November Recap

Another fantastic month for dividend growth investing.  Total dividends received since I started income investing surpassed $5,000 this month.  Not bad at all.  Perhaps I can hit $10,000 by this time next year...

DOW: 13,022 /// S&P 500: 1,416 /// 10-YR BOND: 1.62%

New Purchases:
1) 37 shares KMI at $33.91 - $53.28 annual income
2) 15 shares MCD at $85.91 - $46.20 annual income
3) 53 shares AVA at $23.27 - $61.48 annual income
4) 29 shares SO at $42.18 - $56.84 annual income

Sales:
none

Dividends Received: $423.07
AT&T (T) - $80.52
General Mills (GIS) - $23.28
Raytheon (RTN) - $28.50
Linn Energy (LINE) - $43.50
Abbott Laboratories (ABT) - $27.54
Boardwalk Pipelines (BWP) - $91.06
Exchange Income Corp (EIFZF) - $17.21
Kinder Morgan, Inc (KMI) - $12.96
Procter & Gamble (PG) - $43.84
Realty Income Peferred F (O-PF) - $6.76
Senior Housing Properties (SNH) - $21.84
LTC Properties (LTC) - $26.06

Dividend Increases:
1) EMR: $.40 to $.41 per quarter.  $2.20 per year
2) T: $.44 to $.45 per quarter.  $7.32 per year
3) EIFZF: $.135 to $.14 per month (Canadian).  $7.51 per year

New Deposits: $6,390
$300 to ROTH IRA, $6,090 to taxable account.  (I received a bonus payment 6 months early)

Lending Club:
Added $50.

Option/Bonus:
none

2013 ROTH IRA Contribution Limits Increased

Contribution limits for IRAs and ROTH IRAs will be $5500 next year!  As long as you earn less than $112,000 (single & head of household) or $178,000 (couples) this is the new limit for the ROTH.  My earned income is nowhere close to these lofty numbers meaning I easily qualify.  Qualification criteria is slightly different for traditional IRAs.

I'm going with the ROTH option because capital gains & dividends compound tax free plus it's easier to access money before 59.5.  You can withdraw contributions any time, penalty free, which will work out perfectly for my situation.  In retirement I plan to only spend dividends and interest, while leaving principle intact.

New Purchase - SO

The latest addition to my dividend and income portfolio is 29 shares of the Southern Company.  This purchase will increase my yearly income by $56.84 on a 4.62% yield.  I'm actively trying to increase my utility holdings right now while prices are reasonable.  I don't think I need to introduce SO or what they do, this one is one of the largest electric utilities in the United States.  I like SO for a variety of reasons.  The population in their service area is growing faster than the national average, it's diversified into a wireless telecom business, it's large and stable, it has a history of growing EPS better than peers, and it is currently building the first new nuclear reactor on US soil in 30 years.  Obviously the yield is quite attractive.  The payout ratio is fairly high, but I'd be thrilled to see dividend growth of 3-4%.

I did catch this one at the 52 week low, but the valuation I paid is about average historically speaking.  Utilities have been pretty pricey most of 2012 as income investors have bid them up for the income.  With bonds paying next to nothing investors need to find yield somewhere.  So basically I'm okay paying an average valuation in a low interest rate environment.  I certainly don't think this one is a bargain, but it's not terrible either.  I like SO a lot and will be happy to collect the slowly growing dividends.  This company is going to need to replace or upgrade many old coal power plants, it's something I will keep an eye on.  Hopefully the new nuclear facility will help SO move further away from coal.

I might make one purchase in November.  Right now I'm considering INTC, PPL, VZ, and NSC.

Dividend Increase - T, EIFZF

I'm very pleased to see every single one of my dividend stocks increased payouts in 2012.  AT&T and Exchange Income Corp. were the remaining companies I was waiting on.

AT&T:
This is the third increase since I became an owner of the telecom giant.  No surprises here, the quarterly dividend of $.44 was raised to $.45.  This increase of 2.27% roughly matches inflation, no complaints from me.  T is in my portfolio for its huge yield with inflation protection.  It is performing as intended.  The new and improved payment won't hit my account till 2013 but will be the 29th straight year of increases.

Exchange Income Corporation:
Believe it or not I had to pay a $57.95 commission to buy shares of this company!  That is the fee fidelity used to charge to invest in pink sheet foreign stocks.  Pretty crazy!  If I wanted to buy or sell EIFZF now the fees have been reduced to a reasonable $7.95.  Even with the ridiculous commission I paid, the YOC on this one is over 8% now.

I cannot and do not recommend this company to anybody.  This one is the oddball stock in my portfolio.  It's a Canadian company that operates regional airlines & helicopter services, plus they manufacture cell phone towers, pressure washers, custom tanks/trailers, and other specialized products.  Yeah sometimes I wonder why I even own this!  Then the dividend rolls in every month and my memory is refreshed.

