First and foremost, my investing focus has been to build a portfolio of quality blue chip mostly defensive common stock for increased value creation and rising income for the future. The current investments in this portfolio also include RIC (regulated investment companies), high yield, ETFs and fixed income preferred debt. Younger investors may still wish to own high growth stocks without dividends and or low yield ones for capital gains, of which I have been slowly reducing and moving into income providers as just mentioned. It is good to have a plan and stick with it and utilize quality criteria for stock selection.
QUALITY Investment Criteria
A good quality investment to me and many could be evaluated using the following metrics:
-Investment grade credit rating “IG” as noted by a credit rating agency, such as Standard & Poor's, which I obtain from Fast Graphs “FG”.
-Good dividend yield better than the average as found in the S&P 500 currently at 1.7%.
-Good dividend growth unless purposefully bought as pure or fixed income or high yield “HY”.
-Good earnings growth and especially if low yield or a no yield growth stock.
I will delve more into each of these in turn as the article progresses.
S&P credit ratings
The credit rating is a measure or grade of a companies ability to pay back its own debt and its investment worthiness. I use S&P because it is available in FG, a subscriber service I use, so I need go no further. My last article reveals the ratings for individual stocks as shown by sector, so please use that as a reference. It is also important to note 75% of the Rose portfolio value is in common stock and most all are quality IG rated. The remainder or ~ 25% is RIC, ETFs and some fixed income, which generally are not credit rated or even followed by some analysts. Morningstar “M*”, Value line “VL”, Moody’s and Fitch also generate their own credit ratings. I am able to use the premium service of VL and M* from a library source for no fee. Please check with your library for it, as those services also give future fair value estimates for most all common stock, which I will be showing later along with my own cost per share.
First I would like to present:
The Rose Portfolio
96 investments, now, up 2 in count from my last article.
3 new ones, which I will reveal later in deeper bonus review, but they are in the chart, perhaps if you follow me, you will be able to find them. Hint is 2 are common stock and 1 is a RIC, added to my basket of BDCs.
The common stock portion still remains at ~ 49.6% in defensive sectors by value, as in the short summation as shown below. The income from them also still remains around 40%, which still meet my own goals. Communication is the new sector designation that rules over telecom, which is all I own that qualifies there anyway.
The portfolio holdings are listed alphabetically, and divided into 3 sections as follows:
#1 Common stock of 47 companies
#2 Utilities (8) and communication ( 3 telecom).
#3 HY or high yield (38) = 29 RIC, ETFs and 9 fixed income holdings.
The metrics used for each is just a bit different and will be explained separately as well as we move along with each section of the portfolio.
Stocks seen in bold letters, 5 of them, still have the dividends dripped. 4 with an asterisk * have the dividends removed from the portfolio and right into the checking account.
Abbreviations used in the section charts are as follows:
Div Yield = dividend yield, obtained on or around Sept 26th, 2018. from FG.
5 Yr DGR = 5 year dividend growth rate from FG acquired on the same date.
Total Return desired values
The dividend yield added to the 5 yr DGR gives a look at past total return. It is only an estimate which does not assure any type of future returns. I have chosen the numbers for my particular portfolio and plan. Each investor should decide on their own rate of return. The why for mine will be explained shortly after I reveal them and the dividend yield chosen for them.
Y= Yield, dividend yield in the following chart abbreviations:
Y>=2.5 has a desired total return value of 10.
Y<2.5 would require a value of 14.
foreign means there were exchange rate issues in determination of the evaluation and with a deeper look into it could change the result.
Yes in the Result column means the stock met the value
18=+ means any 5 yr DGR of >=18 gets a Yes+ rating in the “D” Result column.
EPS Y = Earnings per share Yield as taken from FG
a 6 meets expectations and gets a Yes in the E Result column.
>8 gets a Yes+ rating in the result column labeled E.
The highest result rating is Yes + and the worst is a blank space which essentially means No or does not meet value standards. There are 5 with the really worst No-No rating. I felt they needed to be singled out. Also note all Yes+ ratings are in bold, along with any total return value that also passes.
