Monday, December 31, 2012

December Recap

December was a solid month and a great way to close out 2012.  This month I set a new personal best for dividends, but I expect to do even better in 2013.  I'm looking forward to 2013, it's going to be a great year!  Regular dividends, accelerated dividends, plus special dividends totaled over $500 for the first time.  Obviously this is not yet sustainable, but I'll get there eventually

DOW: 13,104 /// S&P 500: 1,426 /// 10-YR BOND: 1.76%

New Purchases:
1) 40 units LINE at $36.04 - $116.00 annual income
2) 35 shares KO at $36.07 - $35.70 annual income
3) 1.654 shares SBSI - $1.32 annual income (this was a dividend reinvestment)

1) 50 units BWP at $25.05 - ($106.50) annual income

Dividends Received: $458.81
ConocoPhillips (COP) - $39.60
Intel (INTC) - $41.40
Southside Bancshares (SBSI) - $13.02
Chevron (CVX) - $26.10
Emerson Electric (EMR) - $22.55
Lorillard (LO) - $26.35
Norfolk Southern (NSC) - $28.50
Johnson & Johnson (JNJ) - $36.60
Avista (AVA) - $45.53
Exchange Income Corp (EIFZF) - $18.17
Realty Income preferred F (O-PF) - $6.76
Coca-Cola (KO) - $19.89
McDonald's (MCD) - $43.12
UNS Energy (UNS) - $45.58
LTC Properties (LTC) - $26.06
Owens & Minor (OMI) - $19.58

Accelerated Dividends Received: $23.38
H.J. Heinz (HNZ) - $12.36
Illinois Tool Works (ITW) - $11.02

Dividend Increases:

New Deposits: $1,030
$300 to ROTH IRA, $730 to taxable account

Lending Club:
Added $50.  Still no defaults

Southside Bancshares paid me two special dividends which came out to $21.49 based on the number of shares I own.  Since this is a special dividend, it will not count towards my monthly or quarterly totals.

Friday, December 28, 2012

New Purchase - KO, LINE / Sale - BWP

New Purchase - KO

I added 35 shares of The Coca-Cola Company at $36.07 which will increase my annual income by $35.70.  This purchase came with a yield of 2.83% before commissions.  As many of you know, I've been looking to add to my KO position for quite a while now.  The last time I bought KO shares was June 2011 so it's been a good year and a half.  To be honest, I'm not excited about the price I paid but you'll rarely see this company on sale.  I decided to go ahead and pickup some shares now and just get it over with.  This is a company I never plan to sell meaning 20 years from now I doubt I'll really care if I paid $36 or $35 or $33.  The point is to increase my stake in this fine company and collect rising dividends the rest of my life.  Coke has a dividend growth streak of 50 years.  Impressive!

Sale - BWP / New Purchase - LINE

Boardwalk Pipelines (BWP) was one of my earliest purchases and frankly has been a disappointment.  I have some concerns with the safety of the distributions of this MLP so I decided to take a loss and trim back the position.  I sold 50 units at $25.05 which will reduce my annual income by $106.50 per year.  The concern here is that distributable cash flow coverage is thin and distribution increases have stalled.  BWP has a history of increasing the distribution every quarter, and was doing exactly that until about 6 months ago.  I've spent a lot of time listening to conference calls and reading articles on Boardwalk trying to figure out what went wrong.  I do not think the distribution will be cut, but I want to play it safe here.  I foresee flat payments until some of the projects they are building come online.  Pipeline systems and storage facilities are not built overnight.  It could be a year or two until BWP gets back on track.  At this point I'm not ready to give up on this company, but as a precaution I think it's prudent to hold a smaller position.  I have a fair value of $31 on this company and do feel it is undervalued right now.  They've also taken steps to diversify their business away from 100% natural gas.  I like that.

With the proceeds from the BWP sale plus some extra money, I purchased 40 units of Linn Energy at $36.04.  These units will increase my annual income by $116.00.  This swap was actually completed Thursday US time.  I wish I would have waited one more day to do this transaction, but I'm only human and cannot predict the future.  Basically what I did here is trim BWP and add LINE.  I'm more comfortable with this weighting.

