New Purchase - GPC

16 shares GPC, 2.68% yield, $36.80 annual income

I went ahead and snagged some additional GPC shares the other day.  Yeah, yeah I know.  Shares aren't exactly cheap right now (not that GPC ever is), but this one of a handful of companies I don't mind paying a premium for.  I am in fact willing to pay extra for added certainty.  Certainty of dividend growth.  (Almost) certainty of EPS growth.  I don't really like surprises which is where GPC really shines.  Far from a sexy business, yet very steady.  Anyways Genuine Parts is a company run very well.  I regularly listen to conference calls and feel quite comfortable with these guys controlling the fate of part of my portfolio.

58 consecutive years of dividend growth says a lot!

$374.03 of this purchase was reinvested dividends... yet I will add it to my cost basis unlike DRIP investors who think reinvested dividends are free... sigh...

Now that I control 31 GPC shares, it has a dividend weight of 1.15% and will pay me a total of $71.32 per year.  I have plenty of room to keep adding shares of Genuine Parts, though I might just purchase some new DE or GE shares Monday next week.  We'll see...

Sorry that I don't really respond to comments anymore.  To be 100% honest, I'm not really that interested in blogging/blogs right now.  I want to keep posting what I buy for future reference though.

Have a great weekend you guys!

Weekly Purchase - DE

7 shares DE, 2.75% yield, $16.80 annual income
1 share GE, 3.38% yield, $.88 annual income (FRIP purchase)

Deere & Company again.  I now control 38 shares and will consider adding more until somewhere around 50 to 55 shares.  That number could go up it's not set in stone or anything.  DE has a dividend weight of 1.48% at the moment.  Building it up slowly but surely.

I'm planning to do a purchase in my ROTH IRA and have been eyeing GE or GPC as potential candidates.  It would be awesome if share prices dipped on either of those names.


Norfolk Southern (NSC) announced a 5.6% raise from $.54 to $.57 per share each quarter.  This marks the second 2014 dividend increase from NSC for a total of 9.6%.  I'm very happy with this railroad giant.

Weekly Purchase - DE

7 shares DE, 2.70% yield, $16.80 annual income
1 share GE, 3.35% yield, $.88 (FRIP purchase)

More Deere this week.

Weekly purchases are winding down for me. Two more then I revert back to bigger buys.  I'm still not convinced frequent small purchases is really better than large purchases.  But I will say it's fun!  The biggest advantage is psychological.  It's far easier to commit a few hundred bucks at a time than a few thousand.  There is some value in that, especially for new investors or those prone to hold too much cash.

Dividend Increases
ConocoPhillips (COP) raised quarterly dividends from $.69 to $.73 which equals a 5.8% raise.  5.8% is higher than inflation, not bad!  In the past COP announced dividend raises at irregular intervals so I'm quite pleased the company seems to have started a pattern of raises each July.  Irregular intervals cause me to worry.  I much prefer regular schedules I can count on.  This increase puts an extra $12.48 in my pocket over the course of a year which is just as good as many of these weekly purchases I've been doing.

Omega Healthcare Investors (OHI) announced quarterly dividends will be raised from $.50 to $.51.  This is the third OHI increase this year for a total of 6.3%.  6.3% easily beats inflation, so yeah I'm quite pleased!  OHI is a beast of a REIT growing FFO and FAD rapidly.  Glad I got in on this one.  I can now expect to rake in an extra $4.28 per year based on the new payment.

LO and RAI to Merge
Today we were informed Reynolds American plans to gobble up Lorillard for $50.50 cash and .2909 shares RAI stock.  Regulators still have to pass the merger, but I really don't care either way.

I'd have no problem taking the RAI stock and using the cash to buy more.  Reynolds is a fine tobacco company in its own right.  Quite a few investors seem to be spooked by a potential menthol ban.  I personally don't think it will happen (blatantly unAmerican to which I take offense, plus you need an iron stomach to hold tobacco stocks anyways), but if it was to occur RAI is better positioned than LO.  RAI doesn't rely as heavily on menthol cigarettes. It also sells dip and snus with awesome brands such as Camel, Kodiak, and Grizzly.  I wouldn't mind owning a piece of those businesses.  Not at all!

RAI = suitable replacement for LO.  Better diversity, higher current dividend yield, less reliance on menthol.  At the cost of lower dividend growth.  Overall I don't mind.

Or regulators kill the deal and I can continue owning LO with its higher dividend growth.  Not a problem.

If the deal does go through, Blu e cigs will sold.  Reynold's already owns Vuse (I didn't know that till today) which seems to be more popular than Blu anyways.  Not sure if Vuse is marketed nationally yet, but I see it all the time in Colorado.  More so than Blu, though my experience is anecdotal.  Also Maverick, Kool, and Winston get the axe.  Basically they keep only the best brands in Newport, Camel, Pall Mall, Kodiak, Grizzly, and Vuse.  Makes sense.

RAI or LO.  Rising dividends will continue hitting my account either way.  We'll see what happens.

Weekly Purchase - DE

6 shares DE, 2.66% yield, $14.40 annual income

I'm building a position in Deere & Company right now.  I think the company has a very bright future as the world population grows and modern farming techniques are adopted in other parts of the world.  It seems to me I could profit on a trend like that and also collect rising dividends in the process.

I'm looking to buy great companies with rich histories of taking care of shareholders.  Even then I cannot pay any price when acquiring parts of these businesses.  The cheaper I acquire shares the more shares I can buy with the same amount of capital and therefore collect more dividends.  I have a predetermined list of 50 companies I plan to own.  The only thing left is acquire the shares at favorable prices to the best of my ability.  I think DE shares should be worth $117 so yeah I believe I'm getting a nice discount with today's purchase.  I could be wrong about its fair value.  However I do prefer to at least have some idea about what shares might worth as opposed buying stocks based on stocks charts or even completely in the dark.  I find my system to be quite useful yet it isn't perfect.

With 24 shares, DE now has a dividend weight of 0.94%.  I could easily build up to a 50-55 share position as part of a balanced portfolio built for sleep well at night income generation.  Besides DE I'm looking to start new positions and to beef up holdings with dividend weights less than 1%.  At this point I'm keeping an eye on GPC (.56%), BP (.38%), GE (.78%), and XOM (.77%).  UL (.56%), KRFT (.93%), and ITW (.80%) are pretty much uninvestable  for new money as much as I'd like to add.

Today's purchase was commission free as I still have free trades available.  I plan to purchase income paying securities, most likely dividend stocks, on a weekly schedule for the rest of July.  Then I'll resume larger purchases.  I have extra free trades for August and beyond, but not enough to burn through them via weekly buys.


Midyear Financial Goals Update

1. Increase forward annual dividend income to $6,880 ($573 per month)
Starting the year at $5,680 I need $1,200 of progress.  Not including today's purchase my annual dividend income went up by $623 so far this year.  52% of $1,200 is slightly ahead of schedule half way through .

Looking ahead:  Monthly capital infusions have been better than expected allowing me to purchase more stock than previously thought.  Higher market prices have been working against me since I can't buy as many shares with the same amount of money.  Not only that, but I'm working on weightings which means I can't really buy high yielding stocks such as REITs or tobacco companies at the moment.  The typical stock I'm buying right now pays less than 3% making this goal somewhat problematic.  I also expect fewer dividend increases for the back half of the year.  Accomplishing this goal will be challenging, but I think it is possible if I want it bad enough.

Status: on track, but I need to increase my savings rate.

2. $20 monthly Lending Club interest
Last month I received $14.82 worth of Lending Club interest.  During December 2013 I received $8.75.  I'm very pleased with the progress.  I plan to change nothing.

Status: on track and looking good.

3. Average monthly brokerage deposits of $1,300
I averaged $1,717 so far this year.  I'm really doing well here.  A few things have changed since I crafted this goal late last year.  First off my employment income went up by a nice amount on the back of some decent raises.  Second of all I have taken steps to reduce fixed monthly expenses.  I switched car insurance, I ditched cable and bought a digital antenna, and started using cash back credit cards for everyday purchases.  Small things like that do add up!  Also my rent went up by less than $1 per month and I fully funded my savings account for a future vehicle.  Yep.  When it comes time to purchase a new vehicle (used obviously) I will be paying cash.  The money has already been saved, and it feels awesome!

Looking ahead:  I think I could easily save upwards of $2,000 per month later this year.  Right now I'm working through some large expenditures and will likely only deposit $1,700 per month for the time being.  I need new tires for my vehicle, I just bought a new smart phone, I still need to buy my season ski pass, I'm buying snowboard boots, and will continue getting preventative maintenance done on my truck here and there.  Once I get through that, savings will pick up.

Status: on track and looking good.

