January Recap

It appears the stock market is finally going to correct.  I plan to use some reserve cash to purchase extra shares next month in addition to regular deposits and incoming dividends.  Pretty good time for a correction as I'd like to be fully invested.

I will be purchasing equities on a weekly basis for the next 5 months or so.  I'm giving myself 2 additional purchases for February (for a total of 6 buys) in order to use up free trades and get idle cash invested.  So far I really don't think there is an advantage to making a bunch of small purchases compared to one large purchase.  However buying a stock every week is something to look forward to, it sure is fun!

DOW: 15,699 /// S&P 500: 1,783 /// 10-YR BOND: 2.67%

New Purchases:
1) 49 shares HCP at $36.15: $102.90 annual income (the dividend has since increased)
2) 1 share MCD at $96.32: $3.24
3) 4 shares UL at $40.14: ~$5.88
4) 7 shares UL at $39.33: ~$10.29
5) 4 shares TGT at $59.10:  $6.88
6) 73 shares TU at $33.38: ~$98.55
7) 4 shares WMT at $74.04: $7.52
8) FRIP: 1 share LEG: $1.20
9) DRIP: .624 shares BNS: ~$1.56

Sales:
1) 92 shares INTC at $25.03: ($82.80) annual income

Dividends Received: $418.54
iShares Emer Mkt Bnd (EMB) $2.50
Pepsi (PEP) $45.40
Walmart (WMT) $9.87
Baxter (BAX) $21.56
Illinois Tool Works (ITW) $12.18
Philip Morris (PM) $97.76
Corporate Office Properties Series L (OFC-PL) $22.58
Exchange Income Corp. (EIFZF) $16.34
Leggett & Platt (LEG) $18.00
Realty Income (O) $15.67
Realty Income Series F (O-PF) $6.76
W.P. Carey (WPC) $20.01
Kraft (KRFT) $14.18
Linn Co (LNCO) $24.16
Bank of Nova Scotia (BNS) $34.45
LTC Properties (LTC) $28.58
Toronto-Dominion Bank (TD) $28.54

Dividend Increases:
1) OHI: $.48 to $.49 per quarter. $2.32 annual income
2) NSC: $.52 to $.54 per quarter. $4.56
3) HCP: $.525 to $.545 per quarter. $3.92

New Deposits:
$1,500 to ROTH IRA, $75 to Lending Club

Lending Club Interest:
$10.14

Special Dividends:
WPC: $2.53  I cannot count special dividends towards my monthly or quarterly progress because it is not income I can expect to receive on a regular basis. 

Weekly Purchase - WMT

4 shares WMT, 2.54% yield, $7.52 annual income

I like Walmart under $75 and decided to go that route with my purchase this week.  Retail stocks took a beating this month as the market corrected and credit card security is still fresh in everyone's mind.  Target took a noticeable nosedive and Walmart also seems to have been affected although to a lesser extent.  I think both companies are attractive, but I do have more confidence in WMT as a business.  Plus WMT is a small position for me in need of a share count boost.  I'm happy to add a few shares when possible.

The stats on WMT are currently quite attractive.  It has a 39 year dividend growth streak, a very reasonable 14.2 P/E, and a 2.5% yield which is higher than what it typically offers.  I'm expecting dividend payments to grow next month because WMT tends to announce increases during the month of February.  WMT has a low payout ratio of only 36% leaving plenty of room for future dividend boosts.  I don't think I really need to explain WMT's appeal as a dividend growth income stock in detail.  Everyone knows how dominant this company is.

I estimate WMT shares should be worth about $85.  If that's true (it's only an estimate) I'm getting a margin of safety greater than 10%.  As a comparison, Morningstar gives it a 4 star rating on a $80 fair value.

After getting burned with Intel I'm pleased to pick up a company with a high chance of performing to standard.  Stock investments are never guaranteed, but I would argue Walmart offers a considerable amount of dividend growth certainty.

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 (probably July).

Symbol: WMT
Core Position: No
Speculative Position: No
Expectations: Steady income; 8% 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.  

Replaced INTC with TU

Intel held its dividend steady for the 7th straight quarter.  Folks, this is a dividend freeze if I've ever seen one.  I sold my remaining INTC shares today which will reduce my annual income by $82.80.  About 6 months ago I reduced my stake in the company when it became apparent investors would no longer enjoy increasing dividends.  That was a poor move, I should have sold the whole position.  I currently hold zero technology stocks and I'm completely fine with that.  I can only think of 2 tech stocks I'd like to own.  That would be Harris Corporation and ADP.  I own 39 stocks at the moment and plan to build up to portfolio of 50.  Of the remaining 11 slots, at least one will be reserved for a technology company.

I feel I was extremely lenient with INTC, probably more than I should have been.  Time to move on.

Telus (TU) is as sure of a bet as is possible when it comes to dividend growth.  This company announced plans to do multiple dividend increases per year for a combined total near 10% through 2016.  It is spelled out for all to see on its investor relations webpage.  They are letting us know exactly what they intend to do in advance, how awesome is that?  Double digit dividend growth coupled with a 4% yield seems like an arrangement that would be in my best interest.  Count me in.

I trust the management team here.  Telus's CEO has a salary of $0 per year, instead he is compensated exclusively via stock.  You have to be confident about the business you're running to do something like that.  I'd like to see more executive compensation plans setup in this fashion since the interest of the CEO is therefore 100% aligned with shareholders.  The payout ratio and debt levels are both reasonable for a telecom.  Analysts expect solid EPS growth.  The share price is in my buy zone.  It has a 9 year dividend growth streak.  People love their mobile phones and I don't see that trend changing any time soon.  TU seems like a better fit for my portfolio than Intel.

These shares will provide me with about $98.55 annual income.  Telus is Canadian and dividends are paid in Canadian dollars.  Exchange rates will alter the amount I actually receive.

Symbol: TU
Core Position: No
Speculative Position: No
Expectations: Steady income; 5% annual dividend growth in Canadian $
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.

Weekly Purchase - TGT / FRIP - LEG

4 shares TGT, 2.91% yield, $6.88 annual income

I added a few Target shares today.  Price of this stock is currently under pressure from the widely publicized data breach, a slower than expected start to Canadian expansion, and lowered earnings guidance.  It seems to me that all retailers, not just Target, have potential security vulnerabilities.  Yet it is TGT that will have to deal the mess and it doesn't look pretty.  It might have to replace credit card terminals, pay legal fees, and face sluggish sales in light of all the negative publicity.  One analyst downgraded the stock and even thinks TGT will have to cancel its stock buyback program.  To me, this sounds like the proverbial "blood in the streets."

On the flip side, $59 is a nice price for this company since all the negatives listed above seem short term in nature.  Long term I think the company will be fine, I see no reason for any drastic actions like a dividend cut.  However I do expect dividend growth to be much lower than normal this year.  My plan is to nibble a little bit here and there, but stay diversified.  Target is a high quality company trading at an attractive price, but it will remain a small part of my portfolio. 

If TGT stays in the 50's I'll likely buy some more next week, but I must admit WMT looks attractive too.

1 share LEG, 3.98% yield, $1.20 annual income

This is my first ever FRIP purchase.  Kind of exciting!  I only had about 38 bucks to FRIP so I decided to pick a company with a low stock price rather than wait another quarter.  I believe LEG is undervalued at $30, but to be honest it's not my top choice at these levels.  My Scottrade account is still young, you can expect to see a lot of FRIPing in my future.

All in all I like FRIP a lot better than DRIP.  The only thing I don't like is that dividend reinvestment discounts do not apply.  I'll have to make sure companies that offer those discounts are placed in my other brokerage.

Weekly Purchase - UL

7 shares UL, 3.74% yield, ~$10.29 annual income (depending on exchange rates)

My portfolio gained additional Unilever shares today pushing my expected annual dividend income over $5,800.  I'm closing in on the $6,000 mark which would mean an average of $500 per month!  HCP is likely to raise payouts in a few weeks, plus OHI & KMI might also follow suit (or maybe not).  However February tends to be my best month as far as dividend increases, perhaps I might reach $6,000 sometime in March?  I can choose companies extremely likely to raise dividends, but I cannot control the amounts. We'll see.

Most investors base success on the size of their portfolios and probably don't care about this sort of thing.  I'm a rehabilitated total return junkie.  It took a few years to break the habit so trust me I understand why income investing isn't popular.  My new drug is dividends, so yeah passive income is exciting for me.  Dividends are equally addicting!  Anyways on a serious note, I realize other investing strategies work (like indexing), it's just that I don't trust the 4% rule. 

