Portfolio Update - Strategic Assessment Of Our Roth Retirement Plan

Includes: DIS, PFE
by: Matthew Long


I continue refining the long-term strategy for our Roth Retirement portfolio in a way that balances income production with capital appreciation.

Using previously defined criteria I gave our portfolio an annual checkup and made some strategic changes.

My income producers are doing well and I continue to build on good positions. I am looking for additional growth opportunities for capital appreciation.

It has been nearly a year since I published my first and only article, Building Our Retirement Portfolio Within the Constraints of Roth IRAs. Being active duty military I have not had as much time for writing as I had hoped. This past year has been an eventful one for my family, my career, and my portfolio. I felt it was time to take another look at where we are and how the portfolio has progressed in the last year.

My primary goal for this past year has been continuing education. I have read several books, I read Seeking Alpha daily, I listen to podcasts, and I read a lot of analyst reports on Morningstar. I believe that to become a better investor requires me to also invest in myself by improving my level of understanding of the market, economics, how to read financial statements, etc…

My portfolio criteria have not changed since my first article but will restate them here:

· Income holdings should have a good track record of dividend payments and dividend increases. I use several resources to find quality candidates. David Fish's U.S. Champions List is my go-to resource when looking for dividend payers.

· Income holdings should have a yield of ~3% or greater. My long-term goal is a portfolio that yields 4%-6% in retirement. This can be accomplished through dividend growth and adding to existing positions when the market pulls back and yields go up. I will consider companies that have a yield <3% if they meet other criteria.

· My holdings should be diversified. I don't want to put all my money into one sector.

· I want to be able to understand what the company does. If I am confused by how they make money, then that isn't a good investment for me.

· I want to own companies that I believe in and ones whose products I use.

· To have emotional detachment and develop investment discipline, I set a minimum holding time of one year. For the income portion, my intention is to buy and hold indefinitely, but I set this minimum holding time to force myself to get out of a trading mindset and really consider myself an owner of the company. This forces me to do research, and also reminds me to ride the market ups and downs without panicking.

My original portfolio held 17 common stocks and two mutual funds. I have made a few a few adjustments over the past year and I now have 13 common stocks and two mutual funds. The table below shows my current holdings with their Yield on Cost and weight in my portfolio. I have also broken out the holdings I sold during the past year and what I did with those proceeds.



Yield on Cost

Portfolio Weight

Chesapeake Energy Corp (NYSE:CHK)






Walt Disney Company (NYSE:DIS)



Pfizer (NYSE:PFE)



International Business Machines (NYSE:IBM)



Chevron Corp (NYSE:CVX)



CenturyLink (NYSE:CTL)



Ford (NYSE:F)



Allergan (NYSE:AGN)



Potash (POT)



Procter & Gamble (NYSE:PG)



U.S. Bancorp (NYSE:USB)



New World Fund (MUTF:NEWFX)



Small Cap World Fund (MUTF:SMCWX)



New York Community Bank (NYSE:NYCB)





How I used the proceeds


I was up about 25%. Sold and bough CTL.

General Electric (NYSE:GE)

I had a very small position here. Decided to get rid of some small positions and consolidate into some I felt stronger about. Sold for 10% gain and bought DIS.

General Mills (NYSE:GIS)

I had done very well with GIS having owned it since 2008. I felt it was approaching the top of its valuation. I sold for 33% profit and bought PFE to increase my position in healthcare.

Oneok (NYSE:OKE)

I was overweight in the energy sector so was looking to divest some and move money elsewhere. Sold for 5% profit and bought AGN.

Discovery (NASDAQ:DISCK)

This was a disappointment for me. I didn't have a very big position but I sold for a loss of about 25%. This holding didn't provide a dividend and was not showing any signs of growth. I decided to reallocate my money where I thought it had better potential. Sold it and bought DIS.

First Internet Bancorp (NASDAQ:INBK)

This microcap bank did pretty well for me in the couple years I held it. I was up about 20%. I continued to like it but needed some cash to take advantage of a great opportunity. I sold this and bought CHK close to the bottom ($1.75).


This was an emotional buy when I jumped into it. I love the company, love their product, bought at the wrong time. I was basically even on this one but it wasn't a large position and wanted to take advantage of an opportunity for a value buy. Sold this and bought F.

In a world of so many great companies, it is often challenging to decide which ones are best for a given set of circumstances. In building this portfolio I have a goal of around 20 different holdings. I want to be diversified across different sectors such as Technology, Financials, Healthcare, Consumer Staples, Consumer Discretionary, Energy, Industrials, Materials, Communications, and Utilities. The companies I chose when starting my portfolio last year were intended to spread myself out across the different sectors and meet my investing criteria listed above.

After a year when I did my reassessment I realized that I had spread myself a little thinner than I wanted to. Some of my purchases had been more emotional than strategic. I was caught off guard with some of the companies because I didn't do enough research. So in doing an annual checkup I made some strategic changes that I believe will benefit the portfolio in the long run. I thought I would share with you my thoughts on a couple of the companies I decided to increase positions in.

Walt Disney Company

I think that all investors should look at value when deciding what to buy. DIS is very near its 52 week low. The drop in share price doesn't seem to correspond with any real change in the company's fundamentals. They have a wide economic moat driven by their dominance in the media and entertainment sectors. Their brands are highly recognizable. With a P/E of 14.9 they look relatively inexpensive at the current price. The current yield of 1.55% is slightly lower than what I normally look for, but with a payout ratio of only 37%, they have plenty of room for dividend growth. Morningstar currently has them rated as a 5-star stock, which is a strong buy signal, indicating the current share price is significantly below its valuation. I intend to continue adding to this position at these prices.


I was significantly underweighted in Healthcare last year. Over the past year I made a couple of purchases to increase my positions in this sector, with PFE being the largest. The company has a wide economic moat through its ability to generate excellent cash flow via the sale of several different drugs. They have an excellent research division that allows them a significant competitive advantage in the development of new drugs as well. With a P/E of 12.7 they are a good value at the current price. With a current yield of 3.51% they meet the intent and desire of my income goals. Their payout ratio is around 82% but is very manageable due to the previously mentioned strong cash flow. Morningstar has them rated as a 4-star stock, meaning they still have good upside at current prices.


Last year when I wrote, my portfolio was down about 7% for the year. I ended 2015 down 8.5%. As of the time I am writing, my portfolio is up 17% year to date for 2016. This is in large part to the timely purchase of CHK very near the bottom and the growth I have seen in my PG and PFE holdings.

My annual dividends have increased 74% since this time last year. That is exceptional income growth that is primarily due to strategic purchases of quality companies and my monthly dollar cost averaging into both of our ROTH IRAs.

Over the past year my wife and I have also reassessed our long-term goals. We decided that I will continue working until I have completed 30 years in the military, which will put me at 52 years of age. That is 14 years from now. At that point neither of us wants to work. We want to be fully retired with passive income. I will have my pension and some real estate income to support us. We will continue building these ROTH IRAs and assess our need to dip into them once we hit our 60s.

I feel that the Dividend payers in my portfolio are pretty solid. I want to continue building positions in these companies and strategically adding others when they are at a good value. The more challenging part is identifying growth opportunities for capital appreciation. I am going to focus my energies on studying more companies with the intention of making some additional buys into growth areas.

Thanks as always and look forward to your comments and/or recommendations.


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.