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rlp2451
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Retired Investor.
  • How to (Safely) Obtain a 6% Return with a Diversified Portfolio 6 comments
    Apr 19, 2011 11:15 AM | about stocks: VVC, PPL, DUK, VZ, T, BMY, LLY, BIP, PFF, AT
    I recently received a fairly substantial - for me at least - amount of money that I did not need immediately, and instead wanted to get an income stream on a monthly basis.  The keys to any investment portfolio is diversification, and I believe you can diversify even if you are heavily weighted in one segment of the economy - in this case, utilities.  But more about that later.

    I used a screening program to filter out companies that yielded 4% or more, while leaning towards the higher end of the spectrum.

    Using a hypothetical $100,000 here are the equities I arrived at, investing approximately $10,000 in each:
    NameStockMonthy Div.Purchase PriceYield$/sh/yr# sharesTotal
    Vectren CorpVVC0.3426.895.041.3640010756
    Bristol MyersBMY0.3127.564.81.323008268
    VerizonVZ0.48537.225.21.9430011166
    Duke EnergyDUK0.2437518.175.320.975009085
    AT&TT0.24530.315.61.703009093
    PA Power & LightPPL0.3526.755.21.3940010700
    Gabelli Utilities AAAGABUX0.076.4812.380.8015009720
    Brookfield InvestmentBIP0.4223.035.471.264009212
    Atlantic PowerAT0.0914.657.411.0770010087
    iShares PreferredPFF0.2239.327.382.6430011796

    VZ, T, and PP&L all pay dividends in January, April, July and October.
    DUK and BIP pay in February, May, August and November
    VVC, BMY pay in March, June, September and December
    GABUX, AT and PFF pay monthly.

    Using this method, you get monthly payouts of $596 in January, April, July and October; $527 in February, May, July and October; and $472 in March, June, September and December, for an annualized yield of over 6%.

    Even though it is heavily weighted towards utilities, the companies listed are in different types of utilities and in different geographical areas: Electric (PPL, DUK); gas (VVC); alternative energy (AT); and a mutual fund (GABUX).  The telecoms are similar but different (VZ, T); and threw in a drug company (BMY) for it's high yield.  I could have easily gone with Eli Lilly (LLY).

    The other two - BIP and PFF - are unique in their own right, and I suggest you do your DD before you invest.  But both have long histories of dividends, although PPF recently decreased theirs while BIP boosted.

    Overall, the downside risk is minimal, I believe, even if interest rates climb.  These companies' dividends are safe and even though capital appreciation may not be all that great, I think there is some potential for 4-5% in the portfolio as well.


    Themes: Return, Dividends, Income Stocks: VVC, PPL, DUK, VZ, T, BMY, LLY, BIP, PFF, AT
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  •  
    RLP, thanks for sharing the hypothetical $100K portfolio. Now that almost 2 years have passed, have you made any changes or do you have any additional thoughts with the benefit of 2 years of hindsight? Thanks!
    18 Feb, 09:34 PM Reply Like
  •  
    RLP, I too would be interested in how you are viewing your portfolio after two years and what changes you may have made or if you are looking in a different direction. Thanks for the update. sky
    18 Feb, 10:59 PM Reply Like
  •  
    Wow, I hadn't even thought about this blog for a while, but I am happy to give an update.

    Since the time I posted two years ago, I added a little more to it ($14,000) but am also pleased to say that the account has grown to $143,500. I have taken nothing out of it.

    Here are my current holdings:

    ARR 1,500 6.60 9,900.00
    AT 400 11.51 4,604.00
    BIP 400 39.30 15,720.00
    CVRR 300 30.67 9,201.00
    EVEP 200 54.17 10,834.00
    GABUX 1,9901 5.66 11,268.40 (Reinvested dividends)
    LINE 200 35.93 7,186.00
    MWE 125 57.23 7,153.75
    PCEF 500 26.05 13,025.00
    PPL 400 30.41 12,164.00
    RNF 200 42.55 8,510.00
    T 300 35.36 10,608.00
    TICC 150 10.55 1,582.50
    VVC 400 32.12 12,848.00
    VZ 200 44.40 8,880.00

    The portfolio actually generates closer to 8% annually. I'll post the monthly figures later. You can see I have bought more MLPs with the proceeds of the dividends. I swapped PFF with PCEF. I bought ARR instead of BMY in the original portfolio as I had some BMY in another account, and did not want to overweight in the particular company, and I did not have much ownership in the REIT arena. I also bought EVEP instead of DUK for a similar reason.

    BIP has been the best performer; I think AT has been the worst, but I'd have to check further to see if that's the case. If they reduce their dividend, I'll sell it.

    Thanks again for asking!
    19 Feb, 08:17 AM Reply Like
  •  
    Thanks RIP. CVRR wasn't around when you put the portfolio together was it? Be interested to see how what you tell us when you write another article and bring us up to date. sky
    19 Feb, 10:29 AM Reply Like
  •  
    No, and neither was RNF...another one that provided great return - at least so far.
    19 Feb, 10:39 AM Reply Like
  •  
    Good work! Thanks for the update.
    19 Feb, 10:40 AM Reply Like
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