Today Southside Bancshares (SBSI) announced it has increased its quarterly dividend 16.7%. Actually it made two announcements, the first is that a 21 for 20 stock split is coming. This will increase shares by 5% but lower the current quarterly dividend from $.18 to $.1714. However in a second announcement the quarterly dividend was raised to $.20 per quarter representing 16.7% dividend growth.
Right now my 60 shares pay me $43.20/year which will turn into 63 shares paying me $50.40/year.
SBSI is small bank located in Texas. It has an awesome dividend policy including regular dividend increases (17 straight years), stock dividends (stock splits) and special dividends to boot. Annually SBSI rewards shareholders with 5% stock split, but keeps the quarterly dividend the same. Its really just a phantom dividend increase of exactly 5%. Using today (and history) as evidence, SBSI is a company which rewards shareholders handsomely. I will add to my position on dips.
Thursday, March 29, 2012
Sunday, March 25, 2012
Where My Portfolio is Headed
I'm currently sitting on 24 positions in my dividend growth portfolio. The goal is to hold 30-35 companies representing all sectors. What I notice right now is the following:
-I have nothing from the Materials sector
-I only have one position in Financials and Consumer Discretionary
-I need to beef up Health Care
-I need more foreign holdings
The plan is to slowly make new purchases to rectify these shortcomings. I have 6 slots open before I reach 30 without counting spinoffs from COP and ABT. My goal is up to 35 so I can include spinoffs and other future opportunities. Below is how I anticipate rounding out my portfolio, it is always subject to change depending on future developments.
1) Materials Sector - A few weeks ago I researched the sector and concluded APD would best fit my objectives. With the recent div. increase APD now yields about 2.8% which makes it a good candidate for my strategy. Unfortunately APD is kind of pricey, I can wait. Alternate: CMP
2) Consumer Discretionary Sector - My only holding here is MCD. The best candidate I could find to augment MCD is GPC which has over 50 years of dividend increases and a yield north of 3%. GPC is also pretty pricey right now. Alternate: None
3) Financial Sector - I am weary of this sector after the meltdown a couple years ago. I'm sorry but I cannot trust large banks. Who knows what they are holding or what they are doing. I do, however, feel comfortable with small banks and foreign banks, namely Canadian. I'm also open to insurance companies, there are many choices. Right now I hold SBSI. I'm thinking of adding AFL, BMO, BNS, or RY. I need to look at Canadian banks in depth, but Canada is known to be a banking safe haven.
4) Health Care Sector - Currently hold ABT and JNJ. I haven't made a new purchase in this sector in quite a while. I've looked at potential candidates for a third company and concluded MDT would be ideal. It is currently yielding about 2.5%, I'll wait for a better yield. Alternate: OMI
5) Foreign Stocks - I would like to increase my foreign holdings. I only hold EIFZF (EIF on the Toronto Stock Exchange) from Canada. The problem I usually encounter is two fold: I don't want my dividends withheld, and I want quarterly or monthly payments. There aren't many options outside Canada and the U.K. I am leaning toward Canadian banks listed above and also like UL and EMRAF.
6) MLP - Oil pipelines come to mind for MLPs. What ever company I choose, it will not be a pure natural gas pipeline (I already have that in BWP and TCP). SXL and KMP have shown weakness as of late. I was tempted to make a purchase the past few weeks.
I like the direction my portfolio is headed. It's a good time to be in dividend stocks.
-I have nothing from the Materials sector
-I only have one position in Financials and Consumer Discretionary
-I need to beef up Health Care
-I need more foreign holdings
The plan is to slowly make new purchases to rectify these shortcomings. I have 6 slots open before I reach 30 without counting spinoffs from COP and ABT. My goal is up to 35 so I can include spinoffs and other future opportunities. Below is how I anticipate rounding out my portfolio, it is always subject to change depending on future developments.
