Wednesday, July 31, 2013

July Recap

Usually investing is smooth sailing; unfortunately July was pretty rough.  Storm clouds of doubt started brewing around two of my positions: LINE & INTC.  Linn reported it is the subject of an informal SEC inquiry while Intel decided to throw me for a loop and freeze the dividend.  Not only that, but I utterly failed in my goal of putting new capital to work this month.  I find it extremely difficult to be excited about stocks at the moment.  The markets are near all time highs :(  The thing is, if you don't purchase equities where else are you going to go?  Even with markedly higher valuations, dividend stocks still seem to be the best option for income investors.  I kind of feel our hand is forced.

I will be experimenting with Google AdSense for the next couple months to see if it's worth bogging down the load time of my site.  Early results tell me pages load at approximately the same speed, and there is a small amount of money to be made. 

DOW: 15,500 /// S&P 500: 1,686 /// 10-YR BOND: 2.59%

New Purchases:


Dividends Received: $317.14
Baxter (BAX) $10.78
Coca-Cola (KO) $31.64
iShares Emr Mkt Bnd (EMB) $2.64
Illinois Tool Works (ITW) $11.02
Kraft Foods (KRFT) $13.50
Philip Morris (PM) $66.30
Corporate Office Properties series L (OFC-PL) $22.58
Exchange Income Corp (EIFZF) $17.17
Linn Energy (LINE) $24.16
Realty Income series F (O-PF) $6.76
W.P. Carey (WPC) $19.32
Bank of Nova Scotia (BNS) $36.19
LTC Properties (LTC) $26.06
Toronto-Dominion Bank (TD) $29.10

Dividend Increases:
1) COP: $.66 to $.69 per quarter.  $7.20 annual income
2) KMI: $.38 to $.40 per quarter.  $9.36
3) NSC: $50 to $.52 per quarter. $4.56

New Deposits:
$550 to taxable account.  I'll have a new budget in place in the near future and will post it.

Lending Club:
Added $25.  One loan paid off early, still no defaults.  I noticed the interest I gain on new investments is now lower than a month or two ago.  Drat.


Thursday, July 25, 2013

Intel Fails to Raise Dividend

Not Good.

INTC is due for a raise, but threw dividend growth investors a curve ball with today's announcement.  I haven't figured out how I'm going to react to a loss in purchasing power yet (inflation).  Many thoughts and questions are crisscrossing my mind at the moment.  Should I give Intel the benefit of the doubt and more time?  Are they telling me they aren't confident in their future prospects?  Why even own any tech stocks at all with uncertain long term futures?  Why didn't INTC give loyal shareholders at least a token boost?   Is this how they treat owners?  What can I replace it with? 

Personally I'm not attached to Intel or any tech stock at all.  Tech is the one sector I do not like.  A 0% weighting is completely okay, and pretty logical from the long term perspective.  I admit that I do have an attachment with certain companies such as Coca-Cola, Pepsi, Procter & Gamble, and Johnson & Johnson.  It's pretty easy to imagine a scenario where these sorts of dividend champions reward investors for many, many years to come.  With a company operating in a rapidly changing landscape such as technology, this blogger's simple mind doesn't know how it will play out.  Uncertainty.  Tech Stocks.


Thursday, July 11, 2013

ConocoPhillips Raises Dividend

COP announced that it is raising its dividend from $.66 to $.69 per quarter which is a 4.5% boost!  Well, Conoco is in good standing again.  No reason to be concerned about a frozen dividend anymore.  I'm very pleased with the announcement because I would hate to have sell a quality company such as COP.

Maybe the board of directors read my recent post and decided to keep me as a shareholder!  HAHA!

Wednesday, July 10, 2013

Three Potential Buys for July

The stock market is once again near all time highs making it difficult to find under valued stocks.  As always, I plan to make a purchase this month.  In order to build a passive income stream, I must buy income producing assets.  It's pretty simple.  Holding cash is not a bad idea right now, but I cannot predict the future.  Averaging in over time is a strategy that makes sense to me and has worked well for me in the past.  I'm looking to increase my position in a super high quality name this month.

Procter & Gamble:
Wow it has been two years since I've bought PG shares!  PG is a dividend king (50+ years of increases) and one of my favorite companies in the world.  The reason why I have shied away from buying PG has more to do with allocations than anything else.  My portfolio is reaching the point where I can start increasing my core positions again.  I'm pretty excited about that!  With a 3.0% yield, PG is looking attractive as a long term position.  It is well above my cost basis right now, oh well, that's what happens to strong stocks.  I'd be very interested in picking up shares around $77-78 if we happen to see a decent dip.

CVX is another dividend champion and favorite of mine.  I am actually underweight CVX at the moment and would have no problem scooping up a few shares.  I plan on selling some of my other energy positions in the near future which would leave me a lot of room to pick up CVX and XOM.  Last month I thought XOM had an edge in valuation, this month CVX is looking a little more attractive to me.  It is currently yielding about 3.3% and would make a nice contribution towards growing my passive income stream.  I'd be interested in adding shares around $117-119.

Southern Company:
SO is a small position that needs a boost in share count within my portfolio.  This is my favorite utility and one of my favorite dividend growth stocks to boot.  I think SO has a bright future, I definitely want to be a part of it.  I would classify Southern as fairly valued at the moment.  Not under valued.  That's okay because this is surely the highest quality utility around.  Yeah the dividend growth is a bit low, it's true.  On the other hand the yield is pretty nice and the increases can be counted on.  I'm looking to add a few shares around $42-43 if possible.

