August Recap

August was a fantastic month, I'm very pleased with the results.  I felt the market was kind of high and didn't buy much accordingly.  I have quite a bit of dry powder now; I'm ready for a correction.  Hopefully we'll see one soon.

DOW: 13,001 /// S&P 500: 1,399 /// 10-YR Bond: 1.62%

New Purchases:
1)  49 shares Corporate Office Properties Preferred Series L (OFC-PL) which will provide $90.36 in dividends every year.  I bought the shares at $25.43

Sales:
1)  18 shares Phillips 66 (PSX) reducing my annual income by $14.40.  I sold at $40.10 per share.

Dividends Received:  $409.77
AT&T (T) - $80.52
General Mills (GIS) - $23.28
Raytheon (RTN) - $28.50
Linn Energy (LINE) - $43.50
Abbott Laboratories (ABT) - $27.54
Exchange Income Corp (EIFZF) - $17.43
Procter & Gamble (PG) - $43.84
Realty Income Preferred F (O-PF) - $6.76
Boardwalk Pipelines (BWP) - $91.06
Senior Housing Properties (SNH) - $21.28
LTC Properties (LTC) - $26.06

Dividend Increases:
1) NSC: $.47 to $.50 per quarter.  $4.56 annually
2) ITW: $.36 to $.38 per quarter.  $2.32 annually
3) LTC: $.145 to $.155 per month.  $20.16 annually
4) TD:  $.72 to $.77 per quarter.  $3.20 annually

New Deposits:
$1035 this month.  $300 to ROTH IRA.  $735 to taxable account.

Options/Bonus:
-39 shares KO from the stock split

Toronto-Dominion Bank Increases Dividend

TD announced the next quarterly dividend will be Canadian $.77 per share which is a 6.94% increase over the previous payment.  This is the second boost in 2012 and the second consecutive year of dividend growth since the freeze in 2010.  Overall the company has been paying dividends since 1857 which is the third longest streak in Canada (only bested by BMO and BNS).  In general I am not a fan of bank stocks, but do feel comfortable holding Canadians.  I see major flaws in the American banking system and am more apt to trust the policies of our friends up north.  The payout ratio now stands at about 47% leaving room for future dividend growth if the company chooses to do so.  I anticipate TD being a solid dividend investment and plan to buy more shares.

Am I Good at Picking Stocks?

I am not attempting to beat the stock market when I choose stocks.  I am simply trying to build my passive income over time so that I can retire comfortably at an early age (late 40's).  I've been dividend investing for about 2 years now and have never sat down to compare my results to the market indexes.  It won't change my strategy, but I decided it was time to see how my choices have done.

This is a chart showing each purchase individually compared to the DOW.  I chose the DOW since it's a good representation of the type of stocks I like to own.  This is a price comparison only, it doesn't take dividends into account.  Check the last column to see how each purchase has performed.  0% would mean it matched the DOW.  Right now the DOW is 13,158


On average my picks have performed 4 percentage points better than the DOW.  Again this is just price, it gets better when you include yield.  I'm still not sure if it means I'm a good stock picker or it's just that investors have flocked to the dividend stocks I was buying in 2010-2011.  I don't know the answer.

Looking at the chart you'll notice my BWP and MCD picks were terrible.  I wanted MCD to be in my portfolio so badly that I overpaid for the priviledge.  BWP is a case of chasing yield.  Actually due to the massive yield, BWP is total return positive but I could have done better elsewhere. 

Take away point: Valuation is important, don't overpay for stocks. 

You'll make a lot more money buying when the market is low, but there is always something with a favorable valuation.  Right now I'm looking at INTC.

Watch List Update

Added:
-ADM:  A lot of savvy investors have been looking closely at ADM the past few months.  The share price has eroded to the point where it is trading below book value.  I'm really not very familiar with Archer Daniels Midland, but know they have a long streak of dividend increases.  I'll start monitoring ADM and learn more as I go.

-BDX: I'm looking to add one more stock from the healthcare sector. BDX is a dividend champion in the business of manufacturing medical instruments. Quite a few dividend growth investors like BDX, I would consider a purchase at a higher yield. I require a minimum of 2.75% yield at purchase. All it would take is a dividend increase and a lower price. This stock will likely sit on my watch list for a long time. I want to start monitoring it and become more familiar with the company.

