Newly assigned IRA portfolio

[daat99]

Hi,

After studying the DGI subject for a while and shadowing this great forum I finally decided to take initiative and transfer my "educational fund" into a self-managed IRA account.
As a non-US citizen the US is going to deduct taxes from my IRA account for dividends bummer...

I'm going to describe my decision making process for future reference (for myself) and in hope to get comments on how it can be improved (and I already know it can!).

First I needed to decide how many companies I want to purchase before next month funding.
While decided I considered the following:
1. My account has ~$11,100.
2. By law I must make sure that each company has less than 10% of my entire account value at any given time.

Combining the above restrictions I decided on 11 stocks.
This decision means each company will get ~$1,000 and ~9% weight.

After figuring out how many companies I want to purchase today I turned to research.

For my research I used David Fish's CCC list.
I referred to the "All CCC" sheet and started to filter stocks out as follows:
1. Years increasing dividends: 10 or more.
2. Dividend Yield: 2.5% or more.
3. EPS% Payout: 60% or less.
4. TTM P/E: 20 or less.
5. Debt/Equity: 1 or less.
6. 1,3,5 and 10 year DGR: 2% or more.

Next thing I started to go over all the sectors one at a time.

At this point I created my own spreadsheet.
In this new spreadsheet I gave all the companies in each sector a relative rank in the following criterion's:
1. Dividend Yield
2 .EPS% Payout
3. TTM P/E
4. Debt/Equity
5. 10 years DGR
6. Chowder rule

Each company has its own rank in each criterion based on the "relative ranking system" (best company got 1, 2nd got 2, 3rd got 3... etc).
After giving all the companies their relative ranks I summed the ranks from all the criterion's and got a final company "score" where the lowest number is the best.

These are the results:

Code:

Consumer Discretionary    CBRL    GPC    MCD    TGT    WEYS
Yield    1    5    3    2    4
EPS% Payout    5    2    3    4    1
TTM PE    3    4    2    5    1
Debt/Equity    3    2    5    4    1
DGR10    1    5    2    3    4
Chowder    1    5    3    2    4
Total:    14    23    18    20    15

Consumer Staples    ODC    UVV    WMT
Yield    2    1    3
EPS% Payout    3    1    2
TTM PE    3    1    2
Debt/Equity    1    2    3
DGR10    2    3    1
Chowder    2    3    1
Total:    13    11    12

Energy    ARLP    COP    CVX    OXY    XOM
Yield    1    3    2    4    5
EPS% Payout    1    5    4    3    2
TTM PE    1    3    2    5    4
Debt/Equity    5    4    2    3    1
DGR10    2    3    4    1    5
Chowder    2    3    5    1    4
Total:    12    21    19    17    21

Financials    ACE    AROW    AUBN    BHB    CBU    LARK    NWFL    SBSI    TMP
Yield    9    2    4    6    7    3    1    8    5
EPS% Payout    1    8    4    2    9    6    7    3    5
TTM PE    2    8    3    1    9    5    4    6    7
Debt/Equity    5    2    4    1    3    9    7    6    8
DGR10    2    9    7    8    5    3    4    1    6
Chowder    2    8    9    7    6    3    4    1    5
Total:    21    37    31    25    39    29    27    25    36
    B13    B27    C6    B12    C12    C3    A13    B25    A30

Health Care    OMI    SPAN
Yield    1    2
EPS% Payout    2    1
TTM PE    2    1
Debt/Equity    2    1
DGR10    1    2
Chowder    1    2
Total:    9    9

Industrial    RTN
Yield    1
EPS% Payout    1
TTM PE    1
Debt/Equity    1
DGR10    1
Chowder    1
Total:    6

Information Tech    INTC    MSFT
Yield    1    2
EPS% Payout    2    1
TTM PE    2    1
Debt/Equity    1    2
DGR10    1    2
Chowder    2    1
Total:    9    9

Materials    BBL    BHP    BMS
Yield    1    2    3
EPS% Payout    1    2    3
TTM PE    1    2    3
Debt/Equity    1    2    3
DGR10    1    2    3
Chowder    1    2    3
Total:    6    12    18

Telecommunications    T
Yield    1
EPS% Payout    1
TTM PE    1
Debt/Equity    1
DGR10    1
Chowder    1
Total:    6

