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Dividend Sensei's Portfolio Update 25: Invest Against The Crowd If You Want To Get Rich



  • Another hard week for high-yield stocks especially: REITs, MLPs, and utilities created even more amazing buying opportunities.
  • I discovered that one of my Canadian utilities was not in fact covering the dividend and so sold at a modest loss to head off a likely dividend cut.
  • The capital went into filling out the rest of my Main Street Capital position and starting one in W.P Carey. Both were trading near 52-week lows.
  • Pattern Energy and EPR Properties' post earning crashes also offered a chance to add to both at mouth-watering prices.
  • This week there are 28 quality high-yield stocks to buy that are trading near 52-week lows (ultra value list).

Source: imgflip

First, let me be very clear that this is my personal portfolio tailored to my specific financial situation, risk profile, time horizon, and personality traits. I am not recommending anyone mirror this portfolio, which is merely designed to show my unique, rule-based, methodical approach to value-focused, long-term, dividend growth investing.

My situation is unique, as though only 31, I'm already retired (medical retirement from the Army), thus making this portfolio an income-focused retirement portfolio (though in a taxable account). I'm also working full time (self-employed) and thus have an external source of income to continually add to this portfolio. I do not plan to actually tap the portfolio's income stream for 20-25 years, when I plan to move my family (and help support my parents) to the promised land of my people (retired dividend investors): Sarasota, Florida.

What this portfolio can be used for is investing ideas; however, this portfolio includes high-, low-, as well as medium-risk stocks, so it's up to each individual to do their own individual research and decide which, if any, of my holdings are right for you.

For a detailed explanation of my methodology, please read my introductory article to the EDDGE 3.0 portfolio. However, keep in mind that the portfolio is not static, and both it and the underlying investment strategy will evolve and adapt over time. This is because a changing world, new knowledge, and more experience will cause me to fine tune it over coming years and decades to maximize my income and total returns.

Also to make it easier to digest, I've decided to try separating my weekly investment lesson/commentary from the actual portfolio update. This week's market commentary explains why, though terrible, a trade war isn't likely to kill the economy, or the bull market.

What Happened This

This article was written by

Dividend Sensei profile picture

Dividend Sensei (Adam Galas) is an Army veteran and stock analyst with 20+ years of market experience.

He is a founding author of the investing group The Dividend Kings which focuses on helping investors safeguard and grow their money in all market conditions through the highest-quality dividend investments. Dividend Sensei and the team of analysts (Brad Thomas, Justin Law, Nicholas Ward, Chuck Carnevale, and Sebastian Wolf) help members invest more intelligently in dividend stocks. Features include: 13 model portfolios, buy ideas, company research reports, and a thriving chat community for readers looking to learn how to invest more intelligently in dividend stocks. Learn more.

Analyst’s Disclosure: I am/we are long EPD, TEP, PEGI, CNXM, MPW, MPLX, BREUF, EQM, AM, OHI, T, O, TRSWF, IRM, SKT, BPY, VTR, STOR, BIP, SPG, UNIT, ENB, NRZ, EQGP, TU, CM, AQN, D, AMGP, SEP, TEGP, QTS, EPR, CLDT, WPC. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (404)

I wonder why you don’t buy a low cost ETF unless you do this for fun. I hope you are using a no cost broker for your trades. Don’t get me wrong I do similar and have a portfolio of nearly 200 stocks, but I am a bit of a stock geek. Some of my positions have grown to more than 5% cause I haven’t wanted to sell. I like being able to managed taxes more selectively by holding individual stocks.
Happy investing , you seem to have a sensible strategy!
Dividend Sensei profile picture
Indeed I'm a total stock geek. It's about the system for me, not the indivual stocks.

I savor the methodology, which is why I spend about 3.5 to 4 hours each week doing my portfolio updates.

It's my investing journal. That way I can always go back to see what I was thinking at the time, in case I should forget.
I would like to say this again there are so many MLPs out there that are undervalued the whole sector is don’t rush pick a good one with a management you can trust there’s no reason to take such risk etp is overcharging for risk 8n the MLPs sector
Dividend Sensei profile picture
Well I don't necessarily agree in regards to ETP. Then again I no longer own it and my sector caps won't allow me to repurchase it.

