Thursday, February 28, 2013

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

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

Friday, February 22, 2013

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.


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.

Thursday, February 21, 2013

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!

Saturday, February 16, 2013

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.

Thursday, February 14, 2013

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.

Tuesday, February 12, 2013

DOW Breaks 14,000

For the first time since 2007 the DOW has surpassed 14,000.  Stocks have been on fire!  It's safe to say the market is fully valued (or close to it) which makes my job more difficult as a value investor.  As always, there are still companies trading at attractive valuations.  GD and TD come to mind.  But I have to ask myself if buying equities at these levels is the best decision. 

The stock run up is great... but it has also tilted my allocations past the 90:10 stocks:fixed income that I aim for.  There are many vehicles available to investors beyond common stocks.  Many flavors of fixed income offer conservative investors higher current yields than dividend growth stocks tend to offer.  A 3% yield growing at 7% per year is fantastic, but it's going to take 10 years for the YOC to reach 6%.  Here are a couple fixed income securities I'm considering for my next purchase that come standard with yields in the 5-6% range:

ARU: Ares Capital 5.875% Senior Notes
This is an exchanged traded debt that will mature in 2022 and is callable starting October 2015.  Now I realize that bonds are seen as being scary right now.  I agree.  My strategy is to keep the duration to the short or intermediate term.  Locking in for 20+ years is crazy in this environment.  The FED has already proclaimed that interest rates are going to be low the next couple years.  Beyond that we don't know.  What I do know is that this bond matures in a little less than 10 years.  In two more years it will be an 8 year bond, it doesn't stay at 10.  As time goes on the bond duration shortens, but my interest rate is locked in.  The yield curve will work in my favor and help me from losing my shorts (not that I really care since I plan to hold it till it matures and get my money back). 

Ares Capital is a BDC whose common stock trades under ARCC.  This exchange traded debt is currently trading around $25 which is its par value.  S&P rates it as BBB (investment grade).  I like the yield on this one. 

PBI-A: Pitney Bowes 5.25% Notes
This one is very similar to ARU.  It's a 10 year note maturing in 2022, callable starting November 2015, and is rated BBB.  The yield is a little lower, but perhaps the underlying company is a little more reliable.  Most dividend investors are aware of Pitney Bowes.  Most of us know the high dividend on the common stock is a concern.  I wouldn't be comfortable holding the stock, but the bond is a different story.  PBI just needs to stay in business for the bond to do its job.  Dividend increases, decreases, and freezes are not as important to the fixed income investor.  I can lock in a yield over 5% for the next 10 years.  The 10 year treasury current pays less than 2%.  Quite a nice premium for taking additional risk.  PBI-A is currently trading around par value.

GS-PI: Goldman Sachs 5.95% Non Cum Preferred
This is a new issue from Goldman Sachs that is currently trading under par value.  S&P rates this as BB+ which is very high for a preferred stock.  Since preferred are lower in the capital structure they typically have lower ratings, but higher yields when compared to bonds.  Virtually all bank preferreds are non cumulative.  This one is no exception.  Goldman Sachs is probably the biggest bunch of shysters I can think of in American business, but I invest to make money, not to debate ethics.  This issue is currently offering a nice yield at a price under par, plus it isn't callable for 5 years.

I'm a fan of exchange traded debts and preferred stocks for a few reasons.  They are easier to buy and sell compared to traditional bonds.  They typically make quarterly payments instead of semiannual.  An investor can buy odd dollar lots instead of $1,000 lots.  The commissions are usually lower.  A downside is the limited selection to choose from. 

With stocks approaching all time highs, other types of investments are looking more and more attractive.  I've already boosted my lending club deposits...