Friday, November 29, 2013

November Recap

November was a pretty solid month, nothing unusual to report other than the equity markets are on fire.  If you would have told me the DOW would surpass 16,000 this time last year I wouldn't have believed you.  My plan is to continue purchasing income paying securities on a monthly basis and also increase my cash reserves.  

DOW: 16,086 /// S&P 500: 1,806 /// 10-YR BOND:  2.74%

New Purchases:
1) 58 shares OHI at $31.45: $111.36 annual income
2) 27 shares TGT at $63.88: $46.44

1) 56 shares SNH at $23.40: ($87.36) annual income

Dividends Received: $386.71
AT&T (T) $82.35
General Mills (GIS) $26.81
iShares Emer Mkt Bnd (EMB) $2.62
Air Products (APD) $22.01
Linn Energy (LINE) $24.16
Abbott Labs (ABT) $7.56
Abbvie (ABBV) $21.60
Exchange Income Corp (EIFZF) $17.17
Kinder Morgan Inc (KMI) $62.73
Procter & Gamble (PG) $46.92
Realty Income (O) $15.64
Realty Income series F (O-PF) $6.76
Senior Housing Properties (SNH) $21.84
LTC Properties (LTC) $28.58

Dividend Increases:
1) SBSI: $.20 to $.21 per quarter. $2.88 annual income
2) EMR: $.41 to $.43 per quarter. $4.40

New Deposits:
$2,000 to taxable account, $50 to lending club

Lending Club interest:

Thursday, November 21, 2013

New Purchase - TGT

As I stated in an earlier post this month, I am interested in adding additional shares of Target to my portfolio at $64 or less.  TGT stock took a noticeable tumble today when it missed Wall Street's expectations in an earnings release and also lowered future guidance.  Target is currently opening new stores in Canada, it appears costs associated with that expansion are negatively affecting current earnings.  However I like its plan to expand abroad and Canada seems like a great market to kick off international growth.  At any rate, shares of Target were trading below my buy price so I took action.  These 27 additional shares will pay me $46.44 per year on a 2.68% yield.  Not the greatest starting yield, but I like TGT's future growth & dividend growth prospects.  It's currently sitting on a dividend growth streak of 46 consecutive years(!!!) which helps demonstrate just how successful and high quality this business really is.  In general, I'm leery of retail stocks and do not plan to weight them heavily.  That said, both WMT & TGT tickle my fancy and they both have a place in my portfolio.  I will probably not expand my retail holdings past those two names as the retail sector is littered with failed or failing businesses such as Sears and K-Mart.  No doubt this is a competitive industry.

November has been a fairly strong month for deposits as I received my travel money from a mission last month.  A few weeks ago I decided to put additional capital into OHI in order to piggy back on a commission that was going to be paid anyway.  Today's TGT purchase is also larger than normal for the same reason.  Just trying to keep my transaction costs as low as possible.  I'll have a few hundred bucks left over to increase my cash position for greener pastures as well.

The DOW cracked 16,000 today and is sitting at all times highs...

Symbol: TGT
Core Position: No
Speculative Position: No
Expectations: Steady income; 7% annual dividend growth
Automatic Sell: Frozen dividend; dividend cut
Consider Selling:  Business fundamentally changes, management becomes untrustworthy, fundamentals deteriorate, wildly over valued stock price, or position fails to meet expectations.

Sunday, November 17, 2013

$10,000 Worth of Dividends (so far)

$10,000 Dividends
Friday's payments from Abbvie, Abbott Labs, Kinder Morgan, Procter & Gamble, and Realty Income pushed my lifetime dividend total over $10,000.  I have been income investing a bit over 3 years now, boy it sure goes by fast.  Prior to investing solely for income I was part of the total return camp for well over a decade.  I had owned mutual funds since high school (some individual stocks too), though I started taking saving & investing seriously when I joined the military in 2008.  The great recession was a big test for total return investors, and I discovered I couldn't handle total return investing psychologically.  If the financial meltdown never happened I'd probably still be indexing and still think individual stocks are for suckers.

In a way I'm glad the great recession happened when it did.  It lead me down the path towards income investing which allows me to sleep well at night and meshes better with my long term goals... I never felt comfortable with the 4% rule!  Anyways my investment assets are approaching $175,000 these days, the thought of losing 40% of that number would send chills down the old total return investor in me.  I found a better path, although it is clearly not for everyone. 

