Weekly Purchase - ABT & GE

5 shares ABT, 2.29% yield, $4.40 annual income
8 shares GE, 3.40% yield, $7.04

1 shares GE, 3.39% yield, $.88 annual income (FRIP purchase from last week)

I added shares to two existing positions today.  Even though the yield is kind of low, I'm a big fan of Abbott Laboratories.  It has a very reasonable 15.5 forward p/e, excellent growth prospects, plenty of room for future dividend raises, and will help shore up allocations in the healthcare sector.  Abbott has been paying & increasing dividend payments for many decades (40+ years excluding the Abbvie spinoff last year).  At this point dividend increases are ingrained in Abbott's culture, and that's the sort of mentality which will serve patient investors well in the years ahead.  It's a company in the same vein as say PG, JNJ, PEP, EMR, and other high quality businesses where yearly dividend growth is almost automatic.  That's how I see it anyways...

General Electric Company was the other buy for reasons I wrote about last week.

Well I still have four planned purchases left for April.  One of those buys will be in my ROTH where I don't have access to free trades.  I must buy larger quantities in that account to make up for the fees/commissions.  Have to hope stock prices continue to slide.

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 (July).

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

*ABT will be designated as a core holding if/when I expand the list.  Core stocks are select holdings that I deem to be the highest quality (it's subjective).  They will be sold last in the event of a forced portfolio liquidation.

March Recap

A nice month overall.  Not a whole lot to report investing wise, my focus was more on boosting my savings rate than anything else.  I purchased a digital antenna (made by GE, bought at Target) which allowed us to cancel our cable subscription.  I was recently approved for a cash back credit card to stretch savings a little farther.  I'm not a fan of credit cards, but getting cash back on items I have to buy anyway makes sense.  Also I should receive my first payment from Google Adsense in April.  I never thought this blog would actually make money, kinda cool.  Little things like that add up over time the same as reinvesting dividends.

DOW: 16,458 /// S&P 500: 1,872 /// 10-YR BOND: 2.72%

New Purchases:
1) 4 shares MCD at $94.42: $12.96 annual income
2) 7 shares KO at $38.51: $8.54
3) 8 shares KMI at $31.48: $13.12
4) 6 shares BP at $46.40: $13.68
5) 10 shares GE at $25.83: $8.80
6) FRIP: 1 share KMI: $1.64

Sales:
none

Dividends Received: $554.06
ConocoPhillips (COP) $41.40
Southern Company (SO) $32.48
iShares Emer Mkt Bnd (EMB) $2.58
Chevron (CVX) $57.00
Emerson Electric (EMR) $23.65
Exxon Mobil (XOM) $10.71
Lorillard (LO) $51.67
Norfolk Southern (NSC) $30.78
Target (TGT) $21.93
Johnson & Johnson (JNJ) $39.60
Unilever (UL) $8.04
Southside Bancshares (SBSI) $15.00
Avista (AVA) $49.85
McDonald's (MCD) $46.17
Realty Income (O) $15.67
Realty Income Series F (O-PF) $6.76
Owens & Minor (OMI) $22.25
Pepsi (PEP) $49.94
LTC Properties (LTC) $28.58

Dividend Increases:
1) APD: $.71 to $.77 per quarter: $7.44 annual income
2) BNS: $.62 to $.64 (Canadian) per quarter: ~$5.00
3) GIS: $.38 to $.41 per quarter: $8.44
4) RTN: $.55 to $.605 per quarter: $12.56
5) O: $.1821667 to $.1824792 per month: $.24
6)  WPC: $.87 to $.895 per quarter: $2.32

New Deposits:
$1,500 to taxable account, $100 to Lending Club

Lending Club Interest:
$13.00

Weekly Purchase - GE

10 shares GE, 3.41% yield, $8.80 annual income

General Electric is the 41st dividend stock to join my income portfolio.  I had been looking to add a new industrial position and really liked what I saw with GE.  A couple things prevented me from buying shares up until now: the well publicized dividend cut during 2009 and its reliance on GE Capital.  By now most people are probably aware General Electric is looking to shed much of its financial interests and focus on what made it an iconic American company in the first place.  I'm talking about its industrial businesses.  This company has hands in a lot of industries and manufactures a wide variety of products.  Looking around my home, I spot many familiar offerings such as a stove, a dishwasher, a digital tv antenna, light bulbs, and even that little two way coax splitter.  Those are the types of products I know and can easily understand, but in reality GE does way more than just that.  It also manufacturers high end goods such as nuclear reactors, jet engines, wind turbines, medical diagnostic equipment, etc., etc.  Too many to list.  From the diversification perspective all these businesses make sense, but on the other hand it does make GE fairly complex.

I'm more comfortable with the conglomerate now it is unloading the riskier finance companies.  GE plans to IPO much of its consumer finance business into a stand alone company called Synchrony Financial later this year.  I read another article today that reported GE is exploring the sale of an additional finance business based in Europe.  It's pretty clear GE is a company in transition, and it just so happens I'm intrigued by the direction it's heading.  5-10 years from GE will look a lot different than it does today.

You might have noticed the stock market jumped back up the past week.  Undervalued companies are becoming harder and harder to find.  In fact I was hoping to secure GE shares closer to $25, yet I decided to start the position today because I couldn't find anything better.  Possibly BP though it looked more attractive last week.  I can take solace in GE's 14.2 forward p/e, it's rapidly growing dividend, a 3.4% yield, and the huge backlog of orders estimated to top 200 billion dollars.  Funny how a stock this hated just a few years ago staged such a nice comeback and is once again a dividend growth stock.

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. 

Symbol: GE
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

Catching up on February Transactions

Last month I did some pretty serious buying and selling in an attempt to increase the quality of my portfolio and position myself for higher dividend growth moving forward.  I had to go to S. Korea for three weeks and didn't have access to blogger while out of country.  If I can't log into blogger, I can't update my little site.  These trades are in books and were actually already posted in my February recap.  However I never did a proper post on these transactions due to time constraints.  It's just too dang nice outside!

Now I might not be the greatest investor, and I know my blog is nothing special, but I do take pride in disclosing all my moves for the world to see via screen shots.  I've been doing this for quite a while now (over a year now). Nothing to hide here.

SALES (February 2014)

 

-100 shares LNCO, ($289.92) annual income

-129 shares EIFZF,  ($210.20)

LNCO and EIFZF had to go.

Both of these companies offer juicy yields and both of these companies are fraught with risk as far as I'm concerned.  Seeing Boardwalk Pipeline Partners, LP (a MLP I used to own) cut its distribution by 80% was a wake up call.  I simply cannot trust high yield/high risk companies as retirement income sources.  The whole point of dividend growth investing is to build a reliable income stream growing faster than inflation which is detached from daily price gyrations.

EIFZF and LNCO dividends are detached from the stock market.  I doubt either will actually cut dividends short term.  But dividends from these companies aren't growing, and they certainly aren't reliable.  Both have extremely high payout ratios meaning one little misstep could have dire consequences.  LNCO is paying out 99% the last time I checked.  Pretty hard to fund a larger dividend payment when it is already stretched so thin.  I thought the Berry acquisition would provide Linn an opportunity to raise payouts, or at least add a little breathing room to the dividend coverage.  Nope.  Apparently Linn paid too much.  Exchange Income last raised dividends about a year and a half ago and seems to have set itself up to only maintain that rate.  Its cash flow statement is ugly showing negative operating cash flow last year.  Yuck.  It had been doing very well with its cell phone tower business until it started receiving too many orders.  I have been following this one for a while and learned something new.  Too much growth can actually be a bad thing.  EIF couldn't keep up with all the orders from AT&T, so they had to hire an outside consultant to get their systems up to speed.  That ended up really hurting cash flows and the bottom line for a company as small as this one.  Small caps...

At the end of the day I lost a couple hundred bucks with LINE/LNCO and made a decent return with EIFZF.  I'll chalk it up as a cheap lesson.


PURCHASES (February 2014)

Commission free trades

91 shares MO, $174.72 annual income
47 shares OHI, $92.12
32 shares TD, ~$51.20
9 shares TGT, $15.48
18 shares COP, $49.68
9 shares DE, $18.36
8 shares PEP, $20.96

As you can see I replaced the two high yielders with a gang of replacement stocks.  I had to use cash reserves to try to keep my income stream whole.  All together I used an extra $3,500 plus the 4 previous Feb. purchases and still couldn't match the combined annual income I lost with LNCO and EIFZF.  In the end I fell about $30 (annualized income) short!

