A Retirement Income Portfolio

by: Dividend Sleuth

Like many Seeking Alpha readers, I am building a retirement portfolio of dividend-paying stocks. I share this article with the SA community to generate conversation about what has (or hasn't) worked for you.

My approach to stock study is a version of the NAIC philosophy, which values growth stocks. My work as a volunteer with NAIC, teaching their Stock Selection Guide and helping form investment clubs, has helped me see that everyone has different strengths and weaknesses in investment philosophy and practice. My strength is identifying undervalued stocks. They don't all work out, of course, but over time I've developed a knack for spotting winners. The hard part (for me and for many others with whom I've talked) is knowing when to sell. I am drawn more to value than growth. I have always favored dividend-paying stocks, particularly real estate investment trusts, and as I drew nearer to retirement, I became more focused on dividend income. To remind myself of these principles, I've taken the name GROVALINC (Growth, Value, Income).

I have developed a dividend portfolio that currently yields 6.5%. During the past three years I have had as many as 25 stocks in the portfolio, but I've learned that 15 is about all I can keep up with. At present, there are not as many blue chips as I would like. I rotated out of some consumer stocks and some industrial stocks as they appreciated. The portfolio is heavier with energy and materials than I prefer, but these stocks have been depressed and appear to have greater relative value. I will re-enter more of the blue chip names when they are more attractive. In spite of my fondness for REITs, the present portfolio is more heavily weighted with REITs than I would like.

Currently, the portfolio consists of 14 dividend-paying stocks and one closed-end fund. Each holding is ranked according to the number of consecutive years of dividend or distribution increases.

  • Genuine Parts Company (NYSE:GPC), has increased dividends annually since 1957, 3.9% of the portfolio.
  • Johnson & Johnson (NYSE:JNJ), 1963, 5.7%.
  • Universal Health Realty Income Trust (NYSE:UHT), 1987, 7.3%
  • National Retail Properties (NYSE:NNN), 1990, 7.0%
  • W.P. Carey, Inc. (NYSE:WPC), 1999, 7.9%
  • Southern Company (NYSE:SO), 2002, 6.9%
  • NuStar Energy LP (NYSE:NS), 2002, 7.7%
  • Natural Resource Partners LP (NYSE:NRP), 2004, 7.2%
  • Starwood Property Trust, Inc. (NYSE:STWD), 2009, 7.4%
  • Eaton Corporation (NYSE:ETN), 2010, 7.6%
  • LinnCo LLC (LNCO), 2010, 7.0%
  • LTC Properties, Inc. (NYSE:LTC), 2012, 7.8%
  • PPL Corporation, (NYSE:PPL), 7.2%
  • Annaly Capital Management, Inc. (NYSE:NLY), 6.9%
  • Nuveen Equity Premium Advantage Fund (JLA), 0.5%
  • Cash 2.4%

NS last increased its distribution on July 29, 2011.

NRP last increased its distribution on October 21, 2011.

STWD last increased its regular dividend on May 10, 2011. It will pay an extraordinary 10 cent dividend in January, 2013.

LNCO is a new issue that holds shares of LINE. LINE has increased its distributions since 2010.

NLY has made several dividend reductions in recent quarters.

JLA has reduced its dividend slightly since the Great Recession.

Here are my sector goals for the portfolio, with the current (actual) percentages:

  • REITs 20% (29.3%)
  • Healthcare 10% (20.8%)
  • Industrials 10% (7.6%)
  • Energy 10% (14.7%)
  • Consumer Stocks 10% (3.9%)
  • Utilities 15% (14.1%)
  • Materials 5% (7.2%)
  • Cash 10% (2.4%)
  • Closed-end Funds 10% (0.5%)

I mentioned my pro-REIT bias. I fudged the sector percentages by including two health-care REITs (UHT and LTC) in the healthcare sector rather than the financial or REIT sector. The one bank stock I have held successfully in the past is Bank of Nova Scotia (NYSE:BNS), but in general I have not been successful with bank stocks. So, I have exposure to the financial sector through REITs.

Tech stocks are outside my investment comfort zone because it is unfamiliar territory and because the industry changes so rapidly.

Of these fifteen current holdings, NLY is the one I have the least conviction about. For now it is a hold.

I'm interested in hearing how you have structured your portfolio goals related to sectors as well as your ideas for favorite holdings.

Disclosure: I am long GPC, JNJ, UHT, NNN, WPC, SO, STWD, ETN, LNCO, LTC, NRP, PPL, NS, NLY, JLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.