Tuesday, November 19, 2013

I need your help

No I don't need money, nor do I have any health problems or trouble with the law.  My trouble right now is a lack of investment ideas.  So I'm calling on this great FI/DGI community for some ideas.  The markets have continued on their almost never-ending climb higher, but there's always value out there if you can find it.  The biggest problem is that the companies that I'd love to add to right now I also happen to be overweight those positions.



McDonalds seems to offer some good value here, but it also makes up around 10% of my invested capital right now.  So I'm not exactly looking to buy any unless I deem it truly undervalued, but I feel it's around the fair value mark.  Another one is Target, but I'm in a similar situation there with it making up around 6.5% of my portfolio's value.  So once again I'm not that eager to add more to that position at this time.

The best value that I really see happens to be in energy and technology.  I currently have around a 7% allocation to tech, which is in the area of what I'd like to keep it.  Tech companies are much harder to have confidence in than a Proctor & Gamble or Coca-Cola.  If you don't believe that then go ask Blackberry's investors who've seen the company go from an $80 billion company back in 2008 to possibly being bought out now just 5 years later.  As far as energy goes, I'm currently allocated at around 18% of my portfolio.  I'd like to get that lower but that's going to take some time as I'm leaning towards purchasing some shares either Kinder Morgan, Inc. or Chevron.

Some other companies I'm interested in are Walmart and Pepsi but their yields are relatively low.  Walmart is currently trading at a slight discount to its 5 year average dividend yield while Pepsi is at a significant premium.  On a forward P/E basis Pepsi is trading with around a 18 and Walmart is near 14.  I don't like to go too much based off of forward P/E ratios because the future is uncertain.

Of course I can always just continue to build up cash and wait for better opportunities.  I can't predict where the markets will go from here so just waiting for greener pastures that might not come isn't realistic as well.

Are you sitting on the sidelines and building cash or continuing to invest?  What companies are you interested in?

55 comments:

  1. What about selling some puts? You can collect some income that way... and maybe get lucky and buy on your terms.

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    1. FI,

      I've thought about selling some puts and I do like that route as a way to generate income and get a better purchase price. I haven't looked too closely at the option market right now but I have a feeling that I'd need to sell some longer dated puts in order to get to the purchase price I'd like. But longer dated puts have a drawback in that your return if it expires is much lower and I don't want to get into a situation where all my capital is tied up just when the markets start to turn south. That happened to me as the last round of debt ceiling/budget talks was going on. There's a few companies that I mentioned that I feel are okay values here but I'm not fooling myself into thinking there's 10% margin of safety or anything. I think I'm just going to build cash for now and monitor. And if I still can't find anything it'll be a nice chunk for a downpayment on a rental property. I'd love to join you in the rental market sometime in 1Q 2014.

      Thanks for stopping by!

      Delete
    2. I share your pain PIP. Actually, I think it would have been much easier if you asked for money rather than ideas ;-)

      In reality, simply based on your portfolio, it looks like you could add to your O position. Have you looked at the Canadian Banks?

      I bought these 3 stocks today btw:

      https://twitter.com/DividendGrowth/status/402881056732233728 ( shameless plug, I know)

      Delete
    3. DGI,

      Well if you want I'll gladly take a cash donation ;-) I would like to add to my O position but barring a huge move up in REITs over the next month, specifically O, I'll be picking up another 100 shares through a put option I had sold earlier this year. I've been thinking about some of the Canadian banks but I need to research them more. Got any reports on them?

      I like the buys and I wouldn't mind adding some GIS because I really want to get into some more consumer staples companies.

      Thanks for stopping by!

      Delete
    4. I agree with you DGI. Selling puts, while it may generate income, is a good way to lock up capital for a long time. Call selling is a good way to lose gains because stocks have a way of increasing in steps.
      simple is better. look for value, buy the stock, hold, let compounding work for you.

      Delete
    5. You know Skip, I am beginning to think more like you. When I sold a put on KO, i was watching it go down in price to say $36-$37, but didn't buy, because I already had a put open and if exercised would have resulted in above average allocation to the stock.

      You do receive a premium, but you are selling the other guy an option, yet you are locking your capital down by creating an obligation.

