A Flight To Safety, Portfolio Moves In My 5%+ Dividend Yield Portfolio For July 2015

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Includes: AMLP, DEO, FMLP, IEP, IXP, PSP, TMUS, USL, VRP, VZ, YMLP
by: Dividend Disco

Summary

July 2015 returns suffered with renewed devastation in the commodity markets, but Seeking Alpha users helped me save thousands of dollars!

Trailing twelve month dividend yield up to 5.18% (up from 4.17% in 2014).

Lowered risk by selling DEO, USL, IXP, PSP, YMLP, AMLP, FMLP, TMUS and buying VZ, MS+A, GS+D, VRP, IEP.

Overview

July 2015 was not pleasant for my portfolio as renewed headwinds in the energy and commodities sectors weighed negatively and contributed to a -3.4% paper drawdown for the month.

This was disappointing compared with a +2.33% gain in the S&P 500, but vastly superior to the -12.91% decline in the S&P GSCI (a commodity index). The nuclear winter in commodities continues to frustrate and confound me, but chasing overvalued assets elsewhere does not appeal as an alternative. As a long-term investor, I will hold my nose and stick to many of these holdings (especially now that they are a lot smaller on an absolute dollar basis) and I will even look to add opportunistically where survival is not at risk (primarily downstream assets).

The news was not all bad as advice from the Seeking Alpha community saved me about 3% in additional losses by pointing out shaky investments that I had. However, this has resulted in a growing cash position (now more than 20% of my public market investment assets), so I will need to find places to deploy capital (especially challenging given my beliefs that the market is forming a short/intermediate-term top and the likelihood of rising interest rates).

Cash Generation

One place where the portfolio continues to shine is in the production of cash (dividends and interest).

In July 2015, I earned $1,158.39 in cash (up 4.3% from July 2014). More impressively, from Jan-Jul 2015, I earned $6,807.55 in cash (up 46.7% from the same period in 2014).

This moves my realized yield to 5.18% for the last twelve months (up from 4.17% in 2014). This is especially satisfying to me given that these rates include the drag of my now 20% cash position. Note: discerning readers can deduce the increase in yield percentage has been magnified by a decline in overall principal value due to poor performance in primarily the energy sector… however, the increase in yield is much more attributable to investment mix.

After earning more than $10,000 last year in cash, I am excited to think that I might top $15,000 this year! (paper gains may come and go, but cash is forever!!)

Portfolio Moves in July 2015

Note: this was a very busy month for me as I continue to reposition my portfolio and I would expect only another month or two with this much activity.

Closed Positions:

SOLD - Diageo (DEO): I sold my full position of this international alcohol company @ $117.95 on July 2

  • Reasoning: A big winner for me after the financial crisis, this stock has not gone anywhere in a long time and the <3% yield combined with a 23x P/E ratio made me want to lock in my paper gains given how hard this stock could be hit by emerging market/currency weakness.
  • Monday morning quarterback: A bit sad to see this one go, I'm happy to be a bit more defensive and I look forward to buying it again at lower prices.

SOLD - United States 12 Month Oil ETF (USL): I sold my full position of this commodity ETF @ $23.37 on July 7

  • Reasoning: I was persuaded by Seeking Alpha commenters that non-yielding crude commodity plays were poor platforms to play oil prices (and the velocity of the recent crude price dip pushed me over the edge).
  • Monday morning quarterback: I was able to book a~$300 gain from this trade (that was a $1,500 paper gain at one point); however, I will continue to be opportunistic here depending on price action (but I think of this as speculating, not investing).

SOLD - iShares Global Telecom (IXP): I sold my full position of this diversified telecom ETF @ $62.16 on July 10

  • Reasoning: I am "upgrading" my telecom exposure to T and VZ (average 5% yield) while getting rid of the international dividend laggards that pushed the yield of this ETF down to 3.44% (less a 0.48% fee).
  • Monday morning quarterback: while I made money on this trade, in the future I will add more telecom exposure on a name by name basis as this ETF did not provide enough value to not just own the best components individually.

SOLD - PowerShares Global Listed Private Equity Portfolio (PSP): I sold my full position of this diversified PE ETF @ $11.55 on July 10

  • Reasoning: While I am attracted to these types of investments (BDCs, PE firms, etc) like a moth to a flame, I think the tide is running out for these stocks as this bull market comes to an end. Also, I hate the 2%+ fee this fund charges.
  • Monday morning quarterback: despite making money on this trade (mostly through the dividend payments) and my general attraction to this space, these assets were crap to own during the last big downturn and I expect future pain here.

