Today is New Year’s Eve, and it’s time for a final 2015 Dividend Meter update. The month of December was highlighted by the first ever dividend cut by a member of the Dividend Meter portfolio, Kinder Morgan (KMI). The KMI dividend cut was significant enough to reduce the total Dividend Meter income value below November’s high water mark of $5,802.97. However, despite Kinder Morgan’s dividend reduction and my subsequent immediate sale of KMI shares on December 8th, the damage to the Dividend Meter reading was mitigated by investing KMI’s sale proceeds into HCP, adjusting for an announced dividend increase from Pfizer (PFE), adding new savings, and putting accumulated cash dividends to work in shares of stock. Here’s a summary:
Stock Sale and New Watch List Addition
I sold 175 total shares of KMI from the Dividend Meter portfolio after the Company announced a 75% dividend cut. The stock sale reduced the annual Dividend Meter income reading by $357.00. I also removed Kinder Morgan completely from my spreadsheet watch list and news alert services, eliminating the stock from future re-investment consideration. Taking KMI’s place on my “watch list” is Dover Corporation (DOV). Dover, a manufacturer of various equipment and parts for energy and food industries. is a current Dividend Aristocrat.
Three New Positions Added to the Dividend Meter Portfolio
My Dividend Meter investment spreadsheet tracks 25 companies, and currently I own shares in 18 of them after the addition of three stocks in December. With a combination of sale proceeds from KMI, accumulated cash dividends from existing positions, and new savings, the following new positions were established in December:
79 shares of HCP (HCP, Inc.)
20 shares of SBUX (Starbucks Corporation)
20 shares of OGE (OGE Energy Corporation)
Added Shares to Existing Position
Also in December, I added an additional 19 shares of Eaton (ETN) to an existing position with some winnings from a college fantasy football league and additional new savings. For the last few months, Eaton’s share price has drifted lower, trading at a level that has triggered my personal dividend yield buy signal on the stock.
Two Dividend Meter stocks announced dividend increases in December, Waste Management (WM) and Pfizer (PFE). My spreadsheet has automatically updated the imported new annual dividend figure for PFE, increasing the needle on the meter by $27.76 (a 7.1% dividend raise from PFE!). Waste Management’s announced dividend increase isn’t reflected yet in the automatic import – hopefully I’ll get to see the meter needle move higher in January for WM’s raise.
New Archive Page Added to Website
Above, you’ll see a new snippet of my dividend spreadsheet as of today, December 31st, 2015. With the conclusion of each year, I plan to update this blog’s top header image with a year-end screen capture of my own Dividend Meter spreadsheet. . I’ve also added a new page to the website to archive the header images.
Looking Forward to 2016
The temporary setback in total annual dividend income caused by KMI’s dividend cut in December should be brief. I’m looking forward to establishing a new high water mark for the Dividend Meter reading in January 2016 when I make my 2016 Roth IRA contribution. Be sure to check back in early January when I will also summarize 2016 personal, investing, and website goals. For those celebrating the arrival of 2016 tonight, have a great time ringing in the New Year, and be safe.
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…
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!
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.