DOW 16,000?
Holy Moses!  If I had debt (I don't), I'd consider paying down debt as an option along with investing as a use for excess capital from my day job.  It's a tough market out there for value investors.  Even though I don't care about capital gains I still want to preserve my invested capital.  That's where value investing comes in.  If I stick to purchasing a diversified set of undervalued or fairly valued high quality equities, capital preservation will take care of itself.  Capital preservation is the reason I focus on value and also on high quality companies.

I prefer low purchase prices and the market is simply not cooperating.  Yet I still have capital to invest, November has been very frustrating so far.  I placed limit orders on both CVX and LEG this month.  Turns out my chosen purchase price for both companies was about $.25 off.  Missed out both times and I didn't have the opportunity to make adjustments during trading hours.  At this point I still need to put money to work or else I will not be able to increase my passive income stream.  I'm going to purchase something, right now I'm still interested in CVX & LEG.  DE will also be thrown into the mix.  Don't think I've bought a stock from the industrial sector all year o.O

Turn Over = Too High
It's a shame I've had to sell so many positions this year.  I've been forced into selling HNZ, BWP, INTC, and recently SNH due to dividend freezes (HNZ was bought out, nothing I could do there).  4 sells in one year is way too much.  In the future I plan to focus more on quality companies that are as close to a sure bet as possible when it comes to dividend increases.  Perhaps next year I'll have to do a bit more portfolio retooling as I do question some of my picks from years passed when I was interested in high yield over high quality.  Maybe a few decades from now I will have mastered the art of dividend growth investing.  Favoring high yield is a beginners mistake, I'm learning as I go.

Friday, November 8, 2013

Replaced SNH With OHI

Dividend growth companies successfully executing their business plans see rising earnings (or FFO in the case of a REIT) and are able to pass part of that success onto investors in the form of a dividend raise.  On the other hand, dividend freezes and dividend cuts typically indicate something is wrong with a business, especially if said company had a respectable streak in place.  A few weeks ago Senior Housing Properties (SNH) announced a dividend freeze and effectively ended a dividend growth streak of 9 years.  SNH is currently repositioning itself by selling a number of properties.  Some properties have already been sold, others are still on the market.  Regardless, the board of directors chose to halt the SNH dividend growth streak during this transition phase as the dividend coverage is thin.  Kind of a shame the streak fell just short of a decade.

SNH's reasons for holding the dividend steady are actually pretty decent in my opinion.  It does not appear to be a business in trouble, and a convincing argument could be made to continue holding.  However at the end of the day, I need to realize a rising income stream.  That's my goal and the reason I even bother to invest.  I could tolerate a freeze from a company like a General Mills or a Bank of Nova Scotia.  Each has been paying uninterrupted dividends well over a 100 years.  With something like SNH I am less forgiving, plus it's not hard to find a replacement.  I'm moving on!

With this sale I lost $87.36 worth of annual income.

I'm going with Omega Healthcare Investors (OHI) as the replacement.  This is a company executing its business plan aggressively and with a lot of success.  OHI has been able to grow FFO at a rapid pace and in turn the dividend growth has also been excellent.  Dividend growth has averaged low double digits in recent years and is also sitting on a 11 year streak. 

There are quite a few similarities between SNH and OHI.  Both are healthcare REITs, with similar yields, and similar market caps.  They even pay dividends during the same month.  But I also notice a few differences between the two.  First of all OHI is far more aggressive.  They are expanding rapidly and leveraging cash flow with a higher debt load.  I think that is exactly what a REIT should be doing while interest rates are so low.  Omega is almost exclusively focused on the skilled nursing segment within the healthcare property realm, another fact I find intriguing.  I anticipate increasing demand for these types of properties as the baby boomer generation ages.  Baby boomers are eventually going to need long term care facilities and there are millions and millions of boomers.  When I think of healthcare REITs, long term care facilities are what I have in mind.  I'm not as interested in hospitals or medical office buildings that can also be included within the healthcare REIT industry.

I used to proceeds from the SNH sale as well as some cash collecting dust in my ROTH to fund this purchase.  These shares are set to pay me $111.36 on an annual basis.  I think OHI offers a decent value at the moment, but the share price has increased tremendously over the past couple years.  It's a shame I passed on OHI over the years, it has delivered an outstanding operational performance. 

