Investment Ideas

Introducing the New Dividend Meter Watch List

In last month’s post, I mentioned providing more information about the new Dividend Meter Watch List. The video below provides a better preview of this amazing tool. As the stock market continues to march higher, it’s becoming increasingly difficult to find bargains among quality dividend growth stocks. For the past several weeks, I’ve been working on a spreadsheet that could help me quickly identify undervalued dividend payers from a large pool of stocks. The work has paid off big time, as some of my recent investment ideas (BA, AMGN, FAF, KSS, QCOM), came from the Watch List. Have a look….

View-only access to the Watch List is now available – you can subscribe on the Member Sheet page for only $19.00 / year until 3/31/2017.  Every week, I spend hours keeping the sheet up-to-date and identifying new stocks to add to the list. Currently the Watch List monitors 225 quality dividend growth stocks. The stocks on the list have typically raised their dividend at least once a year and have not had a dividend cut since the 2008 financial crisis.

Check in again next week for February’s update – several recent dividend hikes have kept the needle moving higher on the Dividend Meter!

 

COP Dividend Cut – Lessons in Diversification

The oil crash of 2015-2016 decimated another company dividend payout yesterday. ConocoPhillips (COP) announced they were slashing their dividend payout from $2.96 to a $1.00 per share annually, a 66% dividend cut. For me, the magnitude and timing of the announcement were shocking, as company executives recently indicated paying the dividend was “top priority”.
I survived the oil crash

If you follow this blog, or are visiting for the first time, you will notice a major investment red flag in the header image of my spreadsheet. I have a huge position, relative to the overall size of the total portfolio, in COP. Even worse, the dividend income from COP accounts for almost 35% of my total annual dividend income. Obviously, the announced dividend cut from ConocoPhillips will put a major dent in my month-end Dividend Meter report. However, I believe this is a blessing in disguise, as I now have an opportunity to re-examine the diversification of my total portfolio and make a few changes to reduce risk, and mitigate the damage caused by COP’s dividend cut. I will survive the oil crash!

When I started investing in dividend stocks years ago, COP was one of my first positions – it became a reliable cornerstone of my portfolio. I kept buying more shares with new money and dividends.  As the price of oil rose, so did my net worth and dividend income. (Everything’s always rosy, until it’s not). I also benefited from the spin-off of PSX.  I sold PSX late summer of 2015 in the mid-$80’s, using the proceeds to buy JNJ. The exchange of PSX for JNJ at the time was a good move; in retrospect though, I should have been selling the underlying parent, COP – simply from a smarter diversification perspective.

Whenever a stock cuts its dividend, my preference is to sell the position. The damage from COP’s free fall in stock price and just announced dividend cut has been done, – it’s time to formulate a plan to move forward. I began moving forward yesterday by selling off 200 shares of COP and using the proceeds to buy HCP. I also sold half of my position in AWR and used the proceeds to add a new position to my portfolio that has been on my watch list for a while: PPL Corporation (PPL). AWR was approaching a sell signal anyway on my spreadsheet – making this move now enhances diversification and softens the income blow from COP’s massive dividend cut.  Today, I will likely make additional changes by selling off more COP and use the proceeds to buy a different oil company, an integrated major that includes both upstream and downstream operations. I still want some exposure to oil in my portfolio to take advantage of any future recovery in prices. However, I have lost a bit of confidence in management’s competency and credibility at COP, so the position will be trimmed significantly.

The overall goal of this blog is to document a real-life journey of compounding dividends for financial independence. So far, the oil crash has created a bumpy ride for my own portfolio. Mistakes will be made, and lessons learned to minimize future pitfalls. I hope you can learn from my poor judgement of holding a concentrated position in a stock so vulnerable to changes in commodity prices.




2016 Dividend Meter Goals – Capitalizing on Opportunities

After witnessing a historic stock market sell-off to begin a new year, are you seeing “red” or seeing opportunity?  As daily red price-change arrows piled up this week on stock charts, green buy indicators have started popping up on my Dividend Meter spreadsheet.