1) Materials Sector - A few weeks ago I researched the sector and concluded APD would best fit my objectives. With the recent div. increase APD now yields about 2.8% which makes it a good candidate for my strategy. Unfortunately APD is kind of pricey, I can wait. Alternate: CMP
2) Consumer Discretionary Sector - My only holding here is MCD. The best candidate I could find to augment MCD is GPC which has over 50 years of dividend increases and a yield north of 3%. GPC is also pretty pricey right now. Alternate: None
3) Financial Sector - I am weary of this sector after the meltdown a couple years ago. I'm sorry but I cannot trust large banks. Who knows what they are holding or what they are doing. I do, however, feel comfortable with small banks and foreign banks, namely Canadian. I'm also open to insurance companies, there are many choices. Right now I hold SBSI. I'm thinking of adding AFL, BMO, BNS, or RY. I need to look at Canadian banks in depth, but Canada is known to be a banking safe haven.
4) Health Care Sector - Currently hold ABT and JNJ. I haven't made a new purchase in this sector in quite a while. I've looked at potential candidates for a third company and concluded MDT would be ideal. It is currently yielding about 2.5%, I'll wait for a better yield. Alternate: OMI
5) Foreign Stocks - I would like to increase my foreign holdings. I only hold EIFZF (EIF on the Toronto Stock Exchange) from Canada. The problem I usually encounter is two fold: I don't want my dividends withheld, and I want quarterly or monthly payments. There aren't many options outside Canada and the U.K. I am leaning toward Canadian banks listed above and also like UL and EMRAF.
6) MLP - Oil pipelines come to mind for MLPs. What ever company I choose, it will not be a pure natural gas pipeline (I already have that in BWP and TCP). SXL and KMP have shown weakness as of late. I was tempted to make a purchase the past few weeks.
I like the direction my portfolio is headed. It's a good time to be in dividend stocks.
Thursday, March 22, 2012
New Purchase - MCD
The latest addition to my portfolio is McDonald's. This morning I decided I needed to get some egg mcmuffins to satisfy my craving. I love those things. While eating my breakfast I checked premarket trading and noticed MCD was down. I put in a limit order for MCD while eating egg mcmuffins which is kind of funny now that I think about it. Anyways I bought 13 shares which were purchased at $95.92 + commissions. This amounts to an entry yield of about 2.9% and will pay me $36.40/year.
Everytime I go to McDonalds there are plenty of customers. Their business plan is obviously working. Even in Thailand the restaurant was busy. The burgers and fries tasted the same as in the states, it was awesome. When I was flying home from Kuwait last year I had to stay overnight at an airbase with a McDonald's. Guess what? It was packed. Everywhere I go there is a McDonald's and people are happy to pay for their food.
I've stated this before; I've wanted to be a McDonald's stock holder for a long time. I had many chances in 2011, but never pulled the trigger. I consider MCD to be one the premier dividend growth stocks in the same league as PM, CVX, JNJ, PG, and KO. In the past MCD has grown its dividend at a tremendous rate which I foresee slowing down. I'm okay with that.
While I'm not ecstatic about the share price I paid, I feel it is reasonable. I'd like to add to this position in the future and would welcome further price declines.
Everytime I go to McDonalds there are plenty of customers. Their business plan is obviously working. Even in Thailand the restaurant was busy. The burgers and fries tasted the same as in the states, it was awesome. When I was flying home from Kuwait last year I had to stay overnight at an airbase with a McDonald's. Guess what? It was packed. Everywhere I go there is a McDonald's and people are happy to pay for their food.
I've stated this before; I've wanted to be a McDonald's stock holder for a long time. I had many chances in 2011, but never pulled the trigger. I consider MCD to be one the premier dividend growth stocks in the same league as PM, CVX, JNJ, PG, and KO. In the past MCD has grown its dividend at a tremendous rate which I foresee slowing down. I'm okay with that.
