Trimming My Watchlist

If you are a reasonably active investor, you probably have a watchlist. And if you are anything like me, that watchlist has grown over time. At this point in my investing career it’s time to trim my watchlist some. This will be an active exercise of that process.

My reasons are numerous; I am going to focus on my better ideas and “average” ideas are probably better in a diversified ETF. It’s hard to have conviction about 40+ different names. It’s also less leg work on my end. New investing ideas will be compared to a determined benchmark for merits. For example; a stock with a 3% yield and may be expected to grow 5% per year is what I would call “table-stakes”. That is average growth and average yield – there are plenty of dividend ETFs that I could buy as an alternative to that instead. I take individual equity risk out of the equation and a big difference is an ETF that I believe in – I will continue average in over time. Even on some level, I would stop adding to an individual stock based on position sizes.

Commonly ideas are bought to take advantage of “mean reversion” or stocks that are temporarily out of favor. Of course – stocks can continue to stay out of favor for extended periods or never return to former valuations. It does make for some exciting possible big winners in a short time but I’ve had mixed success when that is part of the thesis. I don’t mind using that as a “kicker” to a thesis but it shouldn’t be the prime reason. A crude example of this would be a stock that tends to trade for a P/E of 20 currently having a P/E of 10. History alone may suggest it will eventually return to 20 which would be a 100% return.

One trick is using the dividend scores from Simply Safe Dividends. While not an absolute benchmark, the scores should provide a thumb in the air gauge as to the overall quality of a stock. An “average” company would score 50 for safety, 50 for growth and 50 for yield (150 total). There are over 100 companies that score over 200 which is the area I am looking into more.

Here is the scorecard for Kraft Heinz (a recent sell of mine) – their total score of 159 is middle of the pack. In fact – with their dividend cut this year the growth score should be much lower. It also highlights that having a low safety score is not something I want.

This exercise will involve cleaning up my watch list on Seeking Alpha and my alerts that I’ve created on Custom Stock Alerts. With that said, I’ll provide some of the names on my list and try to highlight a few high level points about why it’s being removed and what would make me take a second look.

TickerSSD ScoreNotesAlternatives
GEO154Staying away from prisonsSRET
CXW177Staying away from prisonsSRET
F183Staying away from autosDIV
LTC139Not interestedREIT ETF
LOW219Home depot is the better performerHD
AOS227Not really interestedNOBL SCHD
CLX181Low growth, can probably do better indexingSCHD SPYD
BA191Just not really interestedSPY SCHD
UL184Similar to CLX, muted growth, just index hereSCHD SPYD
ATVI193Decent growth expected, maybe worth a second lookSCHD
PH215Could be interesting, maybe worth another lookNOBL
AFL208Muted growth, need a big stock pullbackSCHD
APLE165No FFO growthSRET
CLDT164No FFO growthSRET
VZ169Where’s the growth?SPYD
WBA207What’s the opportunity?SCHD
UTX187Low yield, not interested in defense contractorsSCHD

After going through this analysis there are even some names that I’ve reiterated as being on my watchlist.

TickerSSD ScoreReason
PNC208Strong performer, muted growth but low valuation. Maybe better entry point.
CAT199Great score, could be a good winner, maybe after a recession though
BLK236Solid score, strong growth expected over time

The opportunities I see here would have to involve strong growth, preferably 10%+ which will support high dividend growth going forward. In fact – I need to dive into BLK because their extremely high total score caught my eye. They are probably in the top 15 combined score in all of the dividend stock paying universe.

Conclusion

Every so often it is a worthwhile exercise to trim your watch list. This is not even the exhaustive trim I have done and I have more names to review. Hopefully you can find this useful as some starting points and processes for helping to review and trim your list.

August Transactions So Far

August has seen a bit of turbulence in the markets. The Fed cut the benchmark rate 25 basis points at the end of July and we’ve begun seeing a tad of a correction. I am very slowly looking to take advantage if we start seeing a real correction. Last December I was disappointed not having enough dry powder as they say.

