On The Chopping Block: PSX

I'll start by saying I believe Phillips 66 has a bright future.  I listened to the recent conference call which helped me better understand what the company is doing.  PSX is committed to growing the business and returning cash to shareholders.  Management is targeting a 5% dividend growth rate and intends to make annual increases for many years to come.  I'm going to take management's word on the dividend policy.

With the recent price run up, PSX is now yielding 2.02%.  I will sell pretty much anything if the yield goes below 2%, especially something with a low expected dividend growth rate.  It's nothing against PSX, but I should be able to make better use of the cash in something else with a higher yield.

Sell limit order placed @ $40.10

Illinois Tool Works Increases Dividend

ITW's board of directors approved a 5.56% increase in the quarterly dividend to $.38.  The latest increase extends ITW's streak to 49 straight years placing it in the prestigious dividend champions category of dividend growth stocks.  Not many corporations can boast longer streaks.  I'm a little bit disappointed that the increase was so small this year especially considering its yield is an anemic ~2.5%(pre-announcement).  The good news is that 5.56% beats inflation. 

At this point in time I'm not looking to add to my ITW position.  I'll hold out for a more enticing entry yield.

New Purchase - OFC-PL

I scooped up 49 shares Corporate Office Properties preferred series L yesterday at $25.43/share + commissions.  This is a bit of a speculative move that comes with a nice yield.  These shares will pay me $90.36 per year on a 7.21% YOC.  It was time for me to buy fixed income and after careful consideration I decided to buy another preferred stock.  Corporate Office Properties is a REIT which specializes in (you guessed it) office properties.  These are multi million dollar buildings leased to various companies with an emphasis on Department of Defense suppliers and contractors.  Make no mistake, Corporate Office Properties is not a super stable corporation like Johnson & Johnson.  They make heavy use of debt to expand and finance new endeavors.

Seeing that this investment is preferred stock, I'm not as concerned about whether the common stock sees dividend cuts, freezes, or increases.  I only need enough cash to be generated to cover my shares' dividend which will be paid before the common.  I like that series L is a new issue which allowed me to get in close to par.  I paid less than 2% over.  Series L is cumulative and not callable for 5 years.  Interest rates are supposed to remain low for a few more years which should be good for preferred stocks.  Rapidly rising interest rates might erode share price, but I don't see that happening for a while.

Some drawbacks to OFC-PL include liquidity, absolutely zero dividend growth (or any future chance), interest rate risk, and a less than stellar balance sheet.  If you look at OFC you will notice it has negative EPS, this is because the company took impairment charges Q4 2011.  Cash flows remained intact.

I believe the rewards outweigh the risks with this particular purchase.  The income is outstanding.

Norfolk Southern Increases Dividend

NSC reported it will hike its quarterly dividend 6.38% to $.50 per share.  This a small increase for a stock yielding under 3%, but it is the second increase this year.  The company also reported plans for additional share buybacks.  Personally, I'm neutral on share buybacks.  I'd rather just have the cash in the form of a dividend to use as I see fit.  On the other hand reducing the sharecount should increase EPS to make room for future dividend increases.  For those who don't know NSC operates railroads in the United States and has raised dividends for the past 11 years.  It's a fairly popular stock among dividend growth investors.

July Recap

July was a pretty slow month for me investment wise.  The stock market posted gains and was pretty even keeled, nothing crazy.  I wish I bought more in June.  Oh well, it's too late now!  To keep my allocations in order, my next purchase will be fixed income.  10% of my retirement assets are earmarked for fixed income, most of it is held in my TSP (federal employee 401k).  I'm currently investigating individual preferred stocks, individual exchange traded debts, and emerging market debt etfs.  I'm looking at new issues since they seem to be closer to par value.

DOW: 13,073.01 /// S&P 500: 1,385.30 /// 10-Yr Bond: 1.5040%

New Purchases:
1) 56 shares Senior Housing Properties (SNH) providing $85.12 annual income.  I bought SNH at $22.32/share + commissions.
2) 44 shares Owens & Minor (OMI) providing $38.72 annual income.  OMI was purchased at $27.96/share + commissions.

Sales:
1) 33 shares LTC Properties (LTC) reducing my annual income by $57.42.  I reduced my stake in LTC at $37.37 per share.

Dividends Received:  $162.35
Coke (KO) - $19.89
H.J. Heinz (HNZ) - $12.36
Illinois Tool Works (ITW) - $10.44
Phillip Morris (PM) - $60.06
Exchange Income Corp (EIFZF) - $16.99
Realty Income Preferred F (O-PF) - $6.76
LTC Properties (LTC) - $24.38
Toronto-Dominion (TD) - $11.47


Dividend Increases:
None

New Deposits:
$1065 in July.  $300 added to ROTH IRA, $765 to taxable account.  I'm still working on a budget, waiting on a few items before I know what it will be.