While I'm not ecstatic about the share price I paid, I feel it is reasonable. I'd like to add to this position in the future and would welcome further price declines.
Wednesday, March 21, 2012
Raytheon Increases Dividend
Raytheon (RTN) announced it has raised its dividend 16.3% from $.43 to $.50 per quarter. This marks 8 consecutive years of increases placing RTN in the dividend challengers category of dividend growth stocks. 16.3% is a huge number and by far the best increase my portfolio has seen in 2012.
Raytheon is a defense contractor best known for manufacturing missiles. In addition to missiles/air defense, RTN has a number of other businesses including radar solutions, surveillance systems, biometrics, cyber security, and other specialized electronics. I serve in the US Army and am weary of putting large percentages of my portfolio in defense contractors. I have first hand knowledge that the military is downsizing which is a reflection of ending the Iraq war and winding down Afghanistan. With this in mind I also realize the need for defense contractors will not go away. Our country needs to defend itself, companies like RTN help make us the best. I also like GD and LMT from the industry.
Raytheon is a defense contractor best known for manufacturing missiles. In addition to missiles/air defense, RTN has a number of other businesses including radar solutions, surveillance systems, biometrics, cyber security, and other specialized electronics. I serve in the US Army and am weary of putting large percentages of my portfolio in defense contractors. I have first hand knowledge that the military is downsizing which is a reflection of ending the Iraq war and winding down Afghanistan. With this in mind I also realize the need for defense contractors will not go away. Our country needs to defend itself, companies like RTN help make us the best. I also like GD and LMT from the industry.
Saturday, March 17, 2012
MLPs and Taxation
I've been interested in master limited partnerships since I first discovered them in 2010. I spent a lot of time researching these investments until I was comfortable enough to pull the trigger. Initially my concerns with MLPs were:
#1: I heard they made filing taxes complex
#2: K-1 tax documents are sent late in the tax season
#3: I was afraid I would need to purchase a more expensive version of turbo tax for the K-1s
#4: MLPs are not suitable for ROTH IRAs because of the possibility of owing taxes even in a retirement account.
I decided that in 2011 I would purchase 2 MLPs and find out for myself the answers to these questions. I love MLPs for the high yields, distribution growth, and tax sheltering. Here is my experience.
#1: I heard they made filing taxes complex - I recently did my taxes on Turbo Tax. With my regular dividend stocks I was able to import all the information directly from my broker's website. I didn't have to manually enter anything. With my two MLPs I did have to enter them manually. Supposedly it is possible to import K-1s, I couldn't figure out how to do it. Regardless, I don't understand what the fuss is all about. It took me about 15 mins or so to enter the K-1s, it's not rocket science. I had to google a partnership federal identification number for one of them, but that was it. This concern is overblown. Is it additional work? Yes. Is it hard? No.
#2: K-1 tax documents are sent late in the tax season - I was able to access K-1s on Feb. 27 & 29 respectively for the two MLPs I own. This is mid tax season, other K-1s might come out later I can't say. It would be best to check before purchasing a MLP just in case. I owe Uncle Sam and my state taxes this year. Being unable to file taxes until March is a moot point for me. I wouldn't have done my taxes until now anyways.
#3: I was afraid I would need to purchase a more expensive version of turbo tax for the K-1s - Nope, the version needed for stocks can handle MLPs as well.
#4: MLPs are not suitable for ROTH IRAs because of the possibility of owing taxes even in a retirement account. - Although I do not own MLPs in my ROTH this is true because of the possibility of unrelated business income tax. An MLP must generate 90% of income from "qualified" sources; if it generates too much from unqualified sources UBIT must be paid even in retirement accounts. The investor is safe up to $1000, and from what I've read you would have to own a lot of units for this to trigger.