Summary

TickerDateSharesPriceIncome
MMM8/14/201910160.7$57
PRU8/15/20192380$92

Details

Here’s a quick update of what I’ve done so far this month. When I’m reviewing my potential buy list, I will cross reference my dividend tracking spreadsheet and my upcoming dividend alerts that I built in Custom Stock Alerts. Here is one example (though the numbers are different)

On the 15th I put in a limit order for Prudential @ $80 per share. It took most of the day but it eventually triggered which gave me another traunche of shares at the 5% yield point. As you can see from the screenshot above (taken on the 16th), shares climbed a bit dropping the current yield.

The picture above is a quick snippet from my tracking spreadsheet and I wanted to highlight the Prudential row. I added green shading to the “Current Share Price” column whenever the current price is less than my “DRIP basis” which is my cost when I bake in any impact of reinvesting shares. So not only was Prudential below my cost basis but coupled with the upcoming dividend yield capturing 5% it felt compelling to add. I will say this is also under the guise that while the recent earnings announcement disappointed investors and thus the sudden and sharp stock price drop, the long term thesis is still intact.

In a similar theme, I added some more shares of 3M (MMM) to jump in before an upcoming dividend. Again, this is all in my tax advantaged account so I’m not trying to capture the short term dividend with implied taxes.

Possible Transactions

I may add to my Walgreens stake though I haven’t decided one way or the other yet. The current yield is quite nice at 3.6% and I’m down a little bit from my initial stake. The yearly increase of about 3% was low but it is still an increase.

June Transactions So Far

I had a reader request a few weeks ago to try and give a heads up when I make transactions. Typically my transactions are on a month lag until I write my portfolio review article. I am trying to get ahead of that and provide some insight as to what I’ve been up to so far in June.

Buys

TickerNameSharesYieldIncome (Yr)
SDIVGlobal X SuperDividend ETF1009.5%$162
IRMIron Mountain1007.9%$244
SPYDSPDR Portfolio S&P 500 High Dividend ETF1004.15%$161

The trend here has been to find more yield plays in this increasingly difficult environment.

  • SDIV is my global basket approach to yield and continues to pay a nice monthly dividend which helps fuel future purchases.
  • IRM had been on my watchlist for close to two years before a large enough pullback to warrant an individual purchase.
  • SPYD I wrote about twice recently and decided to take a starter position while waiting for a more opportunistic buying opportunity

Sells

TickerNameSell TypeReturn
ABTAbbott LabsAll>100%
CSCOCisco SystemsAll>100%
SBUXStarbucksTrim33%
WPCW.P. CareyAll40%

All four of these trades have to do with valuation concerns. With an elevated market once more, the individual valuations seem less compelling. One of the great advantages of having individual stocks is being able to take advantage of mean reversion over the short to medium term. All four seem to be stretched and have done better than both my own expectations and the market. The question is whether that continues or not.

Possible Trades

TickerNameBuy/SellWant PriceDesired Yield
MMM3MBuy$153.563.75%
BRPBrookfield Property REITBuy$16.508%
STAGSTAG IndustrialTrim$30
TRVTravelersTrim$148
AMPAmeripriseSell$145
CMICumminsSell$160

I have some possible trades on both sides. On the buy side, I’m interested in adding more 3M or starting a position in Brookfield Property REIT at the listed prices.

On the flip side, I’m looking to possibly trim my STAG and Travelers holdings. I’m also open to closing out my positions in both Ameriprise and Cummins at those listed prices. All of the sells would represent large, market beating gains.

Here’s a sample alert I have setup for Cummins. I’ll be notified if it dips below $160 with my memo stating that it was sold.

Monopoly dividends

Making An About-Face On A Dividend ETF

May 29th, just about two weeks ago, I wrote an article here about a dividend ETF not for me (at least not yet). I’ve decided to make an about face on this ETF and take another look. This is covering the SPDR® Portfolio S&P 500® High Dividend ETF (SPYD).

Firstly, I do recommend you read over my initial article if you have not. Now some of the same major components stand:

  • Contains an equal weight of the 80 highest yielding companies in the S&P
  • Rebalances bi-annually (last of January and last of July)
  • No other quality metric is applied
  • Carries a very low 7 basis point expense ratio

Holdings Revisited

Going down my analysis, I did dive into some of the top holdings and while I still question the thesis behind owning some of them individually, I did leave out one important tidbit.