June Recap

The last stock market correction was two years ago.  I find myself wanting to hone my skills as an income investor and that means not panicking when stock prices sour.  I need a test, some practice, just to make sure I'm at peace with my chosen strategy.  I don't check my accounts at all except to buy new shares or track dividend payments on personal spreadsheets.  Even then I intentionally avert my eyes from the part of the computer screen that displays portfolio value.   I calculate portfolio values once per month when I do monthly recaps though it's for my readers not for me.  In my head I remind myself the value of my stocks do not matter, only the income stream it produces.  I do whatever I can to keep myself in the correct state of mind and focus on what's truly important (replacing employment income with dividend income).  Mental tricks.  Hopefully I will have trained myself by the time the markets inevitably correct.  I need a test; I feel rusty.

LTC Properties became the second holding to pay over $1,000 dividend income.  Next up is Philip Morris perhaps as soon as January next year. The only other thought worth noting is that June was the second commission free month in a row.  That streak will end in July when I do a purchase in my ROTH IRA account.

DOW: 16,827 /// S&P 500: 1,960 /// 10-YR BOND: 2.52%

New Purchases:
1) 3 shares DE at $91.32: $7.20 annual income
2) 4 shares BAX at $73.68: $8.32
3) 3 shares DE at $90.21: $7.20
4) 4 shares BAX at $73.74: $8.32
5) 3 shares DE at $91.17: $7.20
6) 5 shares PG at $78.69: $12.88
7) FRIP: 2 shares GE: $1.76

Sales:
none

Dividends Received: $617.93
ConocoPhillips (COP) $53.82
Walmart (WMT) $15.36
Southside Bancshares (SBSI) $15.84
iShares Emer Mkt Bnd (EMB) $2.46
Southern Company (SO) $33.60
Chevron (CVX) $60.99
Emerson Electric (EMR) $23.65
Exxon Mobil (XOM) $11.73
Johnson & Johnson (JNJ) $42.00
Lorillard (LO) $51.67
Norfolk Southern (NSC) $30.78
Target (TGT) $27.95
Unilever (UL) $8.55
Avista (AVA) $49.85
McDonald's (MCD) $49.41
Realty Income (O) $15.69
Realty Income Series F (O-PF) $6.76
BP (BP) $5.85
LTC Properties (LTC) $28.58
Owens & Minor (OMI) $25.75
Pepsi (PEP) $57.64

Dividend Increases:
1) O: $.1824792 to $.1827917 per month: $.36 annual income*
2) TGT: $.43 to $.52 per quarter: $23.40
3) WPC: $.895 to $.90 per quarter: $.44*
*: second increase this year

New Deposits:
$1,700 to taxable account, $100 to lending club

Lending Club Interest:
$14.82

Recent Buys

5 shares PG, 3.27% yield, $12.88 annual income

I think PG is decent buy right now for long term investors.  Awesome company.  In fact this company is so awesome it has increased dividends the past 58 years.  Go ahead, start a corporation from scratch right now and try to match that feat.  You probably have betters odds of winning the lottery...  Procter & Gamble was able to achieve greatness because of branding, innovation, and catering to consumer needs.  Huge moat.

A 3.27% yield for PG is pretty solid in my opinion.  I bought shares in June 2011 for a little over 65 bucks a share.  Guess what the yield was when I did the purchase...  3.20%.  Then I bought more in July 2011 on a nice dip and scored a 3.38% starting yield.  The current yield is nothing to sneeze at especially in comparison to other dividend growth stocks which are obviously over valued.  The only thing about PG as an income source is that its payout ratio crept up in recent years.  I'll have to monitor that, but dividends are by no means in danger at this point.  Worst case scenario is that dividend growth slows down a bit.

PG now has a dividend weight of 3.76% for me.  I'll consider adding more at these levels until it gets over 4%.  I want core stocks (PG, PEP, KO, JNJ, CVX, MCD, PM) to have dividend weights of 3-4%.  I'm underweight JNJ and overweight PM, other than that it looks good.

3 shares DE, 2.63% yield, $7.20 annual income
4 shares BAX, 2.82% yield, $8.32
1 share GE, 3.27% yield, $.88 (FRIP purchase)

With these purchases GE now has a dividend weight of 0.78%, 0.71% for DE, and 1.77% for BAX.

It makes sense to add these stocks are current levels not only because of weightings, but also because they appear slightly (BAX, GE) to moderately (DE) undervalued.  GE is creeping down towards $26.  Gotta love that, but it would obviously be better closer to $25.  DE is hanging around $90-92, which I appreciate since I plan to add more.  BAX's stock price went down since I bought it the other week.  Good news for accumulators.

I'm looking to increase ownership in these businesses next month if Mr. Market continues playing nice.  We'll see what unfolds.

Weekly Purchase - DE

3 shares DE, 2.66% yield, $7.20 annual income

I continue to see value with Deere.  Between today's purchase and TGT's improved dividend rate, my portfolio is set to pay $6,267.72 on an annualized basis or $522 per month.  Deere dividends make up 0.59% of that amount which I intend to just about triple.  I have to hope DE's share price keeps falling so I could acquire more shares (and therefore more income) for the same amount of invested capital.   Worst case scenario DE's share price goes up forcing me to look elsewhere.  I want lower prices during active accumulation and it's a shame the stock market hasn't really cooperated the past few years.

Other than Deere, I'm also considering BAX, GE, PG, and TGT for potential purchases.  I should gain a new GE share tomorrow through Scottrade's FRIP program.

I will away from home without access to blogger the next week and a half or so.  I plan to continue buying income securities as usual, but will have to post the transactions at a later date.

I hope you all have an awesome week!

Which Household Products Stock Is Most Attractive?

CL, CLX, KMB, PG, UL.  Titans of dividend growth investing.

Key Brands

Long term investors are attracted to companies with brand power that sell every day products consumers have to buy whether the economy is reaching new heights or we're stuck in the middle of a recession.  While I don't know which brand of smart phones consumers will favor 20 years from now, or what social media site will be all the rage.  I can tell you with certainty we will still brush our teeth, do laundry, wash our hair, and clean are homes.  Companies that sell these types of products are boring and will not make you rich over night.  In fact they usually command a higher than average valuation, which makes sense because the stock market loves certainty. 

What sets these companies apart from other consumer staples stocks (in my my mind) is the very nature of the products sold.  With cigarettes (MO, PM, LO) you have to deal with declining smoking rates and draconian government interference.  Sodas (KO, PEP) seem to face headwinds as consumers become more health conscious and move away from sugary beverages.  Staples retailers such as WMT appear to be doing well right now, but the industry is littered with failing businesses (K-Mart anyone?).  Look at the products and brands these household products companies sell.  If you're looking for a high quality company to hold the next 2-3 decades, here are some ideas:

Colgate-Palmolive (CL): Colgate, Palmolive, Softsoap, Fabuloso, Irish Spring, Speed Stick.
Clorox (CLX): Clorox, Pine-sol, Liquid Plumr, Kingsford, Glad, Brita, K.C. Masterpiece, Hidden Valley.

Kimberly-Clark (KMB): Kleenex, Scott, Huggies, Kotex, Depend, Poise, Viva, Cottonelle.  KMB has a professional division which include products such as napkins you might find at a food court and also has a healthcare business it plans to spin off into a separate company.

Procter & Gamble (PG): Tide, Gillette, Duracell, Crest, Pantene, Old Spice, Ivory, Charmin, Tampax, Pampers, Mr. Clean, Bounty, Swiffer, Febreze, Dawn, Cascade, Ariel, Gain, Pepto Bismal, Scope, Oral-B, Metamucil, Vicks, Bounce, Head & Shoulders, Herbal Essences, Cover Girl, Olay.  PG recently sold its Iams pet food business in an attempt to improve margins.

Unilever (UN/UL): Dove, Axe, Lux, Ponds, St. Ives, Surf, Tressemme, Vaseline, VO5, Ben & Jerry's, Bertolli, Hellman's, Knorr, Lipton.  Unilever is moving away from foods.  It is currently selling Ragu spaghetti sauce and sold Skippy peanut butter last year.

Valuation

CL: 20.6 times forward earnings

CLX: 20.1 

KMB: 16.8 

PG: 17.6 

UL: 18.5 

Colgate and Clorox are clearly the most expensive from the group based on current prices and forward earnings guidance.  I don't follow CLX and I'm actually really surprised to see it's almost as expensive as Colgate!  KMB stock should provide the most earnings per invested dollar.  Always important.

Capital Structure

CL:  80.3% debt / AA credit rating

CLX: 98.0% debt / A- 

KMB: 57.5% debt / A 

PG: 34.4% debt / AA 

UL: 44.5% debt / A+ 

As you can see from the credit ratings, all these companies are high quality and will not be going out of business anytime soon.  PG has the best balance sheet which is also backed by its AA credit rating.  CLX's use of heavy leverage is the reason I don't follow the company.  In general I prefer low leverage since I'm a conservative investor.  That said, if I was going to lever the hell out of a business, it would be something stable like a consumer products or an utility company.  Investors who are more daring might not be as concerned.

