10 Companies to Round Out My Portfolio

Currently my portfolio consists of 40 dividend growth stocks leaving 10 spots open before I stop.  At this point I'm fully allocated (by number of positions) to three sectors: consumer staples, financials, and telecoms.  I will not be adding additional positions to those sectors though I will obviously add new shares to the holdings I already have.

This list is not in any particular order, I like them all.

❶  Genuine Parts Company (GPC) Consumer Discretionary Sector
2.7% yield, 52% payout ratio, 58 year streak
I've been meaning to add this company for years but never did manage to get a buy in.  GPC is the epitome of a dividend growth stock with a streak approaching 6 decades.  That represents the sixth longest streak in the world.  I plan to add one more holding from the consumer discretionary sector and feel Genuine Parts is the right company for the slot.

❷ Aqua America, Inc. (WTR) Utilities Sector
2.4% yield, 49% payout ratio, 22 year streak
I'm looking to add another utility for diversification purposes and am extremely interested in WTR.  I currently own a couple utilities (AVA, SO) and feel they are appropriate stocks for achieving my goals, but I think a water utility will be my next move in this sector.  Anyways this company has great management, a plan for future growth, and happens to sell a product that will never go away as long as the human race roams this earth.  If WTR happens to drop around $23 it would be a top candidate for new capital.

❸ Bemis Company, Inc. (BMS) Materials Sector
2.8% yield, 53% payout ratio, 31 year streak
Bemis runs a boring packaging business.  It manufactures plastic packaging for products such as cheese, hand cream, lawn fertilizer, and medical syringes... yawn.  I think I might have fallen asleep while researching this company, but it's as steady of a business as any and continually innovates bringing new products to market.  Companies like this are right up my alley, the only thing I don't like is BMS's low dividend growth.  Dividend growth has only grown about 3.4%/yr the past 5 years.  I might consider a different company from the materials sector if I can find something better. 

❹ Medtronic, Inc. (MDT) Healthcare Sector
1.9% yield, 32% payout ratio, 36 year streak
Great company in a great sector.  Not much to dislike about Medtronic except that it currently offers a very low yield.  As we all know, stocks prices move around a lot.  It would only take a dividend increase and a market correction to get MDT back on my radar.  If that happens I plan to jump on this stock, but I'll have to seek other opportunities for now.  I also very much like BDX from the sector, and would be happy with that one instead of MDT.

❺ Automatic Data Processing, Inc. (ADP) Technology Sector
2.5% yield, 66% payout ratio, 39 year streak
I currently own zero tech stocks and will be looking to ADP to get back into technology.  ADP is one of only four companies that can claim a AAA credit rating.  That's a better rating than the US government!  Very steady performer here and it has an outstanding track record of above average dividend growth.  I almost added shares a few years ago when it was trading in the 50's, but in the end I failed to actually click the buy button.  This one kind of got away from me as the share price rose considerably.  It has a 2.5% yield which isn't bad at all, but the payout ratio is kind of high and the share price seems to always be over valued.  Perhaps it will trade at better valuations at some point down the road?  Probably not, I might have to just click "buy" and get it over with.

❻ Harris Corporation (HRS) Technology Sector
2.3% yield, 45% payout ratio, 12 year streak
Harris manufactures communications equipment primarily for the US government (military).  I'm a satellite technician in the US Army and use HRS equipment all the time.  I typically shun the tech sector because I have a hard time understanding rapidly changing businesses, but I understand Harris quite well.  Anyways the uniformed services need to periodically upgrade systems and I feel HRS ought to do well over the years.  I know of new projects in the works plus I'm sure the maintenance & training contracts work to HRS's advantage.  Unfortunately the stock seems a bit pricey these days the same as the rest of the market.  No plans to get in this one just yet.

