August 2015 – Purchases & Income Progress

Tiny Bites of The Pie

I had little to report for July, so I didn’t.  Progress is slowing.  Our portfolio is getting knocked down hard from its peak.  No doubt, it’s a bit disheartening.  Still, the income rolls in… and that’s what it’s really about. It’s difficult for me to get excited about buying much of anything so I’m slowing it down some.  I did however complete rather small purchases on two stocks that that should help improve dividend growth in the future.

NOV – National Oilwell Varco  (A Higher Risk play)

Clearly, the oil industry is in shambles right now.  This provider of drilling rig equipment and oil field services has not been immune to the chaos.  It has fallen more than 50% from its 52 week high.  On the plus side, it is one of the best at what it does and until oil fields cease to exist, NOV will be in business.

I made my first purchase of NOV at $40/share and made it 1.3% of our portfolio.  Current yield at time of purchase was about 4.55%.  Not bad considering the 5 year average yield of just over 1%.  I’ll be honest and state that this is purely a speculative play on my part.  It may be several years before it turns around for NOV.  The high yield may indicate a dividend that is at risk.  NOV is hardly a dividend aristocrat, though if it plays out like I think it will, I should be content with my purchase in the future.  NOV is king in its sector so I’m placing a small bet, with cautious optimism.

TROW – T. Rowe Price  (Less risky)

TROW has a history of solid dividend growth.  In my quest to add at least a few holdings that provide higher dividend growth, I’m attracted to the 5 year average growth of 12%.  I made my initial purchase of TROW @$69.24 at a 3% yield, making it 1.5% of our portfolio.  TROW is in the asset management business which, at least for the moment, is not under the duress experienced by oil companies.

I view TROW as a somewhat speculative position, primarily because it is in the financial services sector.  I therefore doubt that I will ever allow it to have more than a 3% weight.  I’m content with our current position for now in that it is our only holding in this sector.  With a 5 year average yield of 2%, I’m glad to have made a purchase at a 3% yield with a TTM payout ratio of 41.  Some other items that cause me to be attracted to TROW….

TROW FG 20150904

The 3% current yield is higher than even the 2.7% that occurred during the recession.  The P/E of 14.7 is favorable compared to “normal” blended P/E of 22.2.  The dividend growth (white dotted line) is quite steady in its upward direction.  The large spike in 2015 was a special dividend.  In general, the price seems fair when looking the orange earnings justified line.

TROW FG1 20150904

The first FAST Graph earnings estimate graph show projections based on analyst estimates.  If estimates are correct, the projection is for a total annual return of 14.24%.  Of course analysts can be wrong but I’m willing to take the risk for the potential return, even if it’s not quite up to the prediction.

TROW FG2 20150904

On the second estimate graph which uses a “normal” P/E for TROW, we can see potential annual returns of 27.82%.  I’m thinking that might be a bit much to hope for, so I won’t hold my breath.  Nevertheless, it’s encouraging.

Finally, we have a couple charts created by Dave Van Knapp.  I use these for illustration in that I like this format and will be working on developing my own color coding scheme.

TROW DVK 201505-1

TROW DVK 201505-2

Clearly, these charts have a lot of green on display.  I like to see that.  Even the yellow “yield” line would now be a pale green because of the 3% yield.  Overall, I’m quite comfortable with this pick.  Should the price drop further, I may very well bump our allocation up to that 3% weight that I mentioned.

Dividend Income Progress

Two of our holdings increased their dividend during August.  Alliance Resource Partners (ARLP) bumped the payout by 1.9% (ex-div 8/5/15).  This is ARLP’s third increase for the year.  Target (TGT) provided a raise of 7.7% (ex-div 8/17/15).  I’ll take it.

2015 YTD forward dividend income (through August)

  • Stock purchases have added 14.3% to our dividend income
  • Dividend increases have added 4.11% to our dividend income
  • Stock sales have decreased forward income by 5.71%
  • Overall, our YTD forward dividend income increase is 12.7%.
  • Month over month, dividend income was up 28.72% over August 2014
  • Year to date, dividend income was up 42.2% compared to last year.

Stocks I’m Watching at the Moment

A few stocks exist that are getting close to tempting.

  • I’m watching PG, though I’m a little leery.  They are a powerhouse, no doubt.  I’m unsure though of their efforts to streamline their product offerings.  If the price drops another buck or two, I may add a little to our 3.8% weight holding.  The yield is as high as its ever been, though certainly not without reason.  My suspicion is that they will pull through and once again become the PG dividend monster that we all know and love.  Still, I’m not ready to go all in.
  • I’m also watching VTR.  It has about 1.1% weight at the moment.  It’s currently priced at $53 and change.  Should it go to $52 or below, I’ll probably double our holdings.
  • MMM is teasing me big time.  There is currently none in our portfolio, and I want to change that.  My buy price is $136 and it keeps flirting with me, but doesn’t quite get there.  I may take a small initial position at $139.  It seems that I won’t be able to take a full position without a serious market correction.

Are you close to a buy on any of your favorite stocks?  Let me know in the comments section.  Thanks for reading.

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8 responses

  1. When I read your “2015 YTD forward dividend income (through August)” it obvious you’re in the rught path!
    Go on! Thanks for this post.

    1. Hi Nuno,

      Thanks. The comparison of this year over last is pleasing, no doubt. I was able to make additional buys beginning in November due to a 401K rollover. Things have slowed down quite a bit in the last few months though. I’m becoming more cautious in what I view as an overheated market. I still have a fair chunk of cash to invest, but I’m trying to be careful. These are my retirement funds and I don’t want to screw it up. 🙂 Thanks for commenting.

      Steve

  2. Always remember it’s always about the income and not your overall portfolio value. Prices rise and fall on a whim but dividends remain stable. It’s always about that passive income generation. I’m liking TROW over NOV personally. But maybe that’s my aversion to anything energy. Keep up your progress. Curious to see how you 2015 total will look like.

    1. Hi DH,
      Indeed, it is about the income. While it is unsettling to watch one’s net worth take a dive, I have managed to carry on with collecting the dividends. I began working on a DGI strategy only 4 years ago, so I haven’t yet experienced a serious market dive while trying to focus on dividends. Market timer I’m not, but the concept of an “overdue” correction is making me a bit more cautious. Just trying to get the best bang for my buck.

      So far, I’m on track to receive the dividend income that I projected for this year. Might even go slightly above that mark. Overall, I can’t complain.

      I understand your aversion to energy. I’ve been spanked pretty bad on CVX and XOM. I’m thankful to have sold COP some time back at a small profit. I was waffling on NOV, but decided to take a small gamble. Even if the bet pays off, it will likely take a few years. I agree that TROW is more comfortable to own. Time will tell. Thanks for your comments.

      Steve

  3. Liking TROW better. MMM is really undervalued and a good company for sure too! There are many opportunities right now, I just wish I had more capital to put in.

    Cheers,

    Mike

    1. Mike,

      I’m with you and definitely like TROW over NOV. I look at NOV as a very speculative play that may pay off well in a couple years. I didn’t put much money into it, and won’t likely buy more in the near future. On the flip side, I may very well invest further in TROW if I feel comfortable with the price.

      I want MMM in the worst way and have been watching it for quite some time. I have it in mind for a core position, with a 5-10% weight in our portfolio. Unless a serious correction occurs, I won’t likely get to make large purchases and will have to DCA my way into this stock.

      I do still have a decent chunk of cash to invest. It’s my retirement money though. Once it’s invested, that’s it. No more fresh capital to invest. I’ll likely invest my remaining cash in aristocrat type stocks when the price is right, but will reserve about 10% of it for stocks with higher dividend growth.

      Thanks for commenting.

      Steve

  4. I don’t think you should be too considered about your portfolio. We are still in a bull market, and this bull market still has several years left in it. Eventually the market will make a new high, and you’ll come out fine. Just keep buying on the dips.

    1. Hi Tony,
      I have been buying on the dips for a while. The problem is, the dips seem to be dipping even more with several of our stocks. 🙂

      I’m not trying to time the market. That’s well beyond my pay grade. I have however become a bit more picky when it comes to valuation. I’ll continue buying, no doubt. It might just take me a little longer than I thought though. Thanks for commenting and for your encouragement.

      Steve

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