Growth (3-5 yr EPS growth estimates)

CL: 8.9%

CLX: 6.4%

KMB: 6.9%

PG: 8.4%

UL: 1.5%

This all important metric is what will fuel higher dividend payments in years to come for income investors like myself.  It will also fuel capital gains/total return for traders & those who plan to fund a retirement with asset sales.  I took the listed numbers from Fidelity.com, but it's important to note analysts are sometimes a bit too optimistic.  I look at it from more a relative basis meaning I would expect CL earnings to grow faster than the others, and UL's earnings to improve at the slowest rate.  With that in mind, analysts aren't terrible and they certainly have more insight than I do!  Anyways Colgate is expected to grow the fastest which might explain the high p/e.  Not looking so good for UL.  Deal breaker.

Dividend Safety

CL: 50.3% payout ratio

CLX: 68.0%

KMB: 58.2%

PG: 63.3%

UL: 66.4%

To calculate payout ratios I didn't use the standard trailing twelve month earnings you'll see plastered all over finance sites.  Those numbers are filled with one time restructuring costs, one time settlements, asset sales, and a bunch of other junk that will not affect a business moving forward.  Basically I don't trust those numbers and I want to use something better.  Instead I used Fidelity's adjusted actuals which strips out the one time events.  For example, Starbucks (SBUX) has a p/e ratio of 381 using the standard GAAP number.  Does that sound reasonable to you?  My way it has a p/e ratio of 30.5  Anyways the same principles work with payout ratios or anything based on trailing EPS. 

Dividends from each of these companies are safe at current levels, but as a whole I expect EPS growth to match or slightly outpace dividend growth from this point forward.  That trend seems to already ready be under way with lackluster increases from KMB and CLX this year.  Colgate has a bit more wiggle room.

Dividend Payments

CL: 2.12% yield / 51 year dividend growth streak

CLX: 3.28% / 37 years

KMB: 3.04% / 42 years

PG: 3.23% / 58 years

UL: 3.46% / 34 years

Since I invest for the sole purpose of building an income stream, I need to get paid!  Overall it's really easy to find a yield over 3% in this industry.  Take your pick with the exception of Colgate.  

A reader (thanks Mark!) emailed me evidence showing Unilever actually has a 34 year streak in British pounds.  Anyways these companies are all dividend champions with crazy streaks compared to average dividend stocks.

Conclusion

At current levels I'm most interested in KMB and PG.  PG most of all.

PG has a reasonable valuation compared to peers, a rock solid balance sheet, decent EPS growth expectations, and a safe dividend paying more than 3%.  I will consider adding additional PG shares to my portfolio if prices remain under $82.  Hopefully under $80... better yet $75.

I think CLX and UL are the worst options given current prices.

Finally valuations and expectations do change over time.  That's why I periodically check up on companies and recalculate fair values.  I did grab some Unilever shares a few months ago when its p/e ratio was lower and growth estimates were more optimistic.  I'm still not impressed with Clorox.  No plans to add it to my portfolio or watch list at this time.  Perhaps another day...

The Most Expensive Stocks I Follow

#1) Automatic Data Processing
ADP looks especially hideous right now.  At 22.8 times forward earnings, it's pretty hard to justify buying new shares of this business. ADP recently lost its AAA credit rating which didn't seem to phase the stock price one bit.  I was hoping the credit downgrade might spook investors into selling (so I could pick up some shares).  Guess I'll have to keep waiting for an opportunity to add this one.  That day may never come...

#2) Colgate
CL is a fantastic company, and you can expect to pay a premium if you want to own shares of this business.  At 20.6 times forward earnings the premium price is getting a bit stretched... even by CL standards.  I already own PG & UL and don't have room for this one anyways.

#3) Aqua America
Man, I'd really really like to grab shares of WTR, but at 19.7 times forward earnings, that dream will not become a reality anytime soon. I'm saving a spot in my portfolio for WTR, and if it declines 10-15% I might get interested.

#4) American States Water
This company is slightly cheaper than WTR with a 19.6 forward p/e, but then you have to consider its PEG ratio is an absolutely terrible 20.6.  That's outrageously bad.  Apparently water utilities will have to be put on hold for a while.  Yuck!

#5) Sysco
A 19.5 forward p/e for SYY?  No thanks.  The only saving grace here is that it does have a juicy yield of 3.1%, unfortunately that's really low by Sysco standards.

#6) Air Products & Chemicals (APD) 19.4 times forward earnings
#7) Walgreens (WAG) 19.1 times forward earnings.  Does have a PEG ratio of 1.5 to make up for it.
#8) Compass Minerals (CMP) 18.7 times forward earnings
#9) Dominion Resources (D) 18.7 times forward earnings
#10) Coca-Cola (KO) 18.3 times forward earnings

I didn't include REITS or MLPs in this list.

Weekly Purchase - BAX

4 shares BAX, 2.82% yield, $8.32 annual income

Picked up some new Baxter shares this week.  BAX trades for a very reasonable 14.3 times forward earnings and will contribute to my passive income stream with a healthy yield above 2.8%.  Unfortunately BAX went ex June 4th so this batch of shares won't start paying till Q4. That's okay because I believe shares of the business should be worth $80.  Therefore a small discount might be available right now. Calculating fair values isn't an exact science, but I do prefer to accumulate shares that appear discounted when possible.

Baxter plans to spinoff its biopharmeceutical business into a separate company next year.  The rationale is that two separate companies will be more profitable long term than if they remained as one.  Ok... Maybe they will be better off as two, or maybe not.  I'm buying shares of Baxter as a business right now, not because I think I'll make out like a bandit because of a spinoff.  That said, recent spinoffs (COP/PSX, ABT/ABBV) worked out well.  I ended up selling PSX and ABBV.  I don't regret selling Abbvie with its looming patent cliff at all.  Certainly not a sleep well at night stock.  But boy do I ever regret selling PSX!  Huge mistake on my part.

BAX now has a 1.65% income weight.  I'm not opposed to adding more shares.

Today's purchase was commission free.  I currently have 8 free trades left and plan to use 4 during June / 4 during July.

Symbol: BAX
Core Position: No
Speculative Position: No
Expectations: Steady income; 7% (average) annual dividend growth
Automatic Sell: Dividend cut (post spinoff), frozen dividend (post spinoff)
Consider Selling:  Business fundamentally changes, management becomes untrustworthy, fundamentals deteriorate, wildly over valued stock price, or position fails to meet expectations

1 share GE, 3.29% yield, $.88 annual income (FRIP purchase from last week)

Weekly Purchase - DE

3 shares DE, 2.63% yield, $7.20 annual income

I purchased new Deere shares today being very impressed with last week's dividend boost.  DE trades at 11.9 times forward earnings which is pretty darn cheap on an absolute basis.  It comes standard with a very attractive yield of 2.6%, especially when you consider that over the past 5 years Deere's yield averaged only 2.0%.

I calculate shares to be worth approximately $103.50.

The catch is that DE is highly cyclical.  Earnings are actually supposed to decline the next few years.  During the past twelve months EPS was a solid $9.15 per share.  However DE is expected to earn $8.51 in fiscal year '14, then $7.69 in fiscal year '15.  That being said, I really like this business as a long term investment.  The fact is the world's population and standard of living will only rise over time.  A nice tailwind for farm equipment manufacturers like John Deere.  You'd have to think they'll be selling more tractors 20 years from now.  I could be wrong, but it's hard for me to imagine a different scenario.

Anyways Deere maintains a very low payout ratio because it places more emphasis on stock buybacks and because earnings fluctuate so much.  Management isn't stupid, this business doesn't sell steady demand products such as toothbrushes and toilet paper.  I expect dividends will continue to grow over time, but I'm prepared for sporadic intervals which I wouldn't tolerate from other holdings.

DE now has an income weight of only 0.48% for me.

Symbol: DE
Core Position: No
Speculative Position: No
Expectations: Steady income; 8% (average) annual dividend growth
Automatic Sell: Dividend cut
Consider Selling:  Frozen dividend, business fundamentally changes, management becomes untrustworthy, fundamentals deteriorate, wildly over valued stock price, or position fails to meet expectations

May Recap

I believe I did an okay job selecting moderately attractive stocks in an otherwise heated market this month.  You'd have to think prices might plummet some time soon, yet nobody really knows for sure.  Even if stock prices do end up declining, I'll still be on track to meet my 2014 financial goals because a falling stock market doesn't affect an income stream.  In fact a correction would only make my job easier.

