tag:blogger.com,1999:blog-17530415079407369152024-03-13T11:33:50.645-05:00Chester the Income Investoranonymously and gratuitously sharing years of practice...David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.comBlogger194125tag:blogger.com,1999:blog-1753041507940736915.post-84144299817035071452013-05-07T08:57:00.002-05:002013-05-07T09:03:35.996-05:00Dividend Growth, Asset Allocation & Suggested ReadingThe market continues to grind higher. I will be able to put some money to work soon but where is the value? My dividend growth portfolio is missing Colgate-Palmolive and Chevron. CL is overvalued right now so I will wait for a better entry point. Chevron, Wells Fargo and Lockheed-Martin are definitely on the American stock dividend growth radar for me right now.<br />
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If they continue to rise I may use their overvaluation as an opportunity to diversify my portfolio with foreign stocks, probably through ETF's which have nice yields. If I can find monthly distributions so much the better. <br />
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Also in the cards are an entry into foreign real estate and diversification into small cap value stocks, both domestic and international. Over long time horizons, commodity stocks and ETF's have proven to really lower the volatility of one's portfolio while increasing returns so my eyes are open there as well.<br />
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I have a long time horizon so I will be underweight fixed income, interest bearing bonds. I already hold a slightly leveraged muni ETF in my taxable account which earns over 5% tax free and may add a slightly leveraged corporate bond ETF to my or my wife's IRA to lower the volatility. This diversification will not raise returns over the long term, however. Studies have shown that for the small investor that honor belongs to equities, real estate and commodities.<br />
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The studies on asset allocation that I've read have been eye opening. Diversification through holding multiple asset classes is a free lunch. It has been demonstrated that there is lower volatility with higher returns so long as one's time horizon is at least 10 years. I wants me some of that :)<br />
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Suggested reading includes:<br />
Asset Allocation: Balancing Financial Risk by Roger Gibson<br />
The Ivy Portfolio: How to Invest Like the Top Endowments by Faber and Richardson<br />
The Intelligent Asset Allocator by William Bernstein<br />
Pioneering Portfolio Managment by David Swensen (the Yale endowment manager)<br />
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<br />David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com1tag:blogger.com,1999:blog-1753041507940736915.post-45736384427638176282013-05-03T08:16:00.001-05:002013-05-03T08:17:49.865-05:00Asset AllocationAs I continue my never ending investment education I have graduated to the issue of asset allocation. Most of the books I have read are text books written by PhD.'s and the like from well known business schools. One was written by a manager that runs the famous Yale endowment.<br />
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The bottom line is that by spreading one's investments among multiple asset classes one can achieve greater returns with less risk. Relevant asset classes are domestic, international and emerging market stock (although I just read about a new category called "frontier" markets which include Africa and the like"), domestic and international government bonds, domestic and international corporate bonds, real estate (including REIT's), commodities, BDC's and the list goes on and on.<br />
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The best portfolios have assets which don't correlate to one another. In other words, when one asset class sinks another rises. Lately we have seen that when the market is doing well precious metals have been hit hard. In 2008 when the market tanked precious metals soared.<br />
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Asset allocation goes beyond diversifying and not putting one's eggs in one basket. It is based upon the belief that the market is fairly efficient and that we all flatter ourselves into believing that we can beat the S&P. Most proponents purchase passive index ETF's or funds and divide their portfolio into predetermined percentages based upon their wants and needs. The research seems to bear out that periodic rebalancing to keep the percentages intact increases returns and lowers risk.<br />