Coty for example, was the top holding because at the end of January it was yielding close to 7% which put it in the index. On top of that, the stock has since doubled in a few months which makes its weight stand out on this list. This is actually a good problem to have, the stock was stupid cheap and quickly rebounded.

I used my stock return calculator to also generate a list of returns if we bought various ETFs on the day that SPYD went live (only in late 2015). It includes the S&P as a whole, SPYD, SCHD which is my favorite dividend ETF, and SPHD which is similar to SPYD in that it seeks out higher yield names from the S&P (though it also has a low volatility factor included).

The S&P won though the results were fairly close over this time period. Don’t believe me? Look at the results over time:

You would be hard pressed to find much delta between those ETFs. In any event, this is clearly an income focused ETF and I think it does a good job at that. Another follow-up to this article would be to see how the index historically has fared against the S&P.

The kicker for buying SPYD is actually the interest rate environment we are in. It looks like not only are interest rate increases off the table, the market is pricing in at least several rate cuts this year! There is a normal premium for equities over the safe return offered by a treasury. If the return by a treasury drops (in the event of a rate cut), the return offered by an equity can be lower. Since price and yield move in opposite directions, it may increase prices, dropping yield to keep that balance between the two.

This is a defensive ETF and will hold up better during times of volatility or market declines. It’s during the broad market rallies that this would fall behind the S&P and that’s OK. It’s another tool in the toolbox and it’s important to know when to use it.

Conclusion

Though I just wrote it two weeks ago, I gave a second look at my analysis and conclusion behind SPYD. I actually do think SPYD is a decent ETF. It’s a simple and low cost way to gain both instant diversity and boost your portfolio yield.

My plan is to start an initial position but then being more strategic on future purchases. I have some alerts setup to help me achieve that when a better opportunity arises.

Added To Simon Property Group

Simon Logo

Simon Property Group (SPG) is a global leader in the ownership of premier shopping, dining, entertainment and mixed-use destinations and an S&P 100 company (Simon Property Group, NYSE:SPG). Our properties across North America, Europe and Asia provide community gathering places for millions of people every day and generate billions in annual sales.

To begin with, there has been a constant drum beat about the death of retail and the death of malls. Simon is the big fish in this pond as the largest operator of class A malls around the country. The stock has been in a downward trend since peaking in July of 2016.

Fast Graph Analysis

Fast Graph of SPG

The Fast Graph pictured above shows a few important elements to call out. Firstly as I noted, the stock price has declined for nearly the past 3 years. At the same time, the FFO (funds from operation) have continued to grow each year. This multiplying effect of increased earnings with a declining stock price has made the P/FFO multiple decline rapidly. At the peak in 2016 shares traded at about 22x FFO. Compare that with a value of 13x today and you can see the P/FFO contraction in full force.

This creates a great opportunity for a long term investor to create a margin of safety by buying great companies when they are temporarily hated. Based on historical values, the “normal” P/FFO ratio for SPG is about 16.8. That is about a 30% increase from where we sit today if FFO were to not grow.

That is one positive effect waiting in our corner though that can take time to play out. The second is the continued FFO growth per year. Best estimates still peg growth in the low single digits for the next few years. In the meantime however we can collect a fantastic 5% dividend yield from this company.

YCharts Dividend Yield for SPG

Looking at the historical dividend yield for SPG from YCharts, the yield has not been this high since the great recession. There was another brief blip in the beginning of 2018 when the yield also touched 5%.

Another bright spot to point out is the credit quality of SPG. They are A rated from S&P which is both fantastic in absolute terms but incredible when you consider that REITs must pay out most of their earnings to shareholders. REITs tend to rely on a lot of leverage and constant share issuance to continue growing which negatively impacts their credit quality. Simon is battle-tested and prepared going forward.

Simply Safe Dividends

Simply Safe Dividends

From Simply Safe Dividends, the scorecard for SPG rates quite well. Recall that these figures are percentile based based on the whole universe of dividend paying stocks. Based on the combination of many factors, SPG scores safer than 74% of dividend stocks. This is crucial importance for us to not have to worry whether they can pay their dividend obligations. The growth will be a tad slower as it needs to move in conjunction with FFO growth. Finally the yield at 5% is obviously higher than most dividend stocks.

