OK, My Turn

[Dividend Watcher]

Well, finally did it. Since the 1st of the month, all the limit orders I mentioned have traded. I addition to adding about 1.5% to our dividend stream, we are now officially out of cash for new investments. Now I can sit back and watch the dividends come in. We'll be collecting those overvalued or overallocated and DRIP the rest.

[Dividend Watcher]

This week added a little SO & EMR to my wife's portfolio to top both off. We had some free trades credited due to an error by TDAmeritrade so, with no transaction costs, didn't feel uncomfortable with the small share count trades.

[Dividend Watcher]

Added another small batch of RY when the price went below US$60. Used up the little I collected from dividends and the South32 sale.

Have a small amount of change in the wife's portfolio and 1 free trade at TD that I have to use up before 8/3. Choices, choices. I'm really waffling on what to buy -- more WPC or more EMR.

[KenBob]

(07-25-2015, 08:13 AM)Dividend Watcher Wrote: Added another small batch of RY when the price went below US$60. Used up the little I collected from dividends and the South32 sale.

Have a small amount of change in the wife's portfolio and 1 free trade at TD that I have to use up before 8/3. Choices, choices. I'm really waffling on what to buy -- more WPC or more EMR.

I just looked at RY on Yahoo. How can they have an enterprise value of -61.66B? I am confused.

[Roadmap2Retire]

(07-25-2015, 10:20 AM)KenBob Wrote:

(07-25-2015, 08:13 AM)Dividend Watcher Wrote: Added another small batch of RY when the price went below US$60. Used up the little I collected from dividends and the South32 sale.

Have a small amount of change in the wife's portfolio and 1 free trade at TD that I have to use up before 8/3. Choices, choices. I'm really waffling on what to buy -- more WPC or more EMR.

I just looked at RY on Yahoo. How can they have an enterprise value of -61.66B? I am confused.

EV = Market Cap + Debt - Cash & Cash Equivalents

So, when a company has more cash than market cap + debt, EV can be negative.
http://www.investopedia.com/ask/answers/...-value.asp

According to Yahoo Finance, market cap = $82B, total debt = $154B, and total cash = $298B ... so, EV = -62B

[Dividend Watcher]

Well, used up the last free trade and most of the free cash on EMR today in my wife's portfolio. At $50.50/share and a 3.7% yield, I couldn't pass it up even with the network power division going away and demand weak.

[Dividend Watcher]

It's been a while since I updated my portfolios. I wanted to chime in on the "What did you buy today" thread but, with everything going on in my life, did not have time to write an intelligent post. Now that the long-awaited correction is here, I'm taking a pause to review both of our portfolios. I've done a little shifting my focus over the past couple months so some changes have been made around the edges. As I've been documenting it here, I guess it's time to catch up. First my portfolio.

I got tired of GE and the glacial changes taking place. It's been a little over a year since I first took a position in it and in that time they've spun off some of the financial assets (Synchrony), tendered an offer for Alstrom which has been bouncing around regulatory agencies around the world and had to make various proposed concessions to get the deal done, tried to sell the appliance division to Electrolux but that got shot down for now, are getting around to jettisoning more financial assets, and now they've frozen the dividend through at least 2016.

I understand full well that large companies (and there aren't too many this size) sometimes take years to reconfigure their operations. However, by my guesstimates, before GE becomes an industrial powerhouse again I could be retired and there's no guarantee where the price or the dividend end up by then. The dividend freeze was the icing on the cake, especially so soon after the cut during the Great Recession. Even a penny a quarter bump, as in AT&T, would've signaled more of a committment to shareholders than announcing a freeze. Since many industrials had started breaking down in June-July, I decided to start looking at my options. This was done in the beginning of August.

Emerson Electric (EMR) has taken a beating since spring as their sales to the oil patch have decreased along with the oil stock's capital investment programs. Additionally, they have currency headwinds and European capital spending cutbacks to deal with at the same time. The stock price fall accelerated in May and by the end of July it was trading at the same price it was called away from me over 3 years ago.

