'Team Alpha' Portfolio: Dividend Investing Sooner Than Later

by: Regarded Solutions

Last weekend I wrote this article on when to buy, and when to sell stocks. The message that I was attempting to convey was one of simplicity. If dividend investors take the approach I outlined in that article, they can have a game plan to at least work with (I am not suggesting that my approach is the best, nor am I suggesting it is the only strategy).

Another question that is asked quite often is; when to actually enter the market? The answer is simple yet elusive for most new investors; the sooner the better.

When I began the Team Alpha portfolio with $100,000, almost 14 months ago, it was built over time, tweaked, and rebalanced on a regular basis. If you had been following from the start, you would have a portfolio balance of about $126,000 and a current dividend yield of 4.63% on $121,000 invested.

Our Team Alpha portfolio now consists of McDonald's (NYSE:MCD), Exxon Mobil (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), AT&T (NYSE:T), General Electric (NYSE:GE), BlackRock Kelso Capital (NASDAQ:BKCC), KKR Financial (KFN), Procter & Gamble (NYSE:PG), CSX Corp. (NYSE:CSX), Realty Income (NYSE:O), Coca-Cola (NYSE:KO), Linn Co, LLC (LNCO), Wal-Mart (NYSE:WMT), Cisco (NASDAQ:CSCO), Bristol-Myers Squibb (NYSE:BMY), Healthcare Select Sector SPDR (NYSEARCA:XLV), General Dynamics (NYSE:GD), and iShares S&P U.S. Preferred Stock Index Fund (NYSEARCA:PFF).

Time And Tide Waits For No Man

Since we cannot turn the clock back by 14 months (or at all), we can only move ahead. When I began the portfolio, the stock market had already recovered from the 2009 lows, and the S&P stood at about 1162. Many folks questioned whether that was the time to enter the markets. In reality, investors who had gotten burned in the financial meltdown and subsequent 50% drop in the markets had left and never returned, even to this day.

When we look back over our shoulder, we can say that the market actually did "crash." Some investors (very few) were lucky to get out at the top, most sold on the way down, and the Dow Jones Industrial Average stood at 6594 on March 5th, 2009. Millions of people saw their 401k's, IRA's and retirement portfolios sliced in half. It was devastating.

If I had approached an investor back on March 4th, 2009 with a dividend investing strategy, I might have been met with more than disdain. Who can blame anyone? It was a precarious time that few of us had ever witnessed.

From March 5th, 2009 to now, the market has come basically all the way back. Obviously we do not have a crystal ball and hindsight is always 20/20, but the issue remains the same. Is now the time to invest in the stock market?

The answer is that nobody knows. Everyone can take an educated (or uneducated) guess, and debate all of the technical aspects of the market and the fundamentals of every stock on Earth, but all I know is what I have now. If an investor were to stay invested, or begin investing in March of 2009, the value of their investments would be much greater than those investors who decided to sell and flee.

That awful period of time is almost irrelevant to anyone who stayed invested throughout that period. Those who stayed invested were probably dividend income investors. To ask the question today, whether now is the time to invest in the market, using a dividend income strategy, I would answer yes. The sooner the better.

Here Is Where We Are, And Where You Can Be

This chart shows where the Team Alpha portfolio stands now. The income derived from it based on the yield on our cost, and what those numbers would look like if you were to invest today:

Team Alpha Income From Port.
Tot. Value Orig.Value Orig.Value
$126,000 $100,000 $100,000
Current% Eq. Alloc. TA Alloc.
4.63% 4.29% 3.89%
Income Income Income
$5,602 $4,290 $3,890

The first column is the value of the portfolio right now, and the income. The second column represents a $100,000 investment into the very same stocks, but with equal weightings for allocations. The 3rd column is also for a $100,000 investment in the same stocks, but using the Team Alpha allocations.

Each stock with its current dividend yield is listed here:

Stock Div.Yield%
XOM 2.5
JNJ 3.4
T 5.3
GE 3.6
BKCC 10.1
LNCO 7.3
PG 3.2
KO 2.7
XLV 2.1
PFF 7.7
O 4.2
KFN 7.5
WMT 2.3
CSCO 2.7
GD 2.9
BMY 4.1
MCD 3.4
CSX 2.7

The fact remains that you can invest today with equal weighting for each stock and have an immediate dividend yield of 4.29%, with an income of $4,290 for 2013, based on today's numbers. While that is less than 1/2% lower than the Team Alpha yield of 4.63%, I would not suggest nor recommend an allocation of equal weighting, since some stocks carry greater risks and should have less of an allocation while other stocks should have greater allocations.

Here are the current allocations of the Team Alpha portfolio:

Starting Lineup Allocation% Goal
O 6%
KO 3%
GE 8%
JNJ 7%
XOM 7%
T 7%
PG 6%
WMT 6%
MCD 7%
Starting Pitcher
BMY 5%
PFF 3%
KFN 2%
GD 6%
XLV 6%
CSX 4%
Cash 3%

By using this as a guide, an investor would have an immediate yield of about 3.89% and an income of $3,890 for 2013, based on today's numbers. While this is nearly 1% lower than the current Team Alpha yield, the allocations make more sense and could reduce some of the pitfalls associated with over-exposure in stocks that have greater risks.

In both instances, investing today will not get you the $26,000 in increased portfolio value. I think the portfolio could do nicely in 2013 also.

That being said, what if you were to wait until 2014 to finally decide to use a strategy of this kind?

The Bottom Line

Only you can decide when the time is right to invest in the market. I cannot tell anyone when, or at what price, an investor should buy stocks. The only thing I can do is present my opinions as to why investing sooner than later makes sense to me. Maybe the market will drop by 5% next month, maybe it will rise by 5% and then dip by 3%?

The point is that if you decide to invest in the stock market, what are you waiting for?

Please do your own research prior to buying or selling any security. This article is only my opinion and not advise of any kind.

Disclosure: I am long XOM, JNJ, GE, T, WMT, MCD, O, BKCC, KFN, PFF, XLV, LNCO, CSCO, CSX, GD, KO, BMY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.