AT&T became my first holding to pay $1,000 dividend income.  It doesn't surprise me that T achieved the milestone first since it has a high yield and is one of my oldest positions.   I originally acquired a piece of the business late 2010 then purchased more the following year.  LTC Properties is set to power through the $1,000 mark during June, but past that one it ought to be a while for the rest.

DOW: 16,717 /// S&P 500: 1,924 /// 10-YR BOND: 2.46%

New Purchases:
1) 14 shares OMI at $31.75: $14.00 annual income
2) 17 shares GE at $26.74: $14.96
3) 6 shares PG at $79.79: $15.44
4) 20 shares SBSI at $25.595: $16.80
5) 15 shares GE at $26.47: $13.20
6) DRIP: 1.490 shares OHI: $2.98

Sales:
none

Dividends Received: $440.47
AT&T (T) $84.18
Deere (DE) $4.59
General Mills (GIS) $28.92
Raytheon (RTN) $34.49
iShares Emer Mkt Bnd (EMB) $2.49
Air Products (APD) $23.87
Abbott Labs (ABT) $12.98
Omega Healthcare (OHI) $52.97
Procter & Gamble (PG) $50.20
Realty Income (O) $15.69
Realty Income Series F (O-PF) $6.76
Kinder Morgan, Inc. (KMI) $68.04
HCP (HCP) $26.71
LTC Properties (LTC) $28.58

Dividend Increases:
1) BAX: $.49 to $.52 per quarter: $5.28 annual income
2) DE: $.51 to $.60 per quarter: $3.24
3) SBSI: $.20 to $.21 per quarter: $3.36
4) TU: $.36 to $.38 (Canadian) per quarter: ~$5.28

New Deposits:
$1,700 to taxable account, $100 to Lending Club

Lending Club Interest:
$13.58

Stock Split:
SBSI (21:20) gained 4 new shares since Fidelity was gracious enough to round up from what would have been 3.57 shares.  This is the third 5% stock split while SBSI has been part of my portfolio.

Deere (DE) Dividends No Longer Frozen

Today Deere & Co (DE) announced it raised dividends 17.6% from $.51 to $.60 per quarter.

I do not intend to write a post about every dividend raise; it's way too tedious.  I do have interests besides investing by the way :) However this one is important to me because the dividend was technically frozen back in February.  I'm happy to see payouts are growing once again because it gives me confidence to increase my position.  DE now has an income weighting of only 0.36% so I need to more than quadruple it.

It's a shame this announcement wasn't released yesterday.  I think shares are undervalued and would have bought more.

Weekly Purchase - GE

15 shares GE, 3.32% yield, $13.20 annual income

My final May purchase is General Electric.  I continue to think GE is a half way decent buy at current levels.  No, it's not a steal but it does trade at a most reasonable 14.5 times forward earnings.  I think shares of the business are worth about $27.50 so perhaps I got in with a small margin of safety this week?  Again these are not bargain prices in my opinion, but I don't think I'm paying a premium either.

At any rate GE comes with a juicy yield over 3% which should grow faster than inflation.  My objective as an income investor is to replace employment income with investment income.  Nothing more.  Nothing less.  While I always wish the stock market would go down, I can and will achieve my goals even if Mr. Market won't cooperate.  These GE shares are certainly valuable towards building passive income and a passive income stream is what I'm about!

General Electric is now weighted .76% (by income) for me and I'd ultimately like to for it to be weighted around 1.5% to 2.0%.

1.49 shares OHI, 5.63% yield, $2.98 annual income (DRIP purchase)

OHI is the only stock I DRIP simply because it offers a dividend reinvestment discount.  I actually received a dividend of $52.97 from the company, but a 1% discount was applied so $53.50 worth of new shares were credited to my account.  Well that's nice and all (love me some discounts), but I think I'll have to stop DRIPing Omega.  It has a 3.57% weight (by income) which is too high for a non core stock.  Think I'll take dividends in cash and use it to maintain a better income balance moving forward.  One thing I seriously hate about DRIPs is that they make portfolio balance difficult to maintain.  Especially with high yielders.

The money I deposit each month is now less than 1% portfolio value.  Since that barely moves the needle I feel I need to start paying closer attention to weightings.  That said, I think I can achieve the weightings I want over time without rebalancing.

New Purchase - SBSI

20 shares SBSI, 3.28% yield, $16.80 annual income

The plan for May was to do four weekly purchases, plus one extra purchase in order to use up free trades before they expire.  As you can see I chose Southside Bancshares for the planned extra purchase.  SBSI was actually the first purchase I made after starting this silly little blog back in January 2012.  That's roughly two and a half years ago!  Well, I've been very pleased with this company to say the least.  SBSI offers a nice yield, dividend growth, special dividends, and even yearly stock splits.  It has been a truly exceptional dividend growth stock.

The big news right now is that SBSI is in the process of acquiring a smaller Texas bank.  I honestly don't know enough about the banking industry to say it's a steal, but I did read some positive articles about it and checked out some presentations as well.  I more or less have to trust Southside's management here, and that's fine.  They are the experts.  I'm not.  Anyways the OmniAmerican M&A is supposed to bring growth and cost savings which might translate into higher dividend checks down the road.

SBSI now has a 1.34% weight (by income) for me.  I wouldn't mind grabbing even more shares here since it's weighted so low and is trading about 15% below my calculated fair value.

Symbol: SBSI
Core Position: No
Speculative Position: No
Expectations: Steady income; 7% (average) annual dividend growth
Automatic Sell: Dividend cut, frozen dividend
Consider Selling:  Business fundamentally changes, management becomes untrustworthy, fundamentals deteriorate, wildly over valued stock price, or position fails to meet expectations

Weekly Purchase - PG

6 shares PG, 3.23% yield, $15.44 annual income

Added some new PG shares to my holdings this week.  PG is a sleep well at night stock that should be easy to hold for decades.  I'm looking for stocks that pay steady income growing faster than inflation which is exactly what Procter & Gamble is known for.

Weekly Purchase - GE

17 shares GE, 3.29% yield, $14.96 annual income

I'm honestly not that excited by this week's purchase.  I like General Electric as a company and all, but would much rather accumulate shares are lower prices.  I guess this is what happens when the stock market goes up, but the investor is committed to dollar cost averaging.  Kind of inevitable in a way, stocks are bound to go up at some point.

At the end of the day my primary objective is being met even if I didn't get a ton of value.  This purchase will increase my income, and GE dividends are set to grow over time.  Mission accomplished.  GE now has a 0.55% weight (by income) for me so plenty of room still remains to acquire more shares.  I was also thinking about SO and PG, but felt I should work on portfolio weightings a little bit this week.

This week's purchase was commission free.  I plan to resume larger quantity buys later in the year.


Recent Dividend Increases

Southside Bancshares (SBSI) announced a 5.0% dividend increase from $.20 to $.21 per quarter.  SBSI now has a 20 year streak and looks poised to become a dividend champion given more time.  During 2013 the company did two raises so it's possible 2014 could repeat.  I won't be terribly concerned if it doesn't because 1) the company pays a special dividend in December and 2) it just announced a sizable M&A.

Telus (NYSE: TU, TSX: T) announced a 5.6% increase from $.36 to $.38 per quarter in Canadian dollars.  Telus proclaimed investors will get two dividend increases this year, so I fully expect another $.02 raise during November.  In fact, Telus announced in advance that it intends to raise dividends twice per year for a total around 10% through 2016.  TU's new dividend is 11.8% higher than what it paid last year at this point.  It's certainly on schedule.  Nice dividend contender here (10 year streak) that seems to have slipped past the CCC lists because it started an American ADR not too long ago.

Weekly Purchase - OMI

14 shares OMI, 3.15% yield, $14.00 annual income

I went with a company that has been paying dividends the past 85 years for my purchase this week: Owens & Minor.  As I mentioned last weekend, I believe the stock looks reasonable in an otherwise heated market.  OMI recently had a soft earnings report which seems to have triggered the wrath of Mr. Market all the way down to 52 week lows.  Anyways I spent time reviewing the company last weekend because I was interested in knowing why this stock was sitting at yearly lows while the stock market was sitting at yearly highs.  Usually that means something must be going on.  I didn't discover anything that lead me to believe OMI had long term problems.  Might as well buy more.

It appears I managed decent timing today because my order was filled within a few cents of the daily low and also yearly low.  That's 100% luck, but I'll take it none the less.  From experience I know the stock market has a habit of changing its mind rather quickly; even better entry prices could be around the corner for all I know.  The only other thing I'd note is that OMI is now weighted 1.73% (based on income) for my portfolio.  Sounds just about right, though I wouldn't mind adding if the stock price continues to slide.

 I have many free trades available and did not pay commissions today.  I plan to continue small weekly purchases until my supply of free trades run out.