2016 Dividend Stock Buying Opportunities

I love occasional stock market meltdowns – they create fantastic buying opportunities for dividend stocks. I wish I had more available “dry powder” (cash reserves) to take advantage of this week’s sell-off. Unfortunately, I invested my entire available cash savings, $5,500.00, on Monday, to fully fund 2016’s Roth IRA contribution. And, I have a few Christmas shopping bills to pay off before adding additional new savings into stocks.  As I consider New Year’s resolutions for 2016, my thoughts are focused on goals to earn additional cash to capitalize on declining stock prices, especially if the market downtown persists for a while. Here’s a rundown of my official 2016 Dividend Meter goals:

  • Clean and organize my garage, converting clutter and an old hobby into passive dividend income.  Many years ago, I started a hobby of collecting vintage coin-operated arcade games. For a period of time, they were kept dust-free and neatly arranged into a functional arcade in my garage (yes, as you can see below, it was very cool). My home doesn’t have a basement, so the garage naturally became a storage area for everything. Over time, the games were shoved into a corner and the garage became a cluttered mess of unnecessary stuff and remnants of home improvement supplies from various remodeling projects. Since none of the games are being played anymore, this is a clear case of “less is more”. By selling unused junk and some of the games, I will recapture space in my garage, get to play the games I choose to keep, and boost the Dividend Meter with truly passive income from the sales proceeds. I toyed with the idea of renting the games out to generate additional income, but the adventure of transporting, repairing, and collecting coins from the games would be anything but a passive activity. I hope to generate two to three thousand dollars of new investing cash from this “garage sale”.

Garage Arcade

  • Create a new “side hustle” income stream.  I’m not sure what this will be yet. While I’ll consider taking an additional part-time job if the position is an activity I truly enjoy, my preference is to create something that will eventually generate recurring, passive income.
  • Identify five additional dividend stocks to add to my “watch list”.  Currently, my Dividend Meter spreadsheet tracks 25 companies.  By the end of 2016, I’d like to have thirty stocks on my spreadsheet.  I won’t necessarily buy shares in any of the new companies (only if they trade at my desired dividend yield trigger points), but it will be nice to have more stocks to choose from when I have new savings to invest.

So, there you have it: three goals for 2016 to capitalize on opportunities created by falling stock prices. To all readers – I hope 2016 is a great year for you – whether the stock market goes up or down.




TOFU Investing – Starting a Dividend Growth Portfolio

Sorry folks, but I may have just created another investing acronym:  “TOFU” Investing.   If anyone has heard of it before, please let me know; otherwise, I’m taking credit for creating the concept.   TOFU Investing refers to building the initial foundation for a dividend growth portfolio. For me, T.O.F.U means Trash, Oil, Food, and Utilities. Allow me to explain…
TOFU Investing

After watching my portfolio of the latest hot stock tips decline almost 85% in the Great Recession of 2008/2009, I knew it was time to change investing strategies.  During the recession, many people lost their jobs. Fearing my own job was in jeopardy, I began to evaluate my budget and where the money was going, answering this simple question: What bills had to be paid first?  Cable TV could be cut, going out to bars and restaurants could be eliminated, and the gym membership could be canceled.  However, our family needed to eat. Electricity, heat, and water were priorities. Trash still had to get hauled away. And, although driving could be curtailed, a certain amount of gasoline was required to get to my job while I was still employed.  So, a light bulb went off….  What if I invested in companies that specialized in providing essential goods and services? “T.O.F.U” investing was born!  I took what was left of my stock portfolio and invested in Trash, Oil, Food, and Utilities.

The following four stock investments became the foundation for my dividend growth investment strategy:

T (Trash)  –  WM, Waste Management

O (Oil)  –  COP, ConocoPhillips

F (Food)  –  GIS, General Mills

U (Utilities)  –  AWR, American States Water Company

During the Great Recession of 2008/2009, all four companies didn’t miss a beat in paying dividends. In fact, all four had dividend increases at some point in 2009 compared to the dividend rate they were paying in 2008.  For dividend growth investors, the market crash of 2008/2009 was a generational wealth-building opportunity. While active traders were freaking out, dividend growth investors were buying more shares of wonderful companies.

My TOFU investments still account for a large percentage of my overall portfolio.  However, over time, I’ve been using accumulated dividends and new savings deposits to buy additional companies in other industries to diversify. You could say I’m “DRiP’ing” into diversification!