Monday, September 30, 2013

September Recap

I feel like I've been on autopilot for a long time and somehow managed to stray from my frugal roots.  This month I challenged myself to see if I could increase my savings rate.  All I did was drive less, eat at fewer restaurants, and curb energy drinks.  It feels good to save additional capital and be motivated again!

DOW: 15,130 /// S&P 500: 1,682 /// 10-YR BOND 2.62%

New Purchases:
1) 26 shares PM at $83.84.  $88.40 annual income (the dividend has since increased)
2) 36 shares KMI at $34.66.  $57.60
3) 22 shares BAX at $66.84.  $43.12

1) 92 shares INTC at $22.98 ($82.80) annual income

Dividends Received: $539.90
Intel (INTC) $41.40
ConocoPhillips (COP) $41.40
Southside Bancshares (SBSI) $14.28
Southern Co (SO) $14.72
iShares Emer Mkt Bnd (EMB) $2.76
Chevron (CVX) $29.00
Emerson Electric (EMR) $22.55
Exxon Mobil (XOM) $10.71
Johnson & Johnson (JNJ) $39.60
Lorillard (LO) $46.20
Norfolk Southern (NSC) $29.64
Avista (AVA) $47.89
Exchange Income Corp. (EIFZF) $17.28
Linn Energy (LINE) $24.16
Realty Income (O) $15.61
Realty Income Series F (O-PF) $6.76
McDonald's (MCD) $43.12
LTC Properties (LTC) $26.06
Owens & Minor (OMI) $21.36
Pepsi (PEP) $45.40

Dividend Increases:
1) O: $.1815417 to $.1818542 per month.  $.36 annual income
2) PM: $.85 to $.94 per quarter.  $37.44
3) MCD: $.77 to $.81 per quarter.  $8.96
4) WPC: $.84 to $.86 per quarter.  $1.84

New Deposits:
$1,100 to taxable account; $50 to Lending Club

Lending Club Interest:

Thursday, September 26, 2013

Could I Semi-Retire in 5 Years?

I believe I might be able to pull off an early exit from full time work within the next five years.  Man it would be awesome to own more of my time!  Here's how it might look.

Passive Income Stream: 
I currently expect to receive about $460 per month (on average) from my investments.  This figure includes dividends from the portfolio listed on this public blog plus a small amount of interest from Lending Club.  I believe that by early 2018, this figure will balloon to $800-$1,000 per month based on conservative dividend growth assumptions (4.5% dividend growth), and a moderately aggressive savings target ($1,000 per month + annual tax return).  I might hit the high end of the target if my name is called for another combat zone deployment. 

Army Reserve/National Guard
Pay: $400 for one weekend per month; full time pay two weeks per year.
Benefits: Inexpensive healthcare, pension, military perks
Other: Transfer accumulated service, opportunity to lace my boots

Not Enough: 
I'm up to roughly $1,200 - $1,400 income per month so far, have health insurance, and am working towards a pension.  Not a bad place to be, but unfortunately I can't live off a sum this small.  I would need to find supplemental income sources.

Option 1: 
Work I enjoy/part time job.  This could be seasonal work as a ski instructor or maybe as a raft guide.  Can't get any better than that as far as paid work goes.  I might have to settle for a lousy $10/hour job if the fun jobs don't pan out.  Maybe 20 hours per week doing something like retail or as a Subway cashier if it comes to that.  I would only need to earn enough to cover the rest of my bills, perhaps $800 - $900 per month or so.  My stress level would be tiny plus I would own the majority of my time. 

Option 2:
Between the Montgomery GI Bill and the Army College Fund in my contract, I am set to receive roughly $65,000 of college money.  I don't want to get into the details (because it doesn't matter), but basically I would choose the old option and would receive this amount over a three year period.  I'm not really interested in furthering my education... however, I am open to receiving ~$22,000 per year for taking 10 credit hours of underwater basket weaving at a cheap community college, then pocketing the rest.  Lasts three years tops.

Possibilities! hmm...

