Sunday, January 29, 2017

Total Return on a Dividend Portfolio

I recently added a metric to analyze my portfolios.

  • Dividend yield and growth are important to monitor
  • Total return is a metric worth measuring
  • 2011 was the best portfolio
  • 2014 was the worst portfolio

When I started this blog my intent was to build portfolios geared for income that grows.  Therefore, I monitored dividend yield, and dividend growth.  However total return is also important.


All portfolios are presented below. 



The 2011 portfolio was completed in November 2011 and is now 6 years old.  I always expect my investments to double in 10 years using the 7% annual return rule of thumb.  I need to know how I did.

In addition to receiving and spending the income over these past 6 years, the portfolio has a very nice capital gain.  Add those two together and you have total return.  These stocks generated $51,269 of income and as of today the portfolio value increased by 86.40% for a total return of 111.13%.  One nuance is interesting.  Several stocks were bought out.  I have carried those proceeds as cash for ease of data monitoring.  That cash, $11,243 creates no income and no capital gain.  I am going to change that going forward and will invest that cash.

To view 2011's individual holdings and other information, click on this link: 2011 Model Portfolio.

2017 is brand new and the 2016 portfolio is too complicated to follow with ease so I will cash out that portfolio when the final call either expires or is exercised.  The last call expiration date is 2/17/2017.

M* Worst Performing Portfolio - 2014

Dividend yield on this portfolio is 3.34% which beats the benchmarks SDY and VIG which yield 2.6% and 2.65% respectively.  So on that measure, which is important for income investors, this portfolio holds its own.

Dividend growth on the other hand is terrible at just over 1%.  My benchmarks have done much better. SDY increased the dividend by 9.39% and VIG was the winner at 21%.

Total return differences are significant as well.  My portfolio has a total return of 19.73%. SDY did better with a total return of 25.56%.  In addition to dividend increases, SDY made significant capital gain distributions in 2014, 2015 and 2016.   VIG did not do quite as well with a total return of 14.64%.

Why is my 2014 portfolio doing so poorly? 

My 2014 portfolio started with only 17 stocks.  This was not planned, it was just the way my investing worked out during 2014.  Over the next 2 years (2015 and 2016), RYAM was added when RYN created that spin off.  RAI  delivered a 2:1 stock split and is expected to be bought out by British Tobacco.  LG changed it's name to Spire, symbol SR.

None of the above circumstances are responsible for the poor performance.  Three stocks reduced their dividends:  COP, POT, and RYN.

COP - when you look at fundamentals available for this stock in 2014, when I picked it, it looked good.  To see that post click on this link.  2014 COP Dividend Machine Fundamentals.  I did not anticipate the revenues and earnings would fall off a cliff.  COP continues to struggle today.  As this is a long only portfolio, I cannot sell.  We are getting paid a little dividend to wait but COP has been a terrible blight on 2014's performance.

Moreover, this portfolio had too many energy stocks.  In addition to COP, this portfolio owns CVX and SE.  When you have only 17 stocks, three in the energy space are too many. This is where the yield was and I would say my goal of a 3.5% dividend yield was a bit greedy.

POT - Again, at the time I picked POT, the fundamentals were adequate and you can read about them by clicking this link:  2014 POT Dividend Machine Fundamentals.  Like COP, this stock was in a space very sensitive to global growth and revenues declined, not as much as COP but they did go down.  More important earnings per share (EPS) suffered so much that management elected to suspend the dividend.  POT now pays a $.40 annual dividend.

RYN - A similar story with RYN.  Rayonier is a real estate trust that owns timberland.  They did spin off RYAM.   RYAM pays a dividend of $.28 and RYN pays a dividend of $1.00 but that is less than it was when I purchased RYN stock.  To see the original post, click on this link: 2014 RYN Dividend Machine Fundamentals.

Two of these stocks POT and RYN did not have much of a cushion when I added them.  EPS were just above dividend paid out and this should be something to consider in the future.  However, the most obvious problem is this portfolio suffers from lack of diversification.

Click this link to see the individual holdings and other information on the 2014 portfolio:   2014 model portfolio.  I expect RAI to be bought and that will generate some cash that I can use to buy a stock that will add to the diversification.

Take a look at these portfolios to educate yourself on using dividend growth stocks for your retirement planning.

The goal to "retire with income that grows" is possible by using a disciplined approach to stock selection and portfolio growth is possible too but stay diversified.  SDY and VIG are good exchange traded funds to consider if you cannot management your own stocks for income.

