The Money Tree

Safely Generating Income in Retirement

Archive for the ‘Long Term Holdings’ Category

Long Term Portfolio – Q3 Update

Posted by mounddweller on September 29, 2018

Fellow investors,

Here’s an update on my long-term stock portfolio at the end of Q3.  Readers will recall this is my portfolio of MLPs and dividend growth stocks.  In Q3 I added to one stock in my holdings, I purchased an additional 100 shares of AT&T (T) at a net cost of $3,117.95.  I think adding to T enhances my long-term holdings, especially at the bargain price at which I was able to acquire it.  My yield on cost (YoC) is a substantial 6.76%.  There’s been a lot of speculation about T’s ability to service its debt and continuing to pay a hefty dividend after acquiring Time Warner.  However, having worked directly with executives and the professionals in the Finance Department at T for many years I have confidence in their analytical abilities and conservative judgement.

Now let’s take a look at what’s been going on with the rest of the portfolio.  Most, but not all, of my holdings have continued to participate in the US stock market’s trending higher.  This has resulted in the total value of my long-term portfolio increasing by 4.23% in Q3 and  9.02% YTD in 2018 (after accounting for the purchase of additional shares in T).

A couple of my holdings announced dividend increases in Q3.  The net effect is my annualized dividends have increased by $344.29, a little over half of which comes from my additional shares of T.  My YoC across all of my long-term portfolio increased to 7.74%.

The Long-Term Portfolio tab contains a chart showing all of my holdings and their performance to date.

Regards,

Troy

Advertisements

Posted in Long Term Holdings | Leave a Comment »

Long-Term Portfolio – Q2 Update

Posted by mounddweller on July 12, 2018

Fellow investors,

I’m late in providing a Q2 update on my long-term portfolio.  Readers will recall this is my portfolio of MLPs and dividend growth stocks.  In Q2 I added one stock to my holdings, a 100 share purchase of Dominion Energy (D) at a net cost of $6,339.95.  I think D is a great addition to my long-term holdings, especially at the bargain price at which I was able to acquire it.  My initial yield on cost (YoC) is a substantial 5.27%.  Better yet, management at Dominion have targeted 10% dividend growth through 2020 followed by a minimum of 5% thereafter.  Consequently, if D’s management successfully reaches their objective, my YoC in 2020 will have grown to a minimum of 6.37%.

Now let’s take a look at what’s been going on with the rest of the portfolio.  Most, but not all, of my holdings have continued to participate in the US stock market’s trending higher.  This has resulted in the total value of my long-term portfolio increasing by 5.7% in the first 6 months of 2018 (after accounting for the acquisition of D).

Several of my holdings announced dividend increases in Q2.  The net effect is my annualized dividends have increased by $816.43, a little over half of which comes from my addition of KMI and D to the portfolio.  My YoC across all of my long-term portfolio increased from 7.52% to 7.63%.

The Long-Term Portfolio tab contains a chart showing all of my holdings and their performance to date.

Regards,

Troy

 

 

 

Posted in Long Term Holdings | Leave a Comment »

New Trade – Dominion Energy (D)

Posted by mounddweller on April 11, 2018

Fellow Investors,

I entered a new trade today; one that I hope will lead to a buy and addition to my long-term portfolio.  Specifically, I sold May $65 puts on Dominion Energy (D) for $1.65.  Before I tell you about my rationale and objectives for this trade please let me tell you a little bit about D.

Dominion Energy is a regulated utility holding company headquartered in Richmond, Virginia.  It engages in the provision of electricity and natural gas to homes, businesses, and wholesale customers. Its operations also include a regulated interstate natural gas transmission pipeline and underground storage system. It operates through following business segments: Power Delivery, Power Generation, and Gas Infrastructure. The Power Delivery segment regulates electric distribution and transmission. The Power Generation segment includes regulated electric fleet and merchant electric fleet. The Gas Infrastructure segment comprises gas transmission and storage, gas distribution and storage, liquefied natural gas import, and storage.

Dominion has a market capitalization of around $44 billion and generates about $12.5 billion per year in revenue.  It has about $37 billion in total debt.  It currently pays $3.34 per share annually in dividends.  Dividend growth has averaged 7.74% per year over the past 5 years.

Why am I interested in adding Dominion Energy to my long-term holdings?  First, and foremost it is a well run utility.  Second, I didn’t have any utility companies in my long-term holdings and felt that was a gap considering my overall objective of creating a steady, safe, yet growing source of dividend income.  Third, Dominion has strong growth prospects for the foreseeable future.  It has a stated goal of achieving 10% annual dividend growth through 2020 and then a minimum of 5% thereafter.

Why do I like Dominion at this time and price?  The simple answer is the current dividend yield.  At a $65 share price and $3.34 in annual dividends, D currently yields a substantial 5.14%.  This is the highest it has yielded since the great recession of 2008/09.  The current weakness in the stock price coupled with the company’s stated goal of 10% dividend growth through 2020 leads me to believe this is an excellent time to invest in Dominion.

So, why didn’t I just go long on Dominion stock rather than selling puts?  Two reasons. One, despite having support on the 3-year chart at $65, D could continue to fall in the short-term.  Thus, by selling puts, if assigned, I lower my cost basis down to $63.35.  Two, the ROIC on my cash secured puts was enticing.  $1.65 against a $65 strike price with a 38 day holding period gives me a cash on cash return of 2.54%. My annualized return is 24.4%.

Let’s look at the long-term potential for adding D to my portfolio.  As I previously mentioned, D intends to grow its dividend by at least 10% per year through 2020.  If they are successful in doing this the dividend in 2020 will be at least $4.04.  With a cost basis of $63.35 that would mean my yield on cost (YoC) in 2020 would be 6.4%.  Even better, it would continue to grow at around 5% per year thereafter.  That’s a darn good return for a stable, low risk investment.