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I have been investing in dividend growth stocks in many sectors, REIT's, a BDC, muncipal bonds and cash. My desire to diversify has given me a head start in asset allocation but I would not like my portfolio to be scrutinized as of yet. I will look to add emerging market and international stock and bond exposure with an eye toward what is out of favor now. To the extent I can I will be looking for low expenses and monthly distributions. By buying what is out of favor now one can get the benefit of mean reversion.David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com2tag:blogger.com,1999:blog-1753041507940736915.post-41558250685484166462013-04-29T07:42:00.002-05:002013-04-29T07:49:18.294-05:00Latest Retirement Portfolio AdditionsLast week on the day before they went ex-dividend we bought Kinder Morgan, Inc. (KMI) and Omega Health Investors (OHI). These were purchased in Roth IRA's and the plan is to hold them long term and to reinvest the dividends. Both of these issues have been raising dividends quarterly as of late which is quite extraordinary. So long as they raise their distributions once per year we will continue to hold them. If the dividend/distribution is frozen or is cut we will sell.<br />
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I think it's very wise to hold REIT's in a Roth IRA as they would normally be taxed as ordinary dividends. Even with the market getting a bit frothy there are a couple of securities that I like for our retirement portfolio. Defense and oil stocks still seem to be reasonably priced. If you are a contrarian, and we try to be, I would look at emerging markets index funds/ETF's or opening a position in a dividend paying precious metals stock.David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com0tag:blogger.com,1999:blog-1753041507940736915.post-80348620539517475212013-04-18T19:40:00.003-05:002013-04-18T21:15:42.623-05:00 Present Portfolio AllocationMy wife and I have our stock and bond portfolio allocated as follows:<br />
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Cash 21.02%<br />
Muni's 12.61%<br />
O 6.39%<br />
LOW 4.20% <br />
KMB 4.12%<br />
WMT 3.90%<br />
INTC 3.88%<br />
JNJ 3.82%<br />
PG 3.43%<br />
T 3.34%<br />
KO 3.29%<br />
MCD 3.27%<br />
PEP 3.26%<br />
PM 2.82%<br />
MO 2.74%<br />
MSFT 2.71%<br />
XOM 2.64%<br />
RTN 2.55%<br />
FCX 2.54%<br />
PSEC 2.38%<br />
COP 2.13%<br />
PSX 1.02%<br />
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I am looking to add some international exposure, probably through SDIV to start. I also want to diversify further by adding high yield corporate bonds, both U.S. and Int'l, especially if they are monthly payers. I will add all of these in Roth IRA's. If the market corrects more I will add to our dividend growth portfolio. <br />
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<br />David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com0tag:blogger.com,1999:blog-1753041507940736915.post-75282451041662104122013-04-17T16:20:00.002-05:002013-04-17T16:20:52.758-05:00Lastest Additions to Retirement PortfolioOn Monday I added IIM, Invesco Insured Municipal Income Trust. I had no bonds in my retirement portfolio so I wanted to diversify and lower overall portfolio risk. My position in IIM is fairly large. This is in my taxable account, of course, and IIM yields 5.5% tax-free with monthly distributions. In large down days this has either risen a bit or stayed the same.<br />
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Today I added FCX, Freeport-McMoran Copper & Gold. I bought it pennies above it's 52 week low. I view this as a contrarian play during the precious metals capitulation. At my entry point the yield is well over 4%. I plan to reinvest the dividends and hold indefinitely.<br />
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As you can see, I am preparing my portfolio for a correction and/or a crash and taking advantage of fear and capitulation. In our Roth IRA's I'm looking at SDIV for international exposure and diversification and GG, a monthly paying gold stock, if GG's yield can get closer to 3%.David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com0tag:blogger.com,1999:blog-1753041507940736915.post-34380738772957307592013-04-05T09:04:00.002-05:002013-04-05T09:04:25.210-05:00Let the correction begin!It started with increased volatility and as per history the next move is down. I sold some SLV and FCX puts in the last few weeks as a hedge. Do you remember the days when the market was down big and the only risers were precious metals and metal stocks? I do.<br />
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Hopefully long term dividend growth investors have some cash at the ready as bargains will soon be available again.I am going to be looking very closely at present yields compared to historical yields. My long term investments have done the best when I buy dividend growers when their yield is above historical norms. For example I bought Lowe's when the yield was nearly 3% and Wal-Mart when the yield exceeded 3%. Both of these now have higher yield on cost along with significant capital appreciation.<br />
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Let the games begin! <br />
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<br />David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com0tag:blogger.com,1999:blog-1753041507940736915.post-50489412422932093652013-04-01T09:14:00.000-05:002013-04-01T09:14:17.619-05:00Morning ThoughtsThis morning I sold some OTM puts on SLV. Silver has fallen below it's Bollinger bands and precious metals are oversold and out of favor. Meanwhile this bull market is getting a bit long in the tooth, printing presses are cranked and the war drum is beating. Precious metals have been moving inversely to the S&P as such this is also a small hedge against market decline.<br />
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In reviewing my retirement portfolio I notice a couple of things. My greatest total return gainers are those dividend growth stocks that started with the lowest yield but had the highest dividend growth rates. These type of stocks will definitely be in the mix for future purchases. I am also looking closely not just for low payout ratios but also low free cash payout ratios. This combined with a high dividend growth rate seem to be great candidates for strong total return now while still providing great yield on cost and income in later years.<br />
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I love dividend growth investing. Every time I reinvest the dividends my monthly income rises. It is my own Social Security fund. When I contribute more funds it's even better. The combination of reinvesting dividends in companies that grow their dividends along with putting new capital to work really sets in motion the power of compounding. Compounding one's savings is the key to financial security and wealth.<br />
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<br />David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com0tag:blogger.com,1999:blog-1753041507940736915.post-43521364968986332042013-03-27T08:57:00.001-05:002013-03-27T08:57:49.648-05:00Morning Thoughts...correction in focusThe market is down fairly big this morning after being up big yesterday. My Spidey sense tells me that increase in volatility usually occurs prior to a correction of some sort. As we all know the market has grinded higher and is way overdue for said correction. It is my humble opinion that those days are soon upon us.<br />
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In my dividend growth portfolio I will hold and reinvest all dividends through the correction. This is so even though many such as PG, JNJ, KMB, LOW and WMT have had excessive run ups. I believe excessive trading and trying to time the markets is bad for a long term portfolio. If the stocks tank, my dividends will buy more shares. I want to tell stories like some of the old timers: "I bought $10,000 of Coca-Cola 30 years ago, reinvested my dividends and now it's worth (insert some ungodly some of money here) and my annual income exceeds my initial investment. That's what I'm talkin' 'bout.<br />
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Aside from dividend growth I am still staying in the game with some put selling. I am only using about 30% of my cash to trade and I am only selling out of the money puts on blue chip, dividend growth stocks. Presently I have trades going in XOM, MSFT, FCX and LO. I want to have money to invest/trade the correction. I don't see many good dividend growth buy and hold opportunities at this time but I'm watching closely.<br />
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<br />David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com0tag:blogger.com,1999:blog-1753041507940736915.post-29040043214890850222013-03-21T09:24:00.002-05:002013-03-21T09:24:43.089-05:00Morning Thoughts...The market is down a bit this morning. In my humble opinion we are looking at a short term top. I expect a healthy correction will be coming soon. The question becomes will this correction create "fat pitch" type opportunities. That remains to be seen but with QE3 in full swing I have my doubts.<br />
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I believe we are going to see situational opportunities. In other words, certain stocks or sectors will get hit harder than others. If a blue chip stock I trade/invest in is pushed to the lower end of it's trading channel or it's yield inflates to a greater than average percentage I will look to pull the trigger.<br />
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Of course, I will be looking at trading/investing in stocks that raise their dividend with special focus on stocks set to raise their dividend with their next announcement. Stocks I am looking closely at investing in now include most prominently Ensco, UPS and OHI with Chevron close behind. By investing I mean long term buy and hold, by trading I mean selling out of the money puts. Thank you.David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com0tag:blogger.com,1999:blog-1753041507940736915.post-76242111234804510382013-03-20T09:02:00.004-05:002013-03-20T09:02:56.425-05:00Morning ThoughtsThe market continues to climb. That's great for our buy and hold dividend growth portfolio and great for our put selling trades in MSFT, FCX, LO and XOM. It's not so great for entering new positions. <br />
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I say this because it took me many years to put into practice buy low and sell high. In my humble opinion, patience is paramount in being a good investor. I anticipate that the little guy investor will start pouring money into the market now so they don't miss the gains. As usual they will probably be too late. They will buy high with greed and sell low on fear.<br />
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With the continued weakness of the U.S. Postal Service I am looking to enter into a position in UPS or FedEx. Today FedEx is down big with a weak earnings report and guidance. They are losing in Europe. UPS is stronger in Europe due to a recent acquisition. UPS also pays a nearly 3% dividend which is rising. As such, I am watching closely to enter into a long term buy and hold dividend growth investment in UPS.<br />
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Other long term buy and holds on my wish list are Chevron, Deere, Becton-Dickinson and Omega Healthcare Investors, a REIT. I only purchase REIT's in our Roth IRA so we're not taxed on the income.<br />
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Like a lot of investors I'm waiting for a pullback. In the meantime I have put selling trades on four positions, albeit, with 75% of my trading account sitting in cash. I'm watching and waiting.David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com0tag:blogger.com,1999:blog-1753041507940736915.post-2992998236655147892013-03-19T19:31:00.003-05:002013-03-19T19:31:36.145-05:00Are Traditional Dividend Payout Ratio's Accurate? Please click <a href="http://www.dividend-growth-stocks.com/2013/03/free-cash-flow-payout-vs-dividend-payout.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Dividends4life+%28Dividends4Life%29">here</a> to read an excellent article on how dividend payout ratio's are calculated. This writer further points out how they can be misleading. Finally the author suggests a better way to calculate the ability of a company to safely pay and increase their dividend.<br />
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I was closely looking at Chevron but this article gave me pause.David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com1tag:blogger.com,1999:blog-1753041507940736915.post-63325808886652111872013-03-18T09:57:00.000-05:002013-03-18T09:57:02.722-05:00Sold XOM Naked PutsToday I sold the May 82.5 puts on Exxon Mobil. XOM is due for a dividend increase before this expiration. If the stock were to fall to 82.5 the yield, with dividend increase, would be close to 3%. If it hits that point I'm happy to own this stock at that price, long term, buy and hold.<br />
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Back of napkin returns if XOM puts expire worthless is 4.7% return on maintenance. <br />
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I've nibbled at a few put sells including LO, FCX and MSFT. All are doing well, however, I'm well aware that a correction may/should be coming.<br />
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<br />David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com0tag:blogger.com,1999:blog-1753041507940736915.post-83222060897710930102013-03-08T20:12:00.002-06:002013-03-10T09:38:00.983-05:00Current Retirement PortfolioAltria Group <br />
AT&T<br />
Coca-Cola<br />
Conoco-Phillips <br />
Exxon Mobil<br />
Johnson & Johnson<br />
Intel<br />
Kimberly-Clark <br />
Lowe's <br />
McDonald's<br />
Microsoft<br />
PepsiCo <br />
Phillip Morris<br />
Phillips 66 <br />
Proctor & Gamble<br />
Prospect Capital <br />
Raytheon<br />
Realty Income Corp<br />
Wal-Mart<br />
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We have bought them in roughly equal increments. All have rising dividends. Realty Income and Prospect Capital pay monthly dividends. We reinvest dividends back into the stock from which the dividend came. David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com0tag:blogger.com,1999:blog-1753041507940736915.post-13986831070971213692013-03-08T08:18:00.000-06:002013-03-08T08:18:04.799-06:00New Position in Wife's IRA (PSEC)Yesterday I bought Prospect Capital (PSEC) in my wife's Roth IRA. PSEC is a business development company. It currently pays .1101/share per<b> month</b>. This is a yield of over 11%.<br />
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I do not look at this issue as a certain buy and hold and I will be monitoring it closely. It has been hard to find undervalued investments in this QE fueled market rally.<br />
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I have been nibbling at put selling with successful OTM trades on Apple, Intel, GE and Altria. I presently have two trades going with YUM and FCX which are going well.<br />
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It seems kind of strange to be in a market that just keeps rising. The lack of fear for such an extended period without a correction is not something I've seen in quite a long time.David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com1tag:blogger.com,1999:blog-1753041507940736915.post-35725589597661495492013-03-06T10:46:00.002-06:002013-03-06T10:46:53.839-06:00New Stock in Dividend Growth PortfolioToday my wife and I bought Raytheon (RTN), the defense contractor. It has international exposure, a low payout ratio, high dividend growth and is set to raise it's dividend next quarter.<br />
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I look at this investment as a buy and hold issue. It also diversifies our portfolio a bit and adds additional international exposure as well.<br />
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We will reinvest all dividends back into the company. Let the compounding begin!David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com1tag:blogger.com,1999:blog-1753041507940736915.post-8335709869854392462013-03-06T07:47:00.000-06:002013-03-06T08:01:52.505-06:00BDC's, mREIT's and CEF's?I've been doing a lot of reading lately about these type of investments. They offer very high yields. What attracts me to some is the <b>monthly</b> income stream. I am looking at PSEC and ARR right now. Also, DX a high quality mREIT, is a Dividend Challenger but since I've been watching it, it has gone up nearly 10%.<br />
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I've been looking at these because the market keeps grinding up and up thereby making it difficult to find undervalued entry points in dividend growth stocks. These are not the type of equities though that one can just buy and hold with minimum oversight.<br />
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I'm thinking of pulling the trigger on Raytheon (set to raise dividend soon, low payout ratio, high dividend growth rate) as a dividend growth addition to our portfolio but also have some other money to invest. I'm debating whether to wait for a drop and enter into a dividend growth stock position or to give one of these other issues like PSEC a whirl.<br />
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It's been a long time since fear has taken over the market and provided good buying opportunities. Should we be patient and wait or try out a high yield issue? Do you think Helicopter Ben's QE will continue to send the market higher? What do you all think?David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com1tag:blogger.com,1999:blog-1753041507940736915.post-23187159477349842062013-03-02T08:44:00.001-06:002013-03-02T08:44:11.820-06:00My Dividend Growth Stock PortfolioI love selling puts but my wife and I also have a portfolio of dividend growth stocks which we hope will provide the income we need for retirement without having to liquidate the principal. Our portfolio as of today contains the following stocks:<br />
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Johnson & Johnson<br />
Intel<br />
AT&T<br />
Realty Income Corp<br />
Phillip Morris<br />
Exxon Mobil<br />
Microsoft<br />
Proctor & Gamble<br />
Coca-Cola<br />
McDonald's<br />
Altria Group<br />
Conono-Phillips<br />
Phillips 66 (spun off from Conoco)<br />
Wal-Mart<br />
Kimberly Clark<br />
Pepsico<br />
Lowe's<br />
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For the purpose of diversification I will probably add a financial dividend growth stock like Aflac and a utility like Southern Company. Are you all aware of the the Dividend Champions, Challengers and Contenders list? Google it, it's awesome.David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com1tag:blogger.com,1999:blog-1753041507940736915.post-62955005736942443412013-01-18T07:47:00.002-06:002013-01-18T07:47:40.453-06:00Buy the Rumor, Sell the NewsIntel had been rising on rumors that it was going to have a better quarter than expected. Intel has beaten estimates much more than not. In addition, there was no warning to the downside. As such, the stock had surged in the last few days.<br />
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I'm getting a bit long in the tooth and for the first time I took advantage of the maxim "buy the rumor, sell the news." I did this in a contrarian manner by closing out two-thirds of my put selling positions in Intel at the top when the stock nearly hit 23.<br />
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Intel's quarterly report was a mixed bag at best. My only positions I have left are 5 February naked puts written at the 23 strike for which I've already collected over $500 in premium and some buy and hold shares in my wife's IRA where we reinvest the dividend.<br />
