LYHG to HYLG Transition Port

[Ok Red]

Sorry for the long delay, just wanted to update you guys on my transition efforts.

Last summer there was some discussion about the vast chasm between dividend investing for current income (HYLG) and dividend investing for long term dividend growth (LYHG). I realized that, at age 55, my current port of LYHG equities was not going to spray off sufficient income to allow me to consider retirement at 60 without dipping into my nest egg.

So I reconfigured my port. The specific goal was to own high quality equities that I could project to provide 10% return on cost by the time I turned 60.

The result was 12 LYHG equities and 13 HYLG equities.

Before I get to the specific positions, a note about my port. I'm a fairly conservative investor, so only 36% of my port is in equities. I have 26% in individual issue investment grade bonds, 26% cash, and 12% in hedging vehicles.

As I get closer to retirement I will likely take the proceeds from maturing bonds and invest them in equity positions so that I can enjoy an increasing income stream from my port during retirement. I am planning on only withdrawing the dividends.

The bottom line was dividend income of $2.8K in Q3 and $3.8K in Q4. The bonds give me another $1.5K per quarter. I believe that next quarter will be somewhere in between due to slight adjustments in positions and distribution cuts in MLPs as a result of the decline in oil prices. Obviously I could easily double this amount simply by investing my cash, but I am waiting for the right spot to do so.

The LYHG positions are as follows:

ACN
ARG
CHD
CMI
CVX
GE
GWW
MCD
SBUX
SJM
UNP
WBA

The HYLG positions are as follows:

DLR
FSIC
HTGC
KMI
LNCO
MAIN
O
OHI
PFLT
SDRL
STAG
TCPC
VTR

As you can see, this part of the port is concentrated in three industries - REITs, BDCs and Oil and Gas MLP type instruments.

Note that none of of my equity positions makes up more than 1.8% of my TOTAL portfolio and most are around 1%.

It's been.... interesting. The REITs and BDCs have been pretty steady. The Oil and Gas stuff has been spanked. I took two fliers (LNCO and SDRL) and have paid the price. I'm keeping both positions for now, but have learned a good lesson about looking at debt levels more closely.

In general, I'm totally at ease with the LYHG positions but the level of watchfulness required for the HYLG positions is significant. I suppose that is the price to be paid for the income stream .

[Dividend Watcher]

Interesting is an apt description. I feel more comfortable with REITs now that I've reviewed enough financials and watched their progress in my own portfolio. The BDC's and MLP's are still my weak points and have been reluctant to throw cash their way yet although I have been reading some of MAIN's financials. From what I can tell, they seem to be fairly conservative with their financing.

The LYHG portion looks good to me. Many of them I'd be real interested in if only Mr. Market would offer better price points.

With your plans to retire at 60, you've probably made the better decision for now but I agree the monitoring may take up some time.

[Be Here Now]

I think you made some good choices with your BDCs. There are a number of PSEC fans on Seeking Alpha, and my research shows that MAIN is a far better choice for sustainable income than PSEC. Try the DRIP Returns Calculator at Dividend Channel: https://www.dividendchannel.com/drip-ret...alculator/
Compare PSEC to MAIN.

I am starting to think that MCD is no longer the HG stock that it once was. Dividend increases in recent years have been at a much lower rate than formerly. I think it is still a reliable cash generator, but I am not counting on it to grow by much in the future.

[Ok Red]

(01-04-2015, 01:36 PM)Dividend Watcher Wrote: Interesting is an apt description. I feel more comfortable with REITs now that I've reviewed enough financials and watched their progress in my own portfolio. The BDC's and MLP's are still my weak points and have been reluctant to throw cash their way yet although I have been reading some of MAIN's financials. From what I can tell, they seem to be fairly conservative with their financing.

The LYHG portion looks good to me. Many of them I'd be real interested in if only Mr. Market would offer better price points.

With your plans to retire at 60, you've probably made the better decision for now but I agree the monitoring may take up some time.

DW, the BDC's are essentially proxies for junk bonds and so I'm a bit concerned about them at present. The ones I own focus on senior notes, which get 'head of the line privileges' if the issuing company enters bankruptcy, but it still isn't a sure thing by any stroke of the imagination as none of the issuing companies are investment grade (otherwise they would float their own bond offerings).

SOME of the MLP's are sensitive to oil and gas prices and so that has made for a wild ride. However, I believe those prices will rise again so I'm sitting tight. However, from a distribution standpoint I'm sure that the next year or so will result in reduced payouts.

In both cases, since I don't need the income now I can afford to watch and learn, so hopefully by the time I retire I will not have to be so concerned and watchful

[Be Here Now]

Are you sticking with SDRL? It is now no-yield.

[Ok Red]

Ok, time to come up for air for a bit. Gainful employment is a good thing .

The LYHG port is essentially unchanged, with one addition - CAT bought at 4% yield. I've also bought more CVX when yield reached 5%.

ACN
ARG
CAT
CHD
CMI
CVX
GE
GWW
MCD
SBUX
SJM
UNP
WBA

The HYLG part of the port, however, has been significantly trimmed.

Positions eliminated:
LNCO (blech, what a lesson learned that was)
KMI (Good in a ZIRP environment, not sure how good it will be if/when rates start to increase)
HTGC and TCPC (BDCs that were not performing well)

Positions added
FPI (Farmland REIT, very interesting, but it's a partial position that I'm watching)

This is what I have left - 3 BDCs and 7 REITs and one goofy oil drilling company:

DLR
FPI
FSIC
MAIN
O
OHI
PFLT
SDRL
STAG
VTR

I'll be initiating a position in WPC sometime this week.

Part of the reason for this change is that I realized that I can quickly recreate the HYLG port when I'm a bit closer to retirement. So why take the risk now, when things are getting very, very strange? However, I'm holding on to the LYHG positions and am willing to take the beating if we finally have our long overdue correction. Actually, if that stuff goes on sale I'll probably buy more, much as I've done with CVX.