My Purchase

For me – I added more shares to this holding at the end of May. This was a new position for me all together only in April. In April I had about 3/4 of a position with my initial buy and with this add I’ve now filled it out. At this point shares may need to touch about a 5.5% yield for me to consider going overweight.

SPG Alerts from Custom Stock Alerts

From Custom Stock Alerts that’s what I’ve done. I revised my alert based on dividend yield to let me know if crosses above a 5.5% yield.

For me personally, SPG also offers a different option from an ETF. I try to look to ETFs first when adding to gain the instance diversity they provide. What I think SPG offers is both a higher yield than many REIT ETFs as well as some great upside when the pricing eventually returns to historical norms.

Conclusion

Simon Property Group continues to be in a downtrend though underlying business results don’t reflect the pricing reality. This has created a nice opportunity to either start or add to a position in the company. Enjoy a safe 5% dividend yield until the narrative changes.

A Dividend Focused ETF Not For Me (At Least Not Now)

I was reviewing the SPDR® Portfolio S&P 500® High Dividend ETF or SPYD for inclusion into my dividend portfolio.

From the State Street website:

The SPDR® Portfolio S&P 500® High Dividend ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P® 500 High Dividend Index (the “Index”)

To dig into that a little bit further, here is the bit about the index itself:

The S&P® 500 High Dividend Index is designed to measure the performance of the top 80 high dividend-yielding companies within the S&P 500® Index, based on dividend yield. To determine dividend yield: (i) an indicated dividend is measured by taking the latest dividend paid (excluding special payments) multiplied by the annual frequency of the payment; and (ii) the indicated dividend is then divided by the company’s share price at the date of rebalancing.

So in essence, the dividend will hold 80 of the highest dividend stocks in the S&P. Sounds good at first glance and the immediately income could help many investors. With a gross expense ratio of 0.07% (very cheap), it also almost has no cost to hold it. It will hold REITs and it’s important to note because many dividend ETFs will not.

From reading other articles on dividend ETFs I had created a few alerts for myself.

I have some interest in this ETF when one of these is met:

  • Dividend yield greater than 4.8%
  • Price near 52 week low
  • Price dropped below its 200 day moving average. I’m writing this in part because that last alert triggered yesterday (May 28th).

The Holdings

Part of the analysis for purchase of an ETF is diving into the holdings. During the initial review of the top 10 holdings was where I got my first pause.

https://us.spdrs.com/en/etf/spdr-portfolio-sp-500-high-dividend-etf-SPYD

An index just based on one theme can show cracks. I was curious why COTY was the top holding but at the time of the last reindexing the stock was yielding in the 7% range.

COTY stock chart From Seeking Alpha
COTY Dividend news from Seeking Alpha

To give credit where it’s due, the stock has nearly doubled since that low.

Scanning over the other top holdings there are some initial concerns with several of them:

  • Xerox – what’s the opportunity here?
  • Qualcomm – recent monopoly ruling and lawsuits galore
  • General Mills – slow and steady but food preferences are changing

Going down the longer list, there are many real estate and utilities. The whole Utilities sector is overvalued as investors have been grabbing for yield the past few years. This is readily visible looking at the Utilities ETF (XLU) dividend yield over the past decade.

XLU declining dividend yield

Conclusion

SPYD tracks an index that holds the 80 highest yielding companies in the S&P 500. Several of these companies seem to be facing some big structural issues. It is diversified over 80 companies and many of the real estate companies seem like good holdings. All in all, it will provide higher income levels with nearly no cost. I would expect this type of index to lag the market if you are looking to compare against the market.

It’s not the worst dividend ETF I’ve seen in the world (faint praise I know) and I actually may be interested in it if we get that yield higher. That will require a broader market decline as we are still sitting in some thin air with the overall valuation of the equity markets. The index also never claimed to provide any additional quality filters so just be aware this is the highest yielding 80 companies.

With the current 4.4% yield, I think there are greener pastures to either cherry pick a few names off the holding list or to wait for a better entry point.

