Tuesday, January 27, 2015

Recent buys: KMB, PG, KRFT

Bought the following:

KRFT - $500
KMB - $650
PG - $450

PG and KMB both have depressed prices after earnings. Took this time to dip more. Currency headwinds are pushing several stocks lower. The coming weeks may provide decent buying points for several stocks.

Monday, January 26, 2015

Dividend growth 2014

Although I only started investing in DGI stocks sometime in the middle of 2014, I have tabulated what the dividend increases would have looked like for all the holdings in my portfolio had I been in DGI since the beginning of the year.
Ticker 2014 v 2013
AAPL 9.50%
BAX 7.45%
CHD 10.71%
CVX 7.95%
DIS 14.67%
GIS 13.38%
HCP 3.81%
JNJ 6.56%
KMB 7.17%
KMI 8.97%
KO 8.93%
KRFT 4.76%
MCD 5.13%
MKC 8.82%
MO 8.89%
   
Ticker 2014 v 2013
O 2.06%
PEP 13.06%
PG 7.01%
PM 11.17%
ROST 17.65%
SBUX 23.60%
SO 3.48%
T 2.22%
TJX 21.82%
UNP 21.96%
UTX 7.52%
V 20.86%
VZ 3.13%
WMT 5.67%
XOM 9.76%

The total increase after including the market weights for each position in 1/26/2015 is:
9.96% 2014vs2013 Div Growth Rate
2.94% Present Yield
The results are quite impressive. You will notice that the lower yielding stocks had higher growth rates than the high yielders. My goal was to aim at having a Chowder number of 12. The 2014 results have currently surpassed that goal. Realistically I would be happy with any growth rate over 8%. The market in 2014 was an easy time to make gains. I will be very curious to see how these dividend stocks will fare out during a recession. Time will tell...

Notable stocks:
GIS impressed me a lot. It is a steady 3% dividend payer with a strong track record and low volatility. Yet it was able to manage a 13.38% raise. Phillip Morris (PM) is another notable stock with an 11% raise with a present yield of 4.83%.

Note: The dividend growth data was obtained from the U.S. Dividend Champions spreadsheet put together by David Fish. It is up to the reader to verify the accuracy of the numbers. Certain companies are not on the Dividend list because they are new or they are spinoffs or they are new to paying out dividends. Those stocks (AAPL, KRFT, KMI) that are not on the list had their data taken from NASDAQ or Morningstar. Slightly different growth rates will be calculated depending on when one starts and ends the the dividend payments for a year.

Friday, January 23, 2015

Watchlist: last week purchase

Still on my plan to purchase next week are AT&T, Kraft, and Philip Morris.

New to my watchlist this week are KMB and CL. KMB has the favor due to its lower PE and higher yield.

KMB: Kimberly Clark reported earnings today and it was not received enthusiastically. There was a 6% sale. If the price continues to fall I will be adding it as a purchase on Tuesday. I wish to add below 100, preferably at 105.


CL: Colgate has a lot of business overseas and at the moment the US Dollar is incredibly strong. Currency headwinds will have an affect on the company's performance. Although the stock trades at a premium, I wish to add below 66, preferably at 63.


It is rather interesting that the plots of both of these consumer staple companies have quite similar shapes in the last year.

Tuesday, January 20, 2015

Recent buy: T

Added $350.00 to AT&T

Yield is a healthy 5.54%. Will add $19.4 a year.

Sunday, January 18, 2015

Watchlist: high yield

As I ponder my coming week's purchase, I am having difficulties in finding 3%+ yielding stocks. Many DGI stocks that I would love to purchase at fair value are approaching values that I consider too expensive. Below is a table I tabulated showing which stocks have yields above 3% that I am considering.