I have to be honest with myself, I suck at picking MLPs.  I really like the concept of side stepping corporate taxes allowing for huge distributions that are tax deferred until sold.  It's a fantastic idea.  Unfortunately I haven't quite figured out how to make sound decisions in this industry.  Valuing MLPs is a difficult task.  I'm not going to throw new money at MLPs until further notice.  That includes KMI.  Even with KMI I've never really known if I'm under paying or overpaying.  I've learned that yield alone is not a good enough reason to buy a company.  Even though I have spent numerous hours researching Master Limited Partnerships, I just can't seem to get it right. 

I also had a limit order to purchase LO which didn't execute.  The stock market opens at 11:30 PM here so I'm forced to set limit orders before I go to bed and hope they fill while I'm sleeping.  LO came within a few cents of triggering.  I've also reconsidered my stance on Hasbro.  New information has been brought to light.  Kids are increasingly interested in tablets and smart phones.  It makes sense that toy sales would be hurt with all the new technology these days.  I've seen this trend first hand with my coworkers kids.  At Thanksgiving, my buddy's son just sat there and played with an Ipad all night.  Back when I was his age it would have been HE-MAN or GI JOE.  Times are changing...  Not sure why I didn't pick up on this before.

Thursday, December 20, 2012

Finding Value in This Market

The Dow Jones Industrial Average is back to 13,250 again but for some reason it doesn't strike me as unreasonable this time around. I've been scanning my watch list the past few days trying to find companies trading at attractive prices.  I just don't see it. The market as a whole might seem reasonable, but the individual companies I want to buy are looking a little pricey.  Hmm

At this point I'm honestly not sure if I'll make a purchase in December.  It wouldn't really bother me since I went on a shopping spree the past two months.  At the same time I do intend to make monthly purchases and have done so every single month starting November 2010.  That's over two years straight which started well before I was blogging. 

I was planning on picking up some INTC the other week, but just as I was getting comfortable with the price sub $20 it shot back up.  That ship has sailed.  Oh well. 

I'll likely hold out for better prices, but here is what I'm considering:

Lorillard (LO)
13.9 P/E / 13.5 P/E (5Yr Avg) / 8.7% LT Growth (projected)
5.3% Yield / N/A Yield (5Yr Avg) / 71.1% Payout Ratio

Tobacco stocks in general dipped the past week.  The current news in the tobacco industry is two fold.  The first is that the EU has proposed stricter warnings on cigarette packs.  The new legislation would force 75% of the packaging to be warning pictures and text.  Lorillard doesn't sell products in the EU or anywhere else outside the US however.  It's a moot point for LO, but the nanny state mentality could spread.  Wow you mean to tell me cigarettes are unhealthy?  I would have never guessed without the new packaging.  Haha! 

The second news story is cigarette manufacturers (including Lorillard) will have to release settlement money they have been withholding.  However, they will be able to claim credits since smoking use has decline over time.  LO will be able to claim about $200 mil over the next 5 years.

What I like about Lorillard is that it has a blockbuster brand in Newport, it has branched out into electronic cigarettes, the yield is fantastic, and it comes with nice growth prospects all at a reasonable valuation.  The debt load is a bit concerning, but you'll see a lot of that in the tobacco industry.

Hasbro (HAS)
14.1 P/E / 14.3 P/E (5Yr Avg) / 7.4% LT Growth (projected)
3.9% Yield / 2.6% Yield (5Yr Avg) / 49.6% Payout Ratio

I'm looking at Hasbro for a couple of reasons.  First off I need more holdings from the consumer discretionary sector.  HAS fits the bill.  Secondly I like the value this stock offers.  I have a fair value of $42 on HAS, it's currently trading at $36.57.  That's a discount of about 15% which is quite attractive.  A huge negative with buying shares of Hasbro right now is the accelerated dividend which already went ex.  If I bought shares today I would have to wait all the way till May to get paid.  Bummer. 

I think Hasbro has done a good job managing its brands.  My Little Pony made a resurgence the past few years, GI Joe and Transformers have surely benefited from Hollywood movies, and now that Star Wars is set to make additional movies I think toys from that brand could be a source of growth in the future.  A subset of the population goes absolutely nuts for Star Wars.  Perhaps I should load up before the mania returns.

Saturday, December 8, 2012

January = Lean Dividend Month

These companies in my portfolio have moved payments up:

●H.J. Heinz normally pays in January but moved the payment up to Dec. 26.  Payment dates for the preferred will still be in January 2013 however.  Does this mean they are paying the common dividend before the preferred?

●Illinois Tool Works already declared a January dividend, but decided to move it up to Dec. 31.

●Coke is paying Dec. 17.  Two Q4 dividends is normal for Coke however.