EIFZF increased its monthly dividend from $.135 to $.14 (Canadian) which is a 3.70% boost.  Exchange Income acquires companies in the transportation & manufacturing industries, integrates them under the EIF umbrella, then handsomely rewards loyal shareholders with massive monthly dividends.  It's growing pretty fast and has benefited from a contract to manufacture cell towers for AT&T.  I think I got lucky with this company, it's been one of my best performers.

New Purchase - AVA

I added 53 additional shares to my Avista holding.  This particular purchase will increase my annual income by $61.48 and comes with a solid yield of 4.95%.  I haven't purchased any utility stocks since 11/17/2011 so it's been a whole year!  As an income investor, I'm a huge fan of utility stocks.  I like the safety and stability this particular sector offers.  However I felt the sector was overvalued most of 2012 which is why I haven't bought any utility shares in a long time.  Post election, utility stocks are looking attractive once again!

Avista is a electric & gas utility that operates in Washington, Idaho, and Oregon.  Power sources: 51% hydro, 36% natural gas, 10% coal, 2% biomass, 1% wind.  Shares of its stock are currently trading at the 52 week low due to a poor earnings report.  AVA is a dividend contender with a 10 year streak of rising dividends.  I anticipate future dividend boosts to be modest but higher than inflation. 

It seems utility companies are going through a transition right now.  The trend is moving away from coal power generation and moving towards natural gas.  There are a couple factors impacting this change.  First of all, the Obama administration is keen on clean energy.  EPA regulations are tightening down on pollution controls which makes natural gas a good solution.  It's a lot cleaner than coal.  Many coal power plants are old and need to be upgraded.  Even though carbon-capture technology is available to reduce coal emissions, the technology is expensive to install.  Secondly the US has access to a massive reserve of natural gas due to new drilling methods.  With such a huge supply, the price of the commodity is now very cheap.  The way I see it, cheaper raw materials, lower emissions, and government regulation is the driving force for the future of natural gas power generation.  I expect coal powered generation to diminish over time.

Right now I own only two utilities.  AVA from the northwest and UNS from the southwest.  I'll be looking to add 2-3 additional utilities to my portfolio in the coming months.  I currently have a limit order in for SO and like what I see from PPL.  This would complete the geographic diversification I'm looking for.  Besides utilities, I'm currently interested in O, RSG, TD, INTC, and perhaps NSC.  I've made quite a few purchases this month and might have to pace myself a bit.  Its hard to keep money on the sidelines right now as investor fear mounts and prices fall.

Lending Club Update

 

 

As you can see, the returns are simply phenomenal!  It's tough to get interest rates like this in anything else except mortgage REITs.  I don't want to own mortgage REITs!

I've been investing at lendingclub.com for about a month and a half now.  So far no major complaints and no red flags.  I'm starting to think this is a valid investment option.  To date I haven't had any defaults or anything negative.

What I Like:
●Returns are very high (so far)
●Simplicity. This is very easy and takes little to no time. I spend hours and hours researching stocks before I invest, it's not necessary with lending club. A first grader could do this.  The site itself is also user friendly.
●If a loan defaults I can sell on the secondary market and recoup part of my losses.  I have yet to implement this tactic however.
●Fixed income alternative.  I plan to use LC as a portion of my fixed income allocation inplace of bonds and preferred stock.

Concerns:
●There aren't enough attractive (using my criteria) loans to put a lot of money into this.  I want to own as many loans as possible to diversify.  It's the same tactic I use in my stock portfolio to reduce risk.  Unfortunately I would have to modify my screens to be less selective to accommodate a large investment.  No thanks!
●I do not know how this will affect my taxes.  We will see during tax season!
●The interest these loans pay are front end loaded.  It shows a massive annualized return right now.  It will become lower over time.  I'm pretty sure I'll experience a few defaults at some point as well.
●Time delays.  It takes a little bit for a loan to fully fund.  Usually less than 5 days.  Then the loan has to be approved which can tack on even more days.  Then the payment rolls in and that has a time delay as well.  Patience is needed!
●Some loans are rejected further delaying investments

My Screen:
●36 Month - Term
●20 Max - Total Credit Lines
●0 - Delinquencies
●$15,000 - Max Loan Amount
●0-1 - Inquiries
●Consolidate Debt/Medical Expenses - Loan Purpose
●Exclude Loans Already Invested In
●10% - Max Debt To Income
●Mortgage/Own - Home Ownership
●4 Years - Min Length Employment
●B-G - Interest Rate

●Verify all information is filled out
●Verify all grammar and spelling is correct
●Verify requested loan payment is less than 10% listed income

This screen is quite selective.  I wouldn't even qualify!  I get excited to see a C or D make it through.  Most of the time there will be a couple B loans, sometimes nothing at all is available. 