❼ BP PLC (BP) Energy Sector
4.8% yield, 31% payout ratio, 3 year streak
BP has a very nice yield, a low payout ratio, and a reasonable stock price.  This will be my final oil stock.  It has a short dividend growth streak which can be attributed to the Gulf disaster a few years ago.  BP is back to raising dividends again.  I think it's time to look past the Gulf spill and focus on the future.  It still looks fairly cheap.

❽ General Electric Company (GE) Industrial Sector
3.5% yield, 70% payout ratio, 4 year streak
A few years I wouldn't have considered GE, but I must say I really like the direction this company is heading.  After the well publicized dividend cut during the great recession GE came back strong.  It currently plans to spinoff part of its consumer finance business and focus more on the industrial side of the house.  Music to my ears!  I'd prefer to wait till after the spinoff before starting a position (I'd sell the spinoff shares anyways), but would consider a purchase now if the value is attractive enough.  It's getting close to my buy price as it creeps down towards $25.  Hmm...

❾ 3M Company (MMM) Industrial Sector
2.6% yield, 51% payout ratio, 56 year streak
Another high quality dividend champion that has so far eluded my portfolio.  3M is a well diversified conglomerate that has hands in a variety of industries.  This company has a long term focus and is extremely well run.  A few months ago it raised its dividend by a hefty 35%, although single digits might be a more realistic expectation for the years ahead.  I imagine that when the board of directors meet to discuss the dividend, a raise is almost automatic for 3M at this point.  The only question left is how much.  That's the sort of mentality I'm looking for.  I came close to purchasing shares last month when MMM was trading around $124.  Hopefully the market provides another chance soon.

❿ Open Position
Ideally another healthcare or industrial stock, but I'm leaving one spot open for now.

Weekly Purchase - KO, MCD

7 shares KO, 3.17% yield, $8.54 annual income
4 shares MCD, 3.43% yield, $12.96 (purchased last week)

I went with Coca-Cola for this week's purchase; McDonald's last week.  Bargains are becoming harder and harder to find, however I will always be interested in KO when the market offers a yield over 3%.  Out of my four KO purchases to date, this chunk of shares came with the highest starting yield.  Also I managed to acquired KO shares just in time to receive the next dividend payment which is scheduled for April.  Not bad.  I decided to grab a few MCD shares last week, but was unable to report the purchase at the time.  Both of these companies have been designated as core holdings because I plan to hold them forever.  KO and MCD aren't sexy, they aren't exciting, and are unlikely to offer high short term capital appreciation.  However I am looking for dependable companies with decent yields who raise dividends on a regular basis in order to build a passive income stream.  That's where these particular businesses really shine and why they are the most popular dividend growth stocks around.

I have many free trades available and did not pay commissions today (or last week).  I plan to continue small weekly purchases until my supply of free trades run out. 

Symbol: KO
Core Position: Yes
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

February Recap

Pretty solid month with a record setting amount of transactions.  Nine of those buys were commission free so trading costs weren't all that bad considering I did some pretty serious portfolio retooling.  I'm now very pleased with my holdings and don't think I'll have to sell additional positions for a long time.  Finally!

All in all dividend increases were pretty decent this month.  Gotta love the LO, PEP, and TD raises.  I was disappointed to see that Deere (DE) chose not to increase the dividend right after I bought it.  Not a great start for that position, but I don't have plans to sell because I feel it is significantly undervalued at the moment.  OMI and WMT had pretty weak increases, although I realize dividend growth will not be outstanding each and every time.  I plan to accumulate more WMT and OMI shares regardless of the sub par increases (depending on valuations).