Symbol: OMI
Core Position: No
Speculative Position: No
Expectations: Steady income; 7% (average) annual dividend growth
Automatic Sell: Dividend cut
Consider Selling:  Frozen dividend, business fundamentally changes, management becomes untrustworthy, fundamentals deteriorate, wildly over valued stock price, or position fails to meet expectations

Baxter International Increases Dividend
Today Baxter (BAX) announced a dividend increase of 6.1% from $.49 to $.52 per quarter.  That boost is a bit smaller than what they've done in the past, but it doesn't surprise me since the company is planning to split in two.  Probably a good idea not to overly commit to a high dividend payment before such an event.  I'd like to add more BAX at some point, but haven't had a chance to look at the spinoff implications yet.

Have a great week!

May Shopping List

Does this bull market have no end?

Even with the S&P 500 sitting at all time highs I must invest my idle cash.  No choice in the matter.  You see, the only way for me to achieve my financial goals is to invest the money I save into income paying securities.  I already know I must average $1,600/mo in savings the rest of the year and then invest it into securities with an average yield of 3.25%.  That's exactly what needs to be done.  No more.  No less.  The only thing left is to execute and I'm not going to let stock prices get in the way!

●Owens & Minor (OMI) 3.10% yield, 18 year streak, 57.1% payout ratio
Owens & Minor offers a very nice yield at current prices.  I believe this company should be worth $34 per share, leaving a small margin of safety on the table.  Morningstar assigns it a $30 fair value as a comparison.  Anyways I haven't added OMI in a couple years and would be delighted to pick up some shares here.  OMI has been paying dividends since 1930.  That's almost 85 years!  With a history that rich, it's one of only a handful of stocks that I wouldn't mind holding during a dividend freeze.

Oh by the way, this stock is trading at 52 week lows right now.  That's tough to find in today's market...  I listened to last week's conference call in an attempt to figure out what's going on.  Basically OMI had a flat quarter.  Management cites weather and costs associated with setting up a couple large new customers as the cause.  I can live with that, no reason to think this business is in trouble.  Occasional hiccups don't concern me, especially because forward earnings guidance didn't change.

●Procter & Gamble (PG) 3.15% yield, 58 year streak, 68.5% payout ratio
First of all, PG's payout ratio isn't as bad as it looks at first glance.  The number listed above is based on earnings that include all kinds of one off items.  You know, the kind of one time events that will not affect the business moving forward.  It has a slightly better payout ratio of 63.4% if adjusted earnings are instead used.  Considering PG raised dividends just last month, that's not bad at all.  At any rate, PG is trading right at my fair value of $82.  Morningstar thinks it ought be worth $89.  I consider it fairly valued, and paying fair value for a company this awesome is never a bad idea.  PG is one of the highest quality stocks in world.  If I had to pick one stock that best embodied "sleep well at night," I'd choose PG.

●General Electric (GE) 3.30% yield, 4 year streak, 72.1% payout ratio
Just like PG, earnings and therefore the payout ratio is skewed here.  A 55.7% payout ratio is a more realistic number, and it happens to leave a lot more room for future dividend growth.  At any rate, I continue to be a fan of General Electric as it sheds risky financial businesses.  I'm on board with the makeover and believe the streamlined company will perform great.  At a minimum, GE gains sleep well at night properties and becomes easier to understand.  Less moving parts.

While I'd rather pick up GE shares closer to $25, I do think think its worth $27.50.  Morningstar stamps it with a $29 fair value.

●BP plc (BP) 4.60% yield, 3 year streak, 31.7% payout ratio
Guess what?  BP doesn't really have a 32% payout ratio.  It's more like 59%.  You see, earnings and payout ratios can be skewed the other way too.  Even then, the stock still looks cheap.  I'm of the opinion that BP should be worth $57 to which Morningstar agrees. BP is one of the cheapest stocks I own right now (not that it's THAT cheap imo) which compels me to want to buy more.  If only the market would quit bidding up prices!

April Recap

April was a great month all around.  Dividend increases were strong, incoming dividends were awesome, and I was able to deposit new funds at an elevated rate.  I'm expecting some additional dividend increases next month, but they ought to slow down the rest of the year.

DOW: 16,581 /// S&P 500: 1,884 /// 10-YR BOND: 2.65%

New Purchases:
1) 5 shares ABT at $38.51: $4.40 annual income
2) 8 shares GE at $25.87: $7.04
3) 8 shares ABT at $37.73: $7.04
4) 5 shares TGT at $59.75: $8.60
5) 6 shares ABT at $38.24: $5.28
6) 4 shares BP at $49.02: $9.12 (the dividend has since increased)
7) 15 shares GPC at $85.84: $34.52
8) FRIP: 2 shares GE: $1.76
9) DRIP: .605 shares BNS: ~$1.40

Sales:
none

Dividends Received: $476.40
Baxter International (BAX) $21.56
Coca-Cola (KO) $46.36
Telus (TU) $23.82
Walmart (WMT) $15.36
iShares Emer Mkt Bnd (EMB) $2.55
Illinois Tool Works (ITW) $12.18
Altria (MO) $43.68
Philip Morris (PM) $102.46
Corporate Office Properties Series L (OFC-PL) $22.58
Leggett & Platt (LEG) $18.30
Realty Income (O) $15.69
Realty Income Series F (O-PF) $6.76
W.P. Carey (WPC) $20.59
Kraft (KRFT) $14.18
Bank of Nova Scotia (BNS) $36.31
LTC Properties (LTC) $28.58
Toronto-Dominion Bank (TD) $45.44

Dividend Increases:
1) BP: $.57 to $.585 per quarter: $.60 annual income
2) CVX: $1.00 to $1.07 per quarter: $15.96
3) JNJ: $.66 to $.70 per quarter: $9.60
4) KMI: $.41 to $.42 per quarter: $6.48
5) OHI: $.49 to $.50 per quarter: $4.24
6) PG: $.6015 to $.6436 per quarter: $13.12
7) SO: $.5075 to $.525 per quarter: $4.48
8) UL: €.269 to €.285 per quarter: ~$1.90
9) XOM: $.63 to $.69 per quarter: $4.08

New Deposits:
$1,000 to ROTH IRA, $1,450 to taxable account, $100 to Lending Club

Lending Club Interest:
$12.04

New Purchase - GPC

15 shares GPC, 2.66% yield, $34.52 annual income

At the risk of looking foolish on a public blog, I added a new dividend champion to my holdings today.  First off I know GPC stock is not cheap.  I'm well aware of that fact.  The thing is that I have to invest the money I save into something in order to achieve my goals and the reality is stocks aren't cheap anymore.  I'm willing to pay up for only the highest quality companies which includes perennial dividend raisers such as KO, JNJ, PEP, EMR, and yes GPC.  Keep in mind that capital gains & total return do not matter to me.  I simply want a passive income stream rising faster than inflation and today's purchase will accomplish that.

The 42nd equity position for my self directed retirement fund is Genuine Parts Company.  I've been meaning to add this one for years, but never did manage to get a buy in for one reason or another.  Anyways I gained a new dividend champion with a 58 year streak (the longest streak that I own tied with PG) and also added some diversification to my holdings.  GPC comes with a 17.6 forward p/e, plus it offers a decent yield at the price I paid.  Not great, but not terrible either considering what I have to work with.  I'd be more than happy to add new GPC shares on weakness.  In fact that's my plan.  Still hoping for a correction...

Symbol: GPC
Core Position: No
Speculative Position: No
Expectations: Steady income; 7% (average) annual dividend growth
Automatic Sell: Dividend cut
Consider Selling:  Frozen dividend, business fundamentally changes, management becomes untrustworthy, fundamentals deteriorate, wildly over valued stock price, or position fails to meet expectations

Weekly Purchase - ABT & BP

6 shares ABT, 2.30% yield, $5.28 annual income
4 shares BP, 4.65% yield, $9.12

Even though its stock price crept up the past month, I still think BP plc looks attractive with a 10.0 forward p/e.  I wish more dividend growth stocks traded at valuations that cheap!  The second purchase was Abbott Laboratories with a most reasonable 15.6 forward p/e.  This month my plan was to increase underweight positions, that's why I've been adding to ABT, BP, and GE fairly regularly.  Moving forward, balancing my portfolio will take preference.  That will include starting new positions, and also adding to holdings that have a dividend weight less than 1.5% (when valuations make sense).  Since I don't want to fund a retirement with the 4% rule I decided it would be appropriate to weight my holdings based on income instead of market value.  Ideally core stocks might have 3-4% weightings; supporting stocks 1.5-2%.

Please note that I have free trades available and did not pay commissions today.  Under normal circumstances I try to buy in lots of at least $1,000 so as to minimize the effect of commissions/fees.

