Saturday, September 29, 2012

Weekly Roundup - September 29, 2012

And yet another week has gone by.  It's been a slow week for the blog and for the FI portfolio with only 20 shares of NSC being added.  I was close to making another purchase yesterday morning but by the time I got to my computer to see how the markets were doing the early morning dip in price had already recovered.  Now, on to the links.

The most challenging aspect of dividend investing - Dividend Growth Investor wrote a great article on the psychology of dividend growth investing.

Your Savings Rate Trumps Your Investment Returns - Dividend Mantra's piece on why focusing on what you can control, such as your savings rate, is so important.  It is especially important for those that are set on retiring early.

Tuesday, September 25, 2012

Recent Buy

This afternoon I purchased 20 shares of Norfolk Southern Corporation (NSC) for $65.14 per share for my Roth IRA. My total cost basis after commission is $1310.75 or $65.54 per share. NSC has increased their dividend twice this year which is a good sign for management's commitment to rewarding shareholders and belief in the underlying business. Railroads are local monopolies and I feel that NSC's business will pick back up. These shares have a 3.05% YOC and will provide an extra $40 per year in dividends before reinvestment or further increases.

Emerson's pullback

Emerson Electric (EMR) has been on a bit of a pullback for the last month or so and has just recently started trading less than $50 which means its starting to get to the fairly undervalued range. I'm hoping for a further pullback to the $45's to give a 3.50% YOC.  The other great thing is that Emerson is due for a dividend increase soon which will push the YOC up even further.  You can check out my analysis on Emerson here.

Sunday, September 23, 2012

Options Update

With Intel closing on Friday at $23.13 my September 22 2012 $25 put option was exercised.  You can see the details and thought process of my selling the put option here.  By selling the put option I received $52.01 in premium.  In order to calculate my new cost basis you take the $25 strike for the put option and subtract the $52.01 option premium which needs to be on a per share basis and then add the applicable brokerage costs back.  For these shares it looks like this:

Saturday, September 22, 2012

Weekly Roundup - September 22, 2012

This week had me busy with work and therefore slow for the blog but I still found time to read some fellow blogger's thoughts.  So here's the roundup for this past week.

YOLO - Dividend Mantra had a great post about why he's saving and investing to become financially independent at a young age.  It was a great article and something I firmly believe in.

3 Easy Steps to Retire by 40 - Going with the early retirement/financial independence theme, here's a post from Retire by 40 outlining the 3 steps to reach FI.  While the 1st step might not be completely realistic for everyone, it's still something to consider, especially when considering career options.

Thursday, September 20, 2012

Dividend Increase - McDonald's

Today, McDonald's board of directors announced a 10% increase in the quarterly dividend from $0.70 per share to $0.77 per share.  The new rate will be payable December 17th to shareholders of record on December 3rd.  This brings the annual payout to $3.08 per share. The increase will raise my quarterly payout from the latest of $22.51 to the next payout being $24.95. My YOC for my shares rose from 3.12% to 3.44%, while my YOC for the portfolio increased from 3.03% to 3.07%. This puts McDonalds on track for 36 years of annual dividend increases. It's a great day when you get to wake up and find you just got a raise.

Investing Milestone

This morning I was pleasantly surprised to see that both McDonald's and Harris had paid out dividends to me.  I knew they were paying out this month but hadn't been paying close attention to when.  Harris's dividend pushed me over the $100 dividends received for the month and up to $125.56.  It's great getting paid to invest in solid companies.  I still have another 3 expected payouts this month which should take me up to around $165.  Sadly I'm not averaging that much every month but it's slowly building.  Baby steps is what I have to remember.

I hope everyone else is having a great month of dividends!

Wednesday, September 19, 2012

When to sell a DG stock

Lately I've been seeing several articles/posts discussing when to sell a DG stock.  While it is tempting to sell at a high, it might not be worth it.  Unless you see companies approaching grossly overvalued why get rid of the position especially if the underlying reason that you're investing is for dividend growth.  Now if a company like Walmart starts trading at a 30 P/E multiple then yes it might be time to sell because thanks to the sheer size of Walmart a 30 P/E multiple is a little ridiculous for a company that can't grow that fast.

Saturday, September 15, 2012

Weekly Roundup - September 15, 2012

Well another week is in the books so that means it's time for another weekly roundup of blog links and articles that got me thinking.  So here goes.

Trading Vs. Investing Dividend Mantra wrote about the difference between trading and investing and why he's first and foremost an investor.

Procter and Gamble: Still a Champion Blue-Chip? Dividend Monk analyzed the status of Procter & Gamble.  He feels it's fairly valued where it's currently trading and wouldn't be buying without a 10% pullback.

Dividend Investors are Getting Paid for Holding Dividend Stocks Dividend Growth Investor had a great post that pretty much sums up the reasons to invest in dividend growth stocks.

Stop the Bleeding! - Internet Service All About Interest wrote about what he's done to lower his bills to find more investment capital.