DOW: 16,322 /// S&P 500: 1,859 /// 10-YR BOND: 2.64%

New Purchases:
1) 3 shares CVX at $111.37: $12.00 annual income
2) 5 shares PM at $77.63: $18.80
3) 11 shares UL at $38.67: ~$16.17
4) 7 shares WMT at $73.38: $13.16 (the dividend has since increased)
5) 8 shares PEP at $78.94: $20.96
6) 18 shares COP at $65.46: $49.68
7) 9 shares DE at $85.00: $18.36
8) 91 shares MO at $35.40: $174.72
9) 47 shares OHI at $30.70: $92.12
10) 32 shares TD at $44.71: ~$51.20 (the dividend has since increased)
11) 9 shares TGT at $56.45: $15.48
12) DRIP: .930 shares OHI:  $1.84

Sales:
1) 129 shares EIFZF at $20.18: ($210.20) annual income
2) 100 shares LNCO at $30.63: ($289.92)

Dividends Received: $434.98
AT&T (T) $84.18
General Mills (GIS) $26.81
iShares Emer Mkt Bnd (EMB) $2.53
Raytheon (RTN) $31.35
Air Products (APD) $22.01
Exchange Income Corp. (EIFZF) $16.27
LinnCo (LNCO) $24.16
Abbott Labs (ABT) $11.88
Kinder Morgan, Inc. (KMI) $62.73
Omega Healthcare (OHI) $28.42
Procter & Gamble (PG) $46.92
Realty Income (O) $15.67
Realty Income Series F (O-PF) $6.76
HCP (HCP) $26.71
LTC Properties (LTC) $28.58

Dividend Increases:
1) AVA: $.3050 to $.3175 per quarter: $7.84 annual income
2) KO: $.28 to $.305 per quarter: $14.52
3) LO: $.55 to $.615 per quarter: $21.84
4) OMI: $.24 to $.25 per quarter: $3.56
5) PEP: $.5675 to $.655 per quarter: $28.00
6) TD: $.43 to $.47 (in Canadian $) per quarter: ~$16.60
7) WMT: $.47 to $.48 per quarter: $1.28

New Deposits:
$1,450 to taxable account, $100 to Lending Club

Lending Club Interest:
$9.63

Stock Split:
TD (2:1): 37 shares gained.  TD also announced a third dividend increase in the past 12 months.  This time by a respectable 9%.  Quite a nice little boost there, even factoring out the other two raises.  I purchased additional TD shares in February after the stock split, but before the dividend raise.

Away for a while

Hey guys!

I'm going to be away for a while without time to update this blog. 

Even though I sold it 6 months ago, the BWP meltdown has really affected me and how I want to approach building a passive income stream going forward.  I'm done speculating on high risk/high yield stocks.  No more playing with fire for extra yield... LNCO and EIFZF have to go.  This will be quite a daunting task because I'll need to replace about $500 worth of annual income between the two.  I'm gonna to have to use the proceeds from the sales plus a lot of additional capital to keep my income stream intact.  In fact I'm lucky to have a healthy amount of reserve cash at the moment or else all this would be impossible.  I have a plan for replacing the lost income which includes buying MO, OHI, TD/TU, BP/COP, PEP, TGT/MCD and DE/GE depending on market prices.  Yep, 7 stocks.  I'm still comfortable with big tobacco & REITs; new PEP shares have already been purchased.

See you in March!

Weekly Purchase - WMT (Stick with Quality)

7 shares WMT, 2.56% yield, $13.16 annual income

I went with Walmart this week.  I'm pleased to add a few additional shares of this company to my holdings, but that's not really on my mind today.

Avoiding disaster with high quality companies... that's whats on my mind.

Back in August I sold Boardwalk Pipeline Partners LP (BWP) when it became apparent distributions would remain frozen.  At the time this decision wasn't easy.  After all I had held it for two and half years during which it provided 6 distribution boosts and sent me hundreds of dollars in steady income.  $761.26 to be exact!

It turns out this company was in even worse shape than I imagined.  Yesterday it cut quarterly distributions from $.5325 to $.10 per quarter.  That's a 82% reduction folks.  OUCH!

