Monday, November 23, 2015

Recent buy: NVO & CVS; Tax loss harvest

Tax loss harvest selling:
WMT: $1930
AMGN: $580
GILD: $1160
UNP: $2400

NVO: $6753
CVS: $1247

This week's $8000 went into low yielding stocks with high growth. Much of the cash came from tax loss harvesting positions. Cash is also coming into the 401k account and I will be buying utilities SO (4.8%) and D (3.8%) to balance the low yield of NVO and CVS. 

Walmart was sold to tax loss harvest. I also wanted out because of its low earnings growth and dividend growth. I replaced some of the Walmart proceeds with the healthcare store CVS which has high growth consistency and earnings but lower dividend.

GILD and AMGN were speculative positions that were traded for NVO for higher consistency and quality. I did not lose or gain in this trade.

UNP was sold to tax loss harvest and I wish to add to CNI if I had additional funds.

Below are some plots showing the consistency of NVO and CVS. Although past results do not indicate future returns, they still demonstrate how capable the company is to cope with difficult situations.

Earnings plot of NVO: 18.1% annual rate (graph is log scale)

Return of NVO 1986-2015: 20.5% annual rate (graph is log scale)

The NVO business is very consistent and predictable. Their CAGR is around 20%, which spans many decades, including the many many recessions. Note that the plots are in log scale so the actual results have been exponential. NVO manufacturers medicine for Diabetes and hormonal treatment. The company has next to no debt, a AA- credit rating by S&P, and A++ financial rating by Value Line. The company is situated in Denmark so it pays its dividends in Krone. Their dividends have been increasing for many years but are still subject to foreign exchange rates.

Below is a plot of CVS's earnings growth. This is in linear scale and shows that CVS has been able to consistently increase its earnings at a stable rate.

At this time, I have around -$2500 tax loss dollars that I can deduct from my income next year. That will allow me to get around an additional $830 in my tax refund check. In the weeks to come, I will see if there are other stocks I wish to swap to hit the maximum $3000 tax loss harvest limit.

Happy investing

Monday, November 16, 2015

How do I define High Quality

When purchasing stocks it is very important to ensure that the majority of one's holdings are high quality. Owning high quality is very important if an investor is in for the long term. Short term traders and trenders can get away with lower quality holdings with bigger upside potentials, but in the long term the lower quality companies do not fare as well due to the draw downs they experience. Additionally, the lower quality companies may not be financial strong enough to handle a recession as well. Higher quality companies have the financial strength and earnings strength to continue business during recessions, making their draw downs much less than lower quality companies.

My definition of high quality is rather straight forward. I use both Value Line and S&P to get my financial ratings.

High quality:
BBB+ or higher S&P credit rating
2 or 1 safety rating by Value Line
A or higher financial strength by Value Line

Highest quality:
A+ or higher S&P credit rating
1 safety rating by Value Line
A++ financial strength by Value Line

I find that the S&P credit ratings to be lower than the Value Line ratings on several of my holdings, or in other words S&P is more critical. In the end, I find both rating groups to provide rather consistent ratings on companies relative to another, and most of the ratings are aligned with my expectations after researching a company. Companies I buy that have a S&P credit at or under BBB or has a S&P credit rating under B++, I would consider these as more speculative in nature.

These speculative positions I would not "double down" during a draw down. I would on the other hand be willing to add to my high quality positions on a pull back without hesitation if I had the funds.

Below is my portfolio as of today. The 3 columns on the right show the quality ratings. Value Line gave PM and MO lower ratings than I thought, most likely due to the large debt and payout of tobacco companies. I would admit that I would not consider PM and MO as "high quality" as Colgate, Johnson and Johnson, Exxon, or Coke and my expectations of their risk were understood before I purchased them.

The companies that are the highest quality according to Value Line and S&P have all 3 columns highlighted in green. These include: JNJ, V, XOM, KO, PG, ABT, CL, WMT, MMM, CVX, TJX. Many of these are proven dividend aristocrats, who had sustainable payouts and earnings even during past recessions.

My lowest quality holdings are HCP and KMI.