If I don’t have D put to me at $65 at expiration, I will likely directly enter into a direct buy of the common stock, hopefully at a price less than $66.80, which equates to a 5% dividend yield.

Regards,

Troy

 

Posted in Long Term Holdings | Tagged: | Leave a Comment »

New Investment – KMI

Posted by mounddweller on March 30, 2018

Fellow Investors,

Over the past few weeks I have been looking to make one or two opportunistic additions to my long-term investment portfolio.  In a previous post I mentioned an interest in IBM and OKE.  I still have both of these on my radar screen.  However, my interest in OKE and the fact that mid-stream O&G companies in general have fallen out of favor on Wall Street led me to expand my research.  In addition to OKE, I also began to keep an eye on ENB and KMI.

All 3 companies are leaders in the mid-stream space of the O&G industry.  While I really like OKE, I decided to do more due diligence on ENB and KMI because, in my opinion, they represented a better value.  Then, after comparing ENB and KMI, I decided I liked KMI just a bit better than ENB for the following reasons:

(1) ENB pays dividends in Canadian dollars, thus there is a currency risk,

(2) KMI is further along in strengthening its balance sheet.

Thus, last week when it appeared pessimism was at a peak I made two trades.  First, I bought 200 shares of KMI at $14.84 per share.  Second, I STO 2 KMI SEP 15 puts at $1.30.  KMI currently pays a $0.50 dividend.  Thus, my initial dividend yield is 3.37%.  Nothing to get too excited about, right?  However, if you’ve followed KMI in the past you know that they have had a few rough years.  They grew too fast and incurred too much debt.  As recently as 2014 KMI had paid quarterly dividends at an annual rate of $2.00 per share.  In order to restructure their balance sheet and get back in the good graces of the analysts on Wall Street, they cut their dividend by 75% and used the savings to pay down debt and become self-funding.  By that I mean their plan going forward is to fund all of their future growth out of existing cash flow without having to access the debt or equity markets.  Having done that for the past couple of years KMI is now positioned to again begin growing its dividend.  For 2018, they have announced plans to increase the dividend from $0.50 to $0.80.  Barring unforeseen events the plan calls for further increases to $1.00 in 2019 and $1.25 in 2020.  If these plans come to fruition my yield on cost in 2020 will be a very impressive 8.42%.

Now, let’s take a look at the puts I sold.  As referenced above, I STO 2 KMI SEP 15 puts at $1.30.  I decided to sell these puts for a couple different reasons:

(1) I wanted to leg into a full position in KMI over time, and

(2) the relatively high VIX gave me an opportunity to make a higher ROIC than if I had just bought another 200 shares of stock.

Since these are cash secured puts my ROIC is 8.67% (1.3/15).  That is significantly higher than 5.39% (0.8/14.84) return I would have gotten had I just purchased the shares outright.  Better yet, my annualized return on the puts is 17.57%, since my maximum holding period is only 180 days.

If I have KMI shares put to me in SEP at $15, my cost basis will only be $13.70.  This will give me a yield on cost of 5.84% in 2018, 7.30% in 2019, and 9.12% in 2020.

At these prices and rates of return I am very happy to have added KMI to my long-term portfolio.  I am continuing to keep an eye on OKE and hope to make an equally attractive entry in it later this year.  I’d like to own OKE at $45 or less.  Thus, it will take a bit more volatility in the market before I can hope to achieve this price target.

Best Regards,

Troy

 

 

 

Posted in Long Term Holdings, Troy's New Picks! | Tagged: , , | Leave a Comment »

About my long-term holdings

Posted by mounddweller on January 3, 2018

Fellow Investors,

The post today is a few words regarding the long-term holdings portion of my portfolio.  Looking at the data in the “Long Term Holdings” tab you can see that I began accumulating these positions about 10 years ago.

My thought at the time was to begin accumulating large cap, dividend growth stocks at reasonable prices as the opportunity presented itself.  Then, I would automatically reinvest the quarterly dividends until such time as I was ready to retire and begin cashing those quarterly dividend checks.  Since these were ‘buy and hold forever’ stocks I tried to ignore month to month fluctuations in price.  I feel the plan has been successful.  The portfolio now has 15 stocks, 11 C-Corps and 4 MLPs.    My strategy has been to buy when the stock is currently out of favor.  Doing so has allowed me to buy AT&T at an average cost of less than $32/share, Exxon Mobil at $73, Intel at $24, McDonald’s at around $94, and Microsoft around $29.  With all of these companies increasing their dividends per share on an annual basis my yield on cost is substantial and will only continue to increase.

So, you may be wondering what I currently have on my watchlist.  As you might expect, given the current market conditions, not much!  However, there are a few companies that I would like to add to the portfolio if the opportunity presents itself.  IBM is one such company.  I’ve looked and passed on it multiple times in the past couple of years when the dividend yield exceeded 4%.  22 straight quarters of declining revenue make me a bit nervous to pull the trigger.  However, I think they may be very close to putting this bad string of results behind them.  If they have a good 4th quarter of 2017 and we get even a mild correction in the market, I’d buy a small number of shares at $150 or less.

Another stock I have my eye on is OKE.  It is a large mid-stream oil and gas pipeline company headquartered in Oklahoma.  It has excellent growth prospects and despite jumping in the first couple days of trading in 2018 still yields a very respectable 5.4%.  I didn’t anticipate it jumping out of the gate in the new year and so now will wait for it to cool off and pull back a little bit.  I will be pleased if I can get it at $53/share or less.

Well, that’s it for this post.  Later this week I hope to introduce you to the real estate portion of my portfolio.

Regards,

Troy

Posted in Long Term Holdings | Tagged: , , , , , , | Leave a Comment »