M* MoneyMadam


Thursday, January 26, 2017

WGL sold to Atlas Gas

Good news for this Dividend Machine.M*
AltaGas buys WGL Holdings in $6.4B deal http://seekingalpha.com/currents/post/3237618?source=ansh-d $WGL, $ATGFF

Monday, January 23, 2017

Covered Call income strategy with QCOM

I have invested in QCOM for the purpose of creating investment income many times.   You can search this blog for the many posts on the subject.  In the "dot.com" era, I had clients who made a killing on QCOM.  My husband retired in 1999 and although I was still working, my investing focused on income.  As an income investor QCOM did not pay me a dividend so I could not buy it. 

This post is about a call I sold today on QCOM.  One might think that since selling covered calls is an income strategy, I should have employed that strategy in 1999.  But part of my strategy is to realize the risk of covered calls is you get stuck with a stock that falls or even fails.  

  • Use a stock that pays a dividend
  • Select an expiration date after the next dividend
  • Realize no less than an 8% gain if your stock is called away.

When you lose principle, it is hard to be happy about a little call premium.  Therefore, I always sell calls on stocks that pay dividends.  I could still lose principle on paper, but I am getting paid to wait.  Moreover, if a company pays a dividend and their other fundamentals are solid (i.e. debt to equity ratio), it is highly likely your stock price will go up again and perhaps you will even have the chance to sell even more calls.

QCOM Fundamentals - getting paid to wait

QCOM took a real hit today on the news of a patent suit with Apple.  I took advantage of the stock price drop and bought at $55.50.  I may not have picked the bottom, but I thought it was a good price for me.  Their annualized dividend is ($.63 x 4 = $2.52) for a yield of 4.54% on my basis.  The next ex-dividend date is 2/27/2017. 

QCOM earned $3.80 last year; paying out $2.02 in dividends.  QCOM's debt to equity ratio is .37 suggesting a solid balance sheet.

THE CALL

This article points out the option activity in QCOM today.  https://www.dividendchannel.com/article/201701/noteworthy-monday-option-activity-qcom-wynn-intc-qcom-wynn-intc-INTC01232017note.htm/.  With this in mind, I looked for QCOM calls.

The call I selected is a $60 strike price with an expiration of 4/21/2017.  I will receive the February dividend provided my shares are not called away early.  Minimally I get an extra 2.52% in yield.  If my stock is called away, the total return is 11.59%.  See the table below.





Another call to consider is the April $62.50.  This call yields less but has more total return potential should the stock be called away. 

Two examples of using QCOM and covered calls to boost your income.

M* MoneyMadam

Disclosure:  Long QCOM with calls

Tuesday, January 17, 2017

Kohl's, KSS first 2017 Dividend Machine

English: Logo of Kohl's Department Stores for ...
English: Logo of Kohl's Department Stores for use as illustration in Wikipedia, now with transparent background. (Photo credit: Wikipedia)









I bought my first 2017 Dividend Machine today.  Kohl's symbol KSS meets all my criteria.  My buy price was $41.88.

I immediately sold an April 21, 2017 $47.50 call for $1.25.  The table below presents the data.





KSS stock price tanked on news of poor Christmas sales and their slow entry into the e-commerce space.  Yet the stock meets all my criteria.  I have been through this before when profiling a stock and find that sticking to my knitting is still the best technique.

2017 DIVIDEND MACHINE CRITERIA for KSS

KSS makes more money than it pays out in dividend and this has been a trend for more than 5 years.  Current EPS are $3.27' the current annualized dividend is $2.00.  Although I don't use price/earnings ratios in my selection criteria, I don't like a stock with a P/E that is well above their historical norm. KSS's P/E ratio is 12.84. 

Dividend yield is very important as is dividend growth.  The yield at the price I bought today is 4.9% well above what is available in any U.S. treasury bond.  With a three year dividend growth of over 14% per year, this stock has demonstrated dividend growth.   Their December quarterly dividend in 2013 was $.35.  Their December quarterly dividend in 2016 is $.50.  Each of the past four quarterly dividends have been $.50 so I would expect an increase this spring.  If that does not occur, I will be very disappointed.

A strong balance is always important.  I use D/E (debt to equity ratio) and KSS passes this test with flying colors.  Their D/E ratio is .5471.  Notice that JWN (Nordstrom's) D/E is north of 3.

Kohl's is not a revenue growth juggernaut.  However, KSS does have a stable or flat revenue trend and similarly their EPS have always been greater than dividends paid out. 

The final icing on the cake is the robust calls that are available.  I was not planning to pick a stock that had a call immediately available.  I am patient and could wait.  But this call was too good to pass up.

In summary KSS meets my criteria and is now my first 2017 Dividend Machine.

M* MoneyMadam

Disclosure:  Long KSS with calls