      For calls, I do not want to sell them covered, as the premium received is not enough to compensate for the fact that a stock can go up up and up. To succeed, you need to cut your losses (dividend cutters are out) and let your profits roll ( keep dividend payers that grow distributions)

      Delete
  2. DE, RCI, WFC, TD, NTT, CAT

    That's a few I would like to add at this time.

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    1. FF Dividend,

      Thanks for the list. WFC and TD are some that I've been looking at as well. I need to look more into RCI.

      Thanks for stopping by!

      Delete
  3. Do they have to be US/Canada based companies or will others do? Just saying, you portfolio seems to be quite heavily US centric.

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    1. Anon,

      My portfolio is very US centric but a lot of the companies I own are multi-nationals doing business just about everywhere. I don't have any issue with going outside of the US or Canada, but the big problem is that the commissions are increased substantially. Commissions go up from $7.95 to anywhere between $9 and $300 plus any other fees that the local exchanges levy. So ADRs are the best route for me.

      Thanks for stopping by!

      Delete
  4. PIP,
    There is nothing wrong with letting your cash build.....or even selling some companies that have been disappointments. The market has marched to great heights, far outpacing the top and bottom line growth. I'm a firm believer in reversion to the mean. Therefore, I've sold a few long term holdings, like ADM (where the company is far less shareholder friendly than I thought), and am letting my cash build. The market may go higher and it may not. I'm not so much a market timer as a hedger. If you don't see value, you don't need to buy. Or as some of your commented mentioned, you could use options. Best of luck. We're all in this together.
    -Bryan

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    1. Bryan,

      I agree that there's nothing wrong with letting your cash build. Sometimes nothing is the best route to take. Eventually there will be some kind of correction in the market and I want to be ready for when that happens. Of course, as I mentioned in response to FI Fighter, raising cash here can also work to build up a down-payment on a rental if the right opportunity comes around. I'm hoping to get that chance in 1Q 2014.

      Thanks for stopping by!

      Delete
  5. I agree with The Fast Letter. Even buffet will sit still during a low or no value market until the right pitch comes. At that point he's got a boat load of cash and gets a better deal. There will always be opportunies, sometimes we have to patiently wait for them. I know that's hard for dividend growth investors because we like to see the income stream grow quickly. Let your cash build until you really see a value arise would be my vote.

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    1. Pay off my rentals,

      The advantage that Buffet has though is that he's already got billions of dollars. I'm trying to get to FI as quick as possible. Although investing at inopportune times won't do me as much good as waiting for better chances. Raising cash is the most likely route I'll take and if my cash position builds too much then I'll probably look to start DCAing into some of the stalwarts.

      Thanks for stopping by!

      Delete
  6. I'm liking HASI and CLMS these days. DE and CAT look prett sound too. Tech screens well and has great balance sheet strength, but has a questionable future. Probably ok to buy a tech basket as a smallish piece of your portfolio, but I don't know if I'd get too heavy in tech here.

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    1. Heading Home,
      I'm holding CLMS as well. Cash is five times debt, it's trading at roughly book, insiders were buying a few months ago (at higher prices), and have you see the price to free cash flow. Sweet
      -Bryan

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    2. @HeadedHome,

      I don't think a tech MF would be all that great for me as I'm focused on the income that I can get from my investments and I just really don't like MF's. Tech is just so risky to me because all it takes is one blindspot in managements' forecast and the company can quickly get into dire straits. I'll have to look into CLMS and HASI.

      @TheFastLetter,

      On the surface those metrics look pretty good. Guess I've got some homework to do.

      Delete
    3. @TheFastLetter,

      CLMS insider buybacks are a bit misleading as the company's share buybacks show up under the CEO's name for some technical reasons. They've got substantially all of their cash invested in their own funds and have a desire to pay hefty dividends as the family ownership is very high and they use dividends to fund their personal lives. An intersting story/stock for sure, but be mindful of the nuance.

      And HASI is a company that will pay ~$0.90-1.00 in dividends/distributions next year, which might not show up on your information sources. A huge yield!

      Delete
    4. Just fyi, I owned CLMS. sold when I noted that they are suffering from net redemption's in their mutual funds. they do have "separate accounts" that they manage, but their fund business is slipping.
      positives are low valuation, yield, family ownership and management.

