I am a dividend growth investor. (period)
Tonight, KMI, Kinder Morgan Inc. decided they were no longer a dividend growth stock by announcing a 75% dividend cut. I sold the stock. Time to move on….
Prior to the stock sale, I owned 175 shares of KMI, which provided $357.00 in annual dividend income for the Dividend Meter. Compared to November’s Update of $5,802.97, removing Kinder Morgan completely from the portfolio drops the Dividend Meter reading to $5,445.97:
However, now the good news! So far, in December, I’ve purchased 20 shares of Starbucks (SBUX) with new savings in my taxable account, 20 shares of OGE Energy Corporation (OGE) with accumulated dividends in an IRA Rollover account, and 19 shares of HCP Inc. (HCP) in a different IRA Rollover account with accumulated dividends. Also, while I took a big capital loss on KMI, I didn’t sell it for zero. After selling 150 shares in an IRA Rollover for $14.75, I have about $2,200.00 to invest in something else – I will likely add another 60 shares of HCP. The other 25 shares of KMI that I owned were sold in a taxable account and the proceeds will sit in cash until I can add additional new savings to make a larger purchase of stock. So the current Dividend Meter reading is $5,662.51:
There will come a day when I have to report one of my stock positions cut its dividend, and as a result of the dividend cut, the needle on the Dividend Meter will move down instead of up. Fortunately, that day is not today. However, I must acknowledge the possibility of a pending dividend cut coming soon in Kinder Morgan, Inc.,(KMI). For an avid dividend growth investor, the prospect of a reduction in annual dividend cash flow is gut-wrenching. If you own KMI, and follow the stock on even a semi-frequent basis, then you know all about the energy-sapping, anxiety-elevating, bull vs. bear social media drama swirling around Kinder Morgan right now.
Only a few months ago, KMI was expected to deliver many years worth of ten percent annual dividend increases. As can sometimes happen in the stock market, a rosy future of fat dividend checks can quickly deteriorate into uncertainty and big capital losses when a company’s prospects sour. With today’s 13% drop in KMI’s stock price, it’s sitting at a 12% dividend yield. Clearly, something is wrong, and apparently, the smart money has left the building before an official dividend cut announcement. This article won’t delve into KMI’s business conditions, financials, or stock price predictions – I’ll leave that for the financial analysts and pundits. Rather, I’d like to share my suggestions for coping with a possible dividend cut situation:
1) Accept Imperfection and the Possibility of Selling an Investment at a Loss – Investing is always imperfect. It’s impossible to pick tops and bottoms, and mistakes will happen. Even Warren Buffett, with decades of experience as the world’s greatest investor, booked a $444 million loss last year on Berkshire Hathaway’s investment in Tesco
2) Stop Reading Pundit Articles and Message Boards – Most of the time, so-called experts don’t know what’s going to happen in the future anymore than novices. Other than wasting time looking for advice or validation of turnaround hopes, absorbing others’ negative opinions and uninformed recommendations can lead to knee jerk sell orders that deviate from the original investment strategy.
3) Re-examine the rationale for buying the investment – Once you’ve stopped reading the financial message boards, do your own due diligence and revisit why you bought the stock in the first place versus the company’s current business environment. Here’s why I bought KMI and what I think now:
- Provide necessary goods or services? Yes, and this still valid – Kinder Morgan is in the pipeline business, which isn’t going to disappear anytime in the near future.
- Leader in their industry with a strong brand name? Yes, and this still valid – KMI is a leader in the pipeline business.
- Company led by management with a history of success and vested interest in the company? Yes, and absolutely this is still true for Kinder Morgan.
- “Shareholder friendly”? – KMI has been committed to growing the dividend – perhaps too committed to aggressive dividend growth, which has contributed to the financial pickle the Company finds itself in currently.
4) Analyze worst-case scenario – Would you accept any dividend cut? Total elimination of the dividend? Or even worse, a stock going to zero in bankruptcy situation? For me personally, I own 175 shares of KMI which contributes $357.00 in annual dividend income to my Dividend Meter. If KMI completely eliminated the dividend, it would set me back about three months worth of dividend increases.
5) Create an Action Plan – After analyzing original buying rationale and worst-case scenario, create an action plan and stick to it. For me, I have made a decision to immediately sell KMI if the dividend is cut or eliminated. If the company can just freeze the current dividend, then I will hold.
6) Be Grateful – Maintain a mindset of gratitude. If you have money to invest in stocks, you’re doing better than 90% of the world’s population – be grateful for the opportunity to play the game, stay positive, learn from mistakes, and move on towards finding that next successful investment.