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 (probably July).

Symbol: UL
Core Position: No
Speculative Position: No
Expectations: Steady income; 6% annual dividend growth in € (not $)
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.

Lending Club Update Q1 2014

I figured it was time to do a Lending Club update since it has been a while.

LC investment stats after 16 months

Not a whole lot to report which is a good thing.  The returns are still amazing, but have been slowly dropping over time.  I think returns will ultimately be around 11-13% depending on defaults.  Defaults will likely increase during certain periods (recessions, depressions, etc.).  Right now the economy seems pretty solid, perhaps that is why defaults have been non existent so far.  Seriously though, returns over 10% without taking stock market risk is absolutely phenomenal.  I can't complain...

Tough to score C's and D's

I know there are successful LC strategies that aim for the highest interest rates possible and accept charge offs as part of the risk.  I'm not doing that.  My screen is constructed to minimize defaults.  Partly because I think I can use a screen effectively (LC is stupid easy compared to equity investing), and partly because I want to help qualified people get their life back in order.  I don't want to lend my personal money to a bunch of dead beats for a higher interest rate.  The people I loan money have a 36 month commitment, then the debt is gone.  Extinguished.  I want them to pay it off and move on with their life.  It's in my best interest.  It's in their best interest.  Debt sucks!

My LC Screen:
-Inquiries in the last 6 months: 0-1
-Exclude loans already invested in: Yes
-Loan purpose: Refinancing credit card, consolidate debt, medical expenses, renewable energy finance
-Max loan amount: $35,000
-Home ownership: Own, mortgage
-Total credit lines: 20 max
-Term: 36 month
-Max debt to income: 10% maximum (this is key in my opinion)
-Interest rate: B-G
-Min length of employment: 4 years
-Delinquencies (last 2yrs): 0
-Public record: Exclude loans with public records
-Manually check for spelling mistakes: I won't lend money to people who can't fill out an application correctly.  That's just how I feel about it; prospective borrowers need to be serious.

So far so good.  Perhaps luck has been on my side?  We'll find out because I'm starting to park $75-$100 each month into this.

Weekly Purchase - MCD & UL

1 share MCD: 3.36% yield, $3.24 annual income
4 shares UL: 3.66% yield, ~$5.88 annual income

I bought a small amount of McDonald's stock today.  MCD is one of my core holdings and is currently trading around fair value.  I think it's attractive compared to most other stocks right now.  This is one of the highest prices I've ever paid, but will barely affect my cost basis.

I'm pleased to announce Unilever as the newest addition to my income portfolio.  Unilever is based in the UK and represents my first dividend growth investment outside North America.  I really like this company.  It has an awesome collection of brands that consumers will purchase in any economic environment.  People need to wash themselves, eat, and do laundry whether we're in the midst of a depression or economies are reaching new heights.  You'll recognize many Unilever brands.  Some of the more prominent names include Suave shampoo, Dove grooming products, Knorr soups & side dishes, Hellman's mayonnaise, Axe body spray, Vaseline, Bertolli pastas, and Lipton iced teas.  The nice part is that UL offers quite a few high quality budget brands and might not be as susceptible to private labeling as say Procter & Gamble.

I calculate UL to be a bit over valued, but it seems to always trade at a premium.  Morningstar stamped it with a $45 fair value however.  If you believe Morningstar, UL is still pretty cheap.  Anyways this is one of those companies that was destined to make its way into my portfolio at some point. 

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.

Linn Energy: Swapped LINE for LNCO

 

I did this switch because I no longer want to fool around with extra tax forms.  When I first started dividend investing I planned to own a bunch of MLPs.  The past year or two I've had a change of heart, not to mention there are many ways to invest in the same businesses without added tax work.  Fast forward to today and LINE is the only holding left that still issues a K-1.  Doesn't make sense to do extra work for just one holding. For those who don't know, LINE and LNCO are the exact same company.  LINE units pay distributions and issue a schedule K-1 tax form.  LNCO is registered as a C-corp and actually just owns LINE units.  LNCO shares pay dividends and issue a 1099-DIV tax form.