Eaton Corp. (ETN) was holding up until summer hit. By then, the currency issues along with reduced capital spending throughout the world were taking a hit in all divisions except for the auto/truck drive trains. Some posit that that sector is peaking also. I've always liked ETN despite its cyclicality. When they bought Cooper Industries in the Great Recession, I thought that was a diversifying add to their industrial portfolio. I missed buying ETN coming out of the recession and by the time I was convinced the Cooper purchase integration was going well, the price had gotten away from me. Another point in their favor was that for the last 15 years (as far back as I looked), ETN has never cut their dividend. Yes, they've frozen it during the tough times a couple times. When the CEO stated recently that acquisitions would slow down in the near future to pay down debt and defend the dividend, I at least took it to heart that they are shareholder-friendly. With actions to back it up in the past, at least as far as I looked, I tend to believe him.

There were others such as HON, ITW, FAST, PH and MMM that interested me but either the yield was too low, the P/E was too high, or both for this point in my life. With less than a decade to full retirement age, I've begun focusing more on yield and accelerating the compounding machine.

I won't get into an analysis of the financials here. Let's suffice it to say I was satisfied with EMR's long track record and both companies' payout ratio is reasonable at 40-50%. Even with a drop in earnings, it won't be horrendous.

With all that, I modeled what kind of dividends I could expect for the next 15 years. Afterall, my goal is a continuing income stream to help fund retirement.

For EMR and ETN, I used the lowest of either the 3/5/10 year dividend growth rate or analysts' estimates of EPS growth for the next 5 years. In addition, I froze ETN's dividend for 2 years beginning in year two since a freeze could be expected at some point. I allocated 60% of the proceeds for a purchase of EMR and 40% for ETN.

For GE, I used analysts' estimates for EPS growth of 7.7% since the 5 & 10 year dividend growth rate is abysmal with the cut. The 3 year rate of 14.9% is unsustainable for a company the size of GE in my opinion. I froze GE's dividend in the first year as they've already announced that was their intention.

Here are the results:

   

In early August, I sold GE. I banked the cash for a week or so until I could get a feel for how the market was responding. Of course, they continued dropping but with a trailing P/E of less than 14 for both and yields up around 3.7%, I was satisfied to make purchases. Lucky for me, with the further drops in price, I was able to add a couple more shares than I had modeled adding a little more to the expected income.

Of course, a lot could happen in the next 3-5 years so beyond that is all speculation. However, I think I'm on firm ground in saying that I will at least receive the same or higher income for quite a few years by swapping GE for a combination of EMR and ETN.

Looking at it today, I could've done much better waiting a few weeks. Who knew that Santa was coming in August this year. Who knows, it may get better yet.

For you younger folks interested in GE, this wasn't meant to dissuade you from being or becoming a shareholder. There are tons of good things that GE is capable of; their locomotives, steam and gas turbines, medical devices (their MRI machines are all over here), their big data collection to improve reliability both in rail and in power generation, and aerospace/nuclear/power plant expertise to name a few. If you have patience and/or buy at the right price, you could be well rewarded. Just not for me at this time.

To be continued . . .

[earthtodan]

I agree about being disappointed with the sale to Electrolux being blocked, and sometimes wondering if I'm being a little too faithful holding GE. The sales of financial assets is moving forward at a steady clip though. It seems like every couple of weeks I read about another $10b financial business segment sold that I wasn't even aware of before. When I look at the businesses that will remain, with the exception of Appliances and maybe O&G, I think it's a pretty choice collection.

I've looked at ETN recently (mostly for Cooper) and didn't pull the trigger, but it's certainly a good value and a nice yield.

[Dividend Watcher]

Dan, as I said, my time frame was the deciding factor for me. If I had 10 or more years to go, I probably would've held on to GE. I think most everything will be resolved in a few years but the uncertainty and the higher yield from the replacements pushed me over the edge despite the headwinds both EMR & ETN are facing.

---

I said I would continue about a week ago and finally had a few minutes to jot down some things. I'll start with the wife's portfolio.

Once the dust settled down from the Baxter split and the new dividend rates were formalized, I started thinking what to do with them. Wouldn't you know it but when I had reached a decision, Shire plc put Baxalta (BXLT) into play. Obviously someone saw some value in BXLT. I was willing to get past a couple quarters financials as an independent company before I made any further decisions. Despite the yield going to next to nothing, the combined price post-split price of the two brought the total value up to a bigger gain. When the market started to get choppy mid-month I sold BAX but hung on to BXLT for now.

With the proceeds, I added a little COP at a 16% drop from her cost basis. I know full well about the cash flow squeeze in the oil sector but still felt comfortable with COP for the long run. With yield hovering around 6%, I was willing to hang in there.

I also added another batch of Norfolk Southern (NSC). Turns out I was a little premature buying at a couple bucks above her cost basis but yield is now close to 3% -- something we haven't seen from NSC in a while.

The Friday before the "flash crash" last week, I put in a limit order for JNJ at $95 thinking I'd be lucky for it to fill at that. JNJ's price had held up well around the $100 mark all through the turmoil of the week. When I checked the Asian markets on Sunday night, they were opening the week with another large sell off and when I woke up Monday morning, the European market was continuing the drop. So I dropped the limit order to a stink bid of $92 thinking it wouldn't fill. Much to my surprise, the market opened in the dumper and by the time the trade executed, she bought it at $85 and change. Nice surprise and price, IMO.

This is how the portfolio ended up at the end of August 2015:

   

The big changes in sector allocation was the drop in COP's (and ESV's) price bringing the energy down a little, selling BAX caused healthcare to drop a little although the JNJ add mitigated some of that and adding a little SO a while back and starting a position in LNT brought the utility sector up to a bigger allocation.
   

We now sit with an open limit order to bring BMO to a full position. Looking ahead, the goal is to add to LNT at a decent valuation, decide what to do with BXLT and, surprisingly, add a little to ESV under $20. I keep going back over ESV's financials and I keep thinking that there's some bright spots in the balance sheet. As I thought over what management has been doing, the dividend cut and stacking older rigs namely, I think it's the same thing I would've done if I were on the board to keep the business viable. A well-run company dealing with a tough oil market and an unforgiving stock market at the same time.

I've also turned on the drips for everything but HAS (high value) and MCD (already over a full position). We'll collect a few extra shares since things are still within sight of fair value for the rest of them before adding any new positions.

[Dividend Watcher]

Since I'm using this forum and this thread to keep my thoughts straight, I thought it was time to update where I stand and what we've done. Can't believe I haven't done this since last August. I'll start with my portfolio.

In August 2015 I used the GE proceeds to initiate positions in ETN and EMR as mentioned earlier. Also sold my BAX position and took that and some of my collected dividends to add to W.P.Carey (WPC) to give the income stream another kick in the pants.

In September 2015 I finally sold Baxalta (BXLT) since I didn't know where the Shire buyout was going and the dividend was still a paltry amount. Made a nice gain with which I added to my new EMR holdings as the price kept dropping. I also added to my HP holding at about half my cost basis. I know, the oil patch was a big question mark then, as it is now, but HP still had the dividend covered and were still the technological leader in horizontal drilling. They've been around a long time and made it through the last oil swoon in the late 80s/early 90s so was willing to take an gamble educated guess. I also upped the ante in ETN as it too kept dropping in price. I was feeling more comfortable with both EMR and ETN with the P/E dropping below both of their 5 year averages and the yield bumping up to 4%.

