Sold - UNS / New Purchase - KMI, EMB

I decided to liquidate 66% of my UNS Energy position.  I'm not happy with the dividend growth plus I feel the shares are approaching overvalued territory.  This was a difficult decision to make since I've been a loyal UNS shareholder for more than two years.  This company was a wonderful holding for me, I've enjoyed hundreds of dollars in dividends during this period.  In 2011, UNS did a 7.7% increase which made me happy as a clam.  2012 was disappointing with an anaemic 2.4% increase, while 2013 was even worse clocking in at 1.2%.  At $47/share I do not find UNS to be particularly attractive, it was time to take a significant portion of my stake off the table.

I still own 36 shares and will consider liquidating the remaining position in the future.  I have a hunch UNS will be able to provide better dividend growth going forward since they should be able to raise rates this year.  Being stuck in a prolonged rate freeze surely affected the dividend growth in 2012 & 2013.  Anyways I may end up selling the rest of these shares at some point, but haven't decided as of right now.

It was difficult to find a suitable replacement stock!  I wanted something with at least a 4% yield here with a replacement utility being the preference.  I'm sorry, but the utility sector does not offer much in the way of value at the moment.  The only utility I seriously considered was PPL.  I also looked closely at LMT and a few REITs.

I chose KMI as the replacement for half the proceeds.  With KMI I get increased income right off the bat, plus significantly higher expected dividend growth.  $36.63 is near the top end of what I'd be willing to pay, but I do feel it is one of the better options at the moment.   Considering the stock market is at all time highs, the price here is not so bad.

Proceeds from the other half of the UNS sale will be invested before March is over.  I'm still contemplating PPL plus a handful of stocks in other sectors.  I'd really like to purchase another utility if possible.

I also bought a couple shares of EMB to shore up my fixed income holdings.  These shares will increase my annual income by approximately $10.  The distributions are variable, this is only an estimate.  I lack foreign bonds and feel an ETF is best choice for me since I don't know how to purchase them individually.  I hold EMB for income and allocation purposes.

February Recap

February was a monster month for dividend increases.  I am thinking about replacing all or most of my UNS shares.  The past two increases were disappointing

DOW: 14,054 /// S&P 500: 1515 /// 10-YR BOND: 1.89%

New Purchases:
1) 21 shares TD at $82.42 - $64.68 annual income (the dividend has since increased)
2) 27 shares KRFT at $46.87 - $54.00 annual income
3) 2 shares EMB at $118.44 - $10.00 annual income

Sales:
1) 24 shares HNZ at $72.44 - ($49.44) annual income

Dividends Received: $453.74
AT&T (T) - $82.35
General Mills (GIS) - $23.28
Raytheon (RTN) - $28.50
Air Products (APD) - $10.24
Linn Energy (LINE) - $72.50
Abbvie (ABBV) - $21.60
Abbott Labs (ABT) - $7.50
Exchange Income Corp (EIFZF) - $17.77
Kinder Morgan, Inc (KMI) - $27.01
Procter & Gamble (PG) - $43.84
Realty Income series F (O-PF) - $6.76
Senior Housing Properties (SNH) - $21.84
Boardwalk Pipeline (BWP) - $64.43
LTC Properties (LTC) - $26.06

Dividend Increases:
1) AVA: $.29 to $.305 per quarter. $9.42 annual income
2) LO: $.517 to $.55 per quarter. $11.20 annual income
3) OMI: $.22 to $.24 per quarter. $7.12 annual income
4) PEP: $.5375 to $.5675 per quarter.  $9.60 annual income
5) KO: $.255 to $.28 per quarter. $11.30 annual income
6) UNS: $.43 to $.435 per quarter. $2.12 annual income
7) TD: $.77 to $.81 per quarter (Canadian).  $5.92 annual income

New Deposits:
$1000 to taxable account

Lending Club:
Deposited $100

Portfolio Reaches $4800 Annual Income

From this point forward my passive income with average $400 per month!  To me, this is a big milestone on my journey to financial Independence.  I really couldn't be happier! 

I've had a big month.  I do believe February is the best single month I've ever had, and it's not even over yet.  Dividends are flowing into my account, dividend increases are numerous and meaningful, added some new positions, and even had a nice gain with HNZ.  It really feels like everything is coming together as planned. 

When you consider I am an enlisted Soldier (NCO not a commissioned officer) in the US military who makes a crappy salary it's pretty encouraging.  My base salary is about $2500 a month before taxes. I'm lower middle class by all measures.  You do not need to be a 1%er to make dividend and income investing work.  All you need is determination and time!

Not trying to toot my own horn here, but you can achieve a lot over time with a shitty salary.

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I decided to discontinue writing posts about every single dividend increase because it gets tedious.  Instead I'll discuss recent increases here.

Avista 5.2%:
AVA is about as steady of an utility as they come.  5.2% is fantastic, very pleased.

Lorillard 6.5%:
Another solid increase from LO.  This boost is great, but a little lower than the past which didn't surprise me.  A 6.5% increase on a stock yielding 5% is just as good as a 16% increase on a stock yielding 2%!  You have to love LO!

Owens & Minor 9.1%:
Yet another solid increase from OMI.  This breaks their decade long streak of 10%+ raises, but 9% is close enough.  Solid!

Pepsi 5.6%:
Nothing too exciting here, but I will take it none the less.  At least it is an improvement over the 2012 boost.  The new and improved payments won't hit out accounts until June.

Coca-Cola 9.8%:
This is exactly why I own shares of this fine company!  I'm glad I bought more in December.