SOLD - Yorkville High Income MLP ETF (YMLP): I sold my full position of this MLP ETF @ $10.05 on July 10

  • Reasoning: A painful sale (at a double-digit percentage loss), I was persuaded by Seeking Alpha commenters that this fund is a loser full of sucker yields (and worse) and that there was much more continued pain to come.
  • Monday morning quarterback: Originally blinded by the yield, this sale was the right call (if long overdue) and I was able to avoid another 10% drop in the price of this ETF. I have moved towards consolidating into strength (KMI, MEMP, refiners, etc) in this space and won't regret dumping this loser.

SOLD - Alerian MLP ETF (AMLP): I sold my full position of this MLP ETF @ $15.85 on July 13

  • Reasoning: A painful sale (a gain, but only because I have held it a long time), I was persuaded by Seeking Alpha commenters that this fund is a loser full of sucker yields (and worse) and that there was much more continued pain to come.
  • Monday morning quarterback: Originally blinded by the yield, this sale was the right call (if long overdue) and I was able to avoid another 6% drop in the price of this ETF. I have moved towards consolidating into strength (KMI, MEMP, refiners, etc) in this space and won't regret dumping this loser.

SOLD - UBS ETRACS Wells Fargo MLP Ex-Energy ETN (FMLP): I sold my full position of this MLP ETN @ $24.50 on July 14

  • Reasoning: I was persuaded by Seeking Alpha commenters that this fund has too many sucker yields (and worse) and that the dividend rate was not high enough to overcome the risk.
  • Monday morning quarterback: Originally attracted by the yield, this sale was the right call and I was able to avoid another 5% drop in the price of this ETN.

New Positions:

BUY - Icahn Enterprises (IEP): I purchased 30 shares of this publicly traded hedge fund @ $85.55 (~50% of a "full" position for me) on July 2

  • Reasoning: I was attracted by the 7%+ yield (with a proven history of maintaining/raising the distribution amounts) as well as a desire to "upgrade" to a more professional stock picker.
  • Monday morning quarterback: I was probably early in pulling the trigger on this investment as it is down 5% from where I bought it (note to self: try harder to avoid falling knives); however, I will continue to be a buyer as the price declines.

BUY - Morgan Stanley - Preferred A (MS+A): I purchased 100 shares of Morgan Stanley's floating rate preferred stock @ $20.70 (a "full" position for me) on July 7

  • Reasoning: I was attracted by the 4.89% yield and floating rate structure trading at a discount to call value (see my article).
  • Monday morning quarterback: I am happy with the entry price and yield. I will continue to be a buyer if the price declines.

SOLD SHORT- T-Mobile (TMUS): I initiated a short position of this "un-carrier" @ $39.55 on July 14

  • Reasoning: As part of a paired trade to go long VZ, I shorted TMUS because I think the stock has gotten very overvalued (>100x P/E) and that they are "buying" business unprofitably.
  • Monday morning quarterback: Despite positive Q2 results, I feel comfortable about this short and think that TMUS will fall significantly in the next correction.

BUY - Verizon Communications (VZ): I purchased 100 shares of this telecom leader @ $46.15 (a "full" position for me) on July 22

  • Reasoning: I was attracted by the 5%+ yield (with a proven history of maintaining/raising the distribution amounts) as well as forward P/E of 12x. I also feel like VZ has the widest moat of any of the telecoms due to their network (especially outside of metro areas).
  • Monday morning quarterback: Too early to form any lasting opinions, but I am willing to ride this investment through a downturn and add to it opportunistically if the price declines.

BUY - PowerShares Variable Rate Preferred Portfolio (VRP): I purchased 200 shares of this floating rate preferred ETF @ $24.75 (a "full" position for me) on July 22

  • Reasoning: I was attracted by the 5.04% yield (not including 0.50% in fees) and floating rate structure trading at a discount to call value.
  • Monday morning quarterback: I am happy with the entry price and yield.

BUY - Goldman Sachs - Preferred D (GS+D): I purchased 100 shares of Goldman Sachs's floating rate preferred stock @ $20.03 (a "full" position for me) on July 22

  • Reasoning: I was attracted by the 5%+ yield and floating rate structure trading at a discount to call value.
  • Monday morning quarterback: I am happy with the entry price and yield.

I look forward to reading your comments, criticisms, and encouragements. What moves are you making in your portfolio?

Disclosure: I am/we are long VZ, MS+A, GS+D, VRP, IEP.

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.

Additional disclosure: The author is an amateur who has a history of getting calls both right and wrong with zero predictive power. Trade at your own risk and never rely solely on this author's opinion. Also, as I have no knowledge of your circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended.