The 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.
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.
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.
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.
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 :)
Suggested reading includes:
Asset Allocation: Balancing Financial Risk by Roger Gibson
The Ivy Portfolio: How to Invest Like the Top Endowments by Faber and Richardson
The Intelligent Asset Allocator by William Bernstein
Pioneering Portfolio Managment by David Swensen (the Yale endowment manager)
Tuesday, May 7, 2013
Friday, May 3, 2013
Asset Allocation
As 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.
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.
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.
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.
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.
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.
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.
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.
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.
Monday, April 29, 2013
Latest Retirement Portfolio Additions
Last 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.
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.
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.
Thursday, April 18, 2013
Present Portfolio Allocation
My wife and I have our stock and bond portfolio allocated as follows:
Cash 21.02%
Muni's 12.61%
O 6.39%
LOW 4.20%
KMB 4.12%
WMT 3.90%
INTC 3.88%
JNJ 3.82%
PG 3.43%
T 3.34%
KO 3.29%
MCD 3.27%
PEP 3.26%
PM 2.82%
MO 2.74%
MSFT 2.71%
XOM 2.64%
RTN 2.55%
FCX 2.54%
PSEC 2.38%
COP 2.13%
PSX 1.02%
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.
Cash 21.02%
Muni's 12.61%
O 6.39%
LOW 4.20%
KMB 4.12%
WMT 3.90%
INTC 3.88%
JNJ 3.82%
PG 3.43%
T 3.34%
KO 3.29%
MCD 3.27%
PEP 3.26%
PM 2.82%
MO 2.74%
MSFT 2.71%
XOM 2.64%
RTN 2.55%
FCX 2.54%
PSEC 2.38%
COP 2.13%
PSX 1.02%
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.
Wednesday, April 17, 2013
Lastest Additions to Retirement Portfolio
On 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.
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.
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%.
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.
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%.
Friday, April 5, 2013
Let 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.
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.
Let the games begin!
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.
Let the games begin!
Monday, April 1, 2013
Morning Thoughts
This 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.
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.
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.
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.
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.
Wednesday, March 27, 2013
Morning Thoughts...correction in focus
The 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.
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.
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.
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.
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.
Thursday, March 21, 2013
Morning 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.
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.
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.
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.
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.
Wednesday, March 20, 2013
Morning Thoughts
The 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.
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.
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.
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.
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.
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.
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.
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.
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.
Tuesday, March 19, 2013
Are Traditional Dividend Payout Ratio's Accurate?
Please click here 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.
I was closely looking at Chevron but this article gave me pause.
I was closely looking at Chevron but this article gave me pause.
Monday, March 18, 2013
Sold XOM Naked Puts
Today 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.
Back of napkin returns if XOM puts expire worthless is 4.7% return on maintenance.
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.
Back of napkin returns if XOM puts expire worthless is 4.7% return on maintenance.
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.
Friday, March 8, 2013
Current Retirement Portfolio
Altria Group
AT&T
Coca-Cola
Conoco-Phillips
Exxon Mobil
Johnson & Johnson
Intel
Kimberly-Clark
Lowe's
McDonald's
Microsoft
PepsiCo
Phillip Morris
Phillips 66
Proctor & Gamble
Prospect Capital
Raytheon
Realty Income Corp
Wal-Mart
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.
AT&T
Coca-Cola
Conoco-Phillips
Exxon Mobil
Johnson & Johnson
Intel
Kimberly-Clark
Lowe's
McDonald's
Microsoft
PepsiCo
Phillip Morris
Phillips 66
Proctor & Gamble
Prospect Capital
Raytheon
Realty Income Corp
Wal-Mart
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.
New 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 month. This is a yield of over 11%.
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.
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.
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.
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.
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.
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.
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