Wednesday, February 29, 2012

February Recap

I purchased stock in two new companies this month, my portfolio now stands at 23 positions.  The goal is to build up to 30, but it's not a priority.  I'm still trying to conserve cash for better opportunities.  This month was my highest dividend total ever; it's because AT&T and my MLPs paid out.  All MLPs seem to pay the same month making income uneven if you own 'em.  To me it doesn't matter.

New Purchases:
1) 24 shares H.J. Heinz (HNZ) providing $46.08 annual income.  HNZ was purchased at $51.73/share + commission.
2) 19 Shares Norfolk Southern (NSC) providing $35.72 annual income.  NSC was purchased at $67.93/share + commission.


Dividends Received: $371.33
General Mills (GIS) - $21.52
AT&T (T) - $80.52
Raytheon (RTN) - $24.51
TC Pipeline (TCP) - $40.81
Exchange Income Corp (EIFZF) - $17.31
Procter & Gamble (PG) - $40.95
Abbott Laboratories (ABT) - $25.92
Boardwalk Pipeline (BWP) - $90.63
LTC Properties (LTC) - $29.16

Dividend Increases:
1) AVA: $.275 to $.29 per quarter. $6.24 annually
2) BWP: $.5275 to $.53 per quarter. $1.71 annually
3) KO: $.47 to $.51 per quarter. $6.24 annually
4) ABT: $.48 to $.51 per quarter. $6.48 annually
5) UNS: $.42 to $.43 per quarter. $4.24 annually

New Capital:
$1080 in February.  $300 added to ROTH IRA, $780 added to taxable account.  This is more than I normally contribute thanks to spending less than my budget and making some money on the side.  The only unusual expenses were a pair of new work boots for $100 and $48 on my dress uniform.  I expect to contribute around $800 next month.


Well that's it for February.  In March I plan to make 2 or 3 purchases.  I now have all tax documents needed including K-1's from my MLPs.  I will do my taxes soon.

Monday, February 27, 2012

Unisource Increases Dividend

Today Unisource Energy (UNS) raised its quarterly dividend 2.4%.  With 13 years of consecutive increases UNS is part of the dividend contenders category of dividend growth stocks.  Unisource is a electric & gas utility located in Arizona.

An increase of only 2.4% is disappointing because it doesn't keep up with inflation.  I've been worried UNS was going to give investors a small increase this year.  I made a comment about this yesterday before the news was released. 

The past is the past, looking forward I want to be a shareholder in this company.  UNS has been stuck in a rate freeze, but it can't last forever.  They will be able to file for new rates in July.  On a positive note, its gas business has performed well.  I now have a 4.81% YOC with this position.  I made an initial purchase February 2011 and averaged down last November.

Saturday, February 25, 2012

5 Utilities Worth a Look

In 2012 the utility sector has lagged other sectors and the market as a whole.  This is a welcome change from last year.  I decided to take a look at a small list of companies to prepare myself for future purchases.  I like the utilities sector because they sell a product every person and business needs, it's easy to find a nice yield, and they have localized monopolies.  I place emphasis on the region of the country they are located to hopefully capitalize on population growth.  It would be foolish to buy an electric company in Detroit, for example, where people are leaving en masse.  More people means more electricity use.

At first I wanted to discover attractive water utilities since I don't own any.  Unfortunately I wasn't able to find any water utes worth my hard earned money.  It seems they either have low yields, high payout ratios, or low dividend growth rates.  So I'm left with electric and gas utilities, nothing wrong with that.  With the utility sector I expect to get a yield of at least 4%, but have lower expectations of growth and payout ratios. 

Alliant Energy (LNT)
Industry: Electric & Gas Utilities
Region: Wisconsin, Minnesota, Iowa
Pop. Growth: WI:0.44%, MN: 0.77%, IA: 0.52% (USA: 0.91%)

P/E: 15.92
P/B: 1.62
Long Term Growth (est.): 4.75%
Total Debt/Equity: 92.53%

Yield: 4.16%
Payout Ratio: 62.27%
Div. Growth Rate (5yr): 7.22%
Streak: 9 years

Alliant Energy is an electric and gas utility based in the Midwest.  About 83% of revenues comes from electricity; 15% from natural gas.  Roughly 53% of power is generated with coal, only 2% gas, 2% wind, and 43% purchased from other companies.  I like LNT for its valuation and dividend metrics.  It has a nice yield with decent growth potential.  Compared to other utilities I researched it has lower debt.  LNT seems to rely heavily on coal to produce power.  Over 40% is bought from other companies.  It does not make use of hydro at all, and only 2% comes from gas which is a cleaner option.  Population growth in the areas it serves is lower than the national average.  Overall LNT is a decent option, I'm not enthusiastic about its generation methods and the area it serves.  I would consider picking up shares at a price of $40.