Since LINE and LNCO are the exact same company, with exactly the same monthly payout, I don't consider this a sale.  It won't be listed as such on my monthly reports.  However I suppose for tax purposes it really is.  I'm going to list LNCO's cost basis on my portfolio page when I update it, but to be fair I'm also going to expunge LINE distributions from my progress page too.

2013 was a rough year for Linn with bad news ranging from a scathing Barron's article, to short sellers stirring up fear, to a poor earnings release, all the way to an actual SEC inquiry!  Hard to believe this company used to be loved by dividend investors.  I managed to hang on believing most of the "hot news" was just a bunch of hot air.  I never discovered anything actually wrong with Linn other than a falling share price.  My beliefs seemed to have been vindicated so far as Linn was cleared of the SEC inquiry, it was given the nod of approval to acquire Berry Petroleum, the Berry acquisition was approved by shareholders, and dividends were never cut.

I'm taking a loss (for tax purposes) with LINE, including distributions I'm down approximately $240.  Honestly I thought it would have been worse... actually that's a really cheap education.  LINE was quite the learning experience!  I now know the difference between a SEC inquiry and a SEC investigation.  I uncovered some Seeking Alpha authors (ie. James A Kostohryz) who write articles for shock value and should be avoided at all costs.  Anyone can write articles for Seeking Alpha, and there are some real shysters on there, please use caution!  I discovered MLP accounting is confusing and had the opportunity to vote on the BRY acquisition.  I found out hedge fund guys/short sellers can impact share price in a major way.  Above all else, I learned to trust my instincts.

Well it was definitely a roller coaster ride, but I still like Linn Energy and think it has a lot of potential.  LNCO is one my (two) speculative positions so if it doesn't work out I'll simply replace it.  Not a big deal.  So far it has performed as intended, except that dividend increases were affected by the madness last year.  I'm looking for a small dividend raise soon though.

Symbol: LNCO
Core Position: No
Speculative Position: Yes
Expectations: High income
Automatic Sell: Substantial dividend cut
Consider Selling: I lose faith in the company, small dividend cut, dividend freeze, management becomes untrustworthy


Weekly Purchases
On an unrelated note, I plan to start implementing small weekly purchases in my Scottrade account.  I know other investors like to average into the market using weekly purchase plans with Sharebuilder.  Think I'll try it too.  I'll be doing weekly purchases for the next 2-3 months using up a bunch of free trades before they expire.

I'm currently interested in TGT, MCD, and UL.  I believe TGT is still undervalued.  MCD seems fairly valued.  UL looks a bit over valued, but appears to command a premium similar to PG.

New Purchase - HCP

Today I added a new dividend champion to my portfolio.  I now control shares of 15 companies who have increased dividends a minimum of 25 straight years.  This particular purchase will bolster my annual income by $102.90 on a 5.78% yield taking fees & commissions into account.  However I expect HCP will unveil a higher dividend rate later this month.  I'm looking for a 5% increase.

I chose to go with HCP because I feel it offers a reasonable value in today's market, it has a long history of steady dividend raises, and provides a sizable income stream which I can use for reinvestment during the accumulation phase or spending money when I stop working.  I am not looking for above average capital gains, nope, I'm looking for a reliable income source.  Frankly I'm just not sure stocks will be able to continue rising the way they did last year.  I'm also concerned REITs might struggle since interest rates seem to be in an upward trend.  With that in mind I'm not planning to add additional REIT shares for the time being. 

HCP is the 5th REIT in my portfolio and will also be the last.  I'm about 10% REITs at the moment and have hit my limit in terms of portfolio weightings and also the number I'm willing to hold.  My plan is to build up to 50 positions total, 5 from the REIT industry.  From this point forward I'll have to buy additional shares of the ones I already own when allocations allow.  The reason I'm heavy into REITs has to do with my occupation more than anything else.  A career in the Army entails constant moving which makes rental properties impractical for Soldiers.  I've been stationed four places in the past five years, and it gets even worse if you want to include basic training (3 months) & advanced individual training (9 months).  If I knew I'd be staying put for long periods of time I think I'd favor physical rental properties.  But the good news is that REITs are liquid, I don't have to deal with tenants, and they don't tie me down to a specific location.  Those are all qualities I'll enjoy when I finally hang up my boots.

I plan to do a second purchase this month. 

Symbol: HCP
Core Position: No
Speculative Position: No
Expectations: Steady income; 3% 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.