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Even with the drop in Intel today I expect I will be able to roll the Intel 23's and bring in more premium. Long term I expect Intel to be a fine performer. It's a heavyweight which is really attracting the dividend growth investor crowd.<br />
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<br />David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com0tag:blogger.com,1999:blog-1753041507940736915.post-40683011184936793462013-01-15T09:50:00.001-06:002013-01-15T09:50:22.758-06:00New Dividend Growth Stock Additions/UpdateI added Phillip Morris to my wife's IRA and Exxon-Mobil to my IRA. I have been selling puts on Intel, Southern Company, Pepsico, General Electric and Altria Group.<br />
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The market is way overbought so I am in no hurry to enter into any new long term investments or short term put selling trades.David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com0tag:blogger.com,1999:blog-1753041507940736915.post-2223952371834960452012-11-06T07:46:00.001-06:002012-11-06T07:47:39.659-06:00Trade Continuation: Intel (INTC) Naked PutsOn October 10, 2012 I continued the following transaction:<br />
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08/24/12 STO 5 INTC Oct 20 2012 23 Puts @.35 161.20<br />
10/10/12 BTC 5 INTC Oct 20 2012 23 Puts @1.22 -623.79 <br />
10/10/12 STO 5 INTC Nov 17 2012 23 Puts @1.53 761.14<br />
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This is how I played the Intel tank on these puts last month. On this trade I have now brought in $298.55 in option premium. If put to me my cost basis is down to $22.40. I anticipate rolling these puts out, rolling out and reducing a contract or rolling down and out. All this will occur prior to option expiration and will only be done for a net credit.<br />
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Even though INTC has tanked I am still bringing in regular income and reducing my cost basis in the stock. Unfortunately, my margin maintenance has increased substantially and of this writing it sits at $2800.<br />
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I very recently thought Intel had bottomed but now there are rumors that Apple wants to build their own processors and not use Intel anymore. Intel is a huge multinational with a rising dividend so I'm not too worried. I will keep on: rolling, rolling, rolling...David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com1tag:blogger.com,1999:blog-1753041507940736915.post-77948934587649487432012-11-05T07:39:00.000-06:002012-11-05T07:39:08.335-06:00New Trade: Pepsico (PEP) Naked PutsOn October 22, 2012 I entered into the following transaction:<br />
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10/22/12 STO 2 PEP Dec 22 67.5 Puts @.8 $148.46<br />
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This is a 59 day trade that uses ~$2600 in margin maintenance. Pepsi had showed a bit of weakness after issuing it's quarterly report. If these puts expire worthless we will earn 5.71% in 59 days or 35.32% annual return on maintenance. If the shares our put to us our yield on cost will be 3.2%.David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com1tag:blogger.com,1999:blog-1753041507940736915.post-31984316885603432602012-11-02T09:12:00.001-05:002012-11-02T09:13:37.633-05:00Trade Continuation: Intel (INTC) Naked PutsOn October 10th I rolled this Intel trade as follows:<br />
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08/22/12 STO 5 INTC Oct 20 2012 24 Puts @.37 $171.18<br />
10/10/12 BTC 5 INTC Oct 20 2012 24 Puts @2.15 -1088.79<br />
10/10/12 STO 5 INTC Nov 17 2012 24 Puts @2.40 1196.13<br />
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It's no secret that Intel tanked...and hard. When I entered into this trade Intel was at 25.70 and it tanked to the low 21's.<br />
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I rolled these puts out a month for a net credit of $107.34. I have now brought in $278.51 in option premium. This lowers my cost basis in INTC to $23.44. As of this writing that puts me down ~.96/share. Not bad for a complete tank job! Put selling is a very valuable trading tool.<br />
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Absent unforeseen circumstances, I will roll these puts again in a couple of weeks, dropping my cost basis once more. I can roll out at the same strike with 5 contracts, roll out at the same strike lowering to 4 contracts or roll out and down. I will only do so for a net credit.David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com1tag:blogger.com,1999:blog-1753041507940736915.post-88216066844829280122012-11-01T09:36:00.000-05:002012-11-01T09:38:59.765-05:00Profitable Trade: Conoco Phillips (COP) Naked PutsI know it's been awhile since I posted. I've been busy at work, play and with family. In any event I closed the following transaction for a profit: <br />
