New Purchase - KO
I added 35 shares of The Coca-Cola Company at $36.07 which will increase my annual income by $35.70. This purchase came with a yield of 2.83% before commissions. As many of you know, I've been looking to add to my KO position for quite a while now. The last time I bought KO shares was June 2011 so it's been a good year and a half. To be honest, I'm not excited about the price I paid but you'll rarely see this company on sale. I decided to go ahead and pickup some shares now and just get it over with. This is a company I never plan to sell meaning 20 years from now I doubt I'll really care if I paid $36 or $35 or $33. The point is to increase my stake in this fine company and collect rising dividends the rest of my life. Coke has a dividend growth streak of 50 years. Impressive!
Sale - BWP / New Purchase - LINE
Boardwalk Pipelines (BWP) was one of my earliest purchases and frankly has been a disappointment. I have some concerns with the safety of the distributions of this MLP so I decided to take a loss and trim back the position. I sold 50 units at $25.05 which will reduce my annual income by $106.50 per year. The concern here is that distributable cash flow coverage is thin and distribution increases have stalled. BWP has a history of increasing the distribution every quarter, and was doing exactly that until about 6 months ago. I've spent a lot of time listening to conference calls and reading articles on Boardwalk trying to figure out what went wrong. I do not think the distribution will be cut, but I want to play it safe here. I foresee flat payments until some of the projects they are building come online. Pipeline systems and storage facilities are not built overnight. It could be a year or two until BWP gets back on track. At this point I'm not ready to give up on this company, but as a precaution I think it's prudent to hold a smaller position. I have a fair value of $31 on this company and do feel it is undervalued right now. They've also taken steps to diversify their business away from 100% natural gas. I like that.
With the proceeds from the BWP sale plus some extra money, I purchased 40 units of Linn Energy at $36.04. These units will increase my annual income by $116.00. This swap was actually completed Thursday US time. I wish I would have waited one more day to do this transaction, but I'm only human and cannot predict the future. Basically what I did here is trim BWP and add LINE. I'm more comfortable with this weighting.
I have to be honest with myself, I suck at picking MLPs. I really like the concept of side stepping corporate taxes allowing for huge distributions that are tax deferred until sold. It's a fantastic idea. Unfortunately I haven't quite figured out how to make sound decisions in this industry. Valuing MLPs is a difficult task. I'm not going to throw new money at MLPs until further notice. That includes KMI. Even with KMI I've never really known if I'm under paying or overpaying. I've learned that yield alone is not a good enough reason to buy a company. Even though I have spent numerous hours researching Master Limited Partnerships, I just can't seem to get it right.
I also had a limit order to purchase LO which didn't execute. The stock market opens at 11:30 PM here so I'm forced to set limit orders before I go to bed and hope they fill while I'm sleeping. LO came within a few cents of triggering. I've also reconsidered my stance on Hasbro. New information has been brought to light. Kids are increasingly interested in tablets and smart phones. It makes sense that toy sales would be hurt with all the new technology these days. I've seen this trend first hand with my coworkers kids. At Thanksgiving, my buddy's son just sat there and played with an Ipad all night. Back when I was his age it would have been HE-MAN or GI JOE. Times are changing... Not sure why I didn't pick up on this before.