Ticker Sector Value Weight Yearly Dividend             Yield S&P Fin VL Fin VL Safety
MO Staples $10,543.77 7.76% $423.86 4.02% BBB+ B+ 2
JNJ Health $8,771.36 6.45% $263.14 3.00% AAA A++ 1
PM Staples $7,748.02 5.70% $371.90 4.80% A B++ 2
O REIT $7,263.92 5.35% $349.39 4.81% BBB+ A 2
V Financial $6,241.29 4.59% $38.07 0.61% A+ A++ 1
PEP Staples $4,838.38 3.56% $138.86 2.87% A A++ 1
CHD Staples $4,676.61 3.44% $75.76 1.62% BBB+ A+ 1
XOM Energy $4,228.24 3.11% $158.14 3.74% AAA A++ 1
GIS Staples $4,062.88 2.99% $127.98 3.15% BBB+ A+ 1
KO Staples $3,973.00 2.92% $126.74 3.19% AA A++ 1
T Telecom $3,951.12 2.91% $229.96 5.82% BBB+ A++ 1
KHC Staples $3,663.64 2.70% $113.94 3.11% BBB- A 2
MKC Staples $3,319.97 2.44% $65.07 1.96% A- A+ 1
BDX Health $2,738.11 2.01% $44.08 1.61% BBB+ A++ 1
KMB Staples $2,563.27 1.89% $76.90 3.00% A A++ 1
PG Staples $2,515.57 1.85% $90.06 3.58% AA- A++ 1
SO Utilities $2,062.31 1.52% $101.88 4.94% A- A 2
ABT Health $2,058.25 1.51% $44.87 2.18% A+ A++ 1
CL Staples $2,045.02 1.50% $48.06 2.35% AA- A++ 1
WMT Staples $1,802.89 1.33% $62.56 3.47% AA A++ 1
MMM Industrial $1,389.21 1.02% $36.54 2.63% AA- A++ 1
APD Materials $1,215.76 0.89% $28.69 2.36% A A+ 1
D Utilities $527.38 0.39% $20.04 3.80% A- B++ 2
NEE Utilities $405.78 0.30% $12.46 3.07% A- A 2
MA Financial $4,556.10 3.35% $30.07 0.66% A A++ 2
HCP REIT $2,083.29 1.53% $143.75 6.90% BBB+ B++ 3
CVX Energy $2,017.71 1.48% $97.46 4.83% AA A++ 1
PX Materials $1,965.48 1.45% $49.53 2.52% A A 1
ABBV Health $1,904.29 1.40% $64.94 3.41% A A 2
VZ Telecom $1,829.22 1.35% $90.91 4.97% BBB+ A++ 1
UTX Industrial $1,742.83 1.28% $46.19 2.65% A- A++ 1
MCD Discret $1,709.40 1.26% $52.82 3.09% BBB+ A++ 1
KMI Energy $1,523.88 1.12% $127.85 8.39% BBB- B++ 3
VFC Discret $755.90 0.56% $15.57 2.06% A A 2
XEL Utilities $439.70 0.32% $16.09 3.66% A- A 1
ROST Discret $2,860.12 2.10% $30.03 1.05% A- A 2
DIS Discret $2,574.35 1.89% $29.60 1.15% A A++ 1
AAPL Tech $2,513.46 1.85% $46.50 1.85% AA+ A++ 2
UNP Industrial $2,345.33 1.73% $61.68 2.63% A A++ 1
SBUX Discret $2,289.50 1.68% $24.50 1.07% A- A++ 1
TJX Discret $1,969.83 1.45% $25.80 1.31% A+ A++ 1
GILD Health $1,128.97 0.83% $18.97 1.68% A- A 3
AMGN Health $563.58 0.41% $11.78 2.09% A A++ 1
….. …..2 Equity Total …..4 Yearly Dividend Mean Yield …..8 …..82 …..83
    $129,378.64   $4,032.99 3.12%      
Cash Cash $6,513.42 4.79%          
. .. Equity + Cash …..22 …..2 ….. …..222 …..223

Dividend growth investors should focus on quality. Quality insures that the dividend is healthy and can be increased year after year. Many of the highest quality companies have large moats and sustainable payout ratios. The earnings growth of these companies drive dividend growth. These companies have products and services that are needed even during recessionary times, such as JNJ, PG, KO, CL, WMT. Buying high quality companies will help one sleep well at night, even when the share price has crashed by 30%. It is during tough times that one should add to high quality companies in excitement, knowing that they will one day come back up stronger than ever. By understanding that one owns high quality will help one control the irrational emotions to sell.