A Real Life Options Scenario

Background

My long time readers will know that I manage my own retirement account. I am working on building my own dividend machine, piece by piece, until it becomes a full income replacement tool.

With that, I’m fairly cognizant as to what is going on in the markets as time goes on, whether stocks are cheap or not. I’ve felt that in the tail end of 2018, we were finally getting some reasonable values on stocks, most notably Christmas Eve as many of you may recall.

All 2019 we’ve been “off to the races” once more and as the first quarter wrapped up we were within earshot of all time highs once again. We’ll know in a few weeks how it all plays out as earnings season is kicking off (this morning actually).

Back in February I began writing some covered calls on positions that I held that I was willing to part with for the right price. Here is an update on one of those; Starbucks.

The Covered Call

With my aforementioned belief that the market is a bit elevated, I was looking for stocks at their 52 week high (or all time high for that matter) and came across Starbucks.

I love Starbucks don’t get me wrong. It’s still a core holding but I’m OK with taking profits here and there. Those profits can be rolled into other investments to increase my dividend stream. The old adage of buy low, sell high still applies and frankly I think that is forgotten all too often.

Starbucks Fast Graph

The Fast Graph here points out a few things to me. First, the blue line represents the average P/E ratio over the time period, in this case 11 years. While the current stock price has just peaked over top of it, the story is actually a little bit different. Investors will pay more for growth and the fact is the growth has been slowing at Starbucks. That’s OK, I just feel less compelled to pay up for it.

That said, the recent trough to peak has seen the stock rise 55% in under a year. That’s quite a swing and one that I’d be interested in taking advantage of.

If I shorten the time frame to 5 years the average P/E actually drops quite a bit and makes the current price stick out more. I think that’s warranted as the major growth days of Starbucks have passed as they reach store saturation.

In any event, back in February I wrote a covered call against my position in Starbucks.

What is a Covered Call?

“A covered call is a popular options strategy that can generate income, in the form of premiums, for an investor’s account. To execute this an investor holding a long position in an asset then writes (sells) call options on that same asset to generate an income stream.”

From Investopedia

I basically put up an IOU that said I’ll sell my shares at $72.50, with an expiration of April 18th, 2019 and for that privilege you’ll pay me $1.27 per share. At the time, shares were trading around $70 so writing this “IOU” would net me $73.77 per share if the option was exercised (the person on the other side said yup I’ll take them).

Fast forward to a few days ago when shares were trading at $75. My option was “deep in the money” as they say and the expiration date was coming up. My trade was not working out and there was more upside to the stock than I had guessed.

Option Generator To The Rescue

My friend over at Seeking Alpha, Option Generator saw my recent monthly article and reached out with some advise.

He mentioned I had a few choices, among which I could do what is “roll out” or “roll out and up”. The “roll out” part means that I could buy back my “IOU” and write a new one for a later date. That implies that I also use the same strike price of $72.50.

This was not a free action! I had to pay up to buy back my option since it was now worth well over $3 per share. The current share price was over $75.50 and the option granted someone the right to buy shares at $72.50.

The “roll out and up” added a nuance where I raised my strike price on my new covered call in order to attract a higher selling price if my shares are called away.

This is the route that I took so here’s how it looked:

  • Bought a call to close at $3.65, this put me back at “neutral”, this closed my earlier covered call that I wrote
  • I wrote another covered call, this time for May 17th (this also comes after Starbucks reports their Q1 earnings so if the report doesn’t wow I expect shares to fall after this run-up).
  • Jumped up two notches on the options chain, from $72.50 up to $77.50.
  • Collected $1.35 per share in premium which gives me a target price of $78.85.
  • If the option is exercised, that’s $7,885 versus my original target price of $7,377 (see above)
  • I received $2.62 per share in premium income and lost $3.65 to buying back my option for a net loss of $1.03. This excludes transaction costs for simplicity.
  • What I gained is the right to sell the shares for an additional $500 in total. That leaves my net at $398 ($500 – $103) upside in this scenario.

Conclusion

I’m a self admitted beginner at option writing but I learn best by just doing something. The end result was still going to be positive if my option was exercised. Boohoo I’d have to sell my Starbucks shares at a large profit.