-HRS:  I am employed as a satellite technician in the US Army.  We use a lot of Harris products, more than any other DOD supplier/contractor I can think of.  In the past I wasn't a fan of HRS because the Harris equipment we currently use is old technology.  Newer and better technology is available right now.  The bottom line is the Army will continue to use the old Harris equipment because it's extremely reliable and already paid for.  Reliability is key in the communications field.  You don't want to lose comms and piss off some General.  Anyways about a month ago a couple Harris technicians visited our site to fix a few things and train us.  Obviously I used this as an opportunity to learn more about a possible portfolio candidate.  What I discovered is that HRS is currently working on replacing/upgrading most of the systems at fixed satellite terminals.  This is going to be a huge project down the road and likely good for dividend growth.

-NNN:  This is a REIT with a nice yield and a history of dividend increases.  The ticker "NNN" refers to the triple net lease structure.  Basically this means the tenants are required to maintain the property, pay the insurance, and pay the taxes.  National Retail Properties (and most other REITs) just sit back and collect rent/lease fees.  I'm starting to look at REITs from other industries besides healthcare.

-PSX:  I sold my tiny PSX position a week or two ago.  I still like Phillips 66 and will continue to monitor it.

Deleted:
-SNH: I became a shareholder.
-WR:  Seriously doubt I'd ever buy this one.

Budget

Here is my new budget I'll be following until I leave Korea in June 2013.  All the items are allowances, it's the most I expect to spend in any given month.  In reality I usually have money left over which I can use to purchase more stock or to have fun.  Probably 99.99% of the military does not receive a TSP match (federal employee 401k).  They put me in the TSP matching pilot program when I enlisted in 2008 as an incentive to pick my particular job.  It's very rare and is set to expire in less than a year as far as I know.  When the matching is gone, I'll stop contributing to the TSP.  It's a horrible program with only 5 investment choices.  100% of mine is in the G fund.

Income:
$2,500 - Take Home Pay
$125 - TSP Contribution
$100 - TSP Match
$2,725 - Total Income

Fixed Expenses:
$0 - Rent
$0 - Utilities
$45 - Car Insurance
$60 - Cell Phone/Internet
$225 - Car Savings Acct
$250 - Travel Savings Acct
$580 - Total Fixed Expenses

Variable Expenses:
$200 - Groceries
$0 - Gas
$40 - Haircuts
$500 - Fun Money
$145 - Misc. (clothes, uniforms, etc.)
$885 - Total Variable Expenses

Investments:
$1,035 - Dividend Stock
$125 - TSP Contribution
$100 - TSP Match
$1,260 - Total Investments

Savings Rate - 46.2%

Since I lasted posted a budget in February I find myself in a different set of circumstances.  Being stationed in South Korea means I have reduced expenses and increased pay.  I also received a small raise a couple months ago of like $100/month.  My car is in storage yet I still set aside money every month to buy a newer vehicle in the future.  I still have insurance on my car, even though I don't drive it.  I found out I have to keep some liability unless I turn in my registration and plates (which I can't do now that I'm here).  I also increased my fun money by 2/3 and save money every month for a trip to Thailand.  I'm going to live like a king while there :)

I ended up getting a Samsung Galaxy M-style smart phone, which is nice to have.  It has unlimited data so I tether it to my computer.  $58/month gets me unlimited data, I doubt it would be so cheap in the states.  It's 3G though so my internet is not blazing fast like before.  Overall I do not need a smart phone, but it's nice to have portable entertainment.

I'm very pleased with my savings rate, it doesn't feel like I'm sacrificing anything.  I could easily achieve a 80%+ savings rate if I wanted to.  I know I'll be working for another 15 years, I want to live in the present a bit.  No reason for me to get excessive with retirement saving, think I found a good balance.

LTC Properties Increases Dividend

LTC Properties (LTC) declared a 6.90% increase to its monthly dividend to $.155 per share.  This is the second increase in 2012 which has surpassed all my expectations.  It's difficult to imagine a REIT could maintain a double digit DGR, but who knows I never thought LTC would reach these heights in the first place.  With a high yield on cost stock like LTC, I'm okay with low dividend growth or freezes going forward.

I sold part of my LTC position last month, which kind of stings a little bit with the latest increase.  If I wanted to I could buy the shares back at a cheaper price right now.  I still don't want it to be my largest holding, but I do like LTC's management and future prospects. 