It will take me several months of utes/other sector buying before I can buy another MLP. MMP would be my pick. Assuming its still at 52 week lows.
You should thank god that you can’t buy etp
Dividend Sensei profile picture
I tend to get lucky that way. Something bad happens and it seems terrible but ends up being for the best.

Like the tax shock that forced me to de-leverage...right before the correction struck.

Now the FERC ruling forcing me to diversify and also likely locking me out of margin until next recession.

You need to be both smart and lucky. I am both.
Dividends also force management to be slightly more responsible and conservative with money as people now start examining payout ratio which makes things easier for most my start fo an ok div stock is below 85% payout with above 5% div with a modest growth each of these variables change based on the others for ex I’m more then happy to buy certain stocks with 10% div with little or almost no growth but generally if your not growing your dying
Dividend Sensei profile picture
Indeed that is the case. You can't make crazy gambles when you are famous for the dividend.
I mean a very visible 10 pe
Dividend Sensei profile picture
I hear you. It's what I like about pass throughs. Business models are so simple, relative to some other industries.

Biotech? Talk about a black box of complexity!

And then there's tech. So hard to model that. Some high growers fall off a cliff. Others like MSFT pivot and suddenly take off.

It's why I like dividends. At the very least as long as I'm getting paid, and the dividend grows at 10% a year over time, then management can do what it likes.
Nflx will have so much competition that it cannot possibly continue growth at that rate besides it gets to the point of market saturation but their own content does help however appl may very well get the appl users because of premium placement and amzn will get prime some will pay for all because of certain conten but then we have Disney fox nbc all vying for that nflx should at a pe of around 50 also more competition will make margins less and other companies such as appl are really doing it to get you do buy the phone and not to profit kind of like amazon marketplace so don’t believe that growth will continue for 10 yrs but they have great management
Dividend Sensei profile picture
Yes and no.

It depends on whether they can recreate their success in other countries.

If NFLX can end up in 33% of the world's households? Then it will eventually make today's share price seem like a bargain.
Really, come on even amazon has ha4d time replicating success in other countries home field advantage
Dividend Sensei profile picture
True, NFLX has done well in Europe but I doubt they will be able to replicate the US everywhere.

SBUX is killing it in China, but in most of the world? They are struggling.
Ok I just really have to believe a 10 pe is in sight not really a specific time table depends how much I like the stock and one years growth can be very different then another I’m long mtch which has 28 pe but I’ve been long for a yr when pe were lower and price was 17 it’s my biggest winner unfortunately I have equal losers but that’s because sometimes I enjoy speculating but now try to keep that a minimum at my portfolio as my earnings go higher and speculations remain the same it becomes smaller %
Dividend Sensei profile picture
Interestingly enough I just read an article on NFLX that projects $30 PE in 2017.

So that's 11 times earnings in 10 years. That's how overvalued NFLX is right now.

TTM PE of 255. Up 80% YTD after rising 55% last year.

I love the service, management, and the potential.

But NFLX today is CSCO in April 2000.
One of the ways I like to think of stocks is when will they be a pe of 10 on price I bought it for. Example a company with pe of 20 growing at 30% will be 10 in 3 yrs or even stocks that will be a pe of 10 in 5-7 years as long as I see a visible path there like last yr I bought mtch and have my eye on bofi wich is now trading 18 pe but growing around 20% a yr possibly lc but I think that one is very speculative as there will be more and more competition and hard to judge market saturation another is if div is over 5% and payout ratio is lower then 85% then it is considered for me a conservative buy such as T and bep also see if I believe companies with higher risk can bring it down to 65% in visible future without any raise I hate when companies up dividends more then nesscary to prove they’re stable though had ohi froze their dividend a yr ago I would have jumped on the stock dividends are not meant to prop stock price and sometimes cause you to overpay for stock
Dividend Sensei profile picture
That is a very interesting approach. As you say if the growth trajectory is predictable enough than even modestly high PE stocks can be good buys.