New Purchase - BAX

I thought I was finished buying shares for September, this purchase was not planned...

This BAX purchase will bolster my annual passive income stream by $43.12 on a 2.93% yield.  I was not charged a commission, since I received free trades as a bonus for singing up for a new Scottrade account.  I like BAX a lot at current levels ever since it took a rather large share price hit the other day.  This purchase will meet my expectations if it can boost annual dividend payments by 7% (hopefully supported by 6-7% earnings growth).

It appears the reason for this particular stock decline was based on a downgrade.  Apparently disruptive products from competing companies are thought to have diminished BAX's market share (product is 16% revenue) faster than expected based on telephone surveys.   Analysts believe competition will continue taking market share for the foreseeable future.  Analysts usually do have insight on the stocks they follow, however the upgrades/downgrades are meant for the short term investor in most cases.  Long term I like Baxter.

I thought this stock was undervalued before all this happened, I think it's now even more undervalued.  While the competition and BAX's debt load are something to keep an eye on, I like this company, the sector it is a part of, and more importantly the valuation on its common stock shares.  I do not see Baxter as a core holding, however I do plan to accumulate more shares as long as the company continues to pay higher dividends. 

Sunday, September 22, 2013

New Scottrade Account

Time to diversify brokers.

Although I will receive 3 free trades, this move wasn't meant to play broker favorites or attempt to benefit from bonus perks.  I am simply more comfortable diversifying my wealth across a variety of financial organizations.  Up to this point my wealth was divided between a taxable Fidelity account, tax-exempt Fidelity Roth IRA, taxable Lending Club account, tax-deferred Thrift Savings Plan account, and taxable bank account.  If one organization goes under, I want to be able to access capital from other sources while lawyers sort out the mess.  This is especially relevant to stock brokers where the bulk of my assets happen to be parked!

Enter Scottrade.  I was specifically looking for a second brokerage with the following characteristics:
-A reputable company that has been in business for a minimum of 20 years.
-Above average customer service.
-Low trading fees.
-Physical branches (minor consideration).

Scottrade has been in business since 1980 (33 years), has over 500 branches including one in my city, and offers exceptional customer service according to the reviews I read.  Stock commissions are very low at $7 per trade and compares favorably to my current broker at $7.95/trade (Fidelity).  I would note that I have had absolutely zero problems with Fidelity.  I highly recommend Fidelity and will continue to use their brokerage service for my Roth IRA.  Fidelity also has physical branches in my neck of the woods.   Honestly Fidelity's trading platform and research tools seem to be a few steps ahead of Scottrade, and I love quick responses to my questions they are happy to provide.  I can't speak highly enough about Fidelity!

The plan for my new Scottrade account:
-All new taxable deposits go here
-Funnel all taxable dividend & interest payments to this account
-Transfer the ~$6,000 cash left in my taxable Fidelity account over here
-Shares already held in my taxable Fidelity account are to remain in that account
-Treat all the accounts as one; don't need to rebuy companies I already own

It's going to be a pain when it comes time to update my blog.  However, I think this move will allow me to sleep well at night and be better prepared for the future.

If I happen to make a purchase the next few weeks, it will probably be at Fidelity.  The cash transfers are still pending!

Tuesday, September 17, 2013

New Purchase - KMI

I decided to go ahead and grab some additional Kinder Morgan shares while they are cheap.  This purchase will boost my annual income by $57.60, not bad!  I now have a significant stake in KMI and am unlikely to increase the weighting going forward.  Similar to PM, both the yield and dividend growth is strong here. 

As most of you know, Kinder Morgan has been under attack by Hedgeye analyst Kevin Kaiser, the same same guy who bashed Linn Energy a few months ago.  I believe the scheme here is to drum up negative attention to make profits on short positions.  Hedgeye is actually pretty clever in my opinion, they are intentionally picking on difficult to understand MLPs.  MLPs are pretty good targets for scare tactics because I don't think most investors bother to do much research.  Does the average investor listen to conference calls, read annual reports, or check financial statements?  I think not.  Pretty easy to scare retirees who bought KMP on a recommendation as a safe income source. 