Utilities    LG    NJR    NU    RGCO
Yield    2    4    3    1
EPS% Payout    3    1    2    4
TTM PE    2    1    3    4
Debt/Equity    3    2    4    1
DGR10    4    2    1    3
Chowder    4    2    1    3
Total:    18    12    14    16

As you can see from the results above I had 10 sectors with the following winners:
Consumer Discretionary: CBRL
Consumer Staples: UVV
Energy: ARLP
Financials: ACE
Health Care: OMI , SPAN <== tie
Industrial: RTN <== solo candidate
Information Tech: INTC, MSFT <== tie
Materials: BBL
Telecommunications: T <== solo candidate
Utilities: NJR

Next step was to break the ties.
In the Health Care sector I chose SPAN over OMI because SPAN had lower PE, Debt/Equite and EPS% Payout ratio.
It has lower yield but I figured that if EPS% payout is lower than there is a bigger room to grow dividends in the future.
Also its Debt/Equity is lower so that means it'll have easier time operating in "rough weather".

In the Information Tech I chose MSFT because I already have INTC stocks (I worked for them in the past and never sold the stocks I got as an employee).

With all this filtering I ended up with 10 stocks:
ACE, ARLP, BBL, CBRL, MSFT, NJR, RTN, SPAN, T, UVV

Now I needed to find another stock to reach my "11 companies" goal.
I went back to the financial sector because it had the most companies in it that met my previous criterion.
In the financial sector 2 companies shared the 2nd rank: BHB and SBSI.
Going back to David Fish's CCC list I compared the 2 and decided on SBSI only because it's Chowder rule was 18.2 while BHB had 7.4 that's a huge difference.
BHB had everything else much better so I'm not sure if I made the right decision on this one though.

So I ended up with the following final list:
ACE, ARLP, BBL, CBRL, MSFT, NJR, RTN, SBSI, SPAN, T, UVV.

Just out of curiosity I made sure I have dividends coming every month of the year based on the dividend payout schedule for Q1 2014 (I had companies that paid on January, February and March).

With all this hard work behind me I headed to the broker account and made the purchases (using limit orders):

Code:

Symbol    Qty    Price    Commission    Total Cost
ACE       9    $105.15    $6.08     $952.43
ARLP      23    $44.42    $6.03     $1,027.69
BBL       15    $68.50    $6.05     $1,033.55
CBRL     10    $98.20    $6.07     $988.07
MSFT     24    $42.30    $6.03     $1,021.23
NJR       18    $56.20    $6.04     $1,017.64
RTN       11    $94.44    $6.07     $1,044.91
SBSI      36    $28.60    $6.02     $1,035.62
SPAN     51    $19.65    $6.01     $1,008.16
T           28    $36.14    $6.03     $1,017.95
UVV       18    $54.31    $6.04     $983.62

The commissions are killing me....
In any case, this is my newly created portfolio in my IRA account.

I expect deposits of ~$500 every month and another ~$32 a month (not really, I just divided the yearly gain by 12, didn't calculate exactly how it spreads over the year).

My plan is to purchase new company every 2 months with ~$1,100 until I reach at least 30 companies.
At that point, every time I'll have at least $1,000 in my account I will consider adding to positions which weight less than 5% or opening new ones based on market conditions and attractive evaluations.


Important thing I know and skipped altogether is performing background evaluation of the companies.
This will probably get back to make me regret this but oh well, I was anxious to get started


I would appreciate the thoughts of the experts on this

[ChadR]

Looks like a really good list of companies. I own of few that you own, but not all of them. Need to do more research on some of them, but at first glance it looks good.

One thing that would worry me is that since you can't have more than 10% in any one stock, having only 11 stocks is scary. By this I mean that one good day for one stock can raise it to over 10% of your portfolio value. Or is it measured once a year and not daily? If it is daily, you might want to get $2,000 into it today and buy 2 more stocks real quick. Once you hit about 15 stocks or so this won't matter any more for you.

[EricL]

(07-16-2014, 02:17 PM)ChadR Wrote: Looks like a really good list of companies. I own of few that you own, but not all of them. Need to do more research on some of them, but at first glance it looks good.

