January Recap

January was a solid month.  The market was mostly sideways, but made a small push upwards towards the end of the month.  It was difficult to recognize any screaming buys.  I played it safe and made one small investment to help round out my portfolio.  I'm trying to conserve cash for better opportunities.  I'm fully aware this might be market timing and could backfire.  In my head it doesn't make since that only two months ago the same companies producing the same products were so much more attractively priced.  I was a kid in a candy store late November, but maybe the market overreacted to reach such lows.  Looking forward I still have doubts about the U.S. economy and the situation in Europe. 

New Purchases:
60 shares Southside Bancshares (SBSI) providing $43.20 annual income.  I picked this up slightly over $21/share.  The limit order was filled at a price lower than I entered, always nice.

Sales:
None

New Capital:
$610 in January.  $300 added to ROTH IRA, $310 added to taxable account.  I received a small raise and bumped up these automatic investments.  I have been doing well with my budget, plus made money on the side.  I expect to contribute somewhere around $1000 in February.

Dividend Increases:
1) LTC .14 to .145 per month.  This will add $12.06 annually

Dividends Received: $157.83
Pepsi (PEP) - $41.20
Illinois Tool Works (ITW) - $10.44
Phillip Morris Int. (PM) - $60.06
Exchange Income Corp (EIFZF) - $16.97
LTC Properties (LTC) - $29.16

Options/Bonus:
The covered call I wrote on INTC expired worthless this month, making me $23.  I have not wrote another call yet because the premiums are low.  I might initiate calls on LTC and/or INTC in the future.

New Purchase - SBSI

A few days ago I purchased 60 shares of Southside Bancshares (SBSI), a small regional bank in Texas.  I purchased this particular stock to get back into the financial sector.  I try to stay diversified through sectors and needed a financial due to liquidations over the past few months.  It is a small position which I may add to in the future.  I got in at just over $21, which is okay.  I'd be happier closer to $20, but I cannot let my cash pile up too high.  Anyways I'm glad to have a bank back in my line up. 

Southside is a small cap stock and operates around 50 banks in the state of Texas.  SBSI is very shareholder friendly; they offer cash dividend increases, special cash dividends, and also stock dividends.  I like this combination, and feel more comfortable with a regional bank compared to large banks such as BAC.  SBSI has had annual dividend increases for 17 years, has a yield of about 3.4%, and sports a 36% payout ratio.  It currently has a P/E of around 9.2, and a P/B of 1.3.  Fidelity.com projects that it will grow EPS by 2% in the coming years which might be a reason the P/E is so low.

In other news I've been extremely busy lately.  I didn't have any days off for almost 2 weeks, I'm glad that's over.  I've been doing really good budget wise plus I've made some extra money on the side.  New investment money should be higher than usual in February, I'm excited about that.  I spent some time reading articles and posts on the Early Retirement Extreme forums and it has helped me focus on staying frugal.  I've been trying to rely less on my car, drink fewer energy drinks, use more coupons, and curb my tobacco use.  So far so good.

The Downside of a Rally

Here we are.  The S&P is at 1,314 and the DOW 12,625.  Sounds great to most people because it means  investments have increased in value.  The problem for me as a dividend growth investor is that I have money to invest and good buys are harder to find.  I have yet to see any signs of a market downturn in January, which is a surprise with recent downgrades all across Europe. 

What to do?

I have cash piling up in my accounts that needs to be invested.  Should I wait to get maximum value on my hard earned money?  Will it be a long time before that happens?  What if it never goes back down?  I believe we will see more volatility this year and there will be some good buying opportunities, unfortunately that time is not now.  I plan to make one purchase this month to prevent too much accumulation of cash.  I think of it as treading water.  I'll still have a nice reserve for corrections and dips.

Currently K, KO, and SBSI appear to have some value left.  Before I wrote this post I put in a limit order for SBSI.  We'll see if it gets executed.