Weekly Purchase - TGT

5 shares TGT, 2.88% yield, $8.60 annual income
1 share GE, 3.38% yield, $.88 (FRIP purchase from last week)

I'm having difficulty finding places to park new money.  I wanted to pick up additional shares of General Electric and BP, yet prices haven't been cooperating the past couple weeks.  So I went with Target today because I feel it still offers value.  This is my fifth TGT purchase in the past six months or so.  I don't want to rehash reasons why I like the company over and over again.  It's pointless.  However I would note TGT comes standard with a 12.4 forward p/e and trades at a price lower than my fair value calculation.  As a comparison, Morningstar gives it a $65 fair value which is a couple bucks lower than mine.  Anyways the stock offers a nice yield and seems cheap by most measures.

Another nice month for dividend growth investors
Dividend increases just keep on rolling in.  So far in April, 4 companies I own have declared higher dividend rates.  That would be Procter & Gamble (7% raise), Kinder Morgan, Inc. (2.4%), Omega Healthcare Investors (2.0%), and Southern Company (3.4%).  I'm especially pleased to see boosts from KMI and OHI because I wasn't 100% sure those companies would announce raises this quarter.  Before April is in the books I also expect increases from Johnson & Johnson, Exxon Mobil, and Chevron.  April has potential to be another awesome month!

Unilever to start charging fees on plc ADR shares (UL shares)
"With effect from the dividend payable in June 2014 we will be charging an annual fee of $0.02 per PLC ADR share, or $0.005 per share on each of the four quarterly dividends. This fee will offset part of the aggregate costs incurred in the US programme." (taken from Unilever's investor relations website)

Bad news for Unilever plc shareholders in the US.  I haven't seen this reported anywhere else, so I thought I'd bring it to my readers attention.  While I don't like the fee at all, I still plan to continue accumulating UL shares when valuations make sense.

Bank of Nova Scotia ends 2% dividend reinvestment discount
"On March 4, 2014, the Bank announced that there will no longer be a discount from the Average Market Price (as defined in the Plan) applied to purchases of additional common shares with reinvested dividends." (taken from Scotia Bank's investor relations website)

I haven't seen this reported anywhere else either.  BNS was one of two companies I chose to synthetically DRIP, but I no longer have any reason to continue doing so.  Too bad I didn't notice this until now (I've been really busy the past couple months) because it's too late to stop it in time for next week's payment.  I will no longer DRIP BNS starting Q3.

Weekly Purchase - ABT

8 shares ABT, 2.32% yield, $7.04 annual income

This will have to be one of the shortest posts I've ever done, just don't have time to keep up with this blog at the moment.  Anyways I went with Abbott because it's one of my favorite dividend growth stocks and feel it's priced attractively as a long term hold.  Awesome company.

I'm currently away from home in North Carolina working long hours.  I have very little free time, but did get a chance to dip my toes in the Atlantic ocean a week and a half ago.  I was stationed in NC when I started this blog, kind of fun seeing people I know walking around base.

Catch you guys next week!

Weekly Purchase - ABT & GE

5 shares ABT, 2.29% yield, $4.40 annual income
8 shares GE, 3.40% yield, $7.04

1 shares GE, 3.39% yield, $.88 annual income (FRIP purchase from last week)

I added shares to two existing positions today.  Even though the yield is kind of low, I'm a big fan of Abbott Laboratories.  It has a very reasonable 15.5 forward p/e, excellent growth prospects, plenty of room for future dividend raises, and will help shore up allocations in the healthcare sector.  Abbott has been paying & increasing dividend payments for many decades (40+ years excluding the Abbvie spinoff last year).  At this point dividend increases are ingrained in Abbott's culture, and that's the sort of mentality which will serve patient investors well in the years ahead.  It's a company in the same vein as say PG, JNJ, PEP, EMR, and other high quality businesses where yearly dividend growth is almost automatic.  That's how I see it anyways...

General Electric Company was the other buy for reasons I wrote about last week.

Well I still have four planned purchases left for April.  One of those buys will be in my ROTH where I don't have access to free trades.  I must buy larger quantities in that account to make up for the fees/commissions.  Have to hope stock prices continue to slide.

I have many free trades available and did not pay commissions today.  I plan to continue small weekly purchases until my supply of free trades run out (July).

Symbol: ABT
Core Position: No*
Speculative Position: No
Expectations: Steady income; 7% (average) annual dividend growth
Automatic Sell: Dividend cut
Consider Selling:  Frozen dividend, business fundamentally changes, management becomes untrustworthy, fundamentals deteriorate, wildly over valued stock price, or position fails to meet expectations

*ABT will be designated as a core holding if/when I expand the list.  Core stocks are select holdings that I deem to be the highest quality (it's subjective).  They will be sold last in the event of a forced portfolio liquidation.

March Recap

A nice month overall.  Not a whole lot to report investing wise, my focus was more on boosting my savings rate than anything else.  I purchased a digital antenna (made by GE, bought at Target) which allowed us to cancel our cable subscription.  I was recently approved for a cash back credit card to stretch savings a little farther.  I'm not a fan of credit cards, but getting cash back on items I have to buy anyway makes sense.  Also I should receive my first payment from Google Adsense in April.  I never thought this blog would actually make money, kinda cool.  Little things like that add up over time the same as reinvesting dividends.

DOW: 16,458 /// S&P 500: 1,872 /// 10-YR BOND: 2.72%

New Purchases:
1) 4 shares MCD at $94.42: $12.96 annual income
2) 7 shares KO at $38.51: $8.54
3) 8 shares KMI at $31.48: $13.12
4) 6 shares BP at $46.40: $13.68
5) 10 shares GE at $25.83: $8.80
6) FRIP: 1 share KMI: $1.64

Sales:
none

Dividends Received: $554.06
ConocoPhillips (COP) $41.40
Southern Company (SO) $32.48
iShares Emer Mkt Bnd (EMB) $2.58
Chevron (CVX) $57.00
Emerson Electric (EMR) $23.65
Exxon Mobil (XOM) $10.71
Lorillard (LO) $51.67
Norfolk Southern (NSC) $30.78
Target (TGT) $21.93
Johnson & Johnson (JNJ) $39.60
Unilever (UL) $8.04
Southside Bancshares (SBSI) $15.00
Avista (AVA) $49.85
McDonald's (MCD) $46.17
Realty Income (O) $15.67
Realty Income Series F (O-PF) $6.76
Owens & Minor (OMI) $22.25
Pepsi (PEP) $49.94
LTC Properties (LTC) $28.58

Dividend Increases:
1) APD: $.71 to $.77 per quarter: $7.44 annual income
2) BNS: $.62 to $.64 (Canadian) per quarter: ~$5.00
3) GIS: $.38 to $.41 per quarter: $8.44
4) RTN: $.55 to $.605 per quarter: $12.56
5) O: $.1821667 to $.1824792 per month: $.24
6)  WPC: $.87 to $.895 per quarter: $2.32

New Deposits:
$1,500 to taxable account, $100 to Lending Club

Lending Club Interest:
$13.00

Weekly Purchase - GE

10 shares GE, 3.41% yield, $8.80 annual income

General Electric is the 41st dividend stock to join my income portfolio.  I had been looking to add a new industrial position and really liked what I saw with GE.  A couple things prevented me from buying shares up until now: the well publicized dividend cut during 2009 and its reliance on GE Capital.  By now most people are probably aware General Electric is looking to shed much of its financial interests and focus on what made it an iconic American company in the first place.  I'm talking about its industrial businesses.  This company has hands in a lot of industries and manufactures a wide variety of products.  Looking around my home, I spot many familiar offerings such as a stove, a dishwasher, a digital tv antenna, light bulbs, and even that little two way coax splitter.  Those are the types of products I know and can easily understand, but in reality GE does way more than just that.  It also manufacturers high end goods such as nuclear reactors, jet engines, wind turbines, medical diagnostic equipment, etc., etc.  Too many to list.  From the diversification perspective all these businesses make sense, but on the other hand it does make GE fairly complex.

I'm more comfortable with the conglomerate now it is unloading the riskier finance companies.  GE plans to IPO much of its consumer finance business into a stand alone company called Synchrony Financial later this year.  I read another article today that reported GE is exploring the sale of an additional finance business based in Europe.  It's pretty clear GE is a company in transition, and it just so happens I'm intrigued by the direction it's heading.  5-10 years from GE will look a lot different than it does today.

You might have noticed the stock market jumped back up the past week.  Undervalued companies are becoming harder and harder to find.  In fact I was hoping to secure GE shares closer to $25, yet I decided to start the position today because I couldn't find anything better.  Possibly BP though it looked more attractive last week.  I can take solace in GE's 14.2 forward p/e, it's rapidly growing dividend, a 3.4% yield, and the huge backlog of orders estimated to top 200 billion dollars.  Funny how a stock this hated just a few years ago staged such a nice comeback and is once again a dividend growth stock.