Avista Corporation (AVA)
Industry: Electric & Gas Utilities
Region: Washington, Oregon, Idaho
Pop. Growth: WA: 1.57%, OR: 1.06%, ID: 1.11% (USA: 0.91%)

P/E: 14.92
P/B: 1.25
Long Term Growth (est.): N/A (Fidelity says 5.68% next year)
Total Debt/Equity: 111.36%

Yield: 4.61%
Payout Ratio: 63.58%
Div. Growth Rate (5yr): 14.87%
Streak: 9 years

I own shares of Avista, and have been pleased so far.  As far as utilities go this one is solid.  It has favorable valuation and dividend metrics.  I like its yield and dividend growth potential.  I do not think it will live up to the 14.87% dividend growth listed in my analysis (I took this off, but I would be thrilled to receive 5-6% increases.  The area AVA serves is seeing population growth far greater than the national average which could mean more customers in the future.  About 2/3 revenue is from electricity; 1/3 natural gas.  AVA relies heavily on environmental friendly power generation sources.  50% of power comes hydro, 35% natural gas (a lot cleaner than coal), 10% coal, 2% biomass, and 2% wind.  I have read about concerns that global warming might impact hydroelectric power generation, but have seen no definitive proof.  I would be interested in adding to my AVA position around $24.50.

Emera, Inc. (EMRAF / EMA on TSX)
Industry: Electric & Gas Utilities
Region: Nova Scotia, Maine, Massachusetts, Grand Bahama, St. Lucia
Pop. Growth: NS: 0.9%, ME: -0.01%, MA: 0.61%,G.B.: 0.60%  (USA: 0.91%)

P/E: 16.90
P/B: 2.57
Long Term Growth (est.): 6.55%
Total Debt/Equity: 222.17%

Yield: 4.04%
Payout Ratio: 67.84%
Div. Growth Rate (5yr): 8.35%
Streak: 5 years

Emera is the most interesting utility that made my list today.  I spent time researching Canadian utilities and this is the best one I could find.  First of all this corporation is Canadian, which means withholding taxes will be incurred on the dividend.  You can avoid withholding taxes by putting it in an IRA or ROTH IRA.  There is a weird tax rule which allows this.  I own a different Canadian Corp in my ROTH, it is true.  The dividends are paid in Canadian dollars and will be converted to USD for American investors.  With Emera you get a lot of diversification.  It does business in Canada, USA, and Caribbean countries.  This company has been paying and increasing dividends since 1992 with annual dividend increases the past 5 years.  There have been dividend freezes from time to time, but no reductions.  With utilities I do not expect endless annual increases.  Emera generates 57% of power from coal, 21% gas, 11% hydro, 6% wind, and 5% imported.  It is trending away from coal.  I read the company is shooting for a 70-75% payout ratio, I expect to see healthy dividend increases down the road.  I will be spending more time researching this company, but currently have a $31 target buy price in mind.

Southern Company (SO)
Industry: Electric Utilities / Wireless Communications
Region: Georgia, Alabama, Florida, Mississippi
Pop. Growth: GA: 1.32%, AL: 0.48%, FL: 1.36%, MS: 0.38% (USA: 0.91%)

P/E: 17.47
P/B: 2.23
Long Term Growth (est.): 5.85%
Total Debt/Equity: 210.62%

Yield: 4.24%
Payout Ratio: 72.86%
Div. Growth Rate (5yr): 4.05%
Streak: 10 years

The Southern Company is one of the largest utilities with a market cap of $36.8B.  It is a huge regulated electric utility operating in the southern region of the U.S. (as if the name didn't give this away HAHA).  It also generates power sold to other utilities.  SO is currently building the first new nuclear power plant on U.S. soil in 30 years.  I am in favor of nuclear energy, to me this is exciting.  The reactors are being built in Georgia as an addition to an existing nuclear facility.  SO has a lot experience with nuclear energy, I trust them with the responsibility.  SO sources of generation: 58% coal, 25% oil and gas, 15% nuclear, 2% hydro.  What I like about The Southern Company is that they are located in a fast growing region of the U.S.  The south is seeing a population boom.  I like the dividend yield and the fact the company is a dividend contender.  While SO doesn't sell natural gas, it has diversified into other businesses such as fiber optic solutions and a cell phone service.  It seems to me the valuations and payout ratio are kind of high.  I also worry about hurricanes.  The last thing an investor needs is another hurricane Katrina.  I believe SO is a quality company; I have a buy target of $41.