In any event, my friend Option Generator reached out with some excellent advice. I was able to maneuver my way into either keeping my shares or demanding an even higher premium for them.

I potentially stand to make close to an extra $400 if the shares are exercised by the middle of May. Regardless, I still get to keep the premium paid. If the options expire worthless, I can either do this process again or just leave it alone.

Take a Bite From This Apple (No, Not That Apple)

As part of my goals for this year, every interesting stock idea must successfully pass through my investing framework. This is a series of qualifications on both an individual and portfolio level.

The first company under that lens is Apple Hospitality (APLE).

Apple Hospitality is a real estate company that owns a portfolio of hotels across the United States. You may not realize it but the companies that operate hotels rent them from real estate companies. Just take a look at the hotel brands that operate inside of the hotels owned by Apple. Brands such as Hilton, Hampton, Courtyard and Marriott to name a few.

From Finviz, here is a quick look at the competitors to Apple in the hotel / motel REIT industry. They are not the largest player in the space but they do currently sport the best dividend yield.

Not only do they sport the highest dividend but they actually have the lowest debt/capitalization than any peer!

Valuation

From Fast Graphs, the company has actually seen declining stock price since it first IPO’d. The reason is quite obvious to me, funds from operation (FFO) has simply not grown. What has happened is the market has repriced shares and will not grant them a premium. They traded at approximately 15x FFO (equivalent to a P/E of 15) but have trended down to under 11. What this has done is boost the yield to the current juicy 7.6% level.

This has resulted in a very reasonable payout ratio which gives them room to maintain the current dividend. The dividend has not increased in years but that can be OK. My thesis does not involve an increasing dividend from Apple. If they are able to maintain the dividend this is a high yielding cash cow.

Correlation

Be sure to read my primer on correlation if you need more background information.

Part of the investing framework is defaulting to using ETFs in place of individual holdings where possible. An ETF can give broad exposure to an asset class while avoiding individual name risk. It’s also easier to monitor and doesn’t require digging through quarterly or annual reports.

The correlation matrix for Apple Hospitality versus some peers is quite telling. I added VNQ, SRET, KBWY and REM for my Real Estate ETF comparisons. All ranked as only having an average correlation of 0.50 which actually shows that Apple does not move much in conjunction with other Real Estate ETFs. Finally, I added the S&P as a proxy and interestingly enough, the results were similar at 0.47 for the S&P.

With that information as a backdrop, I want to mesh those thoughts against some of the questions I’ve outlined as part of my investing framework.

How does this fit into my portfolio?

Apple Hospitality fits into my portfolio as a high yielding opportunity. As part of this process, I created a pie chart approximating my investments by category. Approximately 2/3 is already in what I would consider “dividend growth stocks”, which can include ETFs by the way. I decided to include Visa and MasterCard in this group though they blur the lines between growth and dividend growth since they have lots of both.

About 18% is in growth stocks which includes Amazon, Facebook, Google and the broad S&P. “High Yield” holds my REITs and AT&T currently. I have Altria as a dividend growth stock, though the current yield is quite high over 7%. Finally there is a cash component and my “Former Dividend Growth” is CVS which I have not been happy with.


I am still working on the final allocations of a target portfolio but I approximately see 60% as core “dividend growth”, 20% growth and 20% “high yield”.

With all of that said, Apple Hospitality fits into my portfolio as a high yielding opportunity.

Am I excited about the business?

I wouldn’t say I’m necessarily excited about the business but I see it as a stable business that may offer some low growth over time. I am optimistic given the low debt profile when compared to other players in their space.

What are expected returns?

I’m expecting about 8% returns, virtually all from the dividend yield. There may be some small growth over time from actual business growth.
I’m not actually expecting the dividend to grow at this time. It has been fixed at $1.20 per year ($0.10 per month) since the IPO. Additionally, market gyrations may provide an opportunity to add or subtract from my holding.

Should the stock rise materially, without a fundamental change in the business, I may write covered calls to generate more income. Alternatively should the price drop significantly, again, without a fundamental change, I may either add to my stake or sell puts to generate income and possibly add to my stake.

Does it offer something materially different than an equivalent ETF?