Earnings Growth Forecast: The final column is earnings growth from FG it is added as a guide into the future and can only be used as a “guess-ti mate”.
#1 Common Stock 47
|stock||Div Yield||5 Yr DGR||Y>=2.5||Y<2.5||8=+||D||E||Forecast|
|A Data Proc||(ADP)||1.80%||8||9.8||3||No||No||16.6|
|Colgate||(CL)||2.40%||5.6 last 3||8||4.3||No||No||7.5|
|Chevron||(CVX)||3.70%||4.4 last 1||8.1||5.6||10.5|
|J & J||(JNJ)||2.50%||6.8||9.3||5.6||7.7|
|McDonalds||(MCD)||2.50%||6 last 15||8.5||4.6||No||No||9.7|
|Mondelez||(MDLZ)||2.10%||-0.6 last 14||16.1||5.3||Yes||9.8|
|Procter-G||(PG)||3.30%||4.8 last 1||8.1||5||No||No||7|
|RD Shell-B||(RDS-B)||5.40%||1.8 Froze||7.2||7.4||Yes||14.5|
From the results column (D and E) are as follows:
Yes+, Yes+ (4):
Broadcom , Cummins , CVS, and Met Life
Yes, Yes (8) in some fashion:
ABBV, AMGN, CAH, GIS, MO, PFE, PM, and SJM
Losers .. and some surprises to me are:
5 that get No, No:
ADP, BDX, CL, MCD, and PG
In some cases the grades will change as does valuation and the current dividend yield which is what I discuss next. Note: MCD, just raised its dividend by 15% which helps it here, but still does not bring it up to a pass.
Total Return Values come from using the S&P 500 (SPY) dividend yield as my guide.
The S&P 500 or SPY is currently yielding 1.7% and it is usually agreed one should want to obtain that yield for any current individual dividend paying investment. The 1 year US Treasury bond yields ~ 2.5% and it should be agreed anyone would want to achieve that for a minimum investment yield for a non capital growth stock. Some even consider that rate high yield, at least right now. Times and yields are always changing.
Below is a chart from Yahoo and shows the current SPY yield at 1.7%, but also note as that yield goes down the price of the investment goes up and the SPY is at a 1 year high, actually a 5 year high. One could easily say the SPY is a bit overpriced but I won’t, but I can think it, as it continues on the upward momentous trend.
For a stock with dividend yield >=2.5% I would want total return to= 10, and if < 2.5% my desire is 14. Any stock with a dividend growth rate >18 gets an automatic pass for total return.
The earnings per share "EPS" has a minimum value of 6 which equates to a 6% EPS yield (or a P/E of 16.6). The statistics were obtained from Fast Graphs portfolio review.
Earnings Per Share "EPS" Yield.
Chuck Carnevale, aka Mr. Valuation, in a recent article mentioned earnings growth should be a part of due diligence for any investment. I have always felt great earnings give great dividends and never really looked at them specifically. Truth be told, that also still holds true, but now I have performed that specific task for the Rose portfolio with the results shown above.
Interestingly enough EPS means Earnings per share price and is the reverse of Price/Earnings or P/E. Thus, you only need 2 statistics to solve for both, the share price and earnings per share and can be obtained from numerous investing sites. A universally accepted general P/E for most common stock is 15 and Chuck in numerous articles continues to support that value as well as FG. Some sectors and some stocks do not ever achieve such and others over achieve that level. It is important to realize that fact when measuring any stock and finding a normal 5 or 10 year P/E for the stock is advisable. I will use P/E in a future chart along with some fair value estimates from analysts.
A normal P/E of 15 converts to a EPS by dividing 15 into the number 1 or = 6.6% for EPS. The S&P 500 (SPY) is currently trading around 16 or 17 and thus equates to earnings of ~ 5.9% - 6.2%.
Any stock with a higher P/E generally has lower EPS, which would certainly be logical. One must decide if it is the price or the earnings that are affecting the calculation.
This chart below shows the (SPX) which has a forward P/E of 17.3 for Q4.