      Delete
  7. Hey PIP,

    no one knows when the bubble bursts.
    Although Icahn now begins to warn ...

    I still buy my shares monthly and wait on what happens.
    Should a crash occur, then I'm not worried about it, buy more when prices are falling ...
    I try to be "cool";-)

    Currently I think Lockheed Martin would be interested.
    I think the ratings are still good and the dividend is sufficient.

    regards
    D-S

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    1. D-S,

      I prefer to try and make at least one purchase a month but sometimes that's just not in the cards. I need a better way to DCA into positions so I might get a Sharebuilder account should my cash build up much higher than I'd like. Defense companies are in such a waiting period right now for me because so much can change based on what the government does. But it's still something to keep in mind as there's always going to be a need for those companies. That's one thing I'm sure of.

      Thanks for stopping by!

      Delete
  8. PIP,
    I'm still dripping into CAT. Long-term I still like it. DE also not too expensive as mentioned above. I am also thinking about picking up some LEG if we get a dip. Not overly excited either, I hear you. Could also add to your HCP which was downgraded today.
    -RBD

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    1. RBD,

      I've been seeing more bloggers mentioning LEG but I'm not too sure I want to go there at this time. Their FCF payout is quite high and the 5 year average dividend yield is 5.10% but a current yield of 4.00%. Although an estimated 15% five year EPS growth rate could cure what ails some of their metrics. Thanks for the idea and I'll do some more homework here to try and find out why the FCF payout is so high. Could have been a one time cash charge.

      Thanks for stopping by!

      Delete
  9. Replies
    1. Anon,

      I still like BAX here and I picked up some shares not too long ago. I wouldn't mind adding some more. I guess I really need to look more into DE as you're the 4th or 5th person to mention them.

      Thanks for stopping by!

      Delete
  10. I like TGT, CAT, TEVA, RDS.B, BP, KMI to name a few. However, like you, I'm heavy already on the energy sector. I will continue to dollar-cost-average into positions I already own and are below average weight while selling some puts to get a better entry price. My weekly purchases may decline as I find less value in the market and I plan to start overpaying on my rental.

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    1. AAI,

      That's been the biggest problem. I'm already overallocated to energy which has some of the better values in the market. I know my portfolio is still growing but it's at a level now where I need to start paying more attention to weightings, at least by sector. Sharebuilder might be my next stop until I can find some better opportunities. Can you do ACH out of Sharebuilder for when you want to start living off your dividends? I've been looking at Scottrade because I really like their FRIP but if I remember correctly you can't ACH your funds out which is a bit of a drawback.

      Thanks for stopping by!

      Delete
    2. I have an ACH that deposits a set amount each week into my Sharebuilder. You can do the same thing with withdrawals as far as I know. E*Trade is also good with their automatic transfers but for some reason they pay the dividends a day later than at Sharebuilder. So far, I really like all of what Sharebuilder has to offer. If you can invest at least $2400/month then the $12 fee to make 10 purchases is only .5% expense ratio. The $12 fee is also set up on my chase freedom card to collect points and it dosn't count against your cost basis. I stay well above this amount so for me at least, this is the cheapest brokerage.

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    3. *I meant 12 free purchases, not 10.

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    4. What's the withholding on TEVA since it's not a US stock right?

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    5. PIP, You can hold a basic checking acct with scottrade for free and move money through that quite easily. Thats how I move money in my brokerage acct with them.

      Delete
    6. I'm not sure if you can set automatic Sharebuilder withdrawals, but you can definitely do it manually direct to your bank account very easily. I did it last year when I funded my IRA.


      Also, I'm still stocking up on energy like AAI. CVX and KMI. Maybe TGT as I don't have a position.

      Delete
  11. Some of the names I currently like- TEVA, CAT, KMI/KMR- have already been mentioned. I am holding alot of cash right now for an eventual pull back. Who knows when that will come so I continue to nibble.

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    1. AA,

      KMI is pretty high on my list. I really like the company and Richard Kinder holds so much of his own wealth there that I don't see him doing anything too risky. I think it'll be build cash and nibble on some positions. Although the markets didn't like the Fed minutes release today so maybe that pullback will start to come.

      Thanks for stopping by!