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09/05/12 STO 3 COP Oct 20 50 Puts @.38 $101.73<br />
10/02/12 BTC 3 COP Oct 20 50 Puts @.04 -12.06<br />
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In this trade I made $89.67 in 26 days on ~$1500 in margin maintenance. This equates to a return on maintenance of 5.98% or 83.95% annual. I closed the trade for a profit without paying a commission.<br />
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I've got other trades to report and I'll try to post once a day for a while and get back in the swing of things.David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com2tag:blogger.com,1999:blog-1753041507940736915.post-83905881244491700682012-09-18T08:09:00.001-05:002012-09-18T10:03:33.625-05:00Random Thoughts1) I believe U.S. housing has bottomed. Inventory is down. Foreclosures are down. The number of failing banks is decreasing. Mortgage interest rates are still at record lows. The government is all in. Real estate is a hard asset unlike funny money paper currency. Builder stocks are up. Home improvement stocks are up. Financials have stabilized and are rising. Relevant stocks on my watchlist are Lowe's, Bank of America, Caterpillar and Freeport-McMoran Copper and Gold. Copper is used a lot in building.<br />
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2) There remains great out of the money put selling opportunities on Intel. At the 22 strike or below the price is buoyed by a 4% (and rising) dividend. Can sentiment get much lower?<br />
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3) After the Fed, the initial frenzy of precious metals buying has occurred. I will be looking to enter positions in GDX, FCX, GLD, SLV or GDXJ on the dips. Silver Wheaton (SLW) will probably be added to my watchlist as well. FCX makes it on two lists...<br />
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4) I really want to trade GE and Bank of America. I think both are on the rise. A couple of down market days and I'll probably pull the trigger. The start today looks to be in the red so I'll be keeping my eyes open.<br />
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5) I like Waste Management (WM). As municipalities overspend they are able to provide less resources. We aren't going to stop/slow down on our trash emission anytime soon. WM has a 4% dividend that is rising. I'm waiting for some weakness, preferably down to the 33 range before writing some out of the money puts.<br />
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6) Unrest in the Middle East brings war back into play. Beaten down defense stocks could be a good bet. I watch General Dynamics and Lockheed Martin. Lockheed pays a hefty dividend. <br />
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7) Fullyinformed.com is an amazing blog and an amazing resource. This woman really understands money and trading. She never ceases to impress me. She is a great teacher as well.<br />
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8) Have a great day. Laugh a lot and don't let the negative emotions of others diminish your joy!David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com8tag:blogger.com,1999:blog-1753041507940736915.post-46098873764693660772012-09-16T10:07:00.000-05:002012-09-17T01:00:28.270-05:00New Trade: Southern Company (SO) Naked PutsOn Friday when SO dipped below 45 to ~44.70 I entered into the following transaction:<br />
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09/14/12 STO 3 SO Nov 17 43 2012 Puts @.5 137.69<br />
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With Bernanke's latest moves the "risk on" trades are in vogue. That provides weakness/opportunity in the "risk off" trades, i.e., utilities, telecom and healthcare. Southern Company is my favorite utility stock and it has a rising dividend. I have been patiently waiting for the stock to drop below 45 so I could write some out of the money puts.<br />
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SO currently has a yield of 4.35%. If put to us our yield on cost will be 4.61% with another dividend rise announcement expected in April 2013. I feel that the yield will buoy the price of the stock.<br />
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This is a 64 day trade with an initial maintenance requirement of $2218. If these puts expire worthless we will earn 6.2% return on maintenance or 35.36% annual. If the stock price drops I anticipate volatility will rise and we will be able to roll down and/or out for a net credit. As such, an exit strategy is in place.<br />
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This trade illustrates the remarkable returns that naked put selling can generate. I mean this is a utility stock for goodness sake :) <br />
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<br />David Allenhttp://www.blogger.com/profile/10700421617227787830noreply@blogger.com1