For now I will continue investing with lendingclub.  Thus far the returns are great and it has surpassed my expectations.  I'll be adding another deposit soon.

Why Can't All Stocks Be Like This!!!!

I really shouldn't have checked this stock before I went to bed.  It's midnight and I can't sleep.  Even though I need to wake up early tomorrow so I can play Army in the woods the next few days, I can't stop thinking about this.

The Board of Directors of Southside Bancshares, Inc., (Nasdaq:SBSI), parent company of Southside Bank declared a special cash dividend for 2012 of $0.13 per common share in addition to declaring a regular quarterly cash dividend of $0.20 per common share. In addition, due to the potential changes in the tax code the Board approved a one time only additional cash dividend of $0.20 per share. The Board believes that it might be more beneficial for the shareholder to receive this one time cash dividend this year than in future years. This $0.20 one time only additional cash dividend will not be repeated in the foreseeable future. The combined cash dividend of $0.53 is payable to common stock shareholders of record November 21, 2012. The cash dividend is scheduled for payment on December 6, 2012.

Apparently paying a special dividend isn't enough for SBSI.  They decided to pay TWO special dividends this year!  HAHA this is awesome!  Not only that, but they also declared share repurchases on top of it all.

Let's recap 2012 for SBSI:

Dividend Growth >15%: check
Stock Split: check
Special Dividend: check
2nd Special Dividend: check
Stock Buybacks: check

I literally cannot think of any other company this shareholder friendly.  Why does SBSI have to be a bank?  I really want to transplant the management into a different sector!

Ok maybe I'll be able to sleep now.

New Purchase - MCD

The stock market took quite the tumble the past few days.  On top of the carnage, McDonald's reported horrible October numbers.  According to the report I read, sales were down 1.8% this October compared to last year.  US was down 2.2%, Europe down 2.2% and Asia/Africa down 2.4%.  Yikes!  Exchange rates made matters worse meaning it wasn't as bad in constant currencies.  Unfortunately currencies don't stay constant in the real world.  The numbers are what they are and is a negative aspect of having global operations.

It's no wonder MCD stock set new 52 week lows.  MCD is now trading at a 16.0 p/e which is lowest I've seen in quite a while.  I'm a long term investor buying shares of companies I plan to hold for many years.  I fully expect negative news and a bumpy ride along the way.  Even with short term struggles I think McDonald's will continue expanding operations and profits over time.  When I was a kid they used to report how many hamburgers they served on their signs.  It used to be "X billion served".  Then it was "billions and billions served" starting in 1994 because the number simply became too big.  Executives must have figured counting hamburgers past 100 billion was pointless.  McDonald's plan to take over the world is working nicely!

I added 15 shares to my portfolio at a 3.57% yield including commissions.  This is my fourth MCD purchase in 2012 and the best price to date.  I don't know if the price will go down from here, but I do know I picked up the shares in time to collect the dividend next month.

The way this market is headed I'll probably make one more purchase in November.

Emerson Electric Increases Dividend

Emerson Electric (EMR) will be increasing its dividend from $.40 to $.41 per quarter which marks 56 consecutive years of rising payouts.  Unfortunately this dividend boost is only 2.5% and pales in comparison to what they did last year.  I like to see rising dividends, but I must admit I'm disappointed by this announcement.  For a stock yielding around 3.5% I expect better dividend growth.  I can get the same increase from high yielding stocks such as T or SNH. 

Historically EMR has periods with low dividend growth so I'm not alarmed or even surprised.  Before I become a shareholder I always check a company's dividend history.  Over time I anticipate Emerson to average around 7% div increases.  Pre-announcement, the 5 yr average was 9.1% and the 10 year average 6.4%.  It seems Emerson is just being conservative this time.

New Purchase - KMI

I added 37 additional shares of Kinder Morgan, Inc to my portfolio.  This purchase will increase my annual income by $53.28 and comes with a respectable 4.22% yield after brokerage fees.  KMI already has a hefty dividend, it's exciting to think where the YOC might end up 2-3 years from now.  I already discussed my thoughts on Kinder Morgan last month, but will note I got in at a slightly better price in round 2.  There may be a 3rd or 4th round of KMI purchases if the stock continues to decline in price.  I think KMI will perform well over the next 10 years and possibly beyond if the US becomes more dependant on natural gas.  There are plenty of natural gas reserves and plenty of potential projects/expansions with this one.  Kinder Morgan is pretty ambitious!

I plan to make at least one more purchase in November.  I'm currently looking at the following companies: APD, MCD, NSC, RSG.  Perhaps KO or O if they fall a little bit.  Quite a few tempting selections on this menu.