Westar Energy (WR)
Industry: Electric Utilities
Region: Kansas
Pop. Growth: KS: 0.64% (USA is 0.91%)

P/E: 15.22
P/B: 1.30
Long Term Growth (est.): 4.22%
Total Debt/Equity: 127.51%

Yield: 4.57%
Payout Ratio: 68.28%
Div. Growth Rate (5yr): 5.06%
Streak: 7 years

Westar Energy is the largest electric utility in Kansas.  About 77% of electricity is generated by coal, 13% nuclear, 8% gas, and 2% wind.  The company is spending a lot of capital on projects to reduce emissions of their coal plants.  WR offers an attractive yield with dividends increasing faster than inflation.  Nothing stood out when I researched the company, but it seems to be a good candidate.  I will spend more time looking at WR, I would consider picking up shares around $26.75.

I added these companies to my watch list with the exception of AVA (I already own it).

Friday, February 24, 2012


This was a boring week for stocks.  The market was flat, with the DOW managing to break 13,000 a few times.  Good candidates for new money are far and few between.  At this time GIS and SNH are the most appealing of the stocks I regularly monitor.  I plan to make 2 or 3 purchases next month, it's always good to look ahead.  If I can't find any good buys I might add to my KO or JNJ positions, or maybe add another utility.  I will be researching the utility sector this weekend since it has seen a welcomed drop recently.  In fact utilities have been the worst the performing sector in 2012.  There are a lot of good utility companies it can be difficult to narrow the choices down.

I've also considered selling ITW, as it has seen a 30% price run up since I bought it only three months ago.  At $56 ITW is only paying 2.57%, which is not great.  The only problem is that if I sell it, then what?  Not many stocks are grabbing my attention, and the last thing I need is more cash.  I should be getting a bonus check the end of April or early May, which is why I'm trying to slowly use up my cash position. 

In non-financial news I will be up for reenlistment soon.  I've talked to my career counselor about getting an assignment to Germany or Korea.  Germany or anywhere in Europe is my top choice, but is hard to get.  It would be an opportunity of lifetime to be able to travel all over Europe for a few years.  I'd be happy with Korea too (which is easy to get).  One of the reasons I joined the Army was to see the world, I'm going to do just that.  The bad news is that budget cuts ended bonuses in my field and my dream of going to OCS to become a commissioned officer is not going to happen.  They changed age limits to become an officer, yet another way for the Army to reduce its size.  The Army is really cracking down right now, they're looking for ways to get rid of people.  I have a friend in the Air Force, it's the same story.

Saturday, February 18, 2012

Abbott Increases Dividend

Abbott Laboratories (ABT) announced it has raised it's quarterly dividend 6.3% to $.51 from $.48 per share.  This increase is the 40th straight year shareholders have received a raise, placing it in the prestigious dividend champions category of dividend growth stocks.  6.3% is a mediocre increase for ABT in my opinion, but nothing to sneeze at.  Any increase at all is welcome, it is a sign the company aligns itself with shareholders' interests. 

ABT is planning a spinoff in 2012.  It plans to seperate its pharmaceutical business from the rest of the company.  I currently am holding my ABT position, but am not looking to add additional shares until the the spinoff is complete.  I think I will hold both the new stocks, but will only add to the parent company.  I'm not into pure drug companies.

With the new increase, ABT pays an annual dividend of $2.04 which represents a yield of 3.62% based off the current price.  Honestly this is a pretty good entry yield, but like I said I'm going to wait until the direction of the company becomes clearer. The payout ratio is creeping up, it is now 67.8%; the p/e is also pretty high at 18.7.  More reasons to place my money elsewhere. I was lucky enough to pick up shares during the volatility madness of August 2011.  At the time, equities were getting hammered and huge market swings were a daily occurence.  I saw an opportunity and managed to get a yield over 4% at the time.  I believe in dividend growth investing, even during times of extreme distress.  I don't know if that makes me smart or it's just dumb luck.  So far so good, either way I'll take it.

Cheers to you ABT.  40 straight years is an impressive feat.

Friday, February 17, 2012

Coke Increases Dividend for 50th Straight Year!

All I can say is wow.  50 consecutive years.  Coke recently announced it has increased its dividend by 8.5% a fantastic increase indeed.  Based on the new annual payout of $2.04 per share, KO is rocking a 55% payout ratio, and a current yield of around 2.97%. 

