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!