Retirement Planning

In the Army you are required to go to mandatory classes. The system is set up so that every soldier receives training. Whether or not you pay attention or gain any benefit from the training seems to be secondary to the fact that you were there. They are looking for numbers. Numbers are reported up the chain of command to satisfy a high ranking officer's excel spreadsheet.

A few months ago I was required to attend a class on personal finance. This was a one day, eight hour class covering topics such as insurance, credit cards, budgeting, loans, and of course investing (yay!). I had to drink caffeine to stay awake through most of it. I've had budgeting, credit cards, and insurance figured out for a long time. Those topics no longer interest me. These are the basics that need to be met before you can get into investing and retirement planning. When the sub-course on investing finally was presented it immediately piqued my interest.

Most of the training was focused on the TSP (Thrift Savings Plan) which is the military equivalent of a 401(k), however the instructor did cover stocks and bonds although very broadly. The instructor compared streams of retirement income to legs on a chair, which I thought was interesting. The more legs you have the sturdier your chair will be. If you only have one or two legs retirement could very well be wobbly. What happens if you lose one of those legs? If you have three it would make a stool. If you have 4 or more it will make a chair, the sturdiest, safest, and most comfortable.

My Retirement Chair:

Leg #1 Pension:  I expect to receive 50% base pay in retirement. The bad part is that my salary won't be very high, the good part is that I can start collecting at any age. No waiting for 65. This pension has yearly COLA adjustments. The pension is the main benefit of a military retirement and probably the only reason anybody would spend 20+ years in a thankless, physically demanding, and dangerous job largely spent away from home.

Leg #2 Stock/Bond Income:  My portfolio of stocks held in ROTH IRA and taxable accounts. Currently I only hold dividend stocks but would be open to bonds in the future. The goal here to increase my income stream while being tax efficient. I need to be able to beat inflation which is why my strategy is dividend growth. Compounding income at its finest.

Leg #3 TSP (Thrift Savings Plan):  The Federal government's version of a 401(k). I do not like the TSP, it only has 5 funds to choose from. 4 of them are broad index funds. The advantage is that the expense ratios are very very low. For example the C fund (S&P 500) is only .025%. SPY is .09% and it would be hard to find a public fund much lower. I'm ideologically opposed to mutual funds/ETF's, I only do the TSP because I get a match and it's tax deferred. I have my TSP parked in the G fund which will never lose principal and pays interest roughly equivalent to a 10 year treasury bond. I plan to roll this over to a traditional IRA when I exit the military. Actually I'd like to roll it over now, but cannot.

Leg #4 Social Security:  This is the leg that worries me the most. I'm paying into it so I better be able to collect. We'll see.

When I'm older I may get an inheritance from my family. I want to retire on my own without help so I don't think about it too much. If I had a normal job I'd be interested in owning a couple rental properties. Unfortunately I will be moving every 2-3 years. Real estate isn't feasible for me.

Grocery Shopping

I have a funny way of picking products at the grocery store.  I choose brands I own stock in.  I know the $55 I spent on groceries today makes no difference to profits of the corporations I own, I guess it's the principle of it.  I kind of feel that the dividends I receive from Companies like PG, PEP, and GIS help to pay my grocery bill.  These types of companies are the easiest to understand since I use the products everyday.  To me that's the greatest part about investing in consumer staples; they produce products people will use whether the economy is good or not. 

Anyways I went to the grocery store today and purchased 31 items.  19 of which are manufactured by companies I own stock in.  That's 61%, not bad at all considering a lot of foods such as milk, bread, and fresh produce aren't manufactured by publicly traded corporations.  Here is what I bought:

Coca Cola:
1xDasani water (24pk)

General Mills:
2xCheerios
1xGreen Giant baby carots
2xYoplait yogurt

Johnson & Johnson:
1xAveeno lotion

Pepsi:
2xAmp Energy drink
1xHoney Graham Oh's cereal
1xPepsi (12pk)
1xQuaker Oat instant oatmeal

Procter & Gamble:
1xDuracell batteries
1xGain dish soap
1xPert Plus shampoo
4xPringles

Other companies I will be looking to buy in the future include Kellog (K), H.J. Heinz (HNZ), Colgate-Palmolive (CL).  Other companies I've looked at: ConAgra foods, Kraft foods, Hormel, Nestle, and Unilever.