Note to self: buy more KO.

Nothing else needs to be said about this company or its history. 

Thursday, February 16, 2012

New Purchase - NSC

Yesterday Norfolk Southern (NSC) dipped below $68 giving me an opportunity to invest in the company with a yield over 2.75%. The minimum yield I will accept in a stock is 2.75% so I decided to make the purchase. I've been watching NSC for a while, and finally I can add it to my portfolio. It reached my minimum yield threshold due to a recent dividend hike and decline in share price. NSC and KO are the only companies I've purchased with a yield less than 3%. I reason that these companies shouldn't take more than 1-2 years to reach a 3% YOC, which is what I'm after.

I picked the 2.75% threshold because I buy dividend stocks for the dividends, I think it can be dangerous to expect huge dividend growth rates to be sustained over long periods of time. Expecting sustainable div growth rates of greater than 10% can be just as risky as expecting sustainable high yields in my opinion. It would stink to buy a stock that only pays 2% and find out later that the dividend is not growing as fast as expected.

I purchased 19 shares NSC just under $68/share giving me a yield of exactly 2.75%. The yield would have been slightly higher, but I have to pay my broker those pesky fees to make trades. I include transaction costs in the basis.

Norfolk Southern is a railroad company, which is exactly the type of business I like. I like boring companies that produce oil, toilet paper, cigarettes, soda, band-aids, and the like. Railroads fit right in and are easy to understand. I like railroads because I suspect that they will benefit as the price of oil continues to rise. This concept is nothing new, having been popularized when Warren Buffet bought BNSF a few years ago.  The purchase also further diversifies my portfolio, which is important to me.

Selected stats on NSC: 2.75% yield, 34.5% payout ratio, 13% div growth rate (5yr), 12.4 P/E, 2.24 P/B, 17% estimated long-term EPS growth.  10 years of annual dividend increases.  Solid.

This was my last planned purchase for February. I will be monitoring the market, but won't swoop in for more unless something happens that I cannot say no to.

Wednesday, February 15, 2012

New Purchase - HNZ

I purchased 24 shares of HNZ the other day.  As I've stated in other posts I like HNZ because I use their products which will increase stocks I directly support at the grocery store.  I picked the shares up around $51.70, giving me a yield of about 3.7%.  Heinz is a food company best known for ketchup, but also manfactures frozen dinners/snacks, salad dressing, spaghetti sauce, and other products world wide.  HNZ is a dividend challenger having increased dividends for 8 consecutive years; has a nice yield of around 3.7% with a payout ratio of about 65%.  I might buy more shares on dips.

I am still planning to make one more purchase in February.  Kellog (K) has seen its price spike with news that it will be purchasing the Pringles brand from P&G.  At its current price around $53, I'm no longer interested.  I am closely watching NSC, GD, and SBSI.  Those three are on my radar at this time.

Saturday, February 11, 2012

Small Watchlist

I am planning to make 2 purchases in February.  The market is at a high point right now, but did make a small retreat last Friday.  If we see another drop I might put in some limit orders.  I am currently paying close attention to SBSI, HNZ, K, and GIS.  Food stocks have seen weakness lately and I actually had a limit order in for HNZ last week (it didn't get filled).  I like HNZ because I use and understand the products they make.  Heinz is famous for ketchup, but also manufactures Classico spaghetti sauce, Bagel Bites, OreIda potato products, TGIF frozen snacks, and Smart Ones frozen dinners.  I am particularly fond of Smart Ones because I buy them almost every week.  Most varietys can be purchased for $1.25 where I shop, which is the best deal in terms of price and taste (in my opinion).  HNZ also owns other brands throughout the world and has made acquisitions in Brazil and China to fuel growth.  I pay attention to the brands I buy at the grocery store and adding Heinz to my portfolio would increase stocks I directly contribute to.

Kellog recently beat earnings estimates, but has still seen it's price decline near its 52 week low.  I love to eat Kellog's cereals, but currently do not buy them so I can suppoert other companies I own shares in.  I would love to buy Crispix, it might be my favorite cereal.  GIS has also recently dropped a bit.  I could see myself adding shares in the low 38 - high 37 range.  SBSI is another candidate.  I'd like to add to my position before it goes ex.  It's currently at an acceptable price in my view, but with a little luck I'm hoping to catch it under 21.  I'm a patient guy, there's no rush to make any purchases.  I like to pick a good time and go for the best yields I can in the stocks I want to own.

