I am a retired investor with market experience going back to the 1960s. I was a software engineer for 42 years, and currently do some very part-time consulting, which lets me contribute to a Roth IRA. I am not an accountant and not a financial professional.
My first investing goal is to generate an income stream that reliably and predictably grows at a rate that exceeds after taxes the real rate of inflation that my wife and I experience, thereby eliminating any future need to sell capital to generate synthetic income. The greatest risk to future solvency is to run out of capital when income is still needed.
My second investing goal is to generate high current income. I am retired and need the cash! ...More
To achieve both goals, I utilize a concept published by Lowell Miller in 'The Single Best Investment':
High Quality + High Current Yield + High Growth Of Yield = High Total Return
I concentrate on the left side of the equation to achieve the desired income stream. The right side takes care of itself as a natural consequence but is NOT my goal.
How I got to this point:
During much of my working years I used technical analysis (TA) to invest in individual stocks (I was an early fan of Joseph Granville and I bought an Apple II in 1980 because Granville brought out OBV software for the Apple at that time), and later stock mutual funds and ETFs for total return, with inconsistent results. Being a software engineer in a lead position left little time or energy for serious investing skills development. In 2005 I had pretty much given up on getting market beating results, and felt that I was getting too old and too close to retirement to continue swinging for the fences, so I decided to buy a variable annuity that guaranteed a minimum return of 6% per year, compounded, with the upside limited only by the performance of the mutual funds offered for investment. I decided to let the insurance company bear the market risk for me. I also had a 401k plan at work to which I contributed the maximum and got the company match. A year or so before 2008 I used a retirement investing projection tool provided by Fidelity, which said the worst returns I could expect in retirement were positive, but not a lot, and the best were wonderful to see. At that time I was invested in mutual funds and ETFs through my 401k and the variable annuity and had not directly owned stocks since shortly before the start of the great bull market in 1982 (Granville famously missed the whole thing). I thought, with a bit of scepticism but not much, that I was set. We all know what happened in 2008-09. That experience put me off Monte Carlo simulations for life.
When I retired I converted my 401k to a rollover IRA brokerage account and invested in ETFs. I thought I was being appropriately conservative but ahead of the curve by investing in VIG and VCSH.
Then I found Seeking Alpha, and then David Van Knapp, and the light went on. I had spent most of my adult life thinking I was smarter than most people by relying on TA, and then later letting the insurance company assume market risk. I remember learning about the 200 DMA when I was in my 20s, which is a long time ago, and thinking how revolutionary this idea was and how I should be able to use it to my advantage. Fortunately for me and my family, I also was pretty good at software development, so I had a reasonable retirement nest egg accumulated when the time came. With the concepts and methodology of dividend growth investing, I now have sleep well at night investments that just keep on churning out increasing income, something that could never be said about using TA.
I started with DGI too late in life to commit to medium- to low-yield, high dividend growth stocks, so I concentrate mostly on high yield, low dividend growth stocks. My minimum target yield is usually 5%, although I have a smattering of lower yield, higher dividend growth stocks. I don't think it is smart to put all my dividend growth eggs in one basket, either the dividend growth rate basket or the market sector basket. The future is unknowable, so I think it best to hedge my bets by diversifying.
Tools I use include the CCC list, F.A.S.T. Graphs, Morningstar Premium, BigCharts, longrundata.com, buyupside.com. I get ideas from the many informative articles by (among others) the following: Chuck Carnevale, Brad Thomas, Ron Hiram, David Van Knapp, David Fish, Robert Allan Schwartz, Dividend Growth Investor, Dividends4Life, Five Plus Investor, David Crosetti,Todd Johnson, Tim McAleenan, Reel Ken, Bret Jensen, Paulo Santos, Alan Brochstein, chowder. Favorite commentators who are not (yet) authors include Elliot Miller, richjoy403, Paul Leibowitz.
Useful shortcuts to dividend stock valuation are the Tweed Factor and the chowder rule. Like F.A.S.T. Graphs, 'a tool to think with', these are 'rules to think with'.
chowder rule: current yield + 5 year DGR >= 12%; 8% for utilities, MLPs, REITs
The best investment advice outside of Seeking Alpha has been 'The Intelligent Investor' and 'The Single Best Investment'.
My moniker was formerly jdh44. 'Be Here Now' is what I intended but a foul-up prevented its use. You might be interested in the meaning of my new moniker; google it and see what you think.
My DGI portfolio was started on 2011/4/20 with CTL, which I have since sold. I was a real DGI neophyte when I bought it. I was once a CTL customer, and I do not think their business model can work to my advantage long term.
Target portfolio yield on cost: 10% within 7 years of inception. (This target is an artifact of my early understanding of the usefulness of YOC. Thanks to the comments of many SA contributors, I no longer think this is useful, and is certainly not actionable. I am retaining it here to see if the future reveals anything useful.)
Target portfolio current yield: 10% within 10 years of inception. (This target suffers from the shortcoming that when a company regularly pays increasing dividends, its stock price also rises, thereby keeping currently yield fairly constant. Thus it is not reasonable to expect an ever-increasing portfolio yield. Retained for future reference.)
Target dividend growth rate: 7%. I need to keep ahead of inflation, and this seems like a reasonable number to choose. This target will be difficult to measure as time goes by because of required minimum distributions from my IRA which will reduce invested capital. Measurement will commence on Jan 1 2014, at which time I will cease reporting YOC, and will report current yield annually instead of monthly.
Portfolio yield on cost as of:
2012/08/28: 8.1%
2012/11/01: 8.4%
2012/11/30: 7.9%
2012/12/31: 8.1%
2013/01/31: 8.3%
2013/03/01: 8.3%
2013/03/28: 8.2%
2013/04/30: 8.2%
Portfolio current yield as of:
2012/08/31: 6.3%
2012/09/28: 6.9%
2012/11/01: 7.3%
2012/11/30: 7%
2012/12/31: 7.4%
2013/01/31: 7%
2013/03/01: 7%
2013/03/28: 6.7%
2013/04/30: 6.7%
Current portfolio with target allocation percentage in parentheses:
Yes, those percentages total > 100%. I have a significant amount of cash and am waiting for the market to mis-price to my advantage. I do not know what will be mis-priced or by how much or when, so I don't know in advance what I will buy among all choices I have identified. I invest opportunistically.
Prospective additions:
MLP: MMP (I have decided to buy only those with little or no IDR)
My first investing goal is to generate an income stream that reliably and predictably grows at a rate that exceeds after taxes the real rate of inflation that my wife and I experience, thereby eliminating any future need to sell capital to generate synthetic income. The greatest risk to future solvency is to run out of capital when income is still needed.
My second investing goal is to generate high current income. I am retired and need the cash! ...More