Note: Please double check the values' correctness if you are going to use the data. They were fetched off Finviz's website using a script I wrote.
Staples Forward PE PE Yield PEG Beta Debt/Eq Payout
PM 17.12 16.61 4.84% 2.85 0.91 No Data 61.90%
RAI 18.15 22.91 3.97% 2.71 0.50 1.10 86.40%
MO 18.99 24.33 3.92% 3.15 0.50 3.26 89.90%
DEO 17.92 20.48 3.75% 3.10 0.86 1.35 27.60%
UL 19.47 20.18 3.42% 4.92 0.79 0.97 30.40%
KRFT 19.54 16.65 3.35% 2.57 No Data 1.79 66.60%
GIS 17.63 22.35 3.07% 3.63 0.16 1.86 65.70%
SYY 19.64 25.65 3.00% 3.64 0.75 0.57 73.20%
Of the stocks above, I consider PM, MO, KRFT, GIS, and SYY as solid dividend stocks (MO+PM+KRFT used to be one company before the spinoffs). I have been slowly adding to PM in the last couple weeks. The position is getting rather large and I am a bit concerned with their debt load and the foreign exchange rates. My position in GIS is too large as well. I may add to KRFT even with its recent price rise. It offers a high yield with a moderate PE, and I consider KRFT to be core so I am willing to buy at fair value. SYY's dividend growth is too low for me (less than 12% chowder ratio).

Discretionary Forward PE PE Yield PEG Beta Debt/Eq Payout
MCD 16.83 17.97 3.72% 3.47 0.35 1.11 63.30%
Most discretionary stocks have low yields except McDonalds. I do not plan to add to MCD because I believe they are in a transitional period where future growth will remain stagnant.

Energy Forward PE PE Yield PEG Beta Debt/Eq Payout
CVX 18.11 9.68 4.07% 1.74 1.14 0.16 37.80%
KMI 4.24% 3.85 0.67 3.02 139.20%
XOM 18.67 11.46 3.03% 11.76 0.88 0.12 33.20%
With the fall in crude oil, I believe these are the safest bets in the energy sector. However, I want to wait a bit longer since I feel that the turnaround isn't happening as of yet.

MLPs Forward PE PE Yield PEG Beta Debt/Eq Payout
EPD 4.30% 3.35 0.70 1.25 180.60%
MMP 3.40% 1.46 0.52 1.65 70.00%
These MLPs' prices have been volatile lately due to the fall in the price of a barrel. I am highly considering EPD if it falls below $31. MMP is a bit expensive still for me. I am not a fan of owning MLPs because of tax complications.

Industrials Forward PE PE Yield PEG Beta Debt/Eq Payout
GE 13.43 15.94 3.90% 2.27 1.44 2.77 52.50%
CAT 12.28 13.57 3.34% 1.22 1.67 2.09 39.70%
EMR 14.11 19.79 3.12% 2.43 1.32 0.60 56.00%
LMT 16.92 19.69 3.08% 2.03 0.63 1.35 52.80%
I may consider adding to LMT. They are around fair value compared to their 15 year average PE. EMR may be another stock I will consider, as it has a high credit rating and solid dividend history. I do not like CAT due to its volatility or GE due to its past dividend record.

Telecom Forward PE PE Yield PEG Beta Debt/Eq Payout
T 13.17 10.37 5.56% 2.25 0.36 0.82 56.00%
VZ 12.89 9.96 4.58% 1.19 0.33 6.59 43.90%
I will most likely add to my position in T. I prioritize T over VZ due to the credit rating, and my position in T is not nearly as high as I would like it. I want T to be a large core holding in my portfolio.

Healthcare Forward PE PE Yield PEG Beta Debt/Eq Payout
ABBV 14.97 27.94 3.04% 2.05 No Data 3.18 70.40%
I have not done enough research on ABBV so far. The debt, PE, and payout ratio are making me uninterested.

Friday, January 16, 2015

Recent buy: UNP

I took the opportunity to add to my Roth IRA 6 shares of UNP after the recent pull back from the decrease in oil prices.

My current holding in UNP is 2.44% of my portfolio. It brings in $34 in dividends a year. This is still not a full position yet so I will be willing to add more on further dips.

CSX recently reported solid earnings. I expect UNP to do the same, despite the decrease in oil prices. I have attached a earnings plot of UNP and it is nothing short of impressive. I expect the growth to continue unless the US encounters a recession. Their credit rating of A and 33% Debt/cap ratio makes them a financial sound holding to me.