LTC Properties Increases Dividend

LTC Properties (LTC) recently raised its dividend from $.14/month to $.145/month an increase of about 3.6%.  I am not surprised by the announcement since it's FFO payout ratio is 85.20%.

LTC Properties (LTC) is a Real Estate Investment Trust which invests in nursing homes and senior housing.  I originally bought this investment back in March 2011 because I think there will be a lot of money to made in senior housing as the US population ages.  There are other REITS doing the same thing, but I was attracted to LTC because they have a lot lower debt and leverage than peers I evaluated at the time.  Since my initial purchase LTC has increased debt which doesn't bother me too much since interest rates are low. 

I was not planning for LTC to be a large position but back in August the stock was getting murdered.  There was blood in the streets so I doubled down and picked up more in the low 20's.  I do not expect large dividend increases from this position and if there are some freezes along the way I'm ok with that.

Looking Back at 2011

Wow 2011 was a long year.  Up until May I was deployed to Kuwait where I spent 2 years.  I took leave in February to Thailand, it was my third visit to that wonderful country.  If my early retirement doesn't turn out as planned, I would consider living in Thailand, it's awesome there!  Then May finally came and I got to come back home.  I took all my leaves to Thailand so at that point I hadn't been on U.S. soil in two longggg years.  But returning home was awesome, I have so much perspective on how great our country is.  The kind of thing you can only appreciate after being gone so long, and stuck in a terrible part of the world.  The Middle East is horrible, I'm in no hurry to go back. 

Americans have no idea how spoiled we are.  Seriously no idea.  It disgusts me sometimes.

Upon returning to the states I spent 10 days with my family and I bought a car.  Paid for it with cash.  I loaded up my new wheels and drove to North Carolina where I'm now stationed. I found out N.C. is dang hot in the summer, almost as hot as Kuwait.

Investments:

I had a fantastic year of investing.  Dividend growth investing has worked like a charm so far.  Much better than mutual funds and indexing. Until rates start to increase I'll stay as far away from bonds as I can.  The 10 year treasury currently pays under 2%, what a joke.  I'd like to diversify into bonds, but it would be de-worse-ify at this point.

I had some great picks last year.  It makes me happy and sad at the same time.  It's nice to get some price appreciation (it's not my goal), but it's sad to see prices skyrocket because I want to buy more. 

A lot of my picks have gone up substantially and I wouldn't buy them right now.  ABT (20.04%), CVX (24.43%), EIFZF (28.04%), INTC (24.74%), LTC (22.84%), PM (22.27%).  Some have gone down.  BWP is down 6.30% and I took a small loss (2.6%) when I sold CIZN.  Overall it's pretty amazing that 19/20 stocks in my portfolio are up.  I don't claim to be a genius though, the DOW is over 12,000. 

The best luck of 2011 was HGIC getting bought out.  Before news of the deal, HGIC was getting murdered.  I think my position was down 20-25%.

My biggest regret of the year is missing out on MCD.  It was in the $75-80 range when I wanted to buy it, but didn't have funds at the time.  Now it's around $100.  I also missed WMT under 50, whoops.

Looking ahead Philip Morris Intl. is my favorite stock.  I can tell you first hand people smoke Marlboros in Thailand and Kuwait.  I should have paid more attention when I was in Qatar, but I think I saw them there too.  In fact when I was smoking an off brand cigarette in Thailand a waitress looked at me funny and asked why I wasn't smoking Marlboro.  It's a status symbol around the world, they can charge a premium price (even in poor countries like Thailand).  I foresee PM becoming a dividend monster.  I want to make it my largest holding and will be buying more on dips.  So far I got in at 62 and 66, I might have to revise my acceptable entry price because the stock has taken off.  Oh and they increased the dividend by 20% last year and have been destroying earnings estimates lately.