08-07-2013, 01:55 PM
(08-07-2013, 12:45 PM)TomK Wrote: Hi Eric --
I am not familiar with the last two names on your list, but otherwise it seems solid. I am a big fan of the tobacco stocks. Utilities too, though I'd be surprised to learn that SO is growing the dividend at 5 percent annually. REITs have been beat up badly lately, so if you can stomach that risk, this might be a very good time to get into some of those names.
That said, I don't have anything on my list right now that meets the 5/5 criteria you've set out. Especially given the recent run-up in prices, a 5% initial yield is a tall order (other than REITs, MLPs, etc.).
Do you mind sharing why you've landed on the 5/5 criteria? In other words, is there a reason you need or want an initial yield that high? If your time horizon is long, you might look at stocks with a slightly lower (but still good) initial yield, but very good dividend growth rates. I'm thinking of companies like LMT, WFC, and PM.
Also, why 10 stocks? $800 each seems like a prety small initial allocation. Maybe consider putting all $8k into your three or four highest-conviction plays and then diversify with new funds in the future?
Tom
Thanks for weighing in Tom!
SO currently has a 5 year CAGR on the dividend of 4%, so it doesn't quite meet the 5/5.
I should clarify that the 5/5 isn't a number set in stone, it was just a number that I'd like to get close to. Since I am not reinvesting the dividends back into these positions I am trying to get decent dividend growth so the annual dividend I can pool for new positions will add up more quickly as time goes on. If I can get a 5% portfolio yield I would accumulate about $400 in dividends in the first year and with a 5% annual raise it would bump up to $420 next year, $441 the next, $463, $486, $510, $536, $563, $591, $620 and finally $652 after 10 years.
I'm hoping after a couple years these amounts plus the dividends thrown off from new investments will buy a new stock every year.
I also considered buying an mREIT or two for the 10% plus dividends, but I don't understand that market very well and don't think the risk/reward is worth it.
Anyways, here are the numbers for the ones I've considered so far
ARCP 6.5% yield, new REIT
BP 5.2% yield, yield still recovering from Gulf oil spill
COP 4.1% yield, 13.1% 5YR CAGR (4.6% MR)
DLR 5.7% yield, 20.6% 5YR CAGR (6.9% MR)
LO 5.1% yield, 17.3% 3YR CAGR (6.5% MR)
MO 4.9% yield, 14.3% 5YR CAGR (7.3% MR)
OHI 6.3% yield, 9.4% 5YR CAGR (2.2% MR)
SO 4.6% yield, 4.0% 5YR CAGR (3.6% MR)
TCAP 7.3% yield, 15.6% 5YR CAGR (2.2% MR)
TGH 5.2% yield, 52% 5YR CAGR (1.9% MR)
I currently own LMT, PM and WFC in my 401k already. I like those stocks but in this portfolio with no new money coming in I am looking to get as high of a safe yield as possible so I can build up cash to reinvest more quickly.
You may be right that 10 stocks is too many. I chose 10 because I like diversification as a safety net and by doing $800 per position I would be limiting commissions on trades to around 1%. With this portfolio I would have two oil stocks, a retail property REIT, a BDC, a healthcare REIT, a technology REIT, two tobacco stocks, a shipping stock and a utility.
Once again, thanks for commenting!