Tuesday, October 27, 2015

Recent buy

I have bought the following shares today. I sprayed my contributions across several companies:

VFC: $800
O: $800
HCP: $730
VZ: $300
ABT: $200
PG: $147
GIS: $100

VFC is a new position and they have just raised their dividend from $0.32 to $0.37, this is nearly a 16% increase over the last year dividends.

Happy investing

Saturday, October 24, 2015

The importance of one's net cash flow

This article is intended for those new to investing and for those who want to learn how to better control their finances. This post will talk about one's net cash flow, what it is, and how wealth is related to it.

In order to create wealth, an investor needs to have extra cash to invest. Normally, cash can only be obtained by one's main vocation, existing income generating vehicles, inheritance, or charitable donations from others. When a person is starting from ground zero, the regular job will likely be the primary source of cash.

Below is an illustration I drew to show what my plan is to generate wealth. It provides a simplified view to the "machine" that I plan to build. The machine described here is a cash generating vehicle. One can think of it like a money printing machine. Over time this machine will invest back on itself and upgrade its money printing capabilities.

Having a high income does not make one wealthy. It took me some time to realize this but having a well paying job does not mean one can afford everything that comes with "looking apart". The cost of living is extremely important in determining one's net cash flow. If one has a very high income and a very high way of life, then he is just living high. But if one is wealthy and living a high way of life, then he is doing so because he has to means to do so indefinitely.

This is not rocket science:
Net cash flow = (Cash from work + Cash from income generating assets) - (Debts and Liabilities)

Cash from income generating assets can be in many forms. This website talks mainly about dividend generating equities. But cash sources can be generated from things like rental income or patents or being the owner of a business.

Living high without a substantial asset base is akin to living on the edge. Were one to lose employment, the cost of living will make one's net cash flow highly negative. If one has substantial car loans and housing mortgages to pay then the net cash flow will either eat away one's existing wealth pool or cause one to go into bankruptcy. It is highly advised that all sources of negative debt with high interest be flushed as soon as possible before building one's asset pool. The negative interest is effectively a negative snowball that severely hampers one's ability to build up wealth.

I don't feel that it is necessary to live extremely cheap and starve oneself from enjoying life. As long as one has the positive net cash flow to do so then it is not a big issue to enjoy life. I am not a firm believer of extreme frugality but I also do not agree with buying in excess. I like to find areas where I can reduce my cost of living since reducing the negative cash flow elements will help speed up the positive wealth accumulation snowball. Every dollar put into assets will help generate even more cash which can be fed back to buy even more assets. By increasing the size of one's income generating assets, the positive cash flow from dividends increases over time. This creates a positive feedback loop that can grow exponentially. On the contrary, if one has a lot of liabilities (negative cash flow), one will be continuously pulled down into the ground. All positive cash flow sources will have to fund the negative cash flow sinks. This will hamper the positive feedback that helps generate wealth.

Eventually, over time, the size of the income generating assets becomes so large that one no longer needs to work at his primary vocation in order to support the negative cash flow. For example, if one's dividend income stream is high enough to pay for one's food, housing, utilities, and transportation costs then one will not have to rely on a main job to pay for those expenses. If one's passive income is large enough to have money left over (even after paying for cost of living and liabilities), that is a very good position to be in since there will be money left over to grow the pool of income generating assets.

My ultimate goal in the future is to have enough passive income to pay for a future mortgage, my food, utilities, and transportation costs. Once this goal is achieved, I will no longer have to worry about layoffs or unexpected events in life.

Friday, October 23, 2015

Recent sell: ABBV

I have sold roughly $1500 of my holding in ABBV today before the close. I still hold half of my original position. I took some minor losses. I am not pleased with the FDA announcement. I will still keep a small position in ABBV and will look to allocate the remaining funds elsewhere on stocks with similar yields.


Dividend increases! KMI & V

This week Kinder Morgan (KMI) and Visa (V) have announced increases to their dividend payments.

