Through Thick Or Thin, The Dividends Keep Rolling In

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Includes: ABBV, BA, BMY, CL, CMI, DUK, JNJ, KO, MAIN, PBCT, T, TD
by: Bruce Faitsch
Summary

My investment goal is to continue to produce a dividend yield that is sufficient to provide enough income to meet expenses.

I have been able to continue earning an income greater than the minimum RMD for my IRA for the past five years. Currently the yield is about 6%.

Even though my total portfolio dropped over 10% last winter, I was still able to take some profits and reinvest in better values, concentrating on recession resistant stocks.

I will share my rules that have allowed me to meet my investment goals.

For about a year now I have continued to read articles in Seeking Alpha and other media that express worry over an impending bear market. Some of this is obviously generated by investment advisors looking for new customers to subscribe to their services, but some express a more realistic view that keeps us wondering how long this bull market will last. My own opinion is that Federal regulatory interventions have reduced the chance of a really bad recession, and more and more people have turned to the stock market as fewer and fewer companies now provide a pension that eliminates the fear of a destitute retirement, so there are more buyers out there, stocking their 401K's and IRA's. I can remember days in the long past when as few as 40 million shares were traded on the NYSE and NASDAQ in total on one day. With greater numbers of investors comes a market that easily provides an instant buyer for practically any issue. I remember a time when you called your broker, almost always the same person, gave a market order to him/her and then you might not get the result until much later that day. Now, it's a rare occurrence if an order isn't filled in a few seconds.

My first rule of investing is: diversify. I found that about 30 stocks and/or bonds are few enough for me to keep track of, especially since some of these I wouldn't sell without a major change in that company. If each issue is no more than 5% of your total portfolio, the total collapse of one company will not produce a personal disaster for you. (A couple of my investments are "don't sell" examples and have gained well over my 5% rule. These I watch especially closely.) For high income I look at preferreds, BDC's REITs, baby bonds, investment companies and utilities. I do not like to have more than 15% of the total portfolio in one type of investment in case of a major shift in market conditions. Last December, especially on Christmas Eve, was an edgy time for many people, including me. But, the number one rule is: never panic! The market fundamentals were still good, and I was fortunate to be able to take some profits in January (albeit smaller) in Duke Energy (DUK) and half of my TD Bank (TD) shares when the market turned upwards again and reinvested in a couple of great stocks that had taken a big hit. Abbvie (ABBV) was one, Bristol Meyers (BMY) was another and although ABBV is still a loss in my portfolio right now, I'm pretty sure that it will recover It is an excellent company.

I don't like to buy unless the stock is at least 50% below the 52 week high. If the stock is at that point or less, has excellent fundamentals still in place and is paying at least a 3.5% dividend then it is a good candidate. And since I have been fortunate so far to have capital left over after withdrawing the RMD from my IRA, I keep an eye out for buys. Right now, I'm close to fully invested, so any potential buys will have to wait.

Even though there are some great companies that yield 1%-2.5%, I don't like to buy these. A more conservative investor might buy Johnson & Johnson (JNJ), Colgate-Palmolive (CL), Coca-Cola (KO), Boeing (BA), or Cummings (CMI), but I think these are priced too high and the dividend has not kept up with the stock price.

Portfolio 4/29/2019 Some advisors tell you not to fear a bear market if you are invested for the long haul. I do know of some who have a large percentage of cash; Warren Buffett among them. They're waiting for the right opportunity so they can buy on the cheap. But, in the meantime they are losing out on capital gains and dividends that they could be earning. Buffett also decries trading stocks since it has been shown that most investors cannot time the market. That's probably true, and some of my stocks, like AT&T (T), People's United (PBCT), and Main BDC (MAIN) I have owned for many years and don't expect to trade at all. But when you find a good, cheap stock and after you buy, it has a nice run-up for say, a year, it is pretty hard not to sell when the target price is reached, especially in an IRA - no capital gains!

For those close to the magic age of 70 1/2 when you have to start taking out the required minimum distribution, try to set up a good dividend stream so that you don't have to sell stock to cover your distribution. That may come someday for me, but I have not had that problem yet. Make sure you have your investment company take out enough taxes to cover you on April 15. I calculate my RMD on January 1 and instruct the brokerage to withdraw 1/12th of the amount each month along with the necessary taxes. It is tough to get the dividends spread out evenly for each month, but it can be done.

Disclosure: I am/we are long ALL STOCKS IN THE ABOVE TABLE. 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: Stocks in the table may not be appropriate for investment at this time. This portfolio has had a long horizon.