I still have $5000 in cash on the sidelines. I am still looking for opportunities but things are relatively expensive at the moment. I don't want to dip into my CVX and XOM shares too fast since I think there is still some more volatility in the energy sector.

I'm happy to say that my Roth is now maxed for the 2014 year :)

Tuesday, January 13, 2015

Recent buys: mid 1/2015

Paycheck needed to be invested. Here are what I invested today. Still keeping some cash since I think there may be some volatility in soon. Today I have also given up holding index funds (mainly held S&P500) in my 401k and transferred the funds over into DGI holdings which I will now manually choose in the future.

Taxable:
TJX: $650
PM: $500
CVX: $500
V: $700
ROST: $350
T: $500

401K (swapped funds from Index to DGI):
JNJ: $3457
PEP: $2987
MKC: $2954
CHD: $2470
MO: $2463
GIS: $1370

Added to some of my winners and balanced the lower dividend stocks with higher yielders like T.

Saturday, January 10, 2015

Aristocrat backtest

*Updated 1/11/2015: Fixed errors and typos.

I know past results do not predict future results, but I was curious today to see how the dividend aristocrats, the aristocrats who would still be classified as aristocrats 20 years ago, would perform. Yes there is survivorship bias; however, it should be noted that the stocks picked still had 25+ years of dividend increases (even if the simulation started in January 1995). I personally avoid financial institutions completely (notably banks) from my investments because I do not understand them enough. My only financial investment is in Visa, and I feel that their moat is strong enough to have such a holding in my financial-phobia portfolio. 2008-2009 saw a most severe loss from bank stocks. To include a taste of what the portfolio would look like if some % of the portfolio were in banks, we have a separate backtests on the bottom.

Anyways, the numbers....

Here are the stocks in the backtest, with data from 12/31/2014 (thanks to David Fish for putting the list together):
JNJ - 52 years
PG - 58 years
KO - 52 years
PEP - 42 years
MMM - 57 years
CL - 51 years
MO - 45 years
SYY - 45 years
EMR - 58 years
AWR - 60 years

For the # of dividend increase years in 1995, subtract 20 from these numbers. Many of these stocks such as MMM and PG still have a very large number of div increases behind them as of 1995.

Note that PEP only has 42 years (so it's missing 3 years, but I left it there just because it's very similar to KO). I could of added other conservative names like GIS and XOM, but this list is strict in the sense that I must use companies on the David Fish's dividend aristocrat list that would have enough years to be aristocrats in 1995. You might have noticed that the list of stocks is already ultra conservative with a majority of the shares in consumer staples. The more volatile plays include MMM and EMR since they are industrial stocks which tend to be cyclical.

Backtest conditions:
Start January 1995 to January 2015
Dividends reinvested
Portfolio above is compared to the S&P500 index (SPY) with dividends reinvested
No rebalancing is done on the portfolio
The portfolio above starts with $1k in each position.

Click the thumbnail below to see the backtest graph. 
Portfolio with Aristocrats

What is surprising from this graph is the draw down during the 2008-2009 period. This portfolio, with the majority of holdings in conservative companies, only fell by 37%. The S&P500 did not fare as well. The S&P fell around -55.2%. That is quite substantial. 

What is highly interesting to note here is the flight to quality during times of distress. The aristocrats are what some would classify as the highest quality at the time. Many have very high credit rating (for instance JNJ is AAA) and bulletproof balance sheets. As a result, the bluest of aristocrats had a lower draw down during the (possibly) worst financial crisis of our lifetime. Since they experienced a lower draw down, they started from a higher point when the stock market was recovering. This accounted for the much larger increase in portfolio value from the 2009-2015 period.