Benjamin Graham had a rule of thumb for PE.

Growth rate X 2 + 8.5 = fair value PE

So something growthing at 10% a year would be worth 28.5 PE.

Growth rate is for next 7 to 10 years.

So theoretically if a stock could grow 100% annually for a decade then it's worth buying at a PE of 208.5 or less.

Amazon? Priced for about 113% annual growth over the next decade.

So that's a bubble.

But 20% growth? Well than the father of value investing would say that 48.5 PE is ok.
jhod58 profile picture
DS, thoughts on PRU?
Dividend Sensei profile picture
A fine company. Good yield, 24% undervalued, and safe and fast growing dividend.

If it hits my UV list I will certainly consider buying it, assuming there's nothing better yielding ahead of it that I don't yet own.
jhod58 profile picture
Do you think SPG can weather the ecommerce storm?
Dividend Sensei profile picture
I do indeed. Wouldn't own them if I didn't have confidence in management.

Unlike SKT they appear to continue growing strongly and have double digit lease spreads. Can that hold up over time? Maybe, maybe not. It's something I watch closely.

Strong economy should put the wind at their tenants backs though.
Dividend Sensei,

Why is there a 15% withholding on the dividend distribution if BEP is held in a taxable account and the account holder is an American citizen?

Other MLPs, such as pipeline MLP's do not withhold a percentage of the dividend distribution if held in a taxable account of an American citizen.

What is the difference with BEP?

And is there a way to (hopefully easily) get the 15% that was withheld from the dividend distribution returned to the account holder? If so, how?

And why is BEP LP safe to hold in an IRA of a US citizen but pipeline MLP's are not due to the UBTI income?

Thanks again for your clarification.

Dividend Sensei profile picture
Not sure, but I imagine it's to do with the unique structure of BEP.

It's an LP whose assets are themselves LPs.

And since BAM is Canadian I assume that explains the 15% withholding.

Not ideal, but still worth owning.
Dividend Sensei,

I'm interested in Brookfield Renewable Partners LP (stock symbol BEP), and assume that the K-1 and Withholding, if any, would be identical to the two Brookfield LP's that you own.

Dividend Sensei profile picture
Yup same rules apply.

Taxable = 15% withholding and K1.

Retirement = no withholding and K1 but that becomes irrelavant until you sell.
Dividend Sensei,

Are you an American citizen? My question pertains to your two Brookfield LP's and the K-1's you receive and whether Brookfield or your American brokerage firm WITHHOLDS a portion/percentage of your dividend distribution from these two LP's if you are an American/US citizen? Brookfield is based in Bermuda but it is a Canadian company. And are these LP's safe to hold in IRA's as I think Brookfield states or is there the risk of UBTI income that can make for a problem to hold in an IRA for a US citizen?

Thanks for your input and clarification.

Of course he’s a us citizen he served our country
Dividend Sensei profile picture
Indeed I am.

If you hold in IRA then you don't get any distribution withheld.
Dividend Sensei profile picture
Nationalized on October 13th, 1997.
As a novice investor I'am interested in investing with MLP's but concerned about accounting problems and should they be in retirement accounts or non retirement.
Vandooman profile picture
Have to say your investments look like a junk bond portfolio. I have some of your stocks but follow Warren Buffet's maxim that is it is better to pay a fair price for a great company. Very few of your investments are great companies. Some I wouldn't touch with a barge pole. I consign the high yield stuff to 30% max and REITs to 20%. Some of the stocks in your crash list are great companies and some are certainly not, with narrow moats. Over time great companies will prevail. A few will decline and you dump them.

Some great companies: HD, PPG, MMM, MSFT, SNA, ITW, BA, HON, ADP, UPS, NEE, CSCO, DIS, DOV, FB, INTC, SYY, V, MA, and TXN. Toss in AAPL, AMZN and GOOG for speculation. Back up the truck after any crash.