I do agree that MLPs are not suitable for retirement accounts, but for a different reason. Putting an MLP in a retirement account negates the best feature of the investment. You are able to defer taxes on distributions until you sell the units or until the cost basis reaches zero (distributions reduce your cost basis). It's tax deferment within a taxable account! Why put this in an account that is already tax advantaged? It doesn't make sense. Not at all.
In 2011 I received $1,779.32 of dividend income. $856.85 or 48.2% of this income was either tax free in my ROTH or tax deferred through MLPs. I already pay Uncle Sam enough, he doesn't need more of my money. Being a federal employee it almost feels like I am paying myself, I'll take any tax advantages I can get.
Now that I have a better understand of Master Limited Partnerships I will continue to purchase them. Right now I'm concentrated in natural gas. In the future I'll be looking to add oil and diversified pipelines.
#1: I heard they made filing taxes complex
#2: K-1 tax documents are sent late in the tax season
#3: I was afraid I would need to purchase a more expensive version of turbo tax for the K-1s
#4: MLPs are not suitable for ROTH IRAs because of the possibility of owing taxes even in a retirement account.
I decided that in 2011 I would purchase 2 MLPs and find out for myself the answers to these questions. I love MLPs for the high yields, distribution growth, and tax sheltering. Here is my experience.
#1: I heard they made filing taxes complex - I recently did my taxes on Turbo Tax. With my regular dividend stocks I was able to import all the information directly from my broker's website. I didn't have to manually enter anything. With my two MLPs I did have to enter them manually. Supposedly it is possible to import K-1s, I couldn't figure out how to do it. Regardless, I don't understand what the fuss is all about. It took me about 15 mins or so to enter the K-1s, it's not rocket science. I had to google a partnership federal identification number for one of them, but that was it. This concern is overblown. Is it additional work? Yes. Is it hard? No.
#2: K-1 tax documents are sent late in the tax season - I was able to access K-1s on Feb. 27 & 29 respectively for the two MLPs I own. This is mid tax season, other K-1s might come out later I can't say. It would be best to check before purchasing a MLP just in case. I owe Uncle Sam and my state taxes this year. Being unable to file taxes until March is a moot point for me. I wouldn't have done my taxes until now anyways.
#3: I was afraid I would need to purchase a more expensive version of turbo tax for the K-1s - Nope, the version needed for stocks can handle MLPs as well.
#4: MLPs are not suitable for ROTH IRAs because of the possibility of owing taxes even in a retirement account. - Although I do not own MLPs in my ROTH this is true because of the possibility of unrelated business income tax. An MLP must generate 90% of income from "qualified" sources; if it generates too much from unqualified sources UBIT must be paid even in retirement accounts. The investor is safe up to $1000, and from what I've read you would have to own a lot of units for this to trigger.
I do agree that MLPs are not suitable for retirement accounts, but for a different reason. Putting an MLP in a retirement account negates the best feature of the investment. You are able to defer taxes on distributions until you sell the units or until the cost basis reaches zero (distributions reduce your cost basis). It's tax deferment within a taxable account! Why put this in an account that is already tax advantaged? It doesn't make sense. Not at all.
In 2011 I received $1,779.32 of dividend income. $856.85 or 48.2% of this income was either tax free in my ROTH or tax deferred through MLPs. I already pay Uncle Sam enough, he doesn't need more of my money. Being a federal employee it almost feels like I am paying myself, I'll take any tax advantages I can get.
Now that I have a better understand of Master Limited Partnerships I will continue to purchase them. Right now I'm concentrated in natural gas. In the future I'll be looking to add oil and diversified pipelines.
Monday, March 12, 2012
On The Radar
I am planning to make one more purchase in March. Currently the stocks I am paying close attention to are NSC, MCD, and GIS. I'm hoping to see a dip sometime soon for an opportunity to pickup one of these names at slightly lower prices. Right now I am leaning towards Norfolk Southern. I like the price it is currently at. I've wanted McDonald's in my portfolio for a long time but have missed many opportunities to pick up shares. I like it at 95 which may or may not happen. I eat a lot of General Mills products and could see myself making a purchase; I almost did last month. Right now I'm weighing my options, and taking time to see what unfolds.