In October, ETN was taking a bigger beating than EMR so added a little more to ETN as well as adding to my CSX holdings which was priced about even with my cost basis from 2 years earlier. The ETN add has about reversed my previous 60% EMR/40% ETN split from the GE proceeds. Thought I'd take advantage of Mr. Market's perception of ETN being the weaker player and collect those dividends where they come. I have no concerns for ETN's future or the dividend coverage.

CSX seems to be the black sheep of the railroad survivors but with the midwest and northeast blanketed and some routes south, felt they had room to improve operations and had their fingers in a lot of the "industrial pie". Anecdotally, around Chistmas, I had seen a CSX train with a ton of UPS tractors & their trailers loaded on their intermodal flatbed cars ready to drive off at their destination. I didn't count the number of cars but it did take a while (read: minutes) for the whole train to pass. Hometown knowledge also confirmed that CSX was making major track expansions near the Albany, NY crossroads to improve east-west and southbound capacity.

In November, with the market on the mend from August's burp, the only exciting thing (besides all those wonderful dividend reinvestments) that happened was a big chunk of my Aflac (AFL) was called away from me at $65. I originally thought I'd be selling cash-secured puts to get back in but, with premiums so low at the price I wanted it, I thought I'd let it bubble in my small mind a little longer. This is the most cash I've had laying around in my account in a while. After all, I still had a good chunk of AFL sitting in the account and the yield was low enough that I wasn't missing a huge amount of income.

December made me quickly decide against going all back in with AFL. I'd been staring at OHI's yield and decided I couldn't resist adding a little chunk more to that gusher. Royal Bank (RY) was also crying for some attention and, at about 4.5% yield, thought I'd add to the starter position I already had. MAIN had taken a big enough hit that I thought I should probably add some more there too. So, at about a 20% discount to my cost basis, I added enough to bring it to the position I had allocated in my planning spreadsheet.

I had written about Compass Minerals (CMP) on SA a while back but never was a serious purchaser because of valuation up until December. The early mild winter and the general dislike of basic materials stocks drove the price down to the low-70s and a P/E closer to 12. The yield was hovering around 3.5% and they had announced the purchase of an Argentinian plant nutrition company adding to their sulfate of potash (SOP) and specialty fertilizer products and away from reliance on winter de-icing products. As best as I can tell, the SOP specialty crop market is quite different from Potash's and Agrium's agricultural markets that they have a lot less competition. I'm thinking this could help even out CMP's revenue stream over the year despite the de-icing market still being the largest revenue stream. With that in mind, I opened a half position in CMP.

GILD was once again below $100 and with that I added another small chunk. I've written before about their headwinds with Solvadi/Harvoni and much of their pipeline being in new fields. They were/are still collecting a heck of a lot of cash with their entire outstanding debt being covered by cash in the bank. Sometime in the future they may come out with another blockbuster or find a company/drug line to purchase they think is not overpriced. Until then, I'll be patient as they keep collecting cash and sharing some of that with me. If the price keeps dropping, at what point does some large drug manufacturer decide that they're getting a cash machine for next to nothing and decide to purchase it?

By Christmas I had used up a big part of the AFL proceeds but still had a little left to watch for bargains.

In January, the market opened the new year in the dumper and it seemed everyone was panicking. As the year progressed, I still hadn't found anything that was a steal that I was looking at. I was tired of listening to the headlines crying about how weak the market was yet no one was giving me what I wanted at fire sale prices. This led me to bitch about it here.

Despite that, I still added little chunks to RY, WPC and CSX. All were priced at levels I felt comfortable with. I also bought back enough of AFL to get it to a position size I was comfortable living with for a few years since I didn't see any great bargains being thrown at me of companies I was interested in. Despite my whining, I finished up January with a little cash and a portfolio I felt quite comfortable holding through the next recession.

February didn't change my thought process much. I added another small chunk of GILD when it was in the low-80s averaging down once more and also added enough of CMP to bring it to about 90% of my allocated percentage of the portfolio. I'll let the dividends do the rest of the work. I don't want basic materials being too big a component of my portfolio; especially after the BBL fiasco (see below).