Good luck in any case. I have perhaps 50 times the amount at risk that you do so that changes the perspective but I didn't get there the way you plan to, other than having a high savings rate. Looks more like wild speculation than investing.
He didn’t say you should buy non premium company just out of favor even buffet said he picked up apple in the minor correction were the stock went down to 150
Dividend Sensei profile picture
I agree your crash list is very nice. Mine has many of the same names and I'll be adding more over time.

Time will tell if I'm gambling or investing.

I've certainly become a lot more conservative as the months have gone on.

Far more risk focused.
Dividend Sensei profile picture
Buffett and BRK are an interesting duck.

On one hand I like that Todd and Tedd have broadened his horizons beyond his traditional comfort zone.

Apple is a great cash rich blue chip, with enough cash to keep raising dividend 10% a year, likely for decades.

And buying on the recent dip was smart.

But many other recent purchases are head scratchers. Teva and SIRI? Definately not traditional Buffett stocks.

Then again Todd and Tedd now run $25 billion for BRK and apparently have proven themselves so Buffett is giving them more resources and a longer and longer leash.

That's what I like about him. Doesn't micromanage people.

Finds the best minds, let's them do their thing.
Wouldn’t encourage people to do that never borrow money at 20% to invest unless your wages will cover it next month and you see an extremely good deal and even then think twice and be ready to lose your bet
Dividend Sensei profile picture
I'm assuming he got an intro offer at super low rate.

Back in the day you could get 0% for up to 2 years.

My dad used that when MMA was 4%.

Borrow $20K, still in MMA, earn $1600 in free money.

Golden age when rates were "high" by today's standards.

I've heard tell of MMA at 8% back in the 80's.
Still could with chase slate but still don’t think it’s ever worth borrowing on credit cards unless you have a clear plan to pay it back that does not include the stock market as two yrs pass in short time and that interest on cards compound way to fast
Dividend Sensei profile picture
Agree 100%. Credit cards are for convenience, never for credit.

I always pay mine off each month in full.

The problem is that even 0% intro offers are a variable rate loan.

After 18 months they go to 22%. That means that you have to have perfect timing and a lot of luck to pull that off.

If you buy the perfect stock, at the perfect price, but it still goes down? Well then you can end up losing a lot of money.

It's why I also avoid speculating in options (such as buying puts or calls for leveraged bets on short-term price action).

In the short-term the market has no need to be rational. Only in the long-term does Wall Street make sense.
Best is stocks that market haven’t touched either way and are not indexed so they won’t crash with index long BX
Dividend Sensei profile picture
Actually the best are the ones that are down a lot already and not heavily indexed. That way if market crashes they fall less (in a crash most stocks will still fall) but without index connection they fall less.

My beta is about .7. That held up during correction.

Now we're seemingly trading sideways so not movement either way. Up 4 days in a row, not huge gains, but a little each day.

Meaningless of course, but I love a good winning streak and so hope it continues. As long as I have something cheap to buy (and I always will) I can't lose in the long-term.
Granted but that’s reared unless there’s a real reason for fear and markets sometimes tend to be vindicated as opposed to things that have good reason why market can’t touch them ie bx cannot be held with most hedge funds because they want to be known as tax friendly and can’t be owned by almost every index beside Alerian and in a crash they will buyback their stock at a super fast pace as even now if they wished they can buyback 2% a yr with cash after dividends if stock goes down it will only propel in the long turn and I believe there’s a limit to selling things not in indexes and generous cash flow will keep stock up even in crash which is great if you’re buying on margin the stocks I buy on margin have slightly different criteria the base stock currently I am still testing a margin portfolio with ibkr
Dividend Sensei profile picture
I have the same approach. I have different rules and criteria for buying stocks on margin vs with cash.

Besides the timing (leverage up only in a broad market downturn), I don't buy low yielding stocks on margin.

One day I'll own plenty of low yielding fast growing stocks. But even when I buy in a crash it will be with cash.

Or if things get crazy enough, then I'll buy something like V, MA, TJX, ROST on margin, and then pay it off ASAP.