This is not to say that one should not buy lower quality companies. I have some holdings that are speculative in nature. Investors need to have the proper expectation on such holdings. A good balance of speculative and core positions should be considered in a person's portfolio depending on his or her stage in life and risk tolerance.


Tuesday, November 10, 2015

Dividend raise: MCD

McDonald's announced today that they have raised their quarterly dividend from $0.85 to $0.89. That is a 4.7% increase over last year's values. It's not great but not terrible either in my opinion.

The company is undergoing a large makeover under the new CEO and I still expect earnings to be unexciting for several more quarters. The share prices have risen tremendously over the last several weeks though, not really in line with the present earnings. Investors seem to be confident about the future of McDonald's. At the moment, MCD is too expensive for me to consider buying.

S&P have also reduced MCD's credit rating from A- to BBB+ due to the added debt, which does not please me greatly.

MCD have also stated that they do not plan to pursue a REIT transaction that many were hoping for.


Monday, November 9, 2015

Recent buy & Tax loss harvesting

This week I have started tax harvesting. I have up to $3000 of losses I can lock in this year to reduce my taxable income for this year. I estimate that for every $3 I claim as losses, I can get $1 back due to the tax deduction.

$ amount sold
1/2 position in KMI: $2040
1/3 position in PX: $1150

I am adding APD in place of the PX I sold. I am replacing KMI with utilities and consumer staples. The following list will be stocks I will add tomorrow morning:

$ amount to buy
APD: $1200

NEE: $400
D: $430

ABT: $300
CL: $300
GIS: $300
PG: $250

As of now, I have around $1000 of my $3000 used up for tax loss harvesting (includes the KMI & PX sold, and some of the other few trades that happened earlier in the year). I pay $1 per purchase on Tuesday morning, so spraying this many purchases on other brokerages may not be ideal for others. Before performing tax loss harvesting, please consult with others and do research first to understand the pros and cons.

Happy investing

Friday, November 6, 2015

November Watchlist

The jobs report released this morning showed a large jobs beat. As a result, there is an expectation that a rate hike is a possibility leading many companies that are like low debt to drop in value. REITs and Utilities took a huge hit today with losses ranging from -3 to -6%. I feel that there will be more valued buys to come. Here is a chart of stocks I am eyeing at the moment. I want to add to my utility sector this time around. My plan in the coming weeks is to steadily add into my favorite utility companies. This will help increase my dividend yield because utility stocks have high yields.

My three "core" utility stocks are D, NEE, and SO. Below are plots of their price charts and dividend history.

My Targets
NEE: $95
D: $66
SO: $42

These are two other utilities I watch but I like them less than the top 3.
XEL: $32
WEC: $44

Tuesday, November 3, 2015

Recent buy: V & D

I added small amounts into Visa and Dominion today. I want to start a project to start acquiring more utility names. I've failed to "time" my entrance into utilities many times already and I am about to just give up on timing a large purchase and instead dollar cost my way in.

V: $100
D: $100

Dominion is one of my favorite utility names due to its historical dividends and growth prospects. D pays a moderately decent dividend but it has a higher growth than other utilities. As a result I expect their dividends to grow faster than the likes of SO. NEE is another utility I like that has higher growth. Some day I wish to own sizable positions in both D and NEE. My favorite core utilities are SO, D, and NEE.

I added to Visa after the earnings and their announcement to buy Visa Europe. I want to be overweight in Visa since I like their low debt, high margin, and high cash flow business model. I have a feeling that out of all the stocks in my portfolio, Visa will be one of them that will outperform in different economic conditions.


Sunday, November 1, 2015

October 2015 Portfolio Summary

October wasn't a very good looking month in the beginning. I was able to add some on the S&P500 lows but not as much as I would have liked. My portfolio rebounded at the end of the month and has set new highs. Currently I sit at around $138,000 after paying for last month's bills. My forward yearly dividend income now sits at over $4,100.