KMI raised their dividend per share from $0.49 to $0.51. Kinder Morgan raises their dividends frequently (can be every quarter) as opposed to once a year. Comparing the current 51 cents to the last year dividend payment of the same quarter, KMI has increased its dividend by around 15.90% year over year.

Visa raised its dividend from 12 cents to 14 cents a share. That is around a 16.7% dividend increase.

Thursday, October 22, 2015

What are my goals?

I have rewritten my Goal page and have added more information on my goals:


My goal is to reach a $1,000,000 dollars in assets less debts by my early 30's which should generate for me around $3000 a month in passive monthly income. My philosophy is passive income growth. Income generating assets with strong histories of growth are my choice of investment.

Short bio:
My investing began in late 2013 when I started at ground 0. I fortunately did not have student debt since I only chose to attend the public schools that gave me a scholarship. I did not receive any inheritance and everything posted on this blog have been procured using my two hands. I also do not envision receiving financial assistance in the future, so I need to acquire my own capital if I want to be financially independent.

I am not a high flying banker, business owner, or corporate manager. I am not from a wealthy family. I do hold a technical degree that can be attained rather affordably at a public university by someone who enjoys technical subjects and is willing to spend time studying. I am an engineer and like to look at the facts on a table and form an optimal solution. I am incredibly grateful that I can live in the United States. I feel that there are a lot of wealth opportunities available in this country if one picks the right vocation, works hard, studies one's vocation well, and reduces the desire to procrastinate. Procrastinating on one's plans or procrastinating on available opportunities will greatly hurt one's wealth, and procrastinating has always led to bad results for me. That is why I tried to graduate as soon as possible and get in motion my financial plan in my early 20's.

My investing philosophy:
I am nearly all invested. I hold some cash for emergencies but since I still live like a college student, I do not need a large emergency fund as the average person or family. I hold no CD or bonds since I don't believe in income generating assets that do not grow their income over time. All my investments are tied in U.S. equities because I live in the U.S. and plan on receiving and spending money in Dollars. Some of the equities I hold are multinational or international (but stationed in the US) so I am still vulnerable to currency fluctuations. I believe these currency changes are temporary and my investing horizon is in the decades which should average out currency fluctuations.

My favored approach is with income generating assets with dividend growth stocks. Dividend growth stocks are different than other income assets like CDs and bonds in that they have what I like to call a multi-compounding effect.
Compounding Effect #1. Dividend reinvestment: Cash dividends received can be reinvested into the companies that paid them, increasing one's share count year after year, which increases the dividends one receives year after year.
Compounding Effect #2. Dividend increases: Cash dividends from dividend growth stocks increase year after year, increasing even further the cash one receives every year. Note that this stacks on top of the increasing number of shares from reinvested dividends; so if the yield is 3% and the company raises its dividend by 9% that year, the income grows by around 12% if one reinvests the dividend.
Compounding Effect #3. Share price growth: Companies that raise their dividends  year after year usually do so because they have increased earnings or cash flow. This results in higher share prices, which increases one's portfolio value. So in addition to accumulating ever increasing number of shares year after year from dividend reinvestment and dividend increases, one also sees each of those shares increase in price year after year.

The rate at which the dividends can grow will likely exceed rental income and other forms of income investment. Stocks in the long term have historically been the highest rate of return but with a higher risk. This risk can be severely diminished by one's desire to research and learn. Doing the lazyman way and buying an index fund is not my way to invest since an index contains all the good apples and bad apples. That is why the S&P500 index dropped by 60-65% in the financial crisis, but a portfolio of dividend champions will only fall in the 30-40% region (while increasing their dividends for that year). A basket of consumer staples in the dividend champion category will likely only see falls in the 30% region (again, while increasing their dividends for that year). Although past results cannot predict future results, I am going to place my bets that the US will still be a reasonable place to invest and live in the future. Otherwise my financial plans are ruined :)

I view my stocks as employees, each generating increasing revenue every year. Price fluctuations in the stock are not of my concern as long as the business can successfully pay increasing dividends. If they are not cut for the job, the stock will be fired from my portfolio. My main objective is income acquisition and not market timing. My time horizon is so far out that buying at a 52-week high today will likely not make a difference decades down the road. I am a believer in dollar cost averaging: I will buy shares at the lowest lows and shares at the highest highs and in the long term everything will average out.