I expect to see an increase from UNS before February is over and hope it's better than last year.  LINE just reported a major acquisition and has recommended a 6% increase to the board.  This is very reassuring because short sellers have been inciting fear in Linn investors with bogus cash flow concerns.  If LINE does boost the distribution it will be later in the year.  LINE is also considering starting to pay monthly instead of quarterly.  I love me some monthly payments, I hope it gets approved!

New Purchase - EMB

I bought 2 shares of EMB to strengthen my fixed income holdings.  Prior to this purchase my only bond holdings were in my TSP and the only choice available is US bonds.  EMB is an emerging market sovereign debt etf with an allocation listed below:

Fidelity offers 30 commission free iShares ETFs; EMB is one of them.  I plan to build this position 1 or 2 shares at a time since it doesn't cost me anything.  I do not know how to buy foreign bonds so I decided to go with an ETF here.  The benefits include diversification into emerging markets, US denominated bonds lower currency risk, a solid yield of about 4.3% and monthly distributions.  The expense ratio is fairly high at 0.59% and it does have a lower yield when compared to peers such as PCY.  The distributions fluctuate which is undesirable. 

This purchase is an insignificant part of my portfolio, but it does increase my annual passive income by about $10.15.  I plan to keep my EMB position small, but wanted some exposure here.

New Purchase - KRFT

I decided to put some money to work, my February purchase is Kraft Foods Group.  KRFT has a dream portfolio of brands in one of my favorite industries: food!  The oddity of this is that I normally choose companies with storied histories of dividend increases.  KRFT and its predecessor (KFT) have been stuck in a freeze for quite a few years now.  This is kind of a weird one.

So why KRFT?

Everytime I go to the grocery store I am reminded why I should own shares of this company.  All you have to do is observe the world around yourself.  You cannot deny the brands this company owns.  Kraft, Oscar Mayer, Mio, Planters, Capri Sun, Cool Whip, and Jell-O among other prominent names.  Here's the deal: under the old KFT, some of these popular brands were put on the back burner.  KFT had even more brands than KRFT has to manage plus KFT had operations worldwide.  KRFT is now free to focus on say lunch meats or cheeses whereas before there were too many moving parts.  KRFT is a big company, but a lot more nimble post seperation.  This was discussed on the recent conference call. 

Management has stated they are targeting mid single digit dividend growth.  The CEO reassured us in the recent conference call.  A 4% yield growing ~5% per year sounds like a good proposition to me!

I lost HNZ in the food space and wanted to add another name to complement my General Mills holding.  Between GIS and KRFT it feels like I own half the food aisle!

KRFT shares are currently undervaled.  Now this might be open to interpretation, but I ran some numbers and came up with a $54 fair value.  Morningstar has it listed as $53.  Historical data is not available.  The forward p/e is about 14 and the yield is about 4.3%

I will have to keep an eye on the debt load and pension.

So I'm getting a wonderful business whose stock price looks to be undervalued.  A yield of 4.3% expected to grow in the mid single digits is quite appealing to a dividend & income investor such as myself.  The dividend growth is not yet proven, so for now I'm going to take management's word but put KRFT on probation.  It will remain a small to medium sized position until it shows me a couple years of dividend growth.  This purchase increases my annual passive income by $54.00

I figured now was a good time to buy a stock since I'm going on leave soon.  I want to focus on beaches and pina colodas, not stocks while I'm on vacation!

Replaced HNZ with TD

HNZ was held in my taxable account so in order to be taxed at the long term rate I had to wait one more day before selling.  I'd still rather just hold my Heinz shares, but that is out of the question now.  Anyways I unloaded my position at $72.44. 

After selling HNZ, I purchased 21 shares of TD in my ROTH IRA for $82.42 per share.  I like Toronto-Dominion Bank because I trust them.  TD has been paying dividends since 1857... try to wrap your head around that!  That is freaking pre-civil war people!  Pretty crazy.  They didn't cut the dividend during the recent financial meltdown which is also very important to me.  Even though TD is Canadian they do a lot of business in the U.S.  In a way I feel like I'm sort of getting an American bank run the Canadian way.  If the housing market does implode in Canada TD has diversified into the U.S. too.  I have confidence in this institution.  If dividends don't lie... 156 years of dividends is the truth.

TD shares are undervalued by pretty much every measure I use.  DDM, average historical p/e, FAST graphs, morningstar, etc.  I still have a buy price of $80 on this stock but decided to pay a little bit extra since I was forced to sell Heinz. 

In the end this transaction will increase my yearly passive income by only $15.  It's not very significant.  TD should grow dividends at a pace that meets or exceeds what HNZ would have done.

I'd like to pick up another company in the food industry now that I'm left with just General Mills.  I've started looking at KRFT which is a powerhouse collection of brands.  I need to learn more about the business, specifically the dividend policy.  I started listening to KRFT conference calls.  I'm impressed so far.

Warren Buffet Buys H.J. Heinz

Another dividend growth stock bites the dust. 

Berkshire Hathaway has been approved to acquire HNZ at $72.50 per share.  This amounts to a 20% gain over yesterday's closing price.  To be honest, I'd rather continue to be a HNZ shareholder than take the capital gain.  I really like what Heinz is doing internationally, apparently Buffet does too. 

The timing of the deal is actually perfect for me.  I bought my shares 14FEB2012, meaning I only need to wait one more day for the capital gains to be taxed at the long term rate.  I originally bought the shares for $51.73.  In the end I'm getting a 40% capital gain plus a years worth of dividends.  Total return will equal about 43%.  Not bad for 366 days.

I will be using the cash to buy a replacement dividend growth stock.  I'm currently looking at GD and TD.  I'm leaning more towards TD at this time, but will have to see what the market presents.