Monday, February 6, 2012

Boardwalk Pipeline Increases Distribution

Today Boardwalk Pipeline Partners (BWP) announced it has raised quarterly distributions from $.5275 to $.53, which is an increase of .47%.  This is a minor increase, but keep in mind they have made increases for 24 consecutive quarters in a row.  With 6 years of increases BWP is part of the "dividend challengers" group of dividend growth stocks. 

Boardwalk Pipeline Partners is a MLP based in Texas, which transports and stores natural gas throughout the south and midwest regions of the United States.  This year it has been negatively affected by a warmer than usual winter.  Due to a warm winter it has seen reduced demand of natural gas from its customers such as power plants and other utility companies.  On a positive note it has seen an increase in demand for storage services.  About half its customer base are power plants, with another 30% industrial and local distribution companies.

It is currently expanding into the Marcellus and Eagle Ford shales and has recently issued more units to pay for such projects.  The price of natural gas is rediculously low right now, luckily the price of the commodity doesn't cut into BWP's profits much because it charges fees for use of their infrastructure.  I like that BWP is expanding, but I am not thrilled they have issued more units.

This is the 5th quarterly increase BWP has provided me since I became an investor in the partnership.  Right now I am not buying anymore MLPs until I do my taxes this year.  BWP and TCP are suppose to have K-1's ready in late February.  After finishing my taxes I will determine if I will invest in additional partnerships.  2011 was an experiment to better understand MLPs, I do like the distributions and the tax sheltering for my taxable account.  Right now I plan to hold BWP and TCP.  If I do add another MLP I will stay away from a pure natural gas play and look at oil pipelines or possibly diversified pipelines. 

Sunday, February 5, 2012

Avista Increases Dividend

Avista Corporation (AVA) recently announced it has raised its quarterly dividend 5.5% to $.29 per share from $.0275.  This marks 10 consecutive years of dividend increases and puts Avista into the prestigious "dividend contenders" category of dividend growth stocks.  Avista is an electric and gas utility based in Washington state.  It also has operations in parts of Idaho and Oregon.

I am very pleased with this announcement.  A 5.5% dividend increase for an utility is awesome.  I hope to see solid increases like this from Avista and Unisource, my other utility, in the future.  In general I like utilities because they have a localized monopoly in the area they serve.  They are unlikely to face competition, and have very stable earnings.  The downside is that they are heavily regulated and have limited growth opportunities.

The bottom line is that this holding provides an attactrive dividend yield coupled with dividend increases that outpace inflation.  So far I have been pleased with AVA.

Thursday, February 2, 2012


In this post I will discuss my monthly budget.  It will be fun to look back at this in the future.

$1860 - Take Home Pay (after taxes)
$119 - TSP Contribution
$95 - Match on TSP Contribution
$2074 - Total Income

Fixed Expenses:
$0 - Rent
$0 - Utilities
$225 - Car Savings Account
$81 - Car Insurance
$10 - Cell Phone
$30 - Internet
$346  Total Fixed Expenses

Variable Expenses:
$190 - Groceries
$75 - Gas
$50 - Haircuts
$305 - Fun Money
$620 - Total Variable Expenses

Miscellaneous Expenses:
$284 - Car Maintenance, Clothes, Presents, etc.

$610 - Dividend Stock
$119 - TSP Contributions
$95 - Match on TSP Contributions
$824 - Total Investments

Savings Rate - 39.7%

As a soldier in the US Army, one of the benefits is that I do not pay rent, utilities, or insurance copays.  We do pay state, federal, and FICA taxes.  The fixed expense "Car Savings Account" is to build cash for purchase of a different vehicle in the future, I do not actually have a car note.  I intend to drive a vehicle about 5 years and use built up cash to buy a new one when the time comes.  All variable expenses are paid in cash so in the end they kind of morph together.  I stay away from credit cards.  I give up rewards programs, but have found that when I only pay with cash it forces me to make better decisions.  It's too easy to lose track of finances with credit cards, at least for me.

In reality I usually have some money left over at the end of the month.  It depends though, car repairs and Christmas presents are killers.  Looking at my budget I could potentially trim down a few areas.  I do not live a life of luxury, but I do like to drive a nice car.  I have thought about reducing car savings contributions, but am undecided right now.  I have also been thinking of shopping around to find a better rate on car insurance.  I'm over 25 and have a pristine driving record; I think I might be over paying.  Spending $50 a month on haircuts is rediculous, I realize this.  I get my hair cut every single week (unless I'm on leave).  I am a professional soldier and must maintain a military appearance. 

Overall I think a 40% savings rate is really good.  It allows me to build assets and still enjoy life.  If only I made more...