****************************************

For kicks, I revamped the portfolio to include 10% banks. Bank of America was used as 10% of the holdings, and I removed AWR from the portfolio. Bank of America was considered a blue dividend stock before its demise. For me, if I were to hold 10% in banks I would be quite nervous irrespective of how safe someone says the dividend is. For the sake of science, here are the results:

JNJ - 52 years
PG - 58 years
KO - 52 years
PEP - 42 years
MMM - 57 years
CL - 51 years
MO - 45 years
SYY - 45 years
EMR - 58 years
BAC - suffered greatly after financial crash so it's not an aristocrat

Starting with an initial $10k in the beginning of 1995, we divide the amount evenly among the 10 stocks. Bank weightings are 10% of the portfolio here.
Portfolio with 10% in Bank of America

The largest draw down is 45.6%, which is worse than the portfolio without bank stocks. This is still better than the S&P draw down of 55.2%. Additionally, the other aristocrats in the portfolio had strong foundations and held up very well.  What is surprising is that in the end, the results are barely different (comparing portfolio without banks to one with 10% in banks). This shows that diversification across sectors is important. Replacing BAC with the horrid C (Citigroup), a stock that got incredibly crushed in 2008, does not change the end result in a noticeable manner. What is interesting is the large success of the other non-bank aristocrat stocks in the portfolio. They have performed extremely well from 2009-2015.

****************************************

Now what happens if, say, one was unfortunate enough to own even more bank stocks before the financial crisis? Increasing the bank percentage in the portfolio to 20% (using BAC, C has slightly worse results) exacerbates the draw down in 2008-2009 to 52.5%; however, the portfolio still has virtually the same value at 2015 (at around $122,000 using BAC, C is a bit lower). Even with 20% in banks, the 80% in aristocrats were strong enough to return substantial returns. The annual returns are 13.33% in this worst case test.
Portfolio with 20% in Bank of America

In conclusion here are the results. The winners were left to run. The losers were left to die. Not surprisingly, the aristocrats of 1995 survived and became even stronger. All tests have crushed the standard S&P500 with dividends reinvested

Aristocrats with no banks: 13.74%
Aristocrats with 10% banks: 13.45%
Aristocrats with 20% banks: 13.33%

Here is the summary for the S&P500 using SPY:
SPY with div reinvested (blue reference graph above): 9.66%

Granted, the portfolio contains one super-performer. It deserves to be mentioned. That is MO. The stock has been invincible for many many decades. This was included in the portfolio because there will always be that one surprising performer in one's portfolio. MO happened to work wonderfully in the past. Today MO has spun off PM, KRFT, and MDLZ. Those who bought MO would be very well off today.

There are many growth stocks today that may mimic such spectacular returns. Perhaps SBUX becomes the next MCD? Or perhaps Visa continues its spectacular dividend and capital growth. Or will ROST and TJX be able to continue their impressive growth? Will CHD continue its massive earnings growth over the last decades+? 
Incredible Dividend Growth Stocks with Beautiful Earnings

Only the future will tell. In the end, this backtest is only an academic exercise and does not foretell the future. It does indicate that the strong often get stronger, and that buying quality (financially sound companies with strong moats) is very important. During tough times such as the 2008-2009 depression, the flight to quality is quite real. The aristocrats experienced a softer drop compared to the general market.

*Note: The reader must take all data here with a grain of salt. The backtest software used was EZBacktest. Any errors would be related to how the software utilizes old stock data.

Interesting article on market timing

I have encountered this interesting article from Charles Schwab today and it describes some study (done on the index) over several different time periods. The result show the returns of putting money to work immediately. The interesting result is that perfect timing is not substantially larger than putting money to work immediately. Putting money to work immediately usually offers slightly higher returns than dollar cost averaging. Surprisingly, timing the market at the worst time (but staying invested nonetheless) is still better than holding all cash.

http://www.schwab.com/public/schwab/nn/articles/Does-Market-Timing-Work


Friday, January 9, 2015

Sold: K, COP

Today I sold shares of K and COP and received around $2600 in cash. These are supporting roles. I sold the shares in anticipation of needing the cash for car repairs.