Happy Thanksgiving week everyone! As of November 23th, 2015, the current Dividend Meter reading is $5,802.97. The increase from October’s dividend figure is attributable entirely to a purchase of 20 shares of HSY (The Hershey Company). On November 13th, I purchased additional shares of HSY at $85.21 per share in my taxable brokerage account with cash from an annual sales bonus that I receive from my employer each November – an appropriate month to be thankful for my job and the income it provides to support my family and then some. The rest of the sales bonus has been set aside to fund my 2016 Roth IRA contribution in January.
November is a busy month for receiving dividend payments from my current stock positions. So far in November, I have received dividend payments from GIS (General Mills), AAPL (Apple), KMI (Kinder Morgan), DFS (Discover Financial), and ETN (Eaton). On November 30th, I expect to receive additional dividend payments from AFL (Aflac), AWR (American States Water Company), PFE (Pfizer), and COP (ConocoPhillips). I’m saving these dividends in the cash portion of my brokerage accounts for now, but will probably use the accumulated dividends in December to purchase a stock that is flashing a buy signal on my spreadsheet. Below is a picture of my current spreadsheet. A few of my “watch list” stocks near the bottom of the sheet are flashing buy signals – it’s likely I’ll establish a new position in December! To all visitors and readers – have a wonderful Thanksgiving, and may your week be filled with gratefulness, joy, and peace in the company of loved ones.
In last week’s blog post, How a Kid Can Buy Stocks, the concept of “DRiP Investing” was introduced. A traditional definition of a DRiP investment is characterized by purchasing shares of stock directly from the underlying company. However, many publicly-traded companies have outsourced the management of their DRiPs to a company called “Computershare“.
I was recently directed to Computershare’s website while researching how my own 9-year son could buy shares of Dr. Pepper Snapple Group, maker of our favorite drink, Dr. Pepper:
Today’s article will explain the process and experience of using Computershare to set up a direct stock purchase plan. Upon visiting Computershare’s website, I honestly felt a bit confused about where to begin to make my son’s first stock purchase. My son and I were tempted to initially click the “Create Login” button under the New Users section; however, the first step is to enroll in a specific company’s stock purchase plan. Look for the “Buy Stock Direct” button, which will take you to a search page. You can search by company name, ticker symbol, or perform an Advanced Search. The Advanced Search is very useful for identifying companies participating in Computershare’s direct stock purchase program and you can filter by a minimum starting investment range; for example, you can find stocks that feature minimum initial investments of between $1.00 – $250.00.
After locating the Dr. Pepper Snapple Group Investment Plan, we clicked the “View Plan” link to review initial investment minimums and fees. Within Computershare, the fees vary from company to company – most have some sort of enrollment fee, very low or zero additional purchase fees, and sale fees that are higher than your average online brokerage firm. The fee structure is optimum for buy-and-hold investors who want to make frequent additional purchases of shares with small dollar amounts. Here’s what the fee summary page looks like:
Clicking the “Buy Now” link from the fee summary page reveals a very simple registration page, with an option to open a Custodial account, a necessary requirement for my 9-year old’s first stock purchase. I was impressed with the simplicity of the registration page. After submitting basic sign-up information, we quickly navigated to the next steps in the process: indicating our initial investment amount, and selecting our preferred dividend reinvestment option:
Finally, we entered our bank routing and account numbers to fund our minimum $250.00 investment. That’s it – the sign-up process only took a few minutes. Below is a screenshot of the confirmation screen. We also received an email with a reference number.
A few days after signing up for Dr. Pepper’s DRiP, I noticed the electronic withdrawal of $250.00 from our bank account. We still had not received the statement by mail that the confirmation message referenced; however, we attempted to go ahead with creating a login at Computershare’s website. To my surprise, it worked! The system recognized my son’s SSN (since it is a Custodial account) and had recorded the initial purchase details for my son’s first stock purchase, 2.739886 shares of DPS (Dr. Pepper Snapple Group), in an easy-to-understand Portfolio summary screen. For those wondering about the $15.00 enrollment fee, it was deducted from the initial investment of $250.00. Below is a picture of the Portfolio screen. There are simple Action links from a pull-down menu that will allow us to make additional purchases of stock for no fees and in increments of only $50.00.
Conclusion: While I still prefer the tremendous overall value, breadth of investment choices, and convenience I receive from two different online brokerage firms, Computershare offers a great investment solution for anyone who wants to buy stocks with low investment minimums and fees. Investors in DRiPs managed by Computershare should be long-term investors, as the fees to sell would seriously put a dent in sale proceeds on such small dollar investments. But for my 9-year old, we share a common bond now, and I hope I’ve instilled in him a desire to save for his future…