One of the stocks or rather MLPs on my Watch List W.P. Carey (WPC) is planning a merger and to restructure as a REIT. WPC is a rare non-pipeline company set up as a MLP. Changing to a REIT means they will have to up the dividend/distrubition to 90%+ earnings (it's currently 66%), but will lose the amazing tax sheltering. I'm not too happy about this; I will leave it in my Watch List for now but have no plans to buy. It became kind of pricey the past few months anyways.
Last year I sheltered almost half my dividend income using a ROTH IRA and MLPs in my taxable account. It's very relevant when tax season comes along. I'll talk more about this soon.
One of the stocks or rather MLPs on my Watch List W.P. Carey (WPC) is planning a merger and to restructure as a REIT. WPC is a rare non-pipeline company set up as a MLP. Changing to a REIT means they will have to up the dividend/distrubition to 90%+ earnings (it's currently 66%), but will lose the amazing tax sheltering. I'm not too happy about this; I will leave it in my Watch List for now but have no plans to buy. It became kind of pricey the past few months anyways.
Last year I sheltered almost half my dividend income using a ROTH IRA and MLPs in my taxable account. It's very relevant when tax season comes along. I'll talk more about this soon.
Thursday, March 8, 2012
New Purchase - O-PF
Yesterday I purchased 49 shares Realty Income preferred series F (O-PF) at a cost of $25.46/ share + commissions. The purchase will pay me $6.76/month starting in April which is $81.12 annualized on a 6.46% yield. This purchase was for asset allocation purposes as my stock portfolio has outpaced my fixed income assets.
The par value for the shares is $25 so I did pay a small premium, but less than 2%. Normally I'd try to buy below par value, unfortunately it is difficult to do so in today's market. Series F was recently issued after Realty Income called series D to save on interest payments. The good part is that series F isn't callable until 2017, that's 5 years at a bare minimum. The shares are also cumulative, but I do not expect a default. I would be comfortable holding the common stock O; naturally an O-PF default doesn't concern me. It's always better to have cumulative shares just in case.
The good news about this particular purchase is that Realty Income preferred shares compare very favorably to the common shares. O currently sports a 4.69% yield growing at a measly 2.84% 5 yr CAGR. It grew by only 0.87% in the past 12 months; not impressive. O-PF on the other hand offers no dividend growth but has a healthy 6.51% yield. With that being said, at some point in the future interest rates are going to rise and preferred stocks are going to be slaughtered. At least in price. They are interest rate sensitive. As always I'm more focused on income than market value, I don't plan to sell this unless it gets called.
Now that my allocations are in order I'll continue to buy more dividend growth stocks.
Too easy.
The par value for the shares is $25 so I did pay a small premium, but less than 2%. Normally I'd try to buy below par value, unfortunately it is difficult to do so in today's market. Series F was recently issued after Realty Income called series D to save on interest payments. The good part is that series F isn't callable until 2017, that's 5 years at a bare minimum. The shares are also cumulative, but I do not expect a default. I would be comfortable holding the common stock O; naturally an O-PF default doesn't concern me. It's always better to have cumulative shares just in case.
The good news about this particular purchase is that Realty Income preferred shares compare very favorably to the common shares. O currently sports a 4.69% yield growing at a measly 2.84% 5 yr CAGR. It grew by only 0.87% in the past 12 months; not impressive. O-PF on the other hand offers no dividend growth but has a healthy 6.51% yield. With that being said, at some point in the future interest rates are going to rise and preferred stocks are going to be slaughtered. At least in price. They are interest rate sensitive. As always I'm more focused on income than market value, I don't plan to sell this unless it gets called.
Now that my allocations are in order I'll continue to buy more dividend growth stocks.
Too easy.
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