Symbol: OHI
Core Position: No
Speculative Position: No*
Expectations: Steady income; 3% annual dividend growth
Automatic Sell: Frozen dividend; dividend cut
Consider Selling:  Business fundamentally changes, management becomes untrustworthy, fundamentals deteriorate, wildly over valued stock price, or position fails to meet expectations.
 * I currently do not consider OHI to be speculative, but perhaps borderline.*

ARCP was the other replacement candidate under consideration.  As of today ARCP is trading around $12.50... I find the value (and yield) compelling.  However I worry that particular REIT is expanding too quickly and is gobbling up more than it can chew.  I was reading about 3 massive acquisitions and frankly I'm just not sure I can digest it all.  I may consider ARCP again down the road; too many moving parts for now.

Saturday, November 2, 2013

5 Dividend Growth Stocks For November

Target Corporation (TGT) is a dividend champion with a 46 year streak of increasing dividends.  Hard to argue with a track record like that, Target is high quality.  I have a fair value of $71 on shares of this business, and would be interested in picking up additional shares at $64 or below.  Purchasing under $64 ensures I have a 10% margin of safety as calculating fair values can never be an exact science.  The best I can do is estimate using available facts.  Regardless, I am underweight retail stocks and would rather own both WMT and TGT.  Although I see Walmart as the stronger company, I don't feel the need to only choose one!

Wal-Mart Stores (WMT) is another dividend champion I want to buy.  It has an ongoing dividend growth streak of 39 consecutive years and also dominates the retail space.  WMT is one of the highest quality companies I can think of.  I have a fair value of $83.50 on Walmart, and would be interested in grabbing additional shares at $75 or below to ensure a margin of safety.  I recently visited a Neighborhood Walmart store in my area and was pleasantly surprised with what I found.  WMT plans to expand internationally and I think the Neighborhood Walmarts will also be a hit.

Leggett & Platt, Inc. (LEG) has a dividend growth streak of 42 years.  My calculations tell me this stock is worth $32, therefore I am interested in adding LEG to my portfolio at $29 or below.  I currently do not own any LEG, but became interested in this particular company a few months back when I purchased a new bed.  Guess what they produce?  Metal bed frames that raise your bed off the floor (among other products).  Boring companies that produce boring products like bed frames are right up my alley!  I love it!  LEG is projected to grow EPS fairly rapidly and currently sports a 4% yield.  However the payout ratio is a tad high and I only anticipate dividend growth of 3-4% for the time being.

Chevron Corporation (CVX) is yet another dividend champion, this time with a 26 year streak.  I calculate a fair value of $127.50 which compels me to consider a purchase at $114.50 or cheaper.  CVX is one of my core holdings, and I'm ashamed to say I haven't bought any shares in well over 2 years.  I've had many opportunities to add CVX shares at discounted prices, yet I failed to take action.  Should I continue to disappoint myself, or should I just buy some dang shares?  I'm willing to break the 10% margin of safety in order to increase a core holding.  It's currently trading at $118... close enough?

Abbott Laboratories (ABT) used to be a dividend champion with a 40 year streak.  That streak ended when it spun off the new pharmaceutical company Abbvie earlier this year.  Last month ABT rewarded patient investors with a massive 57% dividend boost.  That boost telegraphed the new ABT's intentions regarding dividend growth.  For the first time in almost two years I am interested in buying more shares of this health care company!  It is difficult to calculate a fair value on Abbott because the new business cannot really be compared to historical data.  Since I am unable to calculate a fair value on my own, I will have to defer to Morningstar with its $40 fair value calculation.  I am interested in grabbing ABT shares at the 2.5% yield threshold which equates to a $35.25 share price.  I believe Abbott has positioned itself for an easier path to sustained growth now that concerns over Humira patent expiration are a thing of the past.

As it stands right now all these stocks are trading at prices a little bit higher than I want to pay.  That's not too surprising since the stock market is near all time levels.  All 5 candidates are within striking range of my target purchase price so I plan to be on the lookout.  With a little help from Mr. Market I'll have a better menu from which to place an order, in fact I'm going to place a limit order on CVX right now.