Philip Morris Increases Dividend Compounding Income highlighted the recent dividend increase by Phillip Morris.(PM).

Dividend Growth Investing; Give Us Your Tired, Poor And Unguided Seeking Alpha is one of my favorite spots on the web to read articles on investing and DGI in particular.

Friday, September 14, 2012

Recent Transaction

This afternoon I sold a Dec 22 2012 Put option on Archer Daniels Midland Company (ADM) for $0.89.  After brokerage costs I netted a total of $81.01.  The put option gives me a good return either way that it works out.

If ADM is trading above $26 on expiration then I will pocket the full $81.01 premium.  That would be a return of $81.01 / $2,600 = 3.09%.  Even better is that I would have gotten that return in 99 days which is equivalent to a 11.39% annual return.

Thursday, September 13, 2012

What to make of QE3

I'm very annoyed that Bernanke announced QE3 today.  The plan is to purchase $40 Billion of mortgage-backed securities each month until they are satisfied that the economy, specifically unemployment, is righted. He also announced today that interest rates will stay near zero until mid-2015.  The hope is to stabilize and hopefully spur the housing recovery.

The American people haven't been purchasing houses because they either don't have jobs, don't work enough hours or have no idea what the future of their job is.  It's not because mortgage rates are too high, they're at all-time lows.  What I see as the reason for doing this is to further clean up the banks' balance sheets by taking MBS off their books and hopefully spurring further lending by the banks with a pocket full of cash and low interest rates.

Wednesday, September 12, 2012

Portfolio Returns - Part II

In Portfolio Returns - Part I I explained how to use Microsoft Excel to calculate your internal rate of return using the built in XIRR function and gave my returns through close on September 9, 2012.  Today I'm going to compare my returns versus investing everything in the SPY ETF.

I was able to compile all the data and crunch the numbers to compare my total returns vs the SPY ETF that tracks the S&P 500.  I gathered data from Yahoo! Finance's Historical Prices for the SPY.  The historical prices gives the open, high, low, close & adj. close prices corresponding to each date.  The adjusted close price is the price adjusted for all dividends and stock splits.  It's an easier way to compare total returns without having to gather data for all dividends and closing prices.  Yahoo! Help has a good explanation and example calculations of how they calculate the adjusted close price.  Now I know that Yahoo! Finance doesn't always have the best information but it's the best that I can get to work with.  All returns are calculated through close on September 9, 2012 to be consistent with my previous post.

Monday, September 10, 2012

Portfolio Returns - Part I

I figured that we should take a look at portfolio returns so we can see exactly where we stand.  If you don't know what you're actually returning then it's hard to tell if it's a good investment.  While some people are focused on just capital gains and some just on dividends and others still on total return, you still need some measure of tracking your progress.  I'm going to look at just annualized returns as calculated using the XIRR function in Excel using the cash flows and current portfolio values.  The XIRR function returns the annual growth rate that when applied to all cash flows returns the portfolio value.

To calculate your portfolio return you enter your cash flows like so.

Sunday, September 9, 2012

Portfolio Update - September 2012

Today I've updated my portfolio for everyone to see the changes.

I reached a small investing milestone of a $40k FI portfolio value.  Hoping that continues to increase every month.

Check out My Portfolio here.

Saturday, September 8, 2012

Weekly Roundup - September 8, 2012

I figured that I would start a Weekly Roundup of my own for posts that I read from other dividend growth and personal finance blogs that got me thinking.  Here's this week's posts.

The Next Bubble is in Canada, and It Will Affect Everybody
The Dividend Guy had a great post about the potential debt bubble forming in Canada.  It's eerily similar to how the US personal debt/income issues led us into the financial crisis and has only gotten worse there.

Appreciating The Small Steps Of Dividend Growth Investing
Dividend Growth Machine had another great article outlining dividend growth investing and compound income in general.  His main point is to focus on the end result and to not get discouraged by the slow beginning.

How to retire with dividend stocks
Speaking of staying focused on the end result, Dividend Growth Investor posted about how to retire with dividend stocks.  It's not a get rich quick scheme by any means, but it is one of the most stable ways to generate solid returns.

Money Down the Drain: Water Conservation and Your Wallet
The Simple Dollar wrote about conserving water in your house and how just a few little changes can save you money.  And just think of what that money could turn into if you invest it.

Smuckers Looks Fairly Priced
Dividend Monk ran the J.M. Smucker Company through a stock analysis and determined it was fairly valued.  Check out the post to see his reasonings.

Dividend Income Update - August 2012
We finally got a dividend income update from Dividend Mantra.  I'm glad to see that he's back from his summer hiatus and posting again.  His blog was a big inspiration for me to start mine.

