Seeking Alpha

Nibbling Around The Edges: The Brown Bag Portfolio November Review

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Includes: BP, EPR
by: Michael Hesse
Michael Hesse
Value, long-term horizon, dividend investing
Summary

Zero Commissions allow nibbling at positions.

Is DRIP still relevant?

What I sold this year.

What the future holds.

November has been an interesting month for the Brown Bag Portfolio. With the elimination of commissions for online trades at my brokerage and most/all others, it has allowed me to fill out a few positions with small purchases. These purchases would not have been economical under the previous commission structure. Prior to October, I had designed personal rules for investment that included saving up $1,500 before making a purchase. This may have saved me money in commissions and kept my cost-basis down, but it made the timing of each purchase that much more critical. If you are like me and have the unhappy experience of almost always seeing the price of an equity you've just purchased go down, you know what I mean. But with the new $0 commissions, I can nibble. Maybe purchase only 5 shares and an additional 5 (or 4 or 1) a few days later and again a week later, slowly bringing my cost-basis down and, hopefully, capturing a better average price along the way.

I made a number of purchases in November, although they were confined to only two stocks: BP (BP) and EPR Properties (EPR). BP has been trading below my initial cost-basis for practically the entire time I've owned the shares and I've slowly brought my cost basis down from the original $42 and changed to the high 39s. I'll probably be looking into purchasing another 5-10 shares while it's in the 37s before letting it sit and watching to see how the ever-changing trade-talks drama effects the share price. Maybe I'll wait and see what 2020 brings, and if BP stays below my cost-basis, I may add another 20-25 shares at that time and bring my holding up to 100.

The only other purchase I made was in EPR Properties, where the share price has been dropping, but it's still above my cost-basis. Normally, I wouldn't violate my cost-basis, but I've wanted to bring my holdings up to the point where I earn an additional share a quarter through DRIP. I was about 10 shares shy of this point and the recent price fluctuation convinced me that it was worth adding. I actually added 12 shares over 4 different price points and brought my cost basis up by 0.57 cents to $67 a share (average). At this time, I'll wait until the share price drops below my cost-basis (if it does) before adding more.

So far, my core portfolio has been filling out nicely. I have two positions that I want to build to the point where it grows by at least one share a quarter through DRIP (dividend reinvestment programs). The two positions that I need to grow are: Dow Chemical (DOW) and Blackstone Mortgage (BXMT). Each of these positions is currently trading above my cost-basis, so I'll wait and see what happens with the share prices over the next few months. If any drop back below my cost-basis, I'll add opportunistically. At this time, I want to add 70 more shares of DOW and 35 more shares of BXMT. I also want to double my position in NEWT; however, I'm going to wait until they announce a dividend decrease in February and snap up additional shares when the price drops. I expect a dividend decrease since NEWT's dividend policy is variable and the December dividend is historically the highest they pay each year.

Is DRIP still relevant?

I built my portfolio around DRIP, but is that useful anymore? Dividend Re-Investment Programs allow the holder of the dividend-paying equity to automatically purchase additional shares when the dividend is paid without a commission charge. When I started this portfolio, nearly three and a half years ago, this was a huge benefit. I didn't and still don't have a lot of money to invest and it was extremely important for me to minimize the cost of commissions. In fact, as I alluded to earlier, I had built up a set of rules for myself that culminated in me saving up $1500 before I made any purchase. But with DRIP I was able to grow my holdings a share or a fraction of a share, each time the dividend was paid at no cost. Fantastic!

From time to time some people would comment on my articles and mention that it was better to take the dividend in cash and allocate that money whereever I wanted. Perhaps that dividend payment using DRIP would drive up my cost basis, albeit slowly. It was a correct comment, but my counter always was that I wasn't earning enough off of any of my stocks or even the totality of them to make it worth investing somewhere else and paying the commission charge. So, I DRIP'd and DRIP'd and was pleased as my positions slowly grew.

However, the rules to the game have changed. With zero commissions being charged at my brokerage now, should I continue to DRIP? I could just turn around and use that dividend payment to purchase more of the paying equity (although I wouldn't be able to get fractional shares) or I could deploy that money somewhere else, perhaps into another stock that has been beaten down.

When I look at my lifetime returns chart (originally called the Out of Pocket chart), it clearly shows that the reason most, if not all of my positions, are doing as well as they are is due to dividend reinvestment. The compounding effect of growing dividends has given me a positive return on all but two of my positions, even if the current share price shows my holding at a loss.

For this reason, I'm leaning towards continuing my DRIP programs for the time being, but it does leave me wondering if there is a better way. I'm interested in my readers thoughts on this matter.

What I sold and why

A reader commented last month that they'd like to know what equities I sold during the year and what were the results. I thought it was a good question. I sold a lot more than I usually do this year. Generally, I purchase to hold long term, but sometimes that just doesn't make sense. This year, I sold three times and the overall results were positive.