 Look at this chart:

Sold BWP at $30.42 on 8/6/2013, today it trades for $13.43

Had I continued holding, my income stream would have been crushed and to make matters even worse principle would have evaporated right before my eyes.  You can't replace an income stream once you lose 56% of your principle!  This has to be my best sell ever, and there are many lessons to be learned here.  The most valuable of which is to stick with quality and always keep an eye on your holdings. PG, KO, PEP, MCD, CVX, JNJ.  Those are all high quality companies that have been raising dividends for decades.  They aren't sexy and they won't make you rich overnight.  But nobody ever went broke buying Procter & Gamble, and nobody ever went broke buying Johnson & Johnson!  They all have huge moats and treat shareholders like royalty.  3 of those companies have raised dividends for over 50 years... think about how hard that would be to replicate... damn near impossible if you started today!  Monitor companies and keep an eye out for warning signs.  Many times (not always) the writing is on the walls. 

Boardwalk warning signs I was able to identify before the meltdown:
-Frozen dividends:  A huge warning sign that should never be completely ignored.
-Thin distribution coverage:  Dividends and future dividend increases are paid with cash.  BWP couldn't afford to pay more even if it wanted to.
-Management refused to discuss dividend increases on conference calls:  Pretty fishy coming from a company on the CCC lists that had done a crap ton of increases in the past.

You can go back and read my August 2013 post about the sale, I'm not hiding anything here. 

Don't let the CCC lists or high yield fool you, a 5 year dividend growth streak isn't all that impressive.  Stick with quality!

Unilever Hasn't Cut Dividends in the Past Decade

This is simply a quick post to clear up misconceptions about Unilever's (UL/UN) dividend.  If one was to look closely at this company they might notice common shares come in a variety of different classes.  I personally chose UL for my portfolio (to avoid dividend withholding taxes), but I do recognize dividends are paid in Euros then converted to other currencies like US dollars.

Split adjusted dividend history of Unilever NV shares:

** Unilever switches from semi annual to quarterly dividend payments.  YAY!!!
++ Unilever pays a €.26 special dividend.  NV shares split 3:1, PLC shares split 9:5 (according to Yahoo)

As you can clearly and  beyond any doubt see, this company has a long and robust dividend growth streak in place.  US and Canadian investors receive dividends in dollars and might mistake currency fluctuations as dividend cuts.  It's ridiculous to expect an European company to pay dividends in dollars, therefore we ought to expect currency fluctuations from our foreign holdings.  It's a fact of life.

I'm not recommending this stock to others, but I do own it myself.  Have an awesome weekend!

Weekly Purchase - CVX, PM, UL

3 shares CVX, 3.59% yield, $12.00 annual income
5 shares PM, 4.84% yield, $18.80
11 shares UL, 3.77% yield, ~$16.17 (depending on exchange rates)

Wow I had horrendous timing today!  I typically make my purchases in the morning before reporting for duty, little did I know the market would sell off in grand fashion.  Only a few hours after purchase these companies were trading at much lower prices.  I've always known that I stink at market timing.  That's why I have been dollar cost averaging with monthly purchases over the years.  Terrible timing aside I still picked up shares in quality companies that are extremely likely to raise dividends going forward.  One day I hope to live primarily off dividend income.  These shares are valuable towards that end.

While I could have saved a couple bucks if I knew how to predict market movements, I'm actually very pleased the heated stock market is finally falling back down to earth.  I still have 3 more planned purchases earmarked for the coming weeks.  I'm heading out of country pretty soon (for a military mission; it's not a vacation).  I won't have much time for investing, plus buying stocks is more difficult in a time zone half way around the world.  Not sure if I'll have reliable internet access either.  Some of the companies I'm looking at include ABT, JNJ, KO, MMM, PG, TGT, and XOM,.  I want to add high quality now that valuations are more reasonable.

I have many free trades available and did not pay commissions today.  I plan to continue small weekly purchases until my supply of free trades run out (probably July).

Symbol: PM
Core Position: Yes
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.