Sold PSX

My position in Phillips 66 was liquidated at $40.10.  These were shares received from the ConocoPhillips spinoff a few months ago.  I'd note that I will still receive the first ever PSX dividend since it went ex last month.  Overall I managed about a 26% total return gain based on the adjusted cost basis from the spinoff.  This includes the upcoming dividend payment (excludes past COP payments).  This sale will reduce my annual income by $14.40 which isn't a big deal since Phillips 66 was by far my smallest holding and income producer.

Like I was saying in the previous post, PSX was cut loose because it's yield fell below 2% and management has stated they are targeting a low dividend growth rate of only 5%.  When one of my stocks falls to a low current yield, I will always consider a sale.  If I have reason to believe the future DGR will be high it could be a reason to continue holding.  It will vary stock to stock and is subject to market conditions.  In general I do not like yields less than 2% since it slows down the compounding process.

I do not have a replacement company in mind at the moment, but the proceeds will eventually be invested at a higher yield.  I still think PSX has a bright future; it will be relegated to my watch list for now.

On The Chopping Block: PSX

I'll start by saying I believe Phillips 66 has a bright future.  I listened to the recent conference call which helped me better understand what the company is doing.  PSX is committed to growing the business and returning cash to shareholders.  Management is targeting a 5% dividend growth rate and intends to make annual increases for many years to come.  I'm going to take management's word on the dividend policy.

With the recent price run up, PSX is now yielding 2.02%.  I will sell pretty much anything if the yield goes below 2%, especially something with a low expected dividend growth rate.  It's nothing against PSX, but I should be able to make better use of the cash in something else with a higher yield.

Sell limit order placed @ $40.10

Illinois Tool Works Increases Dividend

ITW's board of directors approved a 5.56% increase in the quarterly dividend to $.38.  The latest increase extends ITW's streak to 49 straight years placing it in the prestigious dividend champions category of dividend growth stocks.  Not many corporations can boast longer streaks.  I'm a little bit disappointed that the increase was so small this year especially considering its yield is an anemic ~2.5%(pre-announcement).  The good news is that 5.56% beats inflation. 

At this point in time I'm not looking to add to my ITW position.  I'll hold out for a more enticing entry yield.

New Purchase - OFC-PL

I scooped up 49 shares Corporate Office Properties preferred series L yesterday at $25.43/share + commissions.  This is a bit of a speculative move that comes with a nice yield.  These shares will pay me $90.36 per year on a 7.21% YOC.  It was time for me to buy fixed income and after careful consideration I decided to buy another preferred stock.  Corporate Office Properties is a REIT which specializes in (you guessed it) office properties.  These are multi million dollar buildings leased to various companies with an emphasis on Department of Defense suppliers and contractors.  Make no mistake, Corporate Office Properties is not a super stable corporation like Johnson & Johnson.  They make heavy use of debt to expand and finance new endeavors.

Seeing that this investment is preferred stock, I'm not as concerned about whether the common stock sees dividend cuts, freezes, or increases.  I only need enough cash to be generated to cover my shares' dividend which will be paid before the common.  I like that series L is a new issue which allowed me to get in close to par.  I paid less than 2% over.  Series L is cumulative and not callable for 5 years.  Interest rates are supposed to remain low for a few more years which should be good for preferred stocks.  Rapidly rising interest rates might erode share price, but I don't see that happening for a while.

Some drawbacks to OFC-PL include liquidity, absolutely zero dividend growth (or any future chance), interest rate risk, and a less than stellar balance sheet.  If you look at OFC you will notice it has negative EPS, this is because the company took impairment charges Q4 2011.  Cash flows remained intact.

I believe the rewards outweigh the risks with this particular purchase.  The income is outstanding.

Norfolk Southern Increases Dividend

NSC reported it will hike its quarterly dividend 6.38% to $.50 per share.  This a small increase for a stock yielding under 3%, but it is the second increase this year.  The company also reported plans for additional share buybacks.  Personally, I'm neutral on share buybacks.  I'd rather just have the cash in the form of a dividend to use as I see fit.  On the other hand reducing the sharecount should increase EPS to make room for future dividend increases.  For those who don't know NSC operates railroads in the United States and has raised dividends for the past 11 years.  It's a fairly popular stock among dividend growth investors.