A large chunk of my investments come from dividend champions with over 25 years of dividend increases. This demonstrates that the business is strong enough to increase their payouts even during many different recessionary periods. My ideal requirements are listed below for my core positions.

Core Positions
•  Financial Strength. Quality is stressed with very high priority. BBB+ credit rating minimum.
•  Dividend Yield + Dividend Growth Rate over 12% (8% for utilities)
•  25+ years of dividend growth
•  Appropriate value (I use various metrics such as P/E, P/S, P/FCF, etc...)
•  Low debt
•  Low payout ratio compared with history
•  No banks
•  Prefer US equities over International
•  Consistent and steadily increasing earnings are preferred

Selling of Positions
•  Decrease or removal of dividends
•  Deteriorating business fundamentals
•  Fraud or scandal

My view on housing:
I would like to own my house one day. I view a house that one lives in as a liability since there are a lot of expenses involved. I want to own a home one day for the sake of owning my own home. It is after all the American dream to eventually have your own place. Once acquiring $1,000,000 in assets, I will strongly consider taking some of the cash out for a down payment, or start building a sizable down payment utilizing the money received from my primary vocation and my dividend checks. When the house is finally purchased with a mortgage, my monthly positive cashflow from dividends and primary vocation will be able to sustain all payments easily. Even if I were unfortunate enough to lose my job, I will still be able to pay off the monthly payments and living expenses using my monthly dividend checks. This ability to cover my monthly living expense with dividends will be a big turning point in my life, since I will no longer have to worry about unemployment. At that point in time, I will consider myself financially independent and give myself a pat on the back :)

In terms of rental property investment, I may consider that form of "passive" income in the future when I have more capital. I quote the word "passive" because rental properties are not truly passive even with a property manager. Rentals will require more work on my part and I am not sure how much spare time I will have in the future if I were to continue working. Rental properties also require a larger capital starting base since purchasing properties is a capitally intensive task. I prefer dividend stocks because they are truly passive aside from the followup research to keep up to date on the company news, which I think is easier for me than dealing with tenants and maintenance calls.

Favorite Books
For those new to dividend growth investing and want to learn more, I highly recommend these two books as starters. The SeekingAlpha website can also provide insightful commentary.

•  The Single Best Investment - Miller
•  The Ultimate Dividend Playbook - Peters

Tuesday, October 20, 2015

Recent buy: MA

I have added $2200 of MasterCard to my 401k account. MasterCard I feel has strong growth prospects in the future. MasterCard will benefit from their expansion to other developing countries. The yield is pitiful but I am investing in MasterCard for the long term capital gains. Eventually I believe MA will be able to be a dividend champion. Their dividend growth record so far has been nothing but fantastic.

My activity has been low this month since unexpected things happened and I am using the cash as an emergency fund in case I need it.

Monday, October 5, 2015

Recent buy: BDX

I am adding to my position in BDX. Becton, Dickinson and Company manufacturers and sells medical supplies, devices, lab instruments, antibodies, reagents, and diagnostic products. They are a dividend aristocrat with 43 years of dividend increase history. It has a low yield (around 1.8%) but it has steadily increased it around 13.9%. I believe the medical industry will benefit greatly as the baby boomer population reaches retirement age, increasing the US demand for medical products. BDX also has consistently increasing earnings and they are one of the most predictable companies in terms of meeting earnings expectations.