2019 Sells

Symbol

P/L

IRM

-$109.77

D

$794.35

FGB

-$4.75

Total

$679.83

Although I can justify the sale of Iron Mountain (IRM) due to concerns about its debt load, the real reason was personal. My finances had gotten a little out of control and I needed a few thousand dollars to straighten things out. A daughter's wedding, some medical issues, etc. Nothing major, but I didn't want to continue to finance things on my credit card, so I took the loss and wiped out the debt. Maybe not the best reason, but one that I chose to resolve in the best way possible for me.

I sold Dominion Energy (D) as the price had risen to the point where I didn't think it would be feasible to add more shares. I had originally purchased 40 in the 60s and had several more shares added with DRIP, but I doubted that I'd be able to grow the position to the point I wanted without greatly violating my cost-basis, so I sold, took the win, and rolled the money into other investments.

The First Trust Special Finance & Opportunities Fund (FGB) was a very small position that I'd just opened the month before. When they announced their dividend cut, I decided to get out and take the miniscule loss. Again, the money was redeployed into something with a better outlook. I may re-enter the fund sometime in the future if things stabilize, but the cut was a bad sign for me.

Overall, the sales I made were positive financially and allowed me to move money into better performing areas.

The BBP in November:

Brown Bag Portfolio

Nov 2019

Name

Ticker

Shares

Value

%Return

Div/Shr

Annual Div

DOW Inc

DOW

20.00

$1,068.80

6.14%

$2.80

$56.00

Apple Hospitality

APLE

236.15

$3,837.47

-7.41%

$1.20

$283.38

Enterprise Partners

EPD

251.05

$6,612.53

-1.86%

$1.77

$444.35

AT&T

T

111.92

$4,185.88

8.85%

$2.04

$228.32

EPR Properties

EPR

77.07

$5,458.58

5.72%

$4.50

$346.80

Main Street Capital

MAIN

77.93

$3,363.42

12.66%

$2.46

$191.71

BP

BP

71.28

$2,663.73

-6.25%

$2.46

$175.35

Newtek Bus Srv

NEWT

40.00

$934.80

5.13%

$2.84

$113.60

Blackstone Mort Trst

BXMT

35.00

$1,282.05

1.75%

$2.48

$86.80

Eagle Point Credit

ECC

51.37

$735.66

-10.39%

$2.40

$123.30

Oxford Lane Capital

OXLC

190.00

$1,578.89

-15.46%

$1.62

$307.80

Clough Global Op

GLO

80.38

$754.72

3.99%

$1.14

$91.63

Ivy High Income Op

IVH

25.19

$335.97

-0.45%

$1.20

$30.22

Total

$32812.5

0.64%

$2,479.25

Div Goal

% Goal

BBP Yield %

8.37%

$16,800.00

14.76%

Div Goal 2019

% Goal

$2,520.00

98.38%

Lifetime Returns

Symbol

OOP $

OOP Shares

Shares frm Div

Div Received

Current Value

Total Rtrn

DOW

$1,007.00

20

0.000

$0.00

$1,068.80

6.14%

APLE

$3,618.28

205

31.152

$526.60

$3,837.47

6.06%

EPD

$5,766.99

215

36.045

$965.05

$6,612.53

14.66%

T

$3,453.42

100

11.922

$391.82

$4,185.88

21.21%

EPR

$4,733.85

71

6.066

$428.99

$5,458.58

15.31%

MAIN

$2,672.20

70

7.929

$301.46

$3,363.42

25.87%

BP

$2,791.50

70

1.280

$49.57

$2,663.73

-4.58%

NEWT

$885.00

40

0.000

$0.00

$934.80

5.63%

BXMT

$1,260.00

35

0.000

$0.00

$1,282.05

1.75%

ECC

$801.00

50

1.373

$20.13

$735.66

-8.16%

OXLC

$1,572.00

160

29.999

$295.19

$1,578.89

0.44%

GLO

$722.00

80

0.375

$3.49

$754.72

4.53%

IVH

$335.00

25

0.185

$2.50

$335.97

0.29%

Total:

$29618.24

$2,984.80

$32,812.50

10.78%

In the immediate future, December, I expect to add a few shares to my BP Holdings as I mentioned earlier and maybe an additional 10 shares to NEWT. It all depends upon the prices, naturally.

As far as 2020 is concerned, I'd like to fill out the core positions I discussed earlier: BXMT, DOW, and NEWT. However, I have to accept that I may not be able to get them below my cost-basis. Not everything works out the way it does on paper. In that case, I'm looking to start new positions in Health Care, Utilities, and potentially a good Bank. We'll just have to see where prices move and what looks interesting. I would expect with the trade talks, the upcoming Presidential election, and other Washington shenanigans, that we'll continue to see volatility and this may create some great buying opportunities. Again, we'll have to wait and see what happens.

Thanks again for reading and commenting!

Disclosure: I am/we are long DOW, APLE, EPD, T, EPR, MAIN, BP, NEWT, BXMT, ECC, OXLC, GLO, IVH. 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.