I have been struggling to find good names to add in the current environment. A lot of stocks that were looking attractive at the bottoms of September now are too expensive. With the higher price, the yield on potential stocks are also lower. I have been trying to remain at 3% or higher on average for new buys. 

Ticker Sector Value Weight Annual Div Yield Credit
MO Staples $11,328.75 8.22% $423.70 3.74% BBB+
JNJ Health $8,872.36 6.44% $263.51 2.97% AAA
PM Staples $8,212.52 5.96% $379.42 4.62% A
O REIT $7,542.80 5.47% $349.23 4.63% BBB+
V Financial $6,099.43 4.42% $43.92 0.72% A+
PEP Staples $5,043.18 3.66% $138.69 2.75% A
CHD Staples $4,878.34 3.54% $76.10 1.56% BBB+
MA Financial $4,652.53 3.37% $30.24 0.65% A-
XOM Energy $4,479.44 3.25% $158.12 3.53% AAA
KO Staples $4,066.13 2.95% $126.86 3.12% AA
T Telecom $4,041.19 2.93% $226.71 5.61% BBB+
KHC Staples $4,036.37 2.93% $113.83 2.82% BBB-
KMI Energy $3,972.93 2.88% $296.38 7.46% BBB-
GIS Staples $3,894.01 2.82% $117.99 3.03% BBB+
MKC Staples $3,450.10 2.50% $65.90 1.91% A-
ROST Discret $3,228.41 2.34% $30.02 0.93% A-
PX Materials $3,066.05 2.22% $78.80 2.57% A
AAPL Tech $2,661.74 1.93% $46.31 1.74% AA+
BDX Health $2,624.66 1.90% $44.09 1.68% BBB+
KMB Staples $2,615.48 1.90% $76.90 2.94% A
DIS Discret $2,549.69 1.85% $29.58 1.16% A
UNP Industrial $2,501.25 1.81% $61.53 2.46% A
SBUX Discret $2,397.96 1.74% $24.46 1.02% A-
HCP REIT $2,366.37 1.72% $143.88 6.08% BBB+
PG Staples $2,326.72 1.69% $80.74 3.47% AA-
TJX Discret $2,245.32 1.63% $25.82 1.15% A+
SO Utilities $2,116.27 1.54% $101.79 4.81% A
CVX Energy $2,067.77 1.50% $97.39 4.71% AA
VZ Telecom $1,919.35 1.39% $92.51 4.82% BBB+
ABBV Health $1,862.83 1.35% $63.90 3.43% A
WMT Staples $1,829.09 1.33% $62.55 3.42% AA
ABT Health $1,802.39 1.31% $38.57 2.14% AA-
CL Staples $1,790.79 1.30% $41.01 2.29% AA-
UTX Industrial $1,777.70 1.29% $46.22 2.60% A
MCD Discret $1,744.84 1.27% $52.87 3.03% A-
MMM Industrial $1,403.13 1.02% $36.62 2.61% AA-
GILD Health $1,190.17 0.86% $18.92 1.59% A-
VFC Discret $822.54 0.60% $18.01 2.19% A
AMGN Health $588.24 0.43% $11.76 2.00% A
XEL Utilities $447.48 0.32% $16.06 3.59% A-
….. …..2 Equity Total …..4 Annual Dividend Average Yield …..8
$134,516.31 $4,150.92 3.09%
Cash Cash $3,340.59 2.42%
. .. Equity + Cash …..22 …..2 …..

I have initiated a new position in VFC in October. I also added a sizable chunk to O. The largest holdings as of now are MO, JNJ, PM, O, V, and PEP. All of these are highly defensive with the exception of Visa (I am not sure how Visa will behave during a downturn since it doesn't have a history extending that far back, but since I consider it a financial sector stock I consider it more cyclical).

My holdings are weighted heavily towards defensive sectors. Staples and Healthcare take up nearly 50% of my portfolio. I want to some day make Utilities my 3rd largest sector. I like to call this my holy trinity: Staples + Healthcare + Utilities.

Since the 2015 year is ending soon (oh how quickly has it been!) I am considering tax loss harvesting candidates in my stock portfolios. The stocks to remove and the stocks to add have not been considered yet, but I would like to get the larger tax return in 2016.

This month is Turkey holiday month. Happy investing. Stay tuned.