One thing that would worry me is that since you can't have more than 10% in any one stock, having only 11 stocks is scary. By this I mean that one good day for one stock can raise it to over 10% of your portfolio value. Or is it measured once a year and not daily? If it is daily, you might want to get $2,000 into it today and buy 2 more stocks real quick. Once you hit about 15 stocks or so this won't matter any more for you.

I was thinking the same thing. Would only take a 10% move up in a stock to get you in trouble.

---

(07-15-2014, 04:04 PM)daat99 Wrote: With all this hard work behind me I headed to the broker account and made the purchases (using limit orders):

Code:

Symbol    Qty    Price    Commission    Total Cost
ACE       9    $105.15    $6.08     $952.43
ARLP      23    $44.42    $6.03     $1,027.69
BBL       15    $68.50    $6.05     $1,033.55
CBRL     10    $98.20    $6.07     $988.07
MSFT     24    $42.30    $6.03     $1,021.23
NJR       18    $56.20    $6.04     $1,017.64
RTN       11    $94.44    $6.07     $1,044.91
SBSI      36    $28.60    $6.02     $1,035.62
SPAN     51    $19.65    $6.01     $1,008.16
T           28    $36.14    $6.03     $1,017.95
UVV       18    $54.31    $6.04     $983.62

Important thing I know and skipped altogether is performing background evaluation of the companies.
This will probably get back to make me regret this but oh well, I was anxious to get started.

It worries me a bit that you did little background evaluation on the companies. Half of them are solid, well-known companies (BBL, CBRL, MSFT, RTN, T) but a few of the others have some question marks.

ARLP is an MLP and may lead to tax complications in an IRA.

SPAN is a micro-cap stock that only trades a few thousand shares a day. While the long term chart looks decent, it would concern me to own something with such a small market cap.

UVV is also an obscure company with no analyst following and a somewhat volatile history.

I would recommend you focus on companies with at least $2B in market cap that have shown a long history of consistent and reliable earnings and dividend growth.

[daat99]

(07-16-2014, 02:17 PM)ChadR Wrote: Looks like a really good list of companies. I own of few that you own, but not all of them. Need to do more research on some of them, but at first glance it looks good.

One thing that would worry me is that since you can't have more than 10% in any one stock, having only 11 stocks is scary. By this I mean that one good day for one stock can raise it to over 10% of your portfolio value. Or is it measured once a year and not daily? If it is daily, you might want to get $2,000 into it today and buy 2 more stocks real quick. Once you hit about 15 stocks or so this won't matter any more for you.

First I would like to thank you and EricL for replying.

The 10% limitation is monitored daily but it gives me 45 days to respond to it.
If I won't take action in 45 days than the broker is supposed to lock my account with the exception of actions that can fix the issue.

As for adding money, I'm afraid it is out of my hands.
My employer deposit funds in the middle of every month on my behalf (25% from my salary, 75% as a benefit by my employer - a total of ~$500 per month).

I am supposed to get the deposit for June in a week or so so that will give me another $500 to work with.

I intend to wait for middle August (when my July deposit kicks in) and then purchase another company (netting me 12 companies).

I'm hoping that the companies won't get out of sync too much to warrant drastic measures like selling part of my holdings.

I tried to balance the commission fees per trade and the small capital amount in my IRA so I figured $1,000 per trade should be good enough for commissions and still get me more than 10 companies total.

I would like your opinion on my picks in the "tie" part of the portfolio:
Health Care: OMI , SPAN <== tie

I chose SPAN over OMI while they both scored the same in my ranking system.

Do you think SPAN is better than OMI?
Do you have any suggestions on how to modify the filtering criterion's and ranking system I employed?


**edit**
I just noticed the addition part of EricL comment when he addressed those questions exactly
Thanks EricL.
I was anxious to get started so I rushed it, I'll definitely do more background work before my next purchase!

Good point about the small capital and the "no analysts are covering it".
I'll make sure my future purchases are covered by analysts and has bigger capital as well.
I didn't noticed ARLP is an MLP at all, I'll keep an eye out of those (I have no idea what the tax implications will be though).

Thanks for the very constructive and helpful criticism.
This is exactly why I wanted to post this thread