I have many free trades available and did not pay commissions today.  I plan to continue small weekly purchases until my supply of free trades run out. 

Symbol: GE
Core Position: No
Speculative Position: No
Expectations: Steady income; 7% annual dividend growth
Automatic Sell: Frozen dividend; dividend cut
Consider Selling:  Business fundamentally changes, management becomes untrustworthy, fundamentals deteriorate, wildly over valued stock price, or position fails to meet expectations

Catching up on February Transactions

Last month I did some pretty serious buying and selling in an attempt to increase the quality of my portfolio and position myself for higher dividend growth moving forward.  I had to go to S. Korea for three weeks and didn't have access to blogger while out of country.  If I can't log into blogger, I can't update my little site.  These trades are in books and were actually already posted in my February recap.  However I never did a proper post on these transactions due to time constraints.  It's just too dang nice outside!

Now I might not be the greatest investor, and I know my blog is nothing special, but I do take pride in disclosing all my moves for the world to see via screen shots.  I've been doing this for quite a while now (over a year now). Nothing to hide here.

SALES (February 2014)

 

-100 shares LNCO, ($289.92) annual income

-129 shares EIFZF,  ($210.20)

LNCO and EIFZF had to go.

Both of these companies offer juicy yields and both of these companies are fraught with risk as far as I'm concerned.  Seeing Boardwalk Pipeline Partners, LP (a MLP I used to own) cut its distribution by 80% was a wake up call.  I simply cannot trust high yield/high risk companies as retirement income sources.  The whole point of dividend growth investing is to build a reliable income stream growing faster than inflation which is detached from daily price gyrations.

EIFZF and LNCO dividends are detached from the stock market.  I doubt either will actually cut dividends short term.  But dividends from these companies aren't growing, and they certainly aren't reliable.  Both have extremely high payout ratios meaning one little misstep could have dire consequences.  LNCO is paying out 99% the last time I checked.  Pretty hard to fund a larger dividend payment when it is already stretched so thin.  I thought the Berry acquisition would provide Linn an opportunity to raise payouts, or at least add a little breathing room to the dividend coverage.  Nope.  Apparently Linn paid too much.  Exchange Income last raised dividends about a year and a half ago and seems to have set itself up to only maintain that rate.  Its cash flow statement is ugly showing negative operating cash flow last year.  Yuck.  It had been doing very well with its cell phone tower business until it started receiving too many orders.  I have been following this one for a while and learned something new.  Too much growth can actually be a bad thing.  EIF couldn't keep up with all the orders from AT&T, so they had to hire an outside consultant to get their systems up to speed.  That ended up really hurting cash flows and the bottom line for a company as small as this one.  Small caps...

At the end of the day I lost a couple hundred bucks with LINE/LNCO and made a decent return with EIFZF.  I'll chalk it up as a cheap lesson.


PURCHASES (February 2014)

Commission free trades

91 shares MO, $174.72 annual income
47 shares OHI, $92.12
32 shares TD, ~$51.20
9 shares TGT, $15.48
18 shares COP, $49.68
9 shares DE, $18.36
8 shares PEP, $20.96

As you can see I replaced the two high yielders with a gang of replacement stocks.  I had to use cash reserves to try to keep my income stream whole.  All together I used an extra $3,500 plus the 4 previous Feb. purchases and still couldn't match the combined annual income I lost with LNCO and EIFZF.  In the end I fell about $30 (annualized income) short!

What I gained was quality, dividend growth, and most importantly peace of mind.

MO:  At the time I felt the market was offering a nice opportunity.  MO has a nice yield and solid dividend growth.  I like how it's very diversified for a tobacco stock.  In addition to cigarettes it sells smokeless tobacco, wine, and owns part of Miller beer.  Still trying to figure out why Altria is listed as a dividend champion, yet Abbott Labs is not.  One standard please...

OHI:  I was forced to go temporarily overweight REITs, which will work itself out over time.  Again nice yield and solid dividend growth.  I tried to take advantage of a price dip with OHI last month.  I'm especially excited about the dividend growth and OHI's excellent management.

TD:  Canadian stocks (still) look undervalued.  TD is an excellent dividend growth stock that has been paying dividends for over a hundred years.  Jesus!  Anyways right after I bought shares it raised dividends by 9%.  Unfortunately dividend payments fluctuate with exchange rates for US investors.

TGT:  It was beaten up at the time because the credit card breach and failed efforts in Canada.  Those developments seemed short term in nature so I bought.  Solid dividend champion other than that.

COP:  I haven't added COP in a few years.  It seemed undervalued and had a nice yield.  So far Conoco has been an excellent investment.

DE:  The most undervalued of the bunch, but its BOD decided to freeze the dividend right after I bought it.  I'm going to give Deere some extra time and have no plans to unload these shares.  High quality company and I needed an industrial stock.

PEP:  Another company I haven't bought in a long time.  It had just raised its dividend by 15% when I did the purchase.  I'm a fan of the food side of the business more than the soft drinks.  Have you tried Stacy's pita chips and Sabra hummus?  What a combination!


Again these transactions are all from February when I didn't have the luxury of updating my blog.

Weekly Purchase - BP

6 shares BP, 4.91% yield, $13.68 annual income

The big news today is that my forward annual income surpassed $6,000 meaning I will be averaging $500 per month dividend income from this point forward.  I don't dwell on milestones.  You won't see me getting excited about my portfolio reaching some arbitrary value.  But this one is significant for me.  You see, I have saved at least $500 every single month for the past 6 years.  Now my dividend income will start to match my own efforts ($500 per month) as I attempt to attain this thing called financial independence.  Very cool!

Today I started a new position with BP plc. With a forward p/e of only 9.4, I feel BP is one of the cheapest dividend growth stocks in an otherwise heated market.  9.4  Anyways BP is an oil major based out of the UK.  It's still plagued by pending lawsuits from the Deepwater Horizon spill in the Gulf of Mexico.  The company seems to be situated well enough financially to weather additional costs however.  This past month BP stock declined quite a bit as investors seemed to be spooked by tensions in the Ukraine.  BP owns about 20% of the massive Russian oil company Rosneft.  That's why.

I don't know Russian policy or what Russia will do in the future.  However I can at least take advantage of the tension buying affected companies on dips that I want to own anyway.  At the beginning of March BP traded around 50, now it's around 46.  If it slides even further I would be happy to add more shares on weakness.  Barring WWIII scenarios I feel this is the correct way to approach the tension.
  
I have many free trades available and did not pay commissions today.  I plan to continue small weekly purchases until my supply of free trades run out. 

Symbol: BP
Core Position: No
Speculative Position: No
Expectations: Steady income; 5% annual dividend growth
Automatic Sell: Frozen dividend; dividend cut
Consider Selling:  Business fundamentally changes, management becomes untrustworthy, fundamentals deteriorate, wildly over valued stock price, or position fails to meet expectations

March Dividend Increases

Air Products & Chemicals (APD) increased dividends 8.5% from $.71 to $.77 per quarter.  APD can now claim a 32 year dividend growth streak, pretty amazing to think that it dates back to all the way to 1982!  Air Products hails from the materials sector and runs what could be the most boring business ever.  As you might have guessed from its name, it sells gasses which are used in a variety of industries including semi conductors, LCD screens, inks, personal care, mining, hydrocarbon recovery, and steel to name a few.  It does a lot of international business, but seems to be focusing on South Korea and China in particular.

Bank of Nova Scotia (BNS) increased dividends 3.2% from $.62 to $.64 (Canadian) per quarter.  This increase is most welcome, but nothing to write home about in and of itself.  However I would note it last increased dividends only 6 months ago.  I chose Scotia Bank for my portfolio because BNS has a large international presence and I simply trust Canadian Banks more than U.S. banks.  Canada has stricter banking & lending laws which tends to keep financial institutions out of trouble.  Canadian banks didn't need bailouts during the great recession and none cut dividends.  How refreshing!

General Mills (GIS) increased dividends 7.9% from $.38 to $.41 per quarter.  Another stout dividend increase from General Mills, I cannot complain.  In case you didn't know, GIS sells packaged foods such as Cheerios, Pillsbury, Green Giant, Haagen-Daz, and Progresso soups.  Lots of brand recognition and lots of brand loyalty here.  I personally eat Cheerios every morning and easily go through 2-3 boxes per week.  I can take solace knowing I am supporting my own dividend stream.