Thursday, January 8, 2015

Switching 401k to Brokerage 401k

Today I have enabled the 401k Brokerage option with my employer's retirement provider. I have been contributing biweekly into my 401k, and they have all been going into Vanguard index and bond funds. Probably around 20% of my investments are in my 401k so I am happy to say that later this month I will be able to transfer my indexes and bonds into dividend growth stocks.

My yield currently in the 401k is a paltry 1.8% because of the low yields from the total US market. I plan to keep the bluest of aristocrats in my 401k, those that I consider core.

The 401k brokerage is not as cheap as regular brokerages due to the nature of 401ks. The cost of a trade is $14.95 so I have to limit myself to 3 or 4 buys a year. At first this may sound like a lot but as my portfolio grows, this amount becomes insignificant. These buys must be of the highest quality. Buyers remorse can't happen as it is expensive to sell and rebuy.

I will be contributing to my 401k biweekly, and those regular contributions will accumulate inside the Vanguard total market index. After the accumulated contribution reaches a large value, I will move it into a dividend aristocrat that I find is of good value and pay the trade commission.

By investing in dividend aristocrats, it is of low probability that I will sell the company due to deteriorating fundamentals.

Stocks I am considering for the 401k include:
XOM / CVX
GIS
PEP
MO / PM
PG
MKC
JNJ
Spec plays: CHD/UNP/ROST/V

One might say that certain stocks that I listed above are expensive right now. My response is that my 401k is not withdraw-able for 35 years. With this absurdly long time-frame in mind, I can care less if the shares are 10% or 20% over value as long as their business fundamentals are intact. Since my timeframe is long, I am not compelled to buy high yielders like AT&T with low growth. I feel that with this time-frame, as long as a stock has moderate yields (1.5-3.5%) and high dividend growth, the results over the decades will be better than a high yielder with low growth. AT&T and utilities will be added into my other accounts (Roth IRA / Taxable).

Tuesday, January 6, 2015

Recent buy:

AT&T - $150
Pepsi - $100

The oil sector is experiencing further decline and I anticipate further drops. I am waiting for CVX to fall below $100. Exxon should follow in lockstep. I'll add to both when that wall is breached.

Saturday, January 3, 2015

December 2014 Summary

2014 has ended. 2014 has been another large bull run. QE has ended. Here are the results of my portfolio as of 1/2/2015. All accounts added together total around $76000. This far exceeds my 2014 goal of $66700.

Taxable + Roth IRA:
Ticker Sector Value PE Yield Annual Divs Beta Weight Credit
AAPL Technology $2,405.26 17.00 1.72% $41.37 0.90 3.96% AA-
BAX Healthcare $1,698.09 22.91 2.84% $48.23 0.71 2.80% A-
CHD Staples $1,977.25 27.46 1.57% $31.04 0.47 3.26% A-
COP Energy $1,585.16 11.80 4.24% $67.21 1.07 2.61% A
CVX Energy $2,939.82 10.37 3.80% $111.71 1.15 4.84% AA
DIS Discretionary $1,221.42 22.01 1.23% $15.02 1.19 2.01% A
GIS Staples $2,018.18 22.22 3.09% $62.36 0.16 3.32% A
HCP REIT $762.45 22.09 4.86% $37.06 0.60 1.26% BBB+
JNJ Healthcare $2,840.25 17.30 2.68% $76.12 0.56 4.68% AAA
K Staples $1,107.79 13.61 2.99% $33.12 0.52 1.82% BBB+
KMB Staples $1,163.90 20.45 2.91% $33.87 0.21 1.92% A
KMI Energy $3,407.76 35.68 4.11% $140.06 0.68 5.61% BBB-
KO Staples $1,910.42 23.41 2.90% $55.40 0.48 3.15% AA-
KRFT Staples $1,289.18 15.86 3.51% $45.25   No Data 2.12% BBB
MCD Discretionary $1,412.02 18.32 3.65% $51.54 0.33 2.32% AA-
MO Staples $2,350.53 22.46 4.25% $99.90 0.51 3.87% BBB+
O REIT $3,845.92 54.63 4.52% $173.84 0.53 6.33% BBB+
PEP Staples $1,524.68 20.89 2.77% $42.23 0.42 2.51% AA-
PG Staples $1,718.36 25.55 2.84% $48.80 0.37 2.83% AA
PM Staples $2,204.47 16.27 4.94% $108.90 0.93 3.63% A-
ROST Discretionary $1,878.59 22.11 0.85% $15.97 0.68 3.09% A-
SBUX Discretionary $1,465.92 29.94 1.57% $23.01 0.84 2.41% A-
SO Utilities $1,234.25 21.10 4.25% $52.46 0.18 2.03% A-
T Telecom $1,717.82 10.39 5.43% $93.28 0.40 2.83% A-
TJX Discretionary $1,223.28 22.43 1.03% $12.60 0.63 2.01% A
UNP Industrial $1,310.19 21.88 1.69% $22.14 0.99 2.16% A
UTX Industrial $1,271.93 16.99 2.05% $26.07 1.14 2.09% A
V Financial $1,590.12 30.64 0.72% $11.45 0.82 2.62% A+
VZ Telecom $1,187.81 9.74 4.68% $55.59 0.39 1.96% BBB+
WMT Staples $950.18 17.93 2.24% $21.28 0.47 1.56% AA
XOM Energy $2,692.07 11.68 2.97% $79.95 0.90 4.43% AAA
….. …..2 …..3 …..4 …..5 …..6 …..7 …..8 Credit
Cash Cash $4,834.66 7.96%
. .. Total Yield Annual Divs Beta Avg ….. …2
$60,739.74 3.11% $1,736.84 0.66