I know these companies are trying to do shareholders a favor, but for me it's annoying.  I don't want the payments changing.  First of all I like consistency for tracking and planning purposes.  Second of all I'd rather delay paying the taxes.  I will have to pay taxes on these dividends very soon.  Tax season is right around the corner.  I'm lower middle class and am not worried about the potential tax hikes anyways.  It will barely affect me.  Obama has my back on that one!

I really hope Pepsi and Philip Morris leave the dividend schedule alone but hey in reality it's just a slight annoyance and not the end of the world.

Friday, December 7, 2012

Updated Pages

Goals Page:
I deleted the goals tab because I don't pay attention to it.  I rarely follow goals.  I just try to do the right thing and without worrying about it.  Here's how I did anyways:
-Dividends: I blew all my estimates out of the water.  I had some unexpected windfalls in 2012 and saved more than I originally thought.  That translates into higher dividend income.
-Smoking: I haven't bought a pack in 2-3 months so I guess you could say I quit.  I still bum a smoke here and there.  I really only fail at this when I drink.  Oh well I enjoy it so it doesn't bother me.  My body is in tip top shape other than my lungs perhaps.  haha.
-Visit 1 new country: Success.  I'm in S. Korea for a year.
-Exercises:  I had good intentions, but was unable to follow through on my goals.  I'm in fantastic shape, but did not meet the specific numbers I set for myself.  Fail.

No more Goals page.  I haven't even looked at in 6 months o.O

Watch List Page:
Added: CM, PPL, and some ETFs
Deleted: SO since I bought shares of this company

Sunday, December 2, 2012

Exchange Traded Funds

In general I'm opposed to ETFs (and mutual funds) since you are essentially paying someone else to do work for you.  Maybe I'm just too proud or too cheap, but I'd rather do it myself.  That extends beyond investing into other areas of my life such as car maintenance and repairs.  But there is a real advantage of being a nimble self directed investor: fees!  Those pesky fees add up over time and is precisely why index funds never match the actual index.  Over decades those little expense ratios add up to thousands and thousands of dollars.  I was a fund investor in the past and was not happy with the results.

Explaining why ETFs suck isn't why I'm writing this post.  Rather, the real reason is that I'm actually considering buying a couple.  Yeah really! 

Foreign stocks: a glaring hole in my portfolio.  In a perfect world foreign stocks would pay dividends quarterly and not have dividends withheld just like my favorite dividend champions.  Unfortunately such conditions are very rare.  American stocks spoil us with a level of predictability and stability not seen anywhere else (with the exception of Canada).  But there are tons of quality foreign companies such as Nestle, Novartis, and National Grid.  The problem is I simply do not want to be paid only once or twice a year!  I will not accept that.  So I'm left looking at stocks from Canada and a few from the UK.  I currently own TD and EIFZF plus monitor CM, EMRAF, UL, and BP.  So I follow a grand total of six stocks outside the US....  There are a lot more quality companies around the globe than that!

For the price of an ongoing fee I can turn annual and semiannual dividends into a quarterly paying ETF.  Now I spent a few hours looking at various foreign dividend funds and couldn't find a single one where the distribution stream was smooth and predictable.  No matter what I do it's going to be bumpy.  But I can gain exposure to a bunch of great companies I would otherwise not be interested in, avoid the withholding tax (the fund should deal with it), and get that quarterly dividend I require.

I have access to 30 no transaction fee iShare ETFs with my Fidelity brokerage account.  I can buy small lots of $50 or $100 without worrying about commissions.  Anyways one particular fund caught my attention:

iShares Dow Jones International Select Dividend Index Fund (IDV):
  • Holdings: 101
  • Dividend Yield (ttm): 5.19% (paid quarterly,YAY!)
  • Expense Ratio: 0.50%
  • P/E: 15.1 / P/B: 2.63 / Beta: 1.49
  • Major Holdings: British American Tobacco, Eni, Commonwealth Bank of Australia, Royal Dutch Shell
  • Other Holdings: National Grid, Seadrill, Bank of Montreal, Emera, Vodafone
  • Countries: 21% Australia, 17% UK, 7% Hong Kong, 6% France, 6% Italy
There are definitely some quality holdings in there, but to be honest I've never heard of 80% of them.  I will consider starting a small position in this fund for income and diversification purposes.  Being able to make purchases with extremely small dollar amounts is a huge plus but comes at the cost of the dreaded expense ratio.