Even if margin rates plummet to 1.75% in the next recession you can't get a positive net yield spread if you borrow to buy a 1% yielding stock.
Gerard Kaman profile picture
Enjoyed the article. I started out investing using the cash available on my credit cards. As the portfolio grew and constantly reinvesting I started selling off parts of my portfolio to buy new holdings. The past 20 years I use only my dividends or money from stock sales to buy new shares. Reinvesting adds new shares every month. Dividends for 2017 = $12629.
Dividend Sensei profile picture
That's the approach my friend took too. He borrowed $150K at 0% interest for 18 months.

Invested it into deep value dividend portfolio.

I wish him the best of luck. He's been at it for about 14 months and has 4 more to go.

Was up about $75K at one point, then correction + interest rate spike clobbered him, now back to break even.

Risky, risky move. His plan is to cash out at end of June, pay off CCs, and then be 100% cash basis after that.

I'm rooting for him, since he's my friend and my portfolio is similar to his.
I wish everyone luck doesn’t mean though you shouldn’t reprimand him for his stupidity maybe he should put it in 1 yr gov bond or high interest saving though I understand it’s not as exciting
Dividend Sensei profile picture
I have done so. Not brow beating him of course, but I pointed out the high risk nature of the strategy and have been warning him frequently.

Ironically enough his overall portfolio is highly conservative and his experience has made me a lot more conservative in my own approach.

As the saying goes, "the best approach is to learn from the mistakes of others".

Far less costly that way.
I understand your goal, but not how you plan on achieving it. You look for increased dividends in stable companies, but where you indicate dividend increases, in many cases it's only because the price of the stock has dropped. Why would anyone buy REITs in today's environment of projected rate increases for at least the next 2 years? They are VERY RATE SENSITIVE. Sure the dividends looks more & more enticing, but the dividends are continuously negated by the precipitous drop in price. REITs are in the process of bottoming out. The cycle will last for the foreseeable future. More of a concern is that most REITs have been returning capital as part of the dividend. In order to artificially maintain the dividend, they have nowhere else to go. The tax consequences are gargantuan. You invest already taxed income. A portion of your own money is returned to you (hidden in the dividend) as "income other than dividends" and you are taxed a second time at your full tax rate, not the lower dividend rate. Then third, another bite is taken out by the IRS on the dividend itself. Do the math. REITs that do this show a hefty dividend, but after taxes you're lucky to make 2%. The tariff trade war insanity will also now force even more inflationary pressures and more rate increases (or at least greater ones than were projected just a month ago). This spells big trouble for all REITs. Why are you suggesting anyone buy a REIT earlier than 2020?
petektf profile picture
I own a little bit myself, for the sake of diversification. I also reduced my holdings...planning on getting rid of 1 more.
Dividend Sensei profile picture
1. rate sensitivity is cyclical and mean reverting.

That means that, even in the QE era, it comes and goes. Sometimes REITs are very rate senstivite and other times beta to yield goes negative (it cycles between -0.5 and 0.5).

2. I don't try to guess when bottoms come. If the valuation is right (good margin of safety) then I'll buy. If it falls some more I'll add some more as long as fundamentals hold.

3. Dividend increases are not from falling prices. Once you buy a stock your YOC is fixed. At least until the dividend increases.

Note all the dividend raises I've been getting. That's my focus, at least the long-term 7% goal.

I want to achieve 5% yield with 7% long-term dividend growth.

So far I'm at 6.7% and 8.3% on those variables. Ahead of target but of course I still have a lot more diversifying to do.

Counting on the UV approach (buy what's most on sale) to keep my yield up and let me add some faster growers over time.
Dividend Sensei profile picture
Which individual REITs do you own? Which 1 do you plan to sell?
rlp2451 profile picture
Re: PEGI, you state:"PEGI being the perfect example, headline screams "MISS!" but if you actually read deeper, you see production is up, forcast for coming years is way up, debt expense is coming down, new projects are high margin, hugh dividend is safe and low PE caused by depreciation write down.."

One thing you missed about also being up is the share count, increasing 15% every year and almost doubling since the IPO, without corresponding increasing FCF to pay the dividends on the new shares (let alone the existing ones.) "Safe dividend?" hardly. Interest expense has been increasing $1MM every quarter.
Dividend Sensei profile picture
Sure debt is rising, because that's part of the business model.

