Scary red October was not so bad as I have goals and a plan for The Rose portfolio of 94 holdings that I would like to share.
Portfolio Goals or Plans
1. Make investing easy with quality
For common stock, I enjoy owning those with an Investment Grade or "IG" rating. If they are a dividend aristocrat with a long time track record as a dividend payer, that is even better. I also want to only own Value Line top-rated companies with a rating preferably of 1, 2 and perhaps a 3, but nothing lower. I am including all available S&P credit ratings in this article. Value Line is also revealed as well from time to time in many of my articles. The Regulated Investment Company or "RIC"s in general are not rated, and they should be looked at just a bit differently as they are the ones to issue debt themselves and live by a whole different set of investing metrics I will not discuss here.
2. Know the investment type
It is imperative to know what type of investment you are buying at all times. Common stock with a dividend is my preferred investment type for defense and reliability. It took me years to know there were even other types and know what a Regulated Investment Company or "RIC" even was. I ventured out with some success, but I am happily in a safer place with these investments with learning and here on SA. I made my share of mistakes with not truly understanding the investment type. I no longer make that type of mistake.
RICs generally are all types of high yield or "HY" instruments for investing. They are huge income makers and must be treated with the respect they are due, and many even have IG ratings. Nothing is perfect, and these in general are not covered by most analysts. I like the ones with ease of distribution coverage and or low payout ratios, and probably another article or two would be needed to explain it all. The key is to buy with value in mind, and knowing historic yield also helps unlock some guessing and can offer success. The RICs are rarely considered defensive as they are considered primarily income makers, with total return being the primary investing consideration. These types also use different metrics when evaluated for performance and should be studied in that regard before venturing into buying them.
3. Expect a decent return from everything you invest in
This can be an individual metric, but I like to look for minimum 8% return from most every investment with telecom and utilities and most HY preferred holdings starting there. They are also more defensive in nature and provide excellent stability with changing economies and interest rate changes. The other dividend common stock payers should have a 5yr dividend growth rate when added to current dividend yield to provide minimum 10% total yearly return. Lower yielding stocks, (I use 2.5%) should offer more dividend growth around 12-14%. These are good goals to have in a plan when purchasing a new holding that I keep in mind. Nothing is written in stone, as times change, and so do interest rates and thus, these levels may change with them.
4. Know the Earnings Yield and growth for any investment
A more recent article of mine discussed just this investing criteria, which I now use and follow and recommend using. The earnings yield for any common stock is the inverse of the P/E. That article shows all of the then current Rose portfolio holdings with an evaluation for the returns expected with using yield + dividend growth. This is also a great starting point for intelligent investing for value. Common stock should have positive earnings growth yield of ~6.5% minimum for the most recent 5 years and at least 8 of the last 10 years. An average common P/E of 15 equates to (1/15) = 6.7%, and this is the reason for the earnings growth yield chosen of 6.5%. RICs again are evaluated in a different manner, using Funds From Operations or "FFO" and not P/E, along with NAV, book values and much much more.
5. Have a defensive stance within the portfolio
There are officially 11 sectors for stocks. Chuck Carnevale in a more recent article listed them all and even the types held within. He, and I as well, have trouble finding good candidates to own in the materials sector, but no worries, I have plenty of others to manage. In that article, he suggests quality "A" credit rated stocks to own in every sector, which is an excellent list to start due diligence. The defensive sectors are generally known to be consumer staples, healthcare, telecom and utilities. I like to have 50% of total portfolio value in those 4 defensive sectors, with another 25% in the other sectors other than real estate which is considered RIC territory by me. This article will show the portfolio in that manner shortly. The high yield or HY portion I try to keep near 25% of portfolio value, as a little can go a long way to provide income, along with being more work intensive to follow with due diligence.
6. Buy with a margin of safety in the price
All holdings should be purchased with a margin of safety in price for valuation. This is and can be done easily through analyst suggestions, but also through knowing historic dividend yield. Higher historic yield generally means a value but also danger, one must look carefully for reasons for high yield in common stock. Earnings bumps and improved guidance from those earnings reports give clues to the company future. Momentum stocks can fall in this category, along with low dividend paying stocks, so company guidance is important to know. Selling or trimming when a stock gets over valued should also be part of this plan.
These steps can be simple and easy starts to any plan. This is not a complete plan presented here, by far, but should offer some guidance for you to start one of your own.
Scary October, Red October for most investors
The Dow was down in October by -5.1%, the SPX by -6.9%, Nasdaq Composite - 9.2% and crude oil is also hitting and continues to hit new lows.
A very scary red October for sure.
The Rose portfolio value was down -2.85%, and if dividends are removed - 3.31%.
The rose was drooping but not a lot, and it did better than most other as mentioned indexes if one likes to compare. With the value down, the dividend yield was up to 4.6%, nothing to really celebrate, but it happens to follow a lower portfolio value. Dividends are what made me smile and continue to provide joy.
My last article here showed 96 holdings alphabetically with the cost per share and should be used as a reference. The current stock price is shown as on November 9th, 2018, as price per share.
18 Div = Dividend used to calculate the dividend yield or "divi yield"
The last column only has the dividend paid per share that I received just this October. A dividend with an asterisk * means it pays monthly.
94 investments = 57 common stock, 28 RIC and 9 Fixed income of which 38 of them donated to the Rose income for October, which as mentioned, was up 43.5% from October 2017.