Here it is March and I once again have about 0.4% in cash in the account. The market has zoomed back up to a point where my portfolio value and the expected income are at all time highs. About half my holdings are not being reinvested due to either oversized positions or gross overvaluation. I'll let it collect and hope that when the next bargain shows up I'll have enough to take a meaningful position.

BBL's cut their dividend -- just as expected. I'm not selling and booking an 80% loss at this time. It's the largest mining company in the world and, with so many moving parts (including oil), I think they'll be able to weather this. I'm sure, as in any big company, there's room to cut more to ensure their survival. Sure, I may have to wait 5 to 10 years but with the rest of the portfolio throwing off all that income, I can be patient. If we get an actual bear market (>20% drop) in companies that interest me, I may be tempted to take the loss and move what's left into something that's as close to a sure thing as you can get in the market. My projected income stream is still above my early retirement projections so there's no screaming need to make drastic changes.

EMR's last dividend increase was a pittance. I didn't like it but I also work with/on lots of EMR's products in my new job. The company keeps buying replacement parts and new machines for the old ones that get destroyed in a heavy manufacturing environment so it's not like there's no market for them. Once oil or the crazy forex issues get straightened out, EMR will have more breathing room and things should hopefully get better.

I'm still happy with my GE for EMR/ETN trade mentioned above despite GE zooming up in price. The income stream is where my focus is and I have a YOC on both issues just above 4%. I'm content to just keep having them plop those reinvested dividends in my account for the time being.

I will probably trim my Harris Corp (HRS) sometime in the near future. Yield is pretty low, they're going to spend the next year or so digesting the purchase of Exelis and I really would like to add a little to ES and XEL. I'll worry about it when the prices are where I want them to be. Utes are ridiculously priced right now for the most part.

Am I worried about being fully invested if a recession or bear market should arise? Nope. I'm satisfied with how things are progressing. I've surprisingly become indifferent to prices on what I hold and spend more time keeping track of the dividends and refining my retirement projections. (Thanks for the weekly update, R2R! Saves me time hunting them all down.) I update my spreadsheet every so often but five minutes after I'm done I probably couldn't tell you what anything was priced at. If something is grossly over- or undervalued, that might stick out in my mind but, since I don't have a ton of cash on the sidelines, I'm content focusing on other things in my life right now.

Here's how the portfolio looked like as of last Friday, the 18th of March (I think it's self-explanatory.):

   

My top 4 income producers are ABBV, CVX, PEP & T. Will CVX cut the dividend? Maybe. In the meantime, those are my ATM's that are building up the bulk of my cash reserves. I've thought about trimming some of my ABBV and moving it into JNJ to spread it around but I'm in no hurry to lose out on that 4% yield from ABBV and JNJ is just a tad high for me right now. No, I'm not so concerned with the Humira patent issue nor the black box warnings on Viekira Pak.

Sector allocations:

   

I'll work on my wife's portfolio next when I can take a breather from watching a movie and eating bon-bons.

[rayray]

DW, Thanks for that portfolio review. I sold BAX and BXLT for the exact same reasons, it was hard for me to sell but I don't regret the decision one bit. My other spin-off I've been sitting on has been CCP, still not sure at the moment what I'm going to do but I may buy if it drops below 25. In my ROTH I missed the down turn earlier in the year because I've been building up a cash position, trying to get to that 5% mark, once it breaks 6% I'll invest 2% of those cash reserves and repeat the process. I've never been one to hold cash so this is something more of a personal agenda then anything else.

[Roadmap2Retire]

Thanks for providing an update...always great to see how things progress and what becomes more important as you get closer to retirement.

Hopefully you are right that CVX can keep those dividends flowing. I am ok even if they freeze it and can avoid a cut...even though I have a very small position in the company.

Glad to provide the weekly updates. Happy to hear that you find it resourceful.

R2R