Options/Bonus:
None

New Purchase - OMI

I purchased 44 shares of Owens & Minor at $27.96.  Including commissions this amounts to a yield of 3.13% and will pay me $38.72 per year.  OMI is one of my favorite stocks from the healthcare sector.  It runs a profitable business distributing medical supplies along with other hospital/medical related services.  OMI recently reported a softer outlook for the rest of 2012 which seems to have triggered a sell off.  Fine with me, I'm happy to add to my position although I paid a tiny bit more this time.  They also announced plans of a sizable acquisition which will be their first venture in the European healthcare market.

I've had a number of limit orders the past week which weren't filled including MCD, APD, and INTC.  Since I'm now 13 hours ahead of Eastern time, it's difficult to jump in quickly if something favorable happens.  I set limit orders before going to bed and check in the morning to see if anything triggered.  I'm still hoping the stock market drops a bit lower for better entry prices.

Dividend Growth Companies in Korea

If you follow dividend growth stocks you will notice a trend.  US companies are expanding internationally to fuel growth.  Since I am now stationed in South Korea I see this strategy in action firsthand.  It's amazing to find to the same products as back home and cooler yet to see products customized to fit local tastes.  The past few days I've been taking pictures of American products and brands sold in Korea.  It's been a lot of fun.

Coke



Coke products seem to be very popular in this country.  I have no idea what the market share is, but it's not uncommon to see coke advertisements and coke products.  While in a small grocery store I noticed a strange juice made by Minute Maid.  Some type of Aloe juice, never seen this one before (one side is in English, the other Hangul).  I bought a bottle which was a good move, it's awesome.  It has a sweet, pleasant taste and has bits of fruit mixed in with the juice.  Diamond water is also a product I've never seen before, it has a coca cola label on it.  Diamond is a popular brand of bottle water in the military because it tastes good, comes in a big bottle, and is cheap.

Pepsi

Pepsi appears to be less popular than coke, but is still all over the place.  Pepsi, Mountain Dew, and Gatorade are sold in the vending machine shown above.  A can costs about 65 cents American.  Frito Lay can be found in grocery and convenience stores, there are a lot of flavors.  I have no idea what the flavors are since I can't read Hangul, so I picked one that looked like nacho cheese.  It has less flavor than what I'm used to.

Phillip Morris

I see a HUGE opportunity for Phillip Morris over here.  A lot of Koreans smoke, about 24% according to some website.  Sounds about right.  The thing is not all stores carry Marlboros.  They have not fully penetrated this market.  It's almost impossible to find Camel or Newport, it's clear PM is making headway.  Korean cigarettes have charcoal in the filters I'm told (not Marlboros), maybe they need to look at that.  Or maybe PM already owns local brands that do?  I noticed Marlboro "Ice Ball" are popular with soldiers stationed here.  The ice ball is similar to the Camel Crush in that it has a small ball inside the filter that you can break to release menthol.  It's only sold in Asia as far as I know.  A pack of smokes costs around $2-$2.50.

Procter & Gamble

It's not a surprise to find P&G products at grocery stores.  Familiar brands such as Fusion, Head & Shoulders, and Downy.  I have yet to find Crest (or Colgate) toothpaste/toothbrushes.  P&G has some work to do in South Korea.  It's clear there is room left to grow.

Johnson & Johnson

I haven't seen much from J&J except the baby products shown in the picture.  I imagine Tylenol and Acuvue are also sold in Korea.  I've only been here a month, I'll discover more as I go.

McDonald's

McDonald's are rare.  I've only seen one so far which was located in Itaewon.  Itaewon is an Americanized part of Seoul where many soldiers and other Americans go to shop and drink.  It seems to me that fast food wouldn't be popular with the typical Korean.  I've been here a month and have yet to see an obese Korean.  It's astonishing!  Every other American is a fat-ass, it's so refreshing to see healthy people.

General Mills

I saw a Haagen Daaz ice cream truck on a bus ride home, but didn't have my phone handy at the time.  It's about all I've seen from GIS so far.  The grocery store I was shopping at carried Post cereals, no Cheerios or any other General Mills brand.  A store carrying Post leads me to believe GIS brands are sold somewhere.  I don't imagine Koreans eat cereals very often, different culture.

Military bases sell regular American products we are used to.  I do not have to shop off base, but that won't stop me from seeing what my retirement plan is up to.