Adding in taxable account:
BDX - $650

Thursday, October 1, 2015

September 2015 Portfolio Summary

This month was extremely volatile. The market was not sure about the direction by the Fed as they continue to hold off on the rate hike. All sectors have been hurt. The energy sector, continues to be cheap. The MLPs this month were hit especially hard. Even higher quality names like EPD, MMP, and KMI. The healthcare sector was also out of favor as biotechnology stocks experienced higher volatility. The US Dollar (DXY) has sat flat for a long time after spiking to 100 several months ago. This reduces the pain felt by many of the multinational companies I own.


I am enjoying the rise in volatility because of the drop in prices of many companies that I am watching. I was focusing on Healthcare this month. I have added decently to my initial position in Abbott this month and will continue to add on weakness. I am watching BDX and MDT as dividend champions in the healthcare sector to add on more weakness. I am already full on JNJ but will consider adding if it falls below $90. I will also consider adding more to my speculative positions in AMGN and GILD if the biotechnology continues to be out of favor. I do want to eventually own a healthcare plan company like UNH but they have not dropped as much.

After the Fed refused to hike rates, companies on my Utility and REIT watchlist went higher so I am unable to add to those yet. I will continue waiting. My high priority picks are NEE and O.

I am holding back on adding more to Energy names. At the moment I feel uncomfortable with all of the names except XOM. The only name I will consider to add to is XOM. I have concerns about KMI's high debt levels and ability to the pay the dividend. I have some worry over CVX but I believe they can weather the storm for another year before the Gorgon project comes online. I do have more confidence in CVX than KMI in paying its dividend. I don't have much concern over XOM's ability to cover the dividend.

Industrials have been refreshingly pulled back as well. Higher quality names on my watchlist include MMM and UTX. I will consider MMM if it goes lower than the drop last year in October. I will consider UTX if it goes over 3% yield. UTX hasn't popped the UTX yield since the financial crisis in 2008-2009 when it hit slightly above 4% (see graph below). Since MMM and UTX are industrials, they are volatile when the market is out of favor and I think I can get to the yield I want if I am patient.

Below is a snapshot of my portfolio after the end of 9/30/2015. My portfolio has gone nowhere in the last several months due to the drawdowns in the market. But that does not matter since my income stream continues to grow week by week. The mission of the portfolio is to generate enough passive income to pay for all my living expenses. Companies will be carefully selected that meet a strict criteria of financial quality, dividend history, dividend growth, earnings stability, moat, and fair valuation. The portfolio has succeeded in generating $333 in passive income this month. It is estimated that this portfolio as it stands will generate annual dividend income of $4033. The current dividend increase announcements from all the companies I hold averages around 9.8% in dividend increase compared to the dividends paid last year. My portfolio currently yields around 3.3% in dividends.