So maybe KMI continues to slide, I sure don't know.  But I think I got in at a price that will serve me well over the long term.  It's not the best price I've ever gotten with Kinder, however it will reduce my average cost basis.  I'll take that. 

I'm probably not going to buy anything else this month with the possible exception of TGT or maybe BAX.  I'm watching TGT very closely.

Monday, September 16, 2013

How Buffet really made his billions! Haha!!

So I found this ridiculous ad while checking my watch list today...

Sorry I can't resist!

Ok enough, haha! 

Sunday, September 15, 2013

Here's what I'll do if I win the Lottery

Just for the fun of it, here's how I would invest my money if I happen win the lotto.

75% Equities
I would use this portion to fund my day to day living & travel expenses via dividends.  The main point with this portion is to never ever, under any circumstance spend principle.  I'd go with a portfolio of 50 dividend growth stocks which would be very similar to what I have in place right now.  The stocks would the same ones listed on my portfolio page minus ABBV, EIFZF, INTC, and LINE.  I'd go with solid companies including ADP, BDX, CL, GD, GE, GPC, LMT, MDT, MMM, MO, RSG, TGT, VZ, WEC to round out the remaining slots. 

20% Fixed Income
Capital designated towards this allocation would be used for the purpose of reinvestment and charity donations.  I'd go with a mix of ETFs covering a wide range of choices including US government bonds, municipal bonds, corporate bonds, foreign bonds, and preferred stocks.  Since I am not interested in setting up individual bonds ladders, ETFs are good enough to get the job done here.  Interest received would be used as follows:
-50% into equities
-30% back into fixed income
-20% donated to charity.  I'd pick a disabled veteran charity since those courageous citizens are near and dear to my heart.

5% Doomsday Scenario
This allocation would be used for historically poor investments such as precious metals and cash.  Also real estate, although I don't consider it a poor investment.  These are the sort of assets you want to own if the unthinkable happens.  These are true sleep well at night assets that tend to be tangible and not based on man made financial systems.
-Guns & Ammunition.  Perhaps the most important component to doomsday scenario preparation used for self defense and hunting.  I'd probably throw in body armor, helmets, night vision, gas masks, chemical suits and other gear I have been trained to use as well. 
-Physical Gold and Silver.  Great store of value which has been used as currency for 1000's of years.
-Physical Land & Real Estate.  I'd pick a nice spot up in the mountains to call home.  I don't think I'd bother owning more than 1 house even if I was filthy rich.  Too many headaches.
-CDs.  FDIC insured accounts at respectable banks simply for the peace of mind.

The mega millions drawing is for 130 million dollars next Tuesday.  A man can dream right?  I bought one ticket. 

Friday, September 13, 2013

Recent Dividend Increases

Realty Income
O raised its monthly dividend from $.1815417 to $.1818542 per share representing a .17% increase.  While certainly a small amount, I will take an increase any time I can get one.  This increase will boost my monthly income by $.03 and my annual income by only $.36.  At least O has my best interest at heart and is likely to do quarterly raises for a while.

Philip Morris
PM raised its quarterly dividend by 10.59% from $.85 to $.94.  I am quite pleased with this double digit increase since PM is my top holding and I was expecting a lower boost for 2013.  Because I now control 104 shares, this raise will pad my annual income by a whopping $37.44 and is just as useful as a new purchase.  I really couldn't be happier!  I look forward to the day when increases from my other positions become as meaningful as this one.

Looking Forward
I expect McDonald's to unveil a higher dividend rate sometime within the next few weeks, and am also on the lookout with a few other holdings to include WPC.  Since most of the 2013 increases have already been announced, it's safe to say this has been a great year.

Hope you all have a nice weekend.  It's Miller time!