This is where I ran the correlation calculation above and did not see much linkage to current ETFs within the REIT space. It also does offer a higher yield than many REIT ETFs.

Conclusion

Apple Hospitality is a select-service REIT with strong brands such as Hilton and Marriott operating their businesses within their hotels. Though the business seems like it is not currently growing, it sports a fat 7.6% dividend yield and has the lowest debt metrics in its class.

It does not seem to be correlated to passive alternatives and seems like a stable business to add to my portfolio. The high yielding component of my portfolio could use some shares of Apple Hospitality to bring that allocation closer in line with my target 20%.

In conclusion, I added 100 shares, a small starter position to my portfolio. I have the flexibility to add more down the road depending on market opportunities. Dividend reinvestment is not turned on, I will be receiving the income generated as cash while exploring my next investment opportunity.


Reviewing 2018 and Moving Forward In 2019

Introduction

First, I have to apologize for my lack of adding content to my personal blog. It’s not that I have lost any interest or focus in dividend investing, but my time that I can allocate for personal blogging is less than what I may have hoped. I hope to get into a better cadence this year and jot thoughts down on what I am looking at in real time.

With that said, 2018 wrapped up and it’s time to move forward in 2019. In 2018, I collected over $7,000 in dividends! That was over 20% more than I earned in 2017.

Dividends Collected In 2018

Part way through the year I decided to allocate a bit of my portfolio to growth stocks. I sold out of some dividend paying names and rolled those proceeds into stocks that either pay no or very low dividends. I sold my shares of the U.S. Schwab Dividend Equity ETF (SCHD), Verizon (VZ), Duke Energy (DUK) among others. In turn I bought shares of Visa (V), MasterCard (MA), Square (SQ), PayPal (PYPL), Twitter (TWTR) and even iQiyi (IQ).

My income on the tail end of the year obviously took a nose dive with all of those funds diverted.

During my 2018 analysis write-up (read here), I highlighted a few thoughts I had opined about while reflecting how the year went.

Dividend reinvestment is not black or white

Historically I have always reinvested my dividends across the board. Every holding, no exceptions was reinvested. The math is solid behind that rationale, you dollar cost average your way into positions over long periods of time with free reinvestment. Some stocks even offer discounted shares for reinvested dividends though the vast majority don’t.

I ran into two potential issues with reinvesting for some names. Higher yield holdings I own partly for their cash flow. I want that cash flow in hand to re-apply as I best see fit. With every dollar reinvested, I lose that flexibility.

The second issue which dovetails off of that was having positions providing too much of my income. It sounds like a first world problem but having one individual holding providing 10%+ of my dividends actually made me a little uncomfortable. Any sort of hiccup like a dividend cut would put a noticeable dent in my dividend stream and is what I am trying to avoid.

My feelings are that transaction costs are virtually negligible and dividends will still be compounded back into dividend earning shares, it just may not be the original company. I like to have a steady stream of firepower that I can apply as I see fit throughout the year.

Being more data-dependent

As a corollary to my first point, I am going to be more data-dependent with my investment timing. I built Custom Stock Alerts to facilitate the timing of my investments.

I love looking for companies that are going through temporary headwinds (or not) and are hitting a new 52 week low. That gives me the best purchase price and highest yield of any investor that year. Depending on “why” the stock has hit a low, it also gives me the largest margin of safety. Everyone loves a good bargain so why is the stock market any different?

Just like a new low may make an interesting time to buy shares, a new high may signal an opportune time to trim some shares. With a large watchlist like mine, something is always on sale and something is always at a premium. Shares can be sold, profits gained and rolled into lower valuation stocks. This process can perpetually add to my dividend stream.

The ex-dividend alert tool on Custom Stock Alerts will also give me a heads up before a stock is set to pay a dividend. Depending on other factors, it may make sense to dive in before a dividend to capture the payment. For the majority of my investing, this is in a tax advantaged retirement account. Of course be aware there are tax implications if you do this in a taxable account.

Lastly, using some of these techniques lend themselves to the exciting world of options. I haven’t actually used this yet so I don’t pretend to be any sort of expert in the topic but writing covered calls or selling puts can enhance income. This is a topic well out of scope for this post but it fits in nicely using data available to me.