Ticker Sector Value Weight Annual Div Yield Credit
MO Staples $10,090.56 8.10% $418.76 4.15% BBB+
JNJ Health $8,197.91 6.58% $263.15 3.21% AAA
PM Staples $7,281.99 5.84% $374.29 5.14% A
O REIT $6,443.48 5.17% $311.22 4.83% BBB+
V Financial $5,476.75 4.40% $37.79 0.69% A+
CHD Staples $4,754.24 3.82% $76.07 1.60% BBB+
PEP Staples $4,653.80 3.73% $138.68 2.98% A
XOM Energy $4,025.22 3.23% $158.19 3.93% AAA
KMI Energy $4,020.86 3.23% $284.68 7.08% BBB-
T Telecom $3,929.03 3.15% $226.71 5.77% BBB+
KO Staples $3,820.60 3.07% $125.70 3.29% AA
GIS Staples $3,665.08 2.94% $115.08 3.14% BBB+
KHC Staples $3,653.80 2.93% $114.00 3.12% BBB-
ABBV Health $3,388.75 2.72% $127.08 3.75% A
MKC Staples $3,361.35 2.70% $65.55 1.95% A-
ROST Discret $3,093.73 2.48% $30.01 0.97% A-
PX Materials $2,811.30 2.26% $79.00 2.81% A
UNP Industrial $2,474.94 1.99% $61.63 2.49% A
AAPL Tech $2,456.82 1.97% $46.43 1.89% AA+
KMB Staples $2,363.23 1.90% $76.33 3.23% A
DIS Discret $2,291.00 1.84% $29.55 1.29% A
TJX Discret $2,191.02 1.76% $25.85 1.18% A+
SBUX Discret $2,178.36 1.75% $24.62 1.13% A-
MA Financial $2,162.88 1.74% $15.36 0.71% A-
SO Utilities $2,097.50 1.68% $101.73 4.85% A
WMT Staples $2,071.95 1.66% $62.57 3.02% AA
PG Staples $2,054.25 1.65% $75.60 3.68% AA-
BDX Health $1,897.89 1.52% $34.35 1.81% BBB+
CVX Energy $1,794.73 1.44% $97.45 5.43% AA
CL Staples $1,712.79 1.37% $41.11 2.40% AA-
HCP REIT $1,661.80 1.33% $100.87 6.07% BBB+
UTX Industrial $1,607.53 1.29% $46.30 2.88% A
MCD Discret $1,531.57 1.23% $52.84 3.45% A-
VZ Telecom $1,498.45 1.20% $77.77 5.19% BBB+
ABT Health $1,434.75 1.15% $34.29 2.39% AA-
MMM Industrial $1,265.33 1.02% $36.57 2.89% AA-
GILD Health $1,080.76 0.87% $18.91 1.75% A-
AMGN Health $514.38 0.41% $11.73 2.28% A
XEL Utilities $440.83 0.35% $15.91 3.61% A-
….. …..2 Equity Total …..4 Annual Dividend Average Yield …..8
$121,451.21 $4,033.72 3.32%
Cash Cash $3,159.50 2.54%
. .. Equity + Cash …..22 …..2 …..

At the moment I am heavy on staples and increasing my weighting in healthcare. My priorities are to have a stable base in staples, healthcare, and utility companies. These companies help create a solid foundation of stability as they offer products and services people will utilize no matter the economic environment. With these staples, healthcare, and utility companies in my portfolio, I can help minimize drawdowns during corrections while maintaining a consistent increasing dividend stream.

A picture of my stock weights are shown in the tree map above. Here are my largest holdings in each respective sector.
  -Staples: MO, PM
  -Healthcare: JNJ, ABBV
  -Energy: XOM
  -REIT: O
  -Discretionary: ROST
  -Financials: V
  -Utilities: SO
  -Telecom: T
  -Materials: PX
  -Technology: AAPL
  -Industrials: UNP

September 2015 Dividends Received

September was dividends as usual. No dividend reductions or cancellations have been announced so far. I have collected roughly $333 in cash this month from dividend paying stocks. This is a record amount of dividends for me so far and I expect this growth to continue as I keep contributing week by week.

The big cash generators this month came from JNJ, PEP, XOM, and O. Even though Exxon and Chevron are in a world of hurt in the current energy environment, they still continue to pay dividends. In fact Exxon's dividend paid is actually an increase from the one from last year.

Ticker Total Received Taxable Accnt Roth Accnt 401k Accnt
JNJ $54.90 $29.79 $25.11
PEP $34.41 $12.32 $22.09
XOM $31.18 $22.42 $8.76
O $25.72 $25.72
SO $25.13 $25.13
CVX $24.00 $24.00
PX $19.60 $7.30 $12.30
CHD $18.91 $8.44 $10.47
UNP $15.30 $15.30
MCD $13.10 $13.10
WMT $11.49 $11.49
UTX $10.52 $10.52
V $9.42 $5.21 $4.21
MMM $9.08 $9.08
BDX $8.54 $8.54
ROST $7.48 $7.48
TJX $6.42 $6.42
GILD $4.71 $4.71
AMGN $2.92 $2.92
$332.83 $224.17 $34.48 $74.18