Monday, September 9, 2013

Sale - INTC / Purchase - PM

Figuring out what to do with INTC has been on my mind for a while.  I'm obviously not happy with the dividend freeze and a freeze is reason enough to consider a sale.  I'm also concerned about poor operational performance and a general trend of declining PC sales.  Intel has been trying to pick up the slack by expanding into mobile, which we all know has been a disappointment so far.  If mobile doesn't work out, this company could be in huge trouble.  I've held shares of this stock for two and half years.  You can bet my patience is wearing thin.

On the other hand, the new mobile products hitting the market seem to be a step ahead of the competition.  INTC has a real opportunity to make a splash soon.  Still, I wonder if grabbing control of the mobile processing market (with the lower margins) would be enough to offset the declining PC business over time?  Or maybe it will be a massive success?  My hunch is that Intel will end up doing well in mobile.  With all the r&d, they damned well better be!  Throw in a decent valuation, and it might be worth sticking around to find out.

Tough call.

I decided to replace 92 shares, and see what happens with the other 92 shares.  As you can probably tell I'm still torn with INTC; valid arguments can be made either way.

I used the proceeds from this sale to fund a Philip Morris purchase.  PM is one of my core stocks and has been a fantastic holding the past few years.  I think we have a dividend contender in the making here, maybe even a dividend champion years down the road!  This purchase price is near the 52 week low and came standard with a 4.06% yield before commission.  I think a 4% yield is a great buy point for PM and certainly more attractive than INTC with all the question marks surrounding that company.

Philip Morris is due for a dividend increase later this month.  I don't know if we'll see a 20% boost like a few years ago, but I'm happy with a 6% raise.  That's enough to beat inflation and improve my purchasing power.
PM is now overweight within my portfolio at approximately a 6.7% weighting.  Nothing to be especially concerned about, and it ought to work itself out organically as I build up to 50 positions.

Saturday, September 7, 2013

Lending Club Year One

I opened my Lending Club account with $250 September 2012.  So far the results have been great!  The people I'm lending to are indeed keeping up with their payments.  This allows the borrower to pay off debt, and I get to collect a nice stream of interest income.  It's a great arrangement and the best part is that I feel like I'm helping people.  Look at a traditional credit card; it's not uncommon for the payments to last up to 20-30 years.  The notes I'm funding last 3 years then, poof, the debt is gone.  Perhaps one day some of my borrowers who are consolidating & paying off debt will become LC investors themselves or perhaps even strive to build a passive income stream with dividend stocks & fixed income instruments!

The Good

Hard to argue with a 14% interest rate!  Very difficult to top with virtually any other type of investment.

FOLIOfn is a service for LC investors to buy and sell notes on a secondary market.  I have found this service to be a tremendous asset.  Last month the payment on one of my loans was 17 days late (no big deal, I expect this sort of thing to happen).  I managed to sell this very note on the secondary market for a slight discount of maybe 3-4% off principle.  Nice!  Non performing loans can be sold reducing my risk.  Great feature.

I'm helping people.  Look at this borrower, who put extra on his loan presumably to pay off debt.
This borrower is paying off debt early.  Who ever you are, know that I'm rooting for you!

The Bad
I'm approaching the point where a borrower might be more likely to default.  After a year or so, personal finances can change drastically for any number of reasons.  Unfortunately bad things will happen to people.  It is something I am prepared for and I'm not sure that hefty interest rate will hold long term.  I will have to periodically review my notes although I don't spend much time with LC because it is only a small investment.

The Ugly
New notes are becoming harder and harder to find.  Apparently the word on Lending Club is out, this investment is becoming crowded!  What that means to me is that I'm not able to get a meaningful amount of money invested.  There just aren't enough loans unless I want to broaden my screen to allow lower quality.  I'd actually like to ramp up my monthly deposits with LC, but for now I'll have to wait for this situation to change.

Interest rates on new loans are lower than they were a year ago.  B & C notes are in some cases paying a whole percentage point less these days.  Be aware that LC might not be quite as lucrative as it once was.  This is a serious negative, although I don't know how it affects lower grade notes under C.