Dan's portfolio

[earthtodan]

Here's my introduction by way of my portfolio. I'll try to keep it brief while I describe my target allocations, strategy, and some lesser known stocks, in no particular order.

First, I have all my positions assigned to one of four categories, by yield:
- High Yield (over 5% yield).
- Balanced (2% - 5% yield). This includes the blue chip dividend growers.
- Growth (0% - 2% yield). This can include fast dividend growers, or non-dividend paying stocks as long as they have fast earnings growth.
- Speculative. This is my play money.

Here is my target allocation by category, according to my spreadsheet (not including cash).


Next, I don't use DRIPs. Instead I use MerrillEdge with Platinum Privileges, which gives me 30 free trades per month, so I can redirect dividends anywhere I want. I can make small purchases to add on dips, and I don't have to worry about commissions.

Finally, I don't own any businesses I find objectionable. PM, MO, KO, PEP, MCD, WMT, MON, are out. I can't decide whether socially conscious investing actually matters, and I'm leaning toward that it doesn't, but regardless, I can still build a successful portfolio out of businesses I feel good or neutral about.

Here's the list of my target allocations. At 35 positions it's kind of long, and it could be a lot of work to keep tabs on all of them, but then again, I don't feel like I need to sign up for email updates on a blue chip company like 3M.



Total weighted yield = 3.72%

I'm 32 and I figure I have 3+ decades until I start taking dividends.

Dan

[earthtodan]

I'll explain some of the companies that might be unfamiliar to people.

Rockwood Holdings (ROC) is the closest thing to a pure play in lithium production. They mine and process lithium for batteries, pharmaceuticals, and other industries. I believe this is a lucrative industry due to electric vehicles and other devices. However it trades at a steep price. The other part of the business is chemical treatments for industrial coatings, which is heavily exposed to the auto industry. They have a strong shareholder return philosophy and are a recent dividend payer.

United Natural Foods Inc (UNFI) is the largest distributor of natural and organic products. They are the main supplier to Whole Foods, but WFM is only part of a diverse revenue stream, so they're more of a whole sector play. They don't pay a dividend, but they've been growing earnings rapidly and I expect this to continue.

Pattern Energy (PEGI) is a renewable energy utility that owns wind farms selling power through PPA contracts. It's basically a yieldco with an expansionist twist.

ITC Holdings (ITC) is an electric transmission line owner and developer, and fast dividend grower. They operate on a toll road model, kind of like KMI (except without an MLP). I think this is a good way to play the utility space.

Awilco Drilling (AWLCF) is a small UK-based drill rig operator with two old midwater rigs outfitted for the North Sea. They are relatively unknown and undervalued, and they pay a hefty yield. However there's no growth story.

Pacific Drilling (PACD) is an upstart Houston-based ultra-deepwater drill rig operator with the newest fleet in the industry, bar none. They are the only company with 100% newbuild ultra-deepwater ships. They also have high exposure to Chevron as a customer, which gives me comfort. They don't pay a dividend yet but they're talking about initiating one in 2015.

Novo-Nordisk (NVO) is a pure play (almost) in the diabetes space. I think this is a no-brainer part of the healthcare sector to be invested in, since sugar and western diets are growing fast around the world, and diabetes along with it. NVO has been growing at a double digit cagr for a while and the dividend has been growing even faster. They have no debt. They are in Denmark, so they only pay annually and the government taxes the dividend 28%. You can get a credit for this from the IRS. I consider them a long term growth story.

WhiteWave Foods (WWAV) is a high growth organic food company with a small yet well targeted brand portfolio. They don't pay a dividend and they probably won't for a long time, but I think the growth story is compelling.

Hannon Armstrong (HASI) provides structured finance products for renewable energy and infrastructure development, and is structured as a REIT. They have a pretty convincing story if you listen to their presentations, and their goal is to be a dividend grower. They went public in 2013 but they have a longer history as a privately held company.

[Kerim]

Really great work, Dan. I especially like your four general categories with target allocations for each -- I may have to give something like that a try. It is clear you've put a lot of thought into what you're doing and have a plan. I wish I had been that far along at 32!