17 are common stock with 1 being Nike which was sold after the ex-date and the dividend collected.
The remainder, or 21, are RIC and or fixed income and these donated the most by quantity and payment magnitude. I will show in a second chart the highest income payers in order of descent. RICs were increased in the portfolio from late 2017, and now, I find I have some really nice new favorite income months of October, January, April and August too. The common stock generally pays in the months of March, June, September and December.
I am reporting Pepsi (NASDAQ:PEP) in this month because I forgot to do it in September; pure and simple mistake, and I know it.
Dividend yield is shown primarily to give a grasp of how income is generated from core holdings and from RICs. A second chart shows how the HY generally rules over the lesser core holdings with owning even lesser amounts, which is also mentioned in my plan rules.
|57 COMMON||CONSUMER||Price 11/9||Company Name||S&P cr||Div/yr||DivY||/sh|
|(RDS-B)||RDS.B||65.15||RD Shell-B||A +||3.76||5.77%|
|(JNJ)||JNJ||145.34||Johnson & J||AAA||3.6||2.48%|
|28 RIC||RIC||Reg Inv Co|
|Real Estate||Real Estate||13|
|Fin mREIT||Fin mREIT||6|
|9 FIX/ Misc||FIXED/ Misc||9|
|(CBL.PD)||CBL-d||14.63||CBL- Real Est||Pref||1.84||12.58%||0.46|
|(DNP)||DNP||11.11||Duff n Phelps||Ute-cef||0.78||7.02%||.065*|
The % amount magnitude of income received is in descending order along with the type and sector placement. Many RICs and consumer staples are found near the top of the list and is very pleasing to me to provide some balance between defense and the HY income makers. It takes a heck of a lot more Coca-Cola to provide the same income as some W.P. Carey (WPC) or some of the preferred stocks or "prf".
Below is a quick summation of the portfolio Defensive divisions and how those defensive positions are still maintained.
PV = Portfolio Value
PInc = Portfolio Income
This is a more detailed informative showing more divisions for the full portfolio:
A few comments about HY investing /RICs:
The yields are shown in the first chart to show you how "HY" high yield some of them are, especially the mortgage REITs; gosh they are phenomenal income makers. The preferred are steady and true. I enjoy owning them as well. I do suggest learning and caution when choosing. Start slow and buy only a few to learn with and then branch out. I am now in a service that helps with doing some more adventurous investing. FSIC, a BDC, is one of those. It announced a special dividend for next month of 9c, that gives it 87c for the year. It is down in price, and I watch for the next Q1 2019 earnings report, as it is under new management. The Fortune Teller at his service I am in, The Wheel of Fortune, says to wait to add on.
I can say it is difficult to wait as it is near a nice price to buy. I listen to him, as he gets it right so often. SA is a fantastic resource for me with excellent authors. I include Scott Kennedy and BDC Buzz for additional RIC mREIT and BDC information. There are many like Dane Bowler and Brad Thomas, Colorado Wealth Management, and Rida Morwa that also provide great volumes of information to help in making decisions. I also want to give honorable mention to High Yield Investor or HYI Joe, he does it alone and has been at it for about 5 years now with his BDC and mREIT portfolio. He retired making income easily, so I think he is someone to follow as well. I have not found anyone quite like The Fortune Teller that does it all and that includes options, foreign exchange issues and currencies. I am amazed by the wealth of his knowledge and bringing in Trapping Value, a Canadian, to add even more value and northern exposure to his wonderful service. It helps me, but others may be smarter or brighter and can do it without the added guidance, it is just me and what I do.
Patience Rose, patience, is another plan or goal. I can many times find other places for the cash anyway, and this is what I did with it for October.
October transactions and a bit of November
17 separate company add-on buys, 2 trims and 2 companies sold or gone as shown in the chart:
|CBL- pref d||CBL-d||15.59|
|tax loss||Bud as shown above|
Summary of a few transactions
In November, SBRA was also sold to get down to 94, and it is out of the charts shown in this article. I will elaborate on my reasoning in the future. GE was announced last month early, so that is really the 2 sold entities. I am showing the gains and losses for your investing knowledge and pleasure. It is shown on a per share basis only and all figures include the fees involved for me at TD Ameritrade, my broker.
BUD was a real kick in the asset pocketbook and was sold for cutting the dividend. It will be taken as a tax loss to offset gains in trimming BDX and some others earlier in the year. I am still ahead on gains for taxes. Hershey was trimmed in a Roth, and I am hoping to add on in the taxable, if not, that is okay. I want it lower in value, but no hurry. I used options to trim some PG before the new CEO was announced, and it had its best day in the market in 15 years, on the option closing day, go figure. I see it as the wheel of fortune turning in my direction to capture some gains and move on. I put the proceeds into defensive sectors, such as ABBV in healthcare, GIS in consumer, a bit of T in communications/teleco, my goodness, I got some AT&T below $30. All of these had higher yields than PG, so no big deal and I believe I improved the portfolio as well and remained defensive as shown in the previous charts.
Have a plan, write it down, know your investments and continue to learn.
Collect dividends and try a taste of HY while staying defensive.
That's All Folks.
I could probably say more, but won't, other than
Disclosure: I am/we are long ABBV. 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 the 94 stocks in the chart.