I'm going to buy something this month, it's just a matter of when.  The three companies listed above are my top choices at this point in time.  I am also considering KO, XOM, and GIS.

Sunday, July 7, 2013

Problems in the Portfolio

I own a portfolio of 35 stocks.  Each holding is supposed to pay a rising dividend that will be reinvested to create even more dividends.  Compounding is achieved through reinvestment coupled with the dividend growth itself.  In 15 years I will retire from the military, at that point I simply stop reinvesting and use the income for living expenses.  Pretty darn simple. 

For this to work, I need my holdings to raise distributions over time.  I expect most will announce a dividend increase every year.  That is my expectation for holdings such as JNJ, KO, and XOM.  I have some other holdings where I am a bit more tolerant of irregular increases.  LTC and EIFZF fall into that category.

Lately I have become a bit concerned with a handful of my holdings:

Boardwalk Pipeline Partners (BWP)

Portfolio Weighting: 2.77%
Distribution History:
Cause for concern:  Frozen distributions
Background:  When I purchased Boardwalk it had a history of increasing distributions every quarter.  The distributions in fact matched my expectations for the first year and a half.  Then all the sudden the increases stopped.  I did some research and came to the conclusion that the distribution is safe, but it will probably be a while until the increases start back up.  At that point I reduced my stake in this company.
Plan of action:  BWP sports a 7% yield, continue to hold & monitor.  Reinvest the income into other dividend paying stocks.  If the opportunity arises, consider selling and using the proceeds to invest in a more attractive company with a comparable yield.  Do not even think about buying more units!

ConocoPhillips (COP)
Portfolio Weighting: 2.76%
Dividend History:
Cause for concern: Frozen dividend

Background:  I've been a COP shareholder for over 2 years now.  During this time it spun off PSX, but has not raised the dividend even once!  OUCH :(  COP has a history of irregular increases, it's not always clockwork like CVX or XOM. 
Plan of action:  COP is a high quality company; give it a little more time (6-12 months) for a dividend increase.  If it does not cooperate, replace with a different company with a comparable yield.  Royal Dutch Shell or Altria are good replacements.  Use dividends to purchase shares in other companies, do not increase the weighting at this time!

Linn Energy (LINE)

Portfolio Weighting: 1.73%
Cause for concern: SEC investigation into accounting practices
Background:  Phew!  LINE has been the hot topic lately.  It has been reported that the SEC is investigating Linn right now.  Not good.  It's my understanding that the SEC is looking at its past hedging costs not being accounted for in its reported DCF.  Some have even called Linn a ponzi scheme, which is way out of line in my opinion.  I am concerned for two reasons: #1 will this squash the Berry deal (and future acquisitions)?  #2 Was Linn lying to unit holders and share holders?

I have spent a lot of time looking at Linn.  I knew this was a risky company and did not go into it blindly.  But if the company was lying to me, what could I do?  It's a tough one. 

Plan of action:  Be glad this is a small holding.  Wait to see what the SEC finds, ignore authors on seeking alpha (and other sites) who write outlandish articles bordering on libel for attention and page views.  Linn is very, very shareholder friendly; give them the benefit of the doubt.  Use the income to purchase other dividend paying stocks.  Do not increase weighting now or even if it is exonerated.  Move away from purchasing companies like LINE.  Instead buy companies such as KO, CVX, JNJ, and XOM.

Lessons to be Learned:

Diversification is KEY!  As much as you may like one particular business, there are no guarantees in investing!  All of the above stocks were my best idea at the time of purchase.  I bought them because I believed good things were coming!  Do not fall into the trap of a concentrated portfolio.  Unless you have the track record of Warren Buffet, you will need more than 10 positions.  My future will still be on track if LINE goes to zero because it constitutes a small portion of my portfolio.  A set back to be sure, but I'm fine either way!  Originally I thought 30-40 companies is a good number.  Now I think 40-50 is even better!

Diversification is KEY! It is worth mentioning again.  Even trusty old COP is not meeting expectations.  Look back at the past 5 years.  Powerhouse companies such as WFC and even the mighty GE were forced to cut dividends.  Perhaps those businesses weren't as strong as people believed.  No guarantees... and you aren't going to right every time!

Be careful with MLPs and High Yield Stocks.  Not only are they typically harder to understand, but it's difficult to replace the income if you are forced to sell.  If I have to sell LINE, I will not be able to recoup the lost distributions.  It's yielding 13% right now, impossible to replace.  If you are going to buy a high yield position, make sure the weighting is small.  Personally, I haven't used fresh capital to purchase LP units in two years.  I recognized the income replacement dilemma a while back.  If I had to replace something yielding 3-4%, it's not a big deal!

Slow and steady wins the race.  I don't need to invest in high flying companies with huge yields to achieve my goals.  A better plan is to go with quality.  I am starting to understand this concept more and more as time goes by.  I need more stocks like GIS, PEP, SO, or ABT.  I even believe that long term you are better off with a quality company than a lessor company that is undervalued right now.  I'm going to spend a little more time investigating some names I currently do not own.  KMB, GPC, MDT all belong in my portfolio, yet I do not own them.  Shame on me!

Observation: All my problem stocks are in the energy sector.  COP, BWP, and LINE are all energy stocks.  I'm going to stick with CVX and XOM from this sector going forward.  Those are the two best names around.