most important take-away from this blog is that you took control of your own investing future. I strongly feel that handing everything over to a manager is the worst thing that you can do, ,but you've realized that at a relatively early age, so you're already way ahead of most people.
    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!
    17 Jan 2012, 03:16 PM Reply Like
  • Dividend Dynasty
    , contributor
    Comments (1181) | Send Message
     
    Snow, You are on the right track. You've selected a great list of companies. Following is my thinking as I put together the portfolio that I would pick from your selections. I wrote down my thoughts as they occurred. Its a little long, but this is what came into my mind as I moved along.

     

    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.
    17 Jan 2012, 03:33 PM Reply Like
  • Stephen J Melnykevich
    , contributor
    Comments (1312) | Send Message
     
    Author’s reply » What an excellent comment. Your logic and rationale behind each stock and sector is truly amazing. I agree with you 90%, however with WMT the valuation appears to be quite undervalued. Wouldn't the risk in less diversification be offset by the valuation of Walmart?
    17 Jan 2012, 03:58 PM Reply Like
  • Dividend Dynasty
    , contributor
    Comments (1181) | Send Message
     
    90% agreement! Wow, that's pretty good. I like WMT and own it myself. I actually own all of your selections except XOM, AAPL, LMT, CAT, TGT. I like diversification and would say if you feel strongly about WMT, then add it to your portfolio. I agree that it would not hurt the diversification.
    17 Jan 2012, 04:37 PM Reply Like
  • Stephen J Melnykevich
    , contributor
    Comments (1312) | Send Message
     
    Author’s reply » I've been doing some thinking and perhaps I should swap GE for WMT based on valuation. That would also bring up my average yield had I included WMT at 2.5%.

     

    Or am I thinking too hard on this one? haha
    17 Jan 2012, 10:58 PM Reply Like
  • Pey Shadzi
    , contributor
    Comments (550) | Send Message
     
    One thing I've learned is to never make rash decisions. One minute I want one stock, next minute I may often change my mind.

     

    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.
    17 Jan 2012, 11:00 PM Reply Like
  • Stephen J Melnykevich
    , contributor
    Comments (1312) | Send Message
     
    Author’s reply » Thanks for the input, I am actually not going to make my purchases until February the earliest. So for now its just coming up with my game plan.

     

    No rash decisions here, just doing my DD and getting some ideas.
    17 Jan 2012, 11:23 PM Reply Like
  • Pey Shadzi
    , contributor
    Comments (550) | Send Message
     
    Nice, that's the best way!
    17 Jan 2012, 11:33 PM Reply Like
  • Chuck Carnevale
    , contributor
    Comments (7260) | Send Message
     
    snowwave83 ,

     

    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
    18 Jan 2012, 07:13 AM Reply Like
  • Robert Allan Schwartz
    , contributor
    Comments (16284) | Send Message
     
    "I've been doing some thinking and perhaps I should swap GE for WMT based on valuation."

     

    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.
    18 Jan 2012, 10:59 AM Reply Like
  • Stephen J Melnykevich
    , contributor
    Comments (1312) | Send Message
     
    Author’s reply » I just did a little further looksie into Mr. Immelt and you are right. More time should be spent worrying about reducing debt and focusing on earnings.

     

    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.
    18 Jan 2012, 12:45 PM Reply Like
  • Berninvestor
    , contributor
    Comments (840) | Send Message
     
    Congratulations snowwave83 on your fine portfolio choices as well as your attitude. I own all except for AAPL, CVX, XOM, and LMT. I agree with the other comments that you'll do so much better on your own. I wish you a very successful investing future!
    17 Jan 2012, 03:42 PM Reply Like
  • Stephen J Melnykevich
    , contributor
    Comments (1312) | Send Message
     
    Author’s reply » Thank you, I'll be keeping you all up to date. (not sure if its best via instablog or article)

     

    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.
    17 Jan 2012, 04:00 PM Reply Like
  • David Crosetti
    , contributor
    Comments (11905) | Send Message
     
    Snow: I will be looking forward to your article! Don't get discouraged if you have to rewrite. The SA editors are pretty difficult sometimes.

     

    Keep plugging away!

     

    Dave
    19 Jan 2012, 08:28 PM Reply Like
  • Stephen J Melnykevich
    , contributor
    Comments (1312) | Send Message
     
    Author’s reply » How long does it usually take to approve? I submitted around 5pm est.
    19 Jan 2012, 09:37 PM Reply Like
  • Robert Allan Schwartz
    , contributor
    Comments (16284) | Send Message
     
    Sometimes several days. :-(
    20 Jan 2012, 10:33 AM Reply Like
  • Stephen J Melnykevich
    , contributor
    Comments (1312) | Send Message
     
    Author’s reply » Great News !! My first article is up. Please visit below to give it a read and thank you all for your input.

     

    http://seekingalpha.co...

     

    Also, please don't forget to add me to follow me. I plan on publishing a few articles here and there.
    20 Jan 2012, 08:55 AM Reply Like
  • AdamDivy
    , contributor
    Comments (416) | Send Message
     
    Any updates? I like where this was heading.
    8 Jun 2013, 12:09 AM Reply Like
  • Stephen J Melnykevich
    , contributor
    Comments (1312) | Send Message
     
    Author’s reply » My current portfolio is about 32K right now with much of that increase due to contributions. Here is my break down at the close of the market today.

     

    percentage of portfolio

     

    AAPL 51.25 %
    KO 12.98 %
    PM 9.47
    AFL 8.62
    LGF 8.09
    BP 5.24
    CVX 4.31

     

    I am working on 2 goals right now in this order.

     

    1. Bring investments in oil (BP CVX) to 15-20% of portfolio as long as valuations remain steady

     

    2. Add more positions making full positions 3K until I hit about 20 holdings.
    31 Jul 2013, 04:37 PM Reply Like
  • AdamDivy
    , contributor
    Comments (416) | Send Message
     
    Thanks for the reply, Stephen.
    31 Jul 2013, 05:10 PM Reply Like
  • Stephen J Melnykevich
    , contributor
    Comments (1312) | Send Message
     
    Author’s reply » No problem. I highly recommend BP, CVX and AFL based on current valuations with a decade + window.

     

    How does your portfolio look?
    31 Jul 2013, 08:52 PM Reply Like
  • AdamDivy
    , contributor
    Comments (416) | Send Message
     
    I have 30+ years, so far so good. I just started investing my IRA in stocks in April. Slowly investing with an automatic investment plan to cost average. Usually investing $50-75 per buy. I have 30 stocks, CVX and AFL included with only 1 buy each as of now, both up nicely. I went with COP over BP. Both good stocks.

     

    Still a lot to learn and learning more every day.
    31 Jul 2013, 10:35 PM Reply Like
  • Stephen J Melnykevich
    , contributor
    Comments (1312) | Send Message
     
    Author’s reply » Keep it up, it will slowly come together.

     

    I would love to discuss your thoughts further on building a portfolio. Feel free to inbox me.
    31 Jul 2013, 11:48 PM Reply Like
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Most Commented
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.