401K portfolio:
Ticker Sector Market Value Weight Yield Annual Divs
VBTIX Bond Index $1,332.64 8.62% 2.56% $34.12
VIIIX Large Index $10,724.09 69.39% 1.80% $193.03
VMCPX Mid Index $2,333.30 15.10% 1.06% $24.73
VSCIX Small Index $1,064.47 6.89% 1.23% $13.09
. .. Total: Avg Yield Annual Divs
$15,454.50 1.71% $264.98

Here are the approximate dividends received in the month of December 2014. This list includes the Vanguard index funds for my 401k account.
December ….
CHD $7.76
COP $16.80
CVX $27.93
JNJ $19.03
KO $13.85
MCD $12.88
ROST $3.99
TJX $3.15
V $2.86
XOM $19.99
SO $13.11
UTX $6.52
K $8.28
VIIIX $48.26
VSCIX $6.55
VMCPX $12.37
VBTIX $2.84
O $14.49
$240.66

I don't really keep track of my % gain per year as I am not particularly interested in comparison myself with the index. However, here are the top 5 and worst 5 stock performers this year (YTD %). Keep in mind some of these stocks may have been purchased earlier in the year than others. My Roth IRA and Taxable account are both in the green. My 401k performance mimics very closely the SPY's movements since it is effectively composed of the index.

ROST ... +36.68%
V        ... +29.59%
TJX  ... +21.99%
AAPL ... +21.26%
KMI ... +20.42%

CVX ... -5.73%
MCD ... -6.06%
PM   ... -6.32%
COP ... -12.88%
ARCP ... -17.73% (SOLD IMMEDIATELY)

For 2015, I wish to add more to existing positions in my portfolio. I am starting to feel that if I continue to add new positions it is becoming difficult to track all the stocks at once. I also am trying to emphasize quality in 2015 as the stock market is quite expensive right now compared to historical PEs. I will be monitoring my speculative and supporting picks more closely and will remove any that I find are not within my financial strength requirements. Sectors I would like to add more money to include utilities, REITs, and industrials. I believe that with a rising interest rate environment, utilities and REITs will see more attractive prices. I will wait in the meantime with cash until the prices come down.

We are experiencing PE inflation. QE has also ended and 2015 may prove to be quite volatile. I may try to hold more cash on the sidelines for 2015 in anticipation of any drops. My pool of buyable 3%+ yield stocks is quite limited at the moment as all companies have risen dramatically in 2013 and 2014, leaving their yields lower than desired.