I certainly don't think that 35 positions is unwieldy. You describe the table as your target allocations. Do you already have positions in all 35, but not at those allocations? Or have you yet to open positions in some?

Also curious what (or what kinds of things, at least) is in your speculative / play bucket.

Well done.

[earthtodan]

Thanks Kerim! I definitely have some empty spaces and partial positions in my list, since I really only started buying in the last 6 months, and some of these will probably remain empty for a while if the market stays expensive. Some of them are overallocated because they are cheap, like BAC and offshore drillers, and I'll either trim them later or grow into them. GE is overallocated because I bought it a while ago before I really had a plan.

My biggest position: Cash. I just sold some stock options in my company and I'm full of dry powder, hoping today's selloff is the beginning of a big correction.

Cash: 40%
TD
BNS 4.2%
USB 1.0%
WFC
BAC 4.1%
GE 5.3%
MMM
DE
ROC 1.0%
UNP
UNFI 0.9%
PEGI 2.2%
ITC
KMI 3.4%
AWLCF 2.2%
PACD 4.1%
ESV 1.1%
SDRL 6.7%
NVO 2.0%
SNY 2.0%
JNJ
CVS
SBUX 2.0%
GIS 4.1%
WWAV
QCOM 2.0%
MSFT
INTU
VTR 2.1%
ARCP 4.1%
HASI 2.4%
OHI

Yesterday was an exciting day to own PACD, the offshore driller I mentioned above. Voting became available for shareholder proposals, and I voted "yes" on the proposal to start paying a dividend in 2015 (at the discretion of the board), up to 6.7% based on the recent market cap. Add the growth projection to that and I'm tempted to overreach on this one even more if the price keeps falling.

[rnsmth]

Good job Dan! At the age of 32 you are way ahead of where I was at 42 !

[Dividend Watcher]

(04-06-2014, 01:30 PM)earthtodan Wrote: Here is my target allocation by category, according to my spreadsheet (not including cash).

Very interesting portfolio. You're gonna do OK.

I'm a little confused, the pie chart/allocation is based on what you already hold or what you want the balances to be? The wording was a little confusing to me.

At your age, that allocation seems good.

[earthtodan]

(04-11-2014, 09:23 AM)Dividend Watcher Wrote: I'm a little confused, the pie chart/allocation is based on what you already hold or what you want the balances to be? The wording was a little confusing to me.

At your age, that allocation seems good.

Hi DW,
I see how that's a bit confusing. The pie chart I posted is my target allocation. I didn't decide on the numbers myself; I came up with them by entering a desired starting allocation for each individual stock. Each position is assigned a profile, and the spreadsheet adds them up. I enter them in such a way that they always add up to 100%, no matter how much I enter. However I did massage the positions so that the balance looks right.

I came up with a really cool system for calculating a target percentage. It's in a Google Doc that streams prices and other info in real time from Google Finance. I'd post the link, but I don't know if that's entirely wise since it's linked to my Gmail account, but I'll try to describe it.

I don't enter a target percentage. Instead I enter my target Position Multiple (Px), on a scale of 1-5, which is kind of like my level of conviction for that stock. I end up with a column under the heading "Px" with numbers 1-5. At the bottom, the numbers are added in a cell. Say the total is 78. That means there are 78 basic units of conviction in my portfolio, each one being 1/78th of the total.

The next column determines the target allocation by multiplying (100/78) * the Px of each position. If my conviction for JNJ is 5, then my target allocation is (100/78*5) = 6.41%. This way I can play around with one position at a time without worrying about making sure they all add up. It also gives me my target allocation in $, based on the % of my total portfolio size, so I know how much to buy.

Say I want to add a position. I like the healthcare sector, and I want to add BDX. I add a new line in the appropriate place, enter my Px, and all the rest of them automatically adjust. I can see how adding BDX will slightly push down the rest of my % allocations. Say I give BDX a Px of 3, which brings the total to 81. That gives it a target allocation of 3.7%, but pushes JNJ down to (100/81*5) = 6.17%, along with everything else.

In fact, the percentages I posted in the image above are rounded for simplicity. In my spreadsheet they are all decimals.