What I gained was quality, dividend growth, and most importantly peace of mind.

MO:  At the time I felt the market was offering a nice opportunity.  MO has a nice yield and solid dividend growth.  I like how it's very diversified for a tobacco stock.  In addition to cigarettes it sells smokeless tobacco, wine, and owns part of Miller beer.  Still trying to figure out why Altria is listed as a dividend champion, yet Abbott Labs is not.  One standard please...

OHI:  I was forced to go temporarily overweight REITs, which will work itself out over time.  Again nice yield and solid dividend growth.  I tried to take advantage of a price dip with OHI last month.  I'm especially excited about the dividend growth and OHI's excellent management.

TD:  Canadian stocks (still) look undervalued.  TD is an excellent dividend growth stock that has been paying dividends for over a hundred years.  Jesus!  Anyways right after I bought shares it raised dividends by 9%.  Unfortunately dividend payments fluctuate with exchange rates for US investors.

TGT:  It was beaten up at the time because the credit card breach and failed efforts in Canada.  Those developments seemed short term in nature so I bought.  Solid dividend champion other than that.

COP:  I haven't added COP in a few years.  It seemed undervalued and had a nice yield.  So far Conoco has been an excellent investment.

DE:  The most undervalued of the bunch, but its BOD decided to freeze the dividend right after I bought it.  I'm going to give Deere some extra time and have no plans to unload these shares.  High quality company and I needed an industrial stock.

PEP:  Another company I haven't bought in a long time.  It had just raised its dividend by 15% when I did the purchase.  I'm a fan of the food side of the business more than the soft drinks.  Have you tried Stacy's pita chips and Sabra hummus?  What a combination!


Again these transactions are all from February when I didn't have the luxury of updating my blog.

Weekly Purchase - BP

6 shares BP, 4.91% yield, $13.68 annual income

The big news today is that my forward annual income surpassed $6,000 meaning I will be averaging $500 per month dividend income from this point forward.  I don't dwell on milestones.  You won't see me getting excited about my portfolio reaching some arbitrary value.  But this one is significant for me.  You see, I have saved at least $500 every single month for the past 6 years.  Now my dividend income will start to match my own efforts ($500 per month) as I attempt to attain this thing called financial independence.  Very cool!

Today I started a new position with BP plc. With a forward p/e of only 9.4, I feel BP is one of the cheapest dividend growth stocks in an otherwise heated market.  9.4  Anyways BP is an oil major based out of the UK.  It's still plagued by pending lawsuits from the Deepwater Horizon spill in the Gulf of Mexico.  The company seems to be situated well enough financially to weather additional costs however.  This past month BP stock declined quite a bit as investors seemed to be spooked by tensions in the Ukraine.  BP owns about 20% of the massive Russian oil company Rosneft.  That's why.

I don't know Russian policy or what Russia will do in the future.  However I can at least take advantage of the tension buying affected companies on dips that I want to own anyway.  At the beginning of March BP traded around 50, now it's around 46.  If it slides even further I would be happy to add more shares on weakness.  Barring WWIII scenarios I feel this is the correct way to approach the tension.
  
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. 

Symbol: BP
Core Position: No
Speculative Position: No
Expectations: Steady income; 5% 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

March Dividend Increases

Air Products & Chemicals (APD) increased dividends 8.5% from $.71 to $.77 per quarter.  APD can now claim a 32 year dividend growth streak, pretty amazing to think that it dates back to all the way to 1982!  Air Products hails from the materials sector and runs what could be the most boring business ever.  As you might have guessed from its name, it sells gasses which are used in a variety of industries including semi conductors, LCD screens, inks, personal care, mining, hydrocarbon recovery, and steel to name a few.  It does a lot of international business, but seems to be focusing on South Korea and China in particular.