You don’t have to swing at every pitch

Patience is a virtue in life and investing is no different. If you manage your portfolio at all, you need to be willing to sit and wait for a good investment opportunity.

To be honest, I started getting really excited Christmas Eve. My own personal feelings aside, seeing the market hit levels it did was exciting for an investor with some cash available. Unfortunately it did not last though I am optimistic we may see a pullback before long. Just remember high stock prices only benefit net sellers.

Passive investing is OK!

There are a slew of great ETF options that can be added to make a well-rounded portfolio. ETF is not a four letter word. Some dividend investors will avoid ETFs at all costs – in literal sense too – because of perceived shortcomings.

Yes, payments may be variable, the holdings may be variable and there are some expenses associated with owning ETFs. On the flip side, they are incredibly diverse and can fit into every niche you can imagine. Want REIT exposure? There are ETFs for that. Want more specific mortgage REIT exposure? There are ETFs for that.

I’m looking to round out my portfolio with some different ETFs, in particular in areas where I feel my knowledge is lacking. I don’t feel comfortable buying things like individual MLPs, mortgage REITs, BDCs, it’s just out of my area of expertise. I’m more comfortable analyzing C-corps and some larger REITs.

A Defined Investing Framework

One of my other goals for 2019 is to fully flesh out my investing framework. At a high level, I’m going to further define the proportion of my portfolio that fits into these areas; growers, dividend growers and high yielders.

When presented with an investment idea I will have a series of questions to answer beyond just analyzing whether it may be a good company or not.

  • What is the opportunity here?
  • Am I excited about the business?
  • What are expected returns?
  • What are the risks and downside?
  • How does this fit into my portfolio?
  • Does it offer something materially different than an equivalent ETF?

Those are just a sample and the framework will be defined as the year progresses. The aim is to ultimately make sure I am allocating my investment dollars as best as possible to fit my goals.

Conclusion

I love dividends and how they are helping me progress towards my financial goals. To recap, I collected over 20% more dividends in 2018 than in 2017 and over $7,000.

After I scratched the itch of adding a few growth stocks, I am ready to really push hard with more dividend paying stocks this year. I’m working on allocating a percent of my portfolio towards high yielding opportunities. ETFs can be a great tool to help me build this portion where I personally feel that I lack the expertise required.

By combining some of the lessons that I reflected on with a-to-be-defined investing framework, I’m looking forward to moving forward in 2019.

Be sure to check out my dividend portfolio in real time, any time, here.

Real Time Data and Alerting Now Live

It’s been a labor of love creating and running Custom Stock Alerts.  Since inception it’s been a non-stop endeavor of fixing bugs and bringing new features and enhancements.  One of the most requested features was for real time data.  There have been numerous challenges with actually pulling this off, namely real-time data feeds can run in the tens of thousands of dollars per year.  Through the free data offerings provided by IEX this is now become a reality.  I’m incredibly proud to announce that real time data and alerting is now live.

Background

You may say, if only now it is real time, what was it before?  Previously based on data source availability there was about a five minute delay.  Not much and for 99% of use cases it was plenty fast enough to fit the bill.  The other 1% would be the day trading crowd.  A five minute delay could mean the difference in trading results for those folks and it was critical to have this function in real time.  Never shying away from a challenge, I made the necessary architectural changes to accomplish this.

The Changes

So what actually changed?  Well for starters, I switched the pricing data to come from IEX per their excellent API.  That presented some unique challenges to properly capture all quote changes coming in as there can be tens of thousands per minute.  The other half of the battle was implementing a real time alerting system.  As the data streams in, it will push out alerts that have triggered.  The end result is evident (and testable) with how quick you will receive alerts.  In my own testing I had a text within 2 seconds of updating an alert to trigger.  If you want to test this yourself, edit one of your alerts so that the target value will cause it to be immediately triggered.  Example, setting a “Price Above Limit” for AAPL with a ridiculous number like $1000 (current share price is approximately $210).

Conclusion

Real time data and alerting has been one of the highest goals of my own to achieve through this project.  I am more proud to have accomplished that for my users.  If you are into day trading, that is now supported!  Let me know what you think and if you hit any issues with it.