Friday, September 7, 2012

Recent Transaction

Today I decided to go on and buy back my $7 Jan 18 2014 Put option on Bank of America.  I bought to close the option for $0.89 plus $7.98 in commission/fees.  It cost me a total of $96.98 to close out the position.  I originally sold the put back on February 2 for $1.73 and received a total of $164.32 in option premium.  If I let the put go to expiration and it expired then I would have a received a 23.47% total return which is annualized to 11.99%.  After closing out the put, I ended up with a total of $67.34 in option premium ($164.32 - $96.98) which is a 9.62% return ($67.34 / $700) over 218 days giving an annualized return of 16.12%

Net Worth Update - August 2012

August was another great month for my net worth with almost a $7,900 increase.  Over half of that came from after tax savings with the rest from my 401k and ESPP withholdings and the change in market values.  For the month I contributed just over $1,200 to my 401k and another $650 to my ESPP.  My after-tax savings amounted to just over $4,600.

Thursday, September 6, 2012

Selling Puts for Added Income

This morning Archer-Daniels Midland was trading at $26.97. Since I would like to get more into the stock with it trading around a 14% discount to my calculated fair value, I figured I would check out the potential option moves to make. The fair value price turned out to be $31.31. I will be calculating everything with a commission of $7.95 + $0.75 per contract basis. The December 2012 puts look to give the best option premium and lowered cost basis for either way the stock decides to go. Currently ADM's yield is 2.60%. If sold today the option would be open for 107 days, all annual return are based off this.

Archer Daniels-Midland Dec 2012 Put Options
Strike Price Option Price Cost Basis if Exercised YOC if Exercised Discount to Fair Value Total Return if Expires Annual Return if Expires
$25 $0.77 $24.40 2.87% 22.09% 2.73% 9.32%
$26 $1.12 $25.05 2.79% 20.02% 3.97% 13.55%
$27 $1.55 $25.62 2.73% 18.20% 5.42% 18.48%

I really like the $27 put option because you get a solid YOC entry point as well as a great option premium if ADM is trading above $27 come December 22. It wouldn't surprise me to see the option expire come December so that could be the best way to go, with it currently trading on par with the strike.

If I had the cash on hand I would sell at least one of these puts today, most likely the $26 put to help lower my cost basis on the shares. The $27 put doesn't give as much help since my cost basis on the 35 shares I bought last month is $25.96. The $26 put would lower my total basis to $25.28 and increase my YOC to 2.77%. Which is a good range to be in. This would also get my position to be in at a 19.27% discount to fair value.

Tuesday, September 4, 2012

Recent Buy

This morning I purchased another 40 shares of Harris Corp (HRS).  I purchased these shares for $46.24 each plus commission.  My cost basis ended up being $46.44 which now brings my total cost basis in Harris to $46.84.  I was able to purchase the shares at a 1.7% discount to my previous cost basis.  These shares will add an additional $59.20 in annual dividends before reinvestment or further dividend increases.  I will also receive a total of $29.60 in dividends from HRS this year which will help out the total dividends for the year.  The YOC for the new shares is 3.19% and brought the YOC for the position in HRS up to 3.16% from 3.13%.

Income Update - August 2012

August was a decent month for my spending with it being below my average so far for the year, but it was still higher than it should have been.  My minimum expenses in August ended the month at $1,417.13.  So far in 2012 my minimum expenses have averaged $1,542.09 through August but the average should start creeping down with my $230 debt service payment no longer being made since that's paid off.  Total expenses for the month were $1,615.80.  Considering how poorly I did on a lot of my budget for the month that's a win in my book since I have averaged $1,721.18 per month year to date.  Unfortunately my potential retirement income is still lower than I would like but that was due to a slow payout month.  PRI totaled only $9.87 which is 0.70% of my minimum expenses.  Thanks to a rise in the 30 year treasury rate to 2.67%, my FI at the end of the month was $144.48 which covered a much more respectable 10.20% of my minimum expenses.  Since I am trying to be able to live off of dividends, my PRI is a much better number to go off of with it's sources being dividend and interest income.  Through August my PRI has average 3.51% coverage of my minimum expenses.

Saturday, September 1, 2012

First Full Share from Dividend Reinvestment

With Intel's dividend payment today, I am officially over the 1 share received from dividend reinvestment.  Technically Coca-Cola held that spot but that was due to the 2-for-1 split that went through last month.  It's not a major accomplishment but it's still a sign that things are working right.  In less than a year's time I've been able to increase my share count and therefore my dividend payment by 2.52% by doing nothing but reinvesting in a solid company.

Dividend Update - August 2012

August was a slow month for dividends with only 2 companies paying out during the month.  I'm looking forward to September rolling around when I will have the majority of my portfolio paying out for my largest monthly payout so far.  I'm still holding out for a market pullback to let me get more of my cash working for me at better entry prices.

There were 2 new purchases this month with 35 shares each of Walgreens (WAG) and Archer-Daniels Midland (ADM).  These will add an extra $38.50 and $24.50 to my annual dividends before dividend increases or reinvestment.