Bank of Nova Scotia (BNS) increased dividends 3.2% from $.62 to $.64 (Canadian) per quarter.  This increase is most welcome, but nothing to write home about in and of itself.  However I would note it last increased dividends only 6 months ago.  I chose Scotia Bank for my portfolio because BNS has a large international presence and I simply trust Canadian Banks more than U.S. banks.  Canada has stricter banking & lending laws which tends to keep financial institutions out of trouble.  Canadian banks didn't need bailouts during the great recession and none cut dividends.  How refreshing!

General Mills (GIS) increased dividends 7.9% from $.38 to $.41 per quarter.  Another stout dividend increase from General Mills, I cannot complain.  In case you didn't know, GIS sells packaged foods such as Cheerios, Pillsbury, Green Giant, Haagen-Daz, and Progresso soups.  Lots of brand recognition and lots of brand loyalty here.  I personally eat Cheerios every morning and easily go through 2-3 boxes per week.  I can take solace knowing I am supporting my own dividend stream.

Raytheon (RTN) increased dividends 10.0% from $.55 to $.605 per quarter.  My RTN yield on cost is rising rapidly!  When I first purchased the company it came with a 3.9% yield.  Three increases later, that same purchase has a 5.5% YOC.  Unfortunately defense contractors are no longer undervalued as prices from that industry rose considerably.  I would consider adding related businesses to my holdings such as GD, LMT, and NOC at a future date. 

Realty Income (O) increased dividends 0.2% from $.1821667 to $.1824792 per month.  Yet another quarterly increase from "The Monthly Dividend Company."  Honestly .2% really doesn't matter all that much, but I will take any increase I can get.  More money in my pocket is always good; I can use it to purchase new investments now or spend it when it's time to pursue adventures other than full time work.  Each increase, even a .2% raise, is a baby step towards retirement.

W.P. Carey (WPC) increased dividends 2.9% from $.87 to $.895 per quarter.  WPC is a REIT and like O it tends to increase dividend payouts each quarter.  In fact this increase marks 52 consecutive quarters of rising dividends.  That's each and every quarter for 13 years people!  I like the fact W.P. Carey's increases are meaningful and that it has a much broader scope than O.  WPC owns real estate not just in the United States, but also Europe and Asia.  In addition it manages the CPA line of non-publicly traded REITs for high net worth investors.

March has been stellar with 6 increases so far.  Unilever tends to announce dividend boosts this month as well.  The fun might not be over just yet...

Weekly Purchase - KMI

8 shares KMI, 5.21% yield, $13.12 annual income (purchased today)

1 share KMI,  5.23% yield, $1.64 annual income (FRIP purchase from last week)

I wasn't planning to purchase additional KMI stock for a while because I don't want my position getting too large, but I felt the market was offering a nice opportunity today.

To be honest, I get a somewhat unsettling feeling with KMI.  It happens to be a fairly difficult business to understand, it is prone to bear attacks, and it's tough to actually value the shares.  These aren't the sort of traits I usually look for in a long term holding.  Kinder Morgan Inc. doesn't have a whole lot of historical data in which to make a comparison since it began trading on public exchanges during 2011.  Because of that (and other factors) I had to rely solely on the Dividend Discount Model for share valuation.  Normally I would not trust any single valuation technique enough for exclusive use...

All that being said, it is hard to top KMI's income producing capabilities.  What we have here is a high yield stock expected to grow dividends in the high single digits.  Kinder Morgan management told us in advance they will be raising dividends by 8% this year.  A 5% yield growing 8% is a recipe for success I simply cannot over look.  KMI has very nice assets, a plan to expand rapidly, is big enough to absorb competitors via future acquisitions, has a CEO I very much admire, and a stock price trading 20% below my DDM fair value calculation.  KMI is a bet on the American energy boom.  KMI is a bet on natural gas.  The CEO has his personal fortune tied to the company and I believe he is the right man to make it all work.  It's hard to find this combination of yield and dividend growth anywhere else.

While KMI is by no means a dividend champion and has a bit more risk than I typically accept, ultimately I think this investment will be a good one.

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

Symbol: KMI
Core Position: No
Speculative Position: No*
Expectations: Steady income; 5% annual dividend growth
Automatic Sell: Frozen dividend; dividend cut
Consider Selling:  Rich Kinder retires, business fundamentally changes, management becomes untrustworthy, fundamentals deteriorate, wildly over valued stock price, or position fails to meet expectations

*borderline speculative