Raytheon (RTN) increased dividends 10.0% from $.55 to $.605 per quarter.  My RTN yield on cost is rising rapidly!  When I first purchased the company it came with a 3.9% yield.  Three increases later, that same purchase has a 5.5% YOC.  Unfortunately defense contractors are no longer undervalued as prices from that industry rose considerably.  I would consider adding related businesses to my holdings such as GD, LMT, and NOC at a future date. 

Realty Income (O) increased dividends 0.2% from $.1821667 to $.1824792 per month.  Yet another quarterly increase from "The Monthly Dividend Company."  Honestly .2% really doesn't matter all that much, but I will take any increase I can get.  More money in my pocket is always good; I can use it to purchase new investments now or spend it when it's time to pursue adventures other than full time work.  Each increase, even a .2% raise, is a baby step towards retirement.

W.P. Carey (WPC) increased dividends 2.9% from $.87 to $.895 per quarter.  WPC is a REIT and like O it tends to increase dividend payouts each quarter.  In fact this increase marks 52 consecutive quarters of rising dividends.  That's each and every quarter for 13 years people!  I like the fact W.P. Carey's increases are meaningful and that it has a much broader scope than O.  WPC owns real estate not just in the United States, but also Europe and Asia.  In addition it manages the CPA line of non-publicly traded REITs for high net worth investors.

March has been stellar with 6 increases so far.  Unilever tends to announce dividend boosts this month as well.  The fun might not be over just yet...

Weekly Purchase - KMI

8 shares KMI, 5.21% yield, $13.12 annual income (purchased today)

1 share KMI,  5.23% yield, $1.64 annual income (FRIP purchase from last week)

I wasn't planning to purchase additional KMI stock for a while because I don't want my position getting too large, but I felt the market was offering a nice opportunity today.

To be honest, I get a somewhat unsettling feeling with KMI.  It happens to be a fairly difficult business to understand, it is prone to bear attacks, and it's tough to actually value the shares.  These aren't the sort of traits I usually look for in a long term holding.  Kinder Morgan Inc. doesn't have a whole lot of historical data in which to make a comparison since it began trading on public exchanges during 2011.  Because of that (and other factors) I had to rely solely on the Dividend Discount Model for share valuation.  Normally I would not trust any single valuation technique enough for exclusive use...

All that being said, it is hard to top KMI's income producing capabilities.  What we have here is a high yield stock expected to grow dividends in the high single digits.  Kinder Morgan management told us in advance they will be raising dividends by 8% this year.  A 5% yield growing 8% is a recipe for success I simply cannot over look.  KMI has very nice assets, a plan to expand rapidly, is big enough to absorb competitors via future acquisitions, has a CEO I very much admire, and a stock price trading 20% below my DDM fair value calculation.  KMI is a bet on the American energy boom.  KMI is a bet on natural gas.  The CEO has his personal fortune tied to the company and I believe he is the right man to make it all work.  It's hard to find this combination of yield and dividend growth anywhere else.

While KMI is by no means a dividend champion and has a bit more risk than I typically accept, ultimately I think this investment will be a good one.

I have many free trades available and did not pay commissions today (or with last week's FRIP purchase).  I plan to continue small weekly purchases until my supply of free trades run out. 

Symbol: KMI
Core Position: No
Speculative Position: No*
Expectations: Steady income; 5% annual dividend growth
Automatic Sell: Frozen dividend; dividend cut
Consider Selling:  Rich Kinder retires, business fundamentally changes, management becomes untrustworthy, fundamentals deteriorate, wildly over valued stock price, or position fails to meet expectations

*borderline speculative

10 Companies to Round Out My Portfolio

Currently my portfolio consists of 40 dividend growth stocks leaving 10 spots open before I stop.  At this point I'm fully allocated (by number of positions) to three sectors: consumer staples, financials, and telecoms.  I will not be adding additional positions to those sectors though I will obviously add new shares to the holdings I already have.

This list is not in any particular order, I like them all.

❶  Genuine Parts Company (GPC) Consumer Discretionary Sector
2.7% yield, 52% payout ratio, 58 year streak
I've been meaning to add this company for years but never did manage to get a buy in.  GPC is the epitome of a dividend growth stock with a streak approaching 6 decades.  That represents the sixth longest streak in the world.  I plan to add one more holding from the consumer discretionary sector and feel Genuine Parts is the right company for the slot.

❷ Aqua America, Inc. (WTR) Utilities Sector
2.4% yield, 49% payout ratio, 22 year streak
I'm looking to add another utility for diversification purposes and am extremely interested in WTR.  I currently own a couple utilities (AVA, SO) and feel they are appropriate stocks for achieving my goals, but I think a water utility will be my next move in this sector.  Anyways this company has great management, a plan for future growth, and happens to sell a product that will never go away as long as the human race roams this earth.  If WTR happens to drop around $23 it would be a top candidate for new capital.

❸ Bemis Company, Inc. (BMS) Materials Sector
2.8% yield, 53% payout ratio, 31 year streak
Bemis runs a boring packaging business.  It manufactures plastic packaging for products such as cheese, hand cream, lawn fertilizer, and medical syringes... yawn.  I think I might have fallen asleep while researching this company, but it's as steady of a business as any and continually innovates bringing new products to market.  Companies like this are right up my alley, the only thing I don't like is BMS's low dividend growth.  Dividend growth has only grown about 3.4%/yr the past 5 years.  I might consider a different company from the materials sector if I can find something better. 

❹ Medtronic, Inc. (MDT) Healthcare Sector
1.9% yield, 32% payout ratio, 36 year streak
Great company in a great sector.  Not much to dislike about Medtronic except that it currently offers a very low yield.  As we all know, stocks prices move around a lot.  It would only take a dividend increase and a market correction to get MDT back on my radar.  If that happens I plan to jump on this stock, but I'll have to seek other opportunities for now.  I also very much like BDX from the sector, and would be happy with that one instead of MDT.

❺ Automatic Data Processing, Inc. (ADP) Technology Sector
2.5% yield, 66% payout ratio, 39 year streak
I currently own zero tech stocks and will be looking to ADP to get back into technology.  ADP is one of only four companies that can claim a AAA credit rating.  That's a better rating than the US government!  Very steady performer here and it has an outstanding track record of above average dividend growth.  I almost added shares a few years ago when it was trading in the 50's, but in the end I failed to actually click the buy button.  This one kind of got away from me as the share price rose considerably.  It has a 2.5% yield which isn't bad at all, but the payout ratio is kind of high and the share price seems to always be over valued.  Perhaps it will trade at better valuations at some point down the road?  Probably not, I might have to just click "buy" and get it over with.

❻ Harris Corporation (HRS) Technology Sector
2.3% yield, 45% payout ratio, 12 year streak
Harris manufactures communications equipment primarily for the US government (military).  I'm a satellite technician in the US Army and use HRS equipment all the time.  I typically shun the tech sector because I have a hard time understanding rapidly changing businesses, but I understand Harris quite well.  Anyways the uniformed services need to periodically upgrade systems and I feel HRS ought to do well over the years.  I know of new projects in the works plus I'm sure the maintenance & training contracts work to HRS's advantage.  Unfortunately the stock seems a bit pricey these days the same as the rest of the market.  No plans to get in this one just yet.

❼ BP PLC (BP) Energy Sector
4.8% yield, 31% payout ratio, 3 year streak
BP has a very nice yield, a low payout ratio, and a reasonable stock price.  This will be my final oil stock.  It has a short dividend growth streak which can be attributed to the Gulf disaster a few years ago.  BP is back to raising dividends again.  I think it's time to look past the Gulf spill and focus on the future.  It still looks fairly cheap.

❽ General Electric Company (GE) Industrial Sector
3.5% yield, 70% payout ratio, 4 year streak
A few years I wouldn't have considered GE, but I must say I really like the direction this company is heading.  After the well publicized dividend cut during the great recession GE came back strong.  It currently plans to spinoff part of its consumer finance business and focus more on the industrial side of the house.  Music to my ears!  I'd prefer to wait till after the spinoff before starting a position (I'd sell the spinoff shares anyways), but would consider a purchase now if the value is attractive enough.  It's getting close to my buy price as it creeps down towards $25.  Hmm...

❾ 3M Company (MMM) Industrial Sector
2.6% yield, 51% payout ratio, 56 year streak
Another high quality dividend champion that has so far eluded my portfolio.  3M is a well diversified conglomerate that has hands in a variety of industries.  This company has a long term focus and is extremely well run.  A few months ago it raised its dividend by a hefty 35%, although single digits might be a more realistic expectation for the years ahead.  I imagine that when the board of directors meet to discuss the dividend, a raise is almost automatic for 3M at this point.  The only question left is how much.  That's the sort of mentality I'm looking for.  I came close to purchasing shares last month when MMM was trading around $124.  Hopefully the market provides another chance soon.

❿ Open Position
Ideally another healthcare or industrial stock, but I'm leaving one spot open for now.