      Delete
  12. I'm in the same boat as you. In the past two months I've bought CVX, KMI, WMT, and XOM, so I'm not keen on adding to those positions immediately. I've been watching TGT but haven't felt compelled to pull the trigger yet. I like GIS and MCD (both of which I own) but I'd prefer better valuations. The sector in which I have the most interest at the moment is REITs: I am looking closely at ARCP and O; HCP (which I already own) is still attractive.

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    1. DGM,

      I might be adding to the 4 you mentioned, but the prices aren't steals here so I'm not in any big hurry. I guess I really need to look at GIS again as Dividend Growth Investor also mentioned them above. I also like the REITs but I'm not sure if I want to add here. There's going to be further downside as rates climb, but who knows when that's going to be. I like O and HCP most out of the three you mentioned. ARCP has had so much growth through acquisition so I want to see how they go about handling all of the M&A activity.

      Thanks for stopping by!

      Delete
  13. I've been looking at my holdings in CVX, MCD, TGT, etc and almost feel like selling a bit because the market might pull back early next year. But since the dividends aren't bad I've decided to just hold everything for now :) Personally I plan to wait on the sidelines for now and see what happens until Christmas. In the meantime though I can pay down some debt.
    One alternative asset class we can invest in is preferred shares. The dividends from preferred stocks are tax efficient, and less likely to be cut than those from common shares :) The S&P U.S. Preferred Stock Index has been pretty much flat over the last 3 years so some could say it's not as overvalued as the general S&P500 index :D

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    1. Liquid,

      Luckily the only debt I have is the mortgage and I'm not going to be paying that down early. To me it just doesn't make sense with a low interest rate at least not at this time. I've never looked at preferreds before so that could be a route to go. Thanks for the idea.

      Delete
  14. For the most part I've been building cash. I've been making small purchases of some of the index funds I own here and there, but the majority of my activity is just adding cash and waiting for an opportunity to add to one of my stock positions.

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    1. First Million,

      Unfortunately that's the life of a value/DG investor at times. Not exactly the worst problem to have though.

      Thanks for stopping by!

      Delete
  15. I'm mostly holding onto my cash, but nibbling here and there. I recently added to my GE, WFC, F, and KRFT positions. Also, take a look at some Canadian telecoms like BCE, RCI, SJR and Canadian banks like RY and BNS.

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    1. koplin,

      I think I'll be building cash although WFC and KRFT are pretty nice here so I need to look at them a bit more. Homework time! I guess I'll count the Canadian telcos and banks as an extra credit assignement.

      Thanks for stopping by!

      Delete
  16. HP, UVV, TIS, LMT - been buying an any dips.

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  17. DE, COH, BAX (all of them my last purchases), from Europe UN, BTI (ADR).

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    1. czechdividendinvestor,

      I might add some more BAX if the price comes back a bit. I'm also hoping to get a some UL in the low $39's. UL is the British equivalent of UN and I won't have the withholding tax since UL is a British company and they have the tax treaty with the US.

      Thanks for stopping by!

      Delete
    2. I'm still looking at LEG, CVX, TGT. O is another option. I plan to do a purchase and also increase my cash position this month.

      I'm not sure the market is *that* high, but I do believe it's a bit over valued. Have you considered paying off your mortgage for a guaranteed return? Can't remember your rate.

      Delete
    3. CI,

      I agree the market isn't that high, but the better values are i companies or sectors that I'm way overweight in so I needed to get some new ideas. To me paying off the mortgage isn't worth it since we got a 4.5% rate. Not the best rate but good enough that I could even get some very high quality companies that can yield more than that. I'd rather just build cash and either deploy on a dip/pullback or really pursue a rental property.

      Thanks for stopping by!

      Delete
  18. Has anyone done an analysis of HCI? I recently opened a position, and everything looks good except a very large short interest. I would like to hear your thoughts.

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  19. PIP,

    You could try my screen: http://www.myjourneytomillions.com/articles/november-2013-dividend-watchlist-update/ Left me with like 20 or so on the watchlist then 3 or 4 that are double digits away from their 52 week high

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  20. STX and AAPL for the share buyback potential.
    IBM and POT for their fundamentals
    TCPC and PSEC for high yield.

    On the holding cash debate. Agreed that there is no problem holding cash but not for too long. I think most dividend investors come across that stock they waited to