If PEGI grows 10X they'll likely have 10X as much debt.

They issued a lot of stock to pay for Pattern 2.0. In 2017 they also raised equity.

That's the yieldCo way, as it is with REITs, MLPs, and LPs.

What matters is that CAFD/share rises. This year it's expected to do so by about 5%.

As long as that keeps up then they will get to the 80% payout ratio target and can then start growing dividend at same pace as CAFD/share.
c21vintage profile picture
I have used the recent pullback to increase my NRZ holdings by 50% and to double my PEGI stake. Seems so easy to buy low, sell high but 70% do it backwards. Why? Because the herd mentality is all about momentum instead of thinking it through. Buy low? That's when a stock is mis-priced because of hysteria caused by reading a headline and not looking deeper. PEGI being the perfect example, headline screams "MISS!" but if you actually read deeper, you see production is up, forcast for coming years is way up, debt expense is coming down, new projects are high margin, hugh dividend is safe and low PE caused by depreciation write down. It's called an overlooked gift horse in my world. Sell HIGH. That means recognizing when a stock's momentum (the herd) has gotten ahead of itself, leaving the fundies behind. Best of luck to all, it's always a gamble, there's always someone betting against you when you trade, that's just how it works. The trick, and it's not easy, is to find a stock that is mis-priced by the herd, PEGI and NRZ fit that mold today.
Dividend Sensei profile picture
Human nature. Loss aversion means it hurts twice as much to lose money as gain it.

If you are dropping then the natural instinct is to stop the bleeding and sell, and then buy what's going up.


In today's DS.com exclusive I highlighted CSCO and O back in tech bubble.

CSCO was the darling of Wall Street, hit a high of $80 and a market cap of $550 billion (biggest company in the world).

PE of 244.

KO PE was 71

S&P 500 had 44

O had a P/AFFO (REIT equivalent of PE ratio) of 7.6 and a 10.1% yield.

S&P 500 proceeded to fall 42%, CSCO 82% (AMZN 95%), and O? Up 127%.

If I had been running this portfolio in March 2000 I'd be loading up on O, ignoring the raging tech stocks and red hot S&P 500.

I'd likely be down (as I am now) and some would call me a loser (as they did Buffett for ignoring tech too at the time).

Then 3 years later things would look very different.

But of course I wouldn't be buying O or REITs all the time.

When growth is hot (like now) you buy value.

When value is hot (like during 2000-2003 crash) you buy growth dividend stocks (like V, MA, MSFT, TXN, AAPL and maybe if it falls enough NVDA).

Something is ALWAYS on sale. No exception, I buy ultra values. And diversify, a lot.

My trust isn't in individual stock picking (though that's a big part of the fun) but rather in the process itself.

If I can build a 200 stock portfolio, with above average quality, with everything bought at a great price (such as at 52 week lows after sector already crushed) then I will end up doing great.

It might take time to prove itself, but I've spent enough time researching the history of markets, sectors, and companies to know that it will work in the end.
jerryki profile picture
DS: re EPR, their biggest revenue source 50%??? is AMC theatres, went from 34 to 15 in 9 months ending Aug 17 and it's still about 15. Also, given the trend in moviegoing (admissions, not revenues so much), I'm cautious on EPR. I also sort of remember that AMC is a little dangerous with a lot of leverage. I own the EPR convertible preferred, which yields 5.9% and moves somewhat with the stock. If EPR goes up, the convertible feature move the preferred up, and if EPR goes down, there's some protection on the downside by owning the preferred vs. the stock. Also, you can hedge and boost your return a bit (I'm doing this) by owning the preferred and selling EPR calls, so this is sort of like selling covered calls on the preferreds.
Dividend Sensei profile picture
Not worried about the price of AMC stock.

What I'm watching is the rent coverage. I'll have to see if they break it out by tenant or industry.

But 1.7 portfolio wide tenant rent coverage tells me there isn't much to worry about, at least not yet.

Still, theater exposure is why it's medium risk.
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