KenBob Portfolio

[KenBob]

I have been dividend growth investing in my taxable account for about 2 1/2 years. The majority of my savings is still in mutual funds in tax deferred accounts; however, the taxable account is where I am currently putting my savings.

The following are the stocks I own and the percentages:
AEP 1.7%
BAX 3.1%
CA 3.2%
CBRL 2.0%
COH 2.0%
COP 1.7%
CPSI 1.6%
CRWS 1.7%
CSCO 2.5%
CSX 5.4%
CVX 3.0%
DPS 1.7%
ELRC 1.3%
FHCO 1.2%
FRS 1.6%
GCI 2.1%
GIS 1.3%
HAS 4.2%
INTC 3.7%
IPHS 1.5%
JNJ 3.1%
KLAC 2.1%
KMB 4.6%
MAT 1.8%
MCD 4.7%
MSFT 2.2%
MXIM 1.3%
NPBC 1.5%
NSC 4.9%
OMI 3.4%
OXY 3.1%
PETS 2.6%
PKG 3.2%
QCOR 0.8%
QSII 1.7%
RFIL 1.9%
SAFT 1.5%
SO 2.9%
SPLS 2.0%
STX 2.5%
WAG 1.9%

I purposely have a large number of stocks, since I don't think small investors have enough information about any single company to take too large a stake. In addition, I will buy smaller cap stocks which meet my criteria which makes my buying pool larger than most investors. I buy the cheapest stock compared to valuation that doesn't exceed my weighting criteria at the time I have money to invest.

The greatest percentage is in CSX, since I believe railroads will be the key industry in the future. The smallest percentage is in QCOR, since I sold most of my shares after the very large run-up in price with the remaining shares used primarily to keep my attention on the stock.

[KenBob]

I have done some major restructuring to my portfolio since I last posted.

First, I have limited stocks to those with a capitalization of at least $5B. The primary concern is that the news available on small cap stocks is so limited.

Second, I have added some REITs as a means of improving near term yield and adding diversity. I considered MLPs, but rejected them, since the structure is so complicated.

The following is my current portfolio with the weightings:

AEP 1.7%
BAX 3.1%
COH 1.8%
COP 1.5%
CSCO 2.5%
CSX 5.2%
CVX 3.9%
DPS 6.0%
EXR 1.4%
GIS 2.9%
HAS 2.0%
HCP 3.8%
INTC 2.2%
JNJ 4.2%
KLAC 2.1%
KMB 4.4%
KO 4.1%
KRFT 4.3%
MAT 2.0%
MCD 2.6%
MSFT 2.2%
MXIM 2.1%
NSC 5.0%
O 1.8%
OXY 4.0%
PAYX 2.2%
PG 5.9%
PKG 1.4%
PSA 3.9%
SO 2.9%
TXN 2.6%
VTR 4.0%
WAG 2.0%

[Kerim]

That is some serious restructuring indeed, KenBob. Overall, I think the changes look great. You've reduced your number of holdings a bit and have really focused on quality. I took the information from your old and new lists and made the following combined table that shows the changes. Entries in red are the positions you've closed out since your previous update; those in green are new.

   

I especially like your increased weighting of some of the large "anchor" dividend growth names -- starting significant positions in PG, KO, and KRFT, and increasing your holdings of JNJ and GIS. I think that will give your portfolio a lot of stability.

Nice job!

[KenBob]

I decided that my method concentrated too much on financial data, rather than more qualitative factors, which requires following news about a company. What is ironic is that an SA article (which we discussed on the forum) where the author was pushing more return (and more risk), started me thinking about the risk I was assuming in my portfolio. I didn't want to head down the same direction as that author.

What I regret about the restructuring is that I also did some rebalancing, which was against my investment policy statement. Once started, it is hard to stop. The capital gains I just finished paying taught me not to do that again. It is better to just let an overweighted position drift down with additions to the portfolio.

[Dividend Watcher]

I like the newer portfolio also. Really solid list with a nice blend of growth and yield, IMO. (Thanks, Kerim, my eyes were crossing going back and forth on the lists.)

Just a couple questions:

You seem to have expanded your holdings of DPS. Is that correct or is it just the valuation of the rest of the holdings? If so, what's your "story" on DPS? I hold PEP, wife has KO but DPS has intrigued me as the "underdog company".

I see you added HCP. I put that in my wife's portfolio. Liked their diversification across 5 sectors of healthcare facilities; from nursing homes to bio labs. I did worry a little with Manor Care (I think) being their largest tenant but so far, they seem to be able to pay the bills. Seems they're less liked than other HC REITs due to the shakeup in the CEO office. Don't know the real story but the new CEO came from the C-level at another REIT so she's not ignorant of the dynamics of the business. What are your thoughts on the tenant issue?

[KenBob]

Both DPS and HCP were bought on financial data. DPS had a very good dividend growth rate, while HCP had a low debt to equity ratio for a REIT.

The reason for the weighting difference between DPS and KO is due my changing the classification of soft drink companies between the purchases. I was classifying these companies as consumer staples (6%weighting), but changed the classification to basic industry (4% weighting). The reason was that consumers will reduce their purchases of soft drinks, either for economic or health reasons.