1042 Rollover Portfolio - Complete

[coffeyman76]

All I can say is whew...it's done.  Now to try and get in the habit of not looking at it every day since I can't get rid of it (the ultimate buy and hold strategy).  Avg weighted yield is right at 3%, and I've seen some really nice announcements and buybacks announced here of late.  

For those that didn't read my situation it in this thread:

http://dividendgrowthforum.com/showthread.php?tid=1727

I've got today and Monday to tweak a little and will probably take some winnings and offset with a few losses and re-balance a little.  Any comments last minute are appreciated!

I tried my hardest to keep an equal weight across ~55 to 60 names across 10 sectors and ended up with several half positions that expanded that some.  Since it's not actively managed or tracked daily having more names is not as much of an issue.  Some of those are fliers to some degree or that I just felt the valuation(s) had increased so much that I left them at half positions and moved to another name (indicated by *).  So here's the roundup!

HRL
K
CVS
MO
PEP
SJM
WBA

XOM
KMI
CVX
SLB

TGT
COST
GM
KMB
HBI
GME*

VZ
T
MTZ
FTR
CTL*

HON
DAL
GE
UTX
CAT
MMM
PLOW*

D
XEL
NEE
DUK
SO
ONEOK
ED*

JNJ
CAH
MRK
ABBV
GILD

CINF
C
TROW
AFL
BAC*
JPM*
SAFT*
PACW*
ORI*

INTC
QCOM
AAPL
STX
IBM
TXN
MSFT

NUE
ADP
WRK

[ChadR]

Are you allowed to sell covered call options in this account? And once the loan is paid off, are you then allowed to buy stocks or DRIP with the dividends?

[coffeyman76]

(02-02-2018, 10:13 AM)ChadR Wrote: Are you allowed to sell covered call options in this account?  And once the loan is paid off, are you then allowed to buy stocks or DRIP with the dividends?

Theoretically I am allowed to do anything with the account, including even just selling the asset itself.  The issue becomes at disposition, or if I had to surrender shares, I would owe cap gains tax on the full cost basis of the security (not just any appreciation).  So the concept is to hold it long term.  

I probably won't DRIP, only because that really causes a mess with respect to the basis given the above situation.  Instead all dividends will most likely be used to offset the cost of the loan carry.  In my situation I used cash to purchase stocks and a loan to purchase most of the Floating Rate Notes which are much less volatile - so I don't have a margin loan on these, they were purchased outright.  I'm really free to park them and wait or when I'd like loan against them on a 70% LTV and use those proceeds to purchase other stocks - or really anything I wanted.  

The risk is obvious, especially with stocks and just the last several days (LTV subject to rapid change).  The benefit of course is that taking assets that are earning over 3% in dividends alone with a loan that is a relatively small tax deductible cost - and investing those in other assets could generate some nice returns.  Even if those assets are more conservative in nature, you'd most certainly come out ahead.

Because I still have unused capital to use with the FRN's I won't leverage my stocks for some time.  Keep that powder dry for now so to speak.  Having just purchased headlong into a bull market I'm in no rush to leverage those and do it again - wait for a better opportunity and let the dust settle from getting this transaction done.

On a side note I did grab a few nice names right at the close including increasing holdings in MMM, GILD, HON, PSX and JPM at the end of the day Monday.  I'm now over my necessary requirement but I can re-balance or sell off some other assets that I am not as impressed with.

In terms of paying off the loan, as seller notes from the company sale are paid - probably around year 3 and year 6 that money can be applied to bring down the loan balance and free up the underlying asset - but that rarely happens.  Instead the loan stays in place for much longer and you are free to use the cash however you'd like.  If not you'd pay off the loan only to end up with a FRN that you'd have to leverage again just to free up cash.  It's circular for sure.  But that's ok, it's a small "fee" to pay to have 100% of your proceeds to use vs. ~70% if you just took the cap gains tax hit.