Again, more than the general average of 15 and it continues to be priced highly, but lower than the trailing Q4. If earnings are going up then it makes sense the P/E would fall.
Therefore, I have added a column for earnings growth (note it is growth and not yield). The statistics were again taken from FG and many do show even more earnings growth. Something to consider always. Those don’t don’t show much growth and currently do not pass EPS yield should be watched carefully, but most are showing growth which gives me a smile, and that includes MCD.
#2 Utilities 8 and Communication 3
These stocks are generally defensive holdings for reliable income. Dividend growth is very varied, as is share price with each having its own characteristics. The telecoms most often offer the lowest DGR and I list them separately at the end of this list.
I use an 8 for total return, which might currently be too high as many utilities are trading at rather high valuations and have lower than normal dividend yield and also gives some a lower EPS yield and P/E.
Chart is below and there is only one outright winner which is discussed below.
|Brookf Infr P||(BIP)||4.80%||11.8||16.6||2.7||Yes+||20.8|
|BCE is CDN||(BCE)||5.80%||0.8||6.6 *||6.7||foreign||Yes||2.4|
Many utilities are no longer just electricity providers, and offer natural gas, and alternative energy. We are in changing times for energy and these also operate in numerous different states and countries. There is much to research. I am only offering investing metrics and the results here.
It is extremely undervalued and having problems with its nuclear reactor project having cost overruns. Good thing it has great management.
This company has an excellent dividend track record but is extremely overpriced and only 2% yield.
D, WEC and BIP have amazing EPS Yield with BIP having a projected EPS 20.8% growth.
These are all actually great candidates for further review and I have been buying BIP.
Telecom stocks are now in the communications sector and are doing just fine. I actually had a rotary dial phone such as the one above and, yes, in black.
All these companies are not just land lines any more.
BCE has the foreign exchange issue, Canadian, keeping me from making it a pass for DGR. I have been adding to it on dips.
ATT is very close to a perfect investment with its price rising and moving on to incorporating Time Warner, hopefully. I bought some more earlier in the year even though I didn't need it, just was too hard to ignore.
VZ is getting pricey again, glad I added to it last year, as it remains a quality holding.
The RICs or Regulated Investment Corporations, ETFs and Fixed Income come close to, if not the same, to the total return values for utilities and telecoms.
#3 High Yield or “HY” 38
There are 29 high yield and 9 fixed income holdings.
They generally qualify on the high yield aspect alone and the fact they were purchased for it. These all have different metrics for evaluation as an investment. In the future I will be evaluating these separately from my other holdings in the portfolio. They will be included in all total portfolio reports, but do deserve more attention and looked at in a different investing light.
|RE/eREIT||Div Yield||5y DGR|
|Triple Pt Venture||(TPVG)||11.00%||4(3)||15|
|Brookfield Real Assets||(RA)||10.30%||10.3|
|FIXED Income||Ticker||7-8 desired yield|
|Nu Star LP- pref b||(NS.PB)||8.80%|
|Teekay pref b||(TGP.pb)||8.70%|
|Wash Prime G-Pref h||(WPG.ph)||8.10%|
|Duff N Phelp*||(DNP)||7.10%|
I like them all. Sorry no evaluation, no disappointments, just great income provided.
The only difficult to own holding here is AMZA, an energy ETF. It might get sold, but I await the next dividend announcement. My total return is on the positive side now and my hopes it will get better as its go along, but I need the energy sector to perform well into 2019.
The fixed income are mostly all preferred debt from numerous sectors including energy, retail REITs, and financial. DNP is a closed end fund that has a frozen dividend and is primarily a holding of utilities. I have owned it for over 20 years and it stays.
I, again, want to thank the Fortune Teller and his paid subscription service, The Wheel of Fortune, for insightful guidance and education for buying, holding and price target buy and sell points for most all of the HY investments I do own for primarily the last 2 years. He can not take credit for some, I have made my own purchases and some mistakes in buying too high, but for the most part everything he suggests is successful and smart price buys. I continue of offer high praise to him and his partner Trapping Value.
Prices, prices and P/E evaluation
It just would not be me if I did not look at prices and offer some sort of evaluation and winners/finalists for purchase.
The following abbreviations are used:
C/sh= my current cost per share
M* FV = Fair value suggested by Morningstar
M* Buy= Buy price suggested from analyst Morningstar
Future 3-5y VL = Future price by VL suggested in 3- 5 years
P/E = Current Price/Earnings as shown on FG
5y P/E= Past 5yr P/E average from FG
The winning P/Es are in bold print and the tickers that I know have a winning price are also in bold.
When looking at the prices and the P/E gives the following possible buy results:
The following are at or lower than the buy price listed by M*:
BUD, CAH, GIS, INTC, PM, TCEHY, and CELG.
In comparing these values with the EPS and other metrics, there appears a few stand outs of CAH. GIS, PM and CELG.
These last 4 are the winners and I will show the FG for them. It shows the past 5 years and 3 years of estimated future statistics.
Undervalued and has plenty of cash to cover the dividend (the white line). It has a 3.5% yield and shows 8% growth of earnings. I add to it as I can.
Undervalued, plenty of cash to cover the dividend and 4.6% yield, however earnings growth down for 2019, but up for 2020. DGR is slowing but safe.
It is indeed not a capital gain type stock, but could be attractive for income. I added a bit this month.
If you believe in the company it is trading at a nice yield of 5.6%, great for income and it looks to growing in all regards. I am still drip dripping away with it.
Celgene looks fantastic and has great earnings. It is unloved for some reason and certainly shows growth. It is not a dividend payer and thus one must rely on the growth with certainly looks to be there or coming soon. I should get some more, and might do so next month.
Here are my New Buys for the month and there are 3, surprise!
It appears to have been overpriced and now is heading back to fair value and near its normal P/E again. Earnings forecast show an excellent increase for 2019. I hope it to be true.
The WoF or
suggested and issued a hot tip to buy it at $40. I missed it at first and it climbed up a bit, but returned to the buy price where I was able to get some in early September with an average cost of $40.05. It hasn’t moved much as yet, but it will be a hold for capital gains in a Roth. It also has a 0.3% yield. It has a P/E almost equal to its future growth, so a PEG ratio of ~1, which is attractive as well.
This is pure speculation, but it certainly is worth something and offers opportunity. It has fallen in price to an attractive level for the dividend and earnings level. It seems to have the cash to pay the current recently cut dividend. It has positive projected earnings and I will enjoy the 4.3% dividend yield while I wait. I have a small position, possibly not even worth mentioning, but know I am watching it closely and might sell a put to get more shares lower, or just buy some more outright if it does go below $10. I paid $12.86, perhaps too much, but certainly not a bad deal. I see it is up today with the announcement of a new CEO who has time to do better for it in the future.
BlackRock is a BDC and I am showing it using diluted earnings in the FG. I bought for $14.37 and I will add on if it goes much lower, perhaps $14. If not, I am fine with my new position in it. Thanks again, Fortune Teller for the suggestion on your service, but I was slow to do it, but now I have.
It has a frozen dividend/distribution and 10.1% yield, which has not been cut. I believe this chart shows it is headed up in earnings and very able to cover the dividend. It has a BBB- credit rating which is also rare to find a rating for a BDC. ARCC, which I also own has such a rating. I can not complain about the return, but perhaps might see a raise coming in the future.
My only complete sale was Nike.
I believe I did mention this sale in the last monthly report. It is done and gone and I don’t miss it, as it was a low dividend paying growth stock. I have been transitioning out of those, so Nike was on the list to go no matter what.
That’s all for me and I hope you found some value and ideas for your own investing.
I will do a separate quarterly/ Q3 report article, that will provide a more comprehensive list of all my purchases and trims, hopefully coming soon.
I certainly continue to learn from writing about my portfolio and enjoy sharing my learning experiences, success, and adventures in investing. I hope you continue to follow and guide me along the path to Happy Investing!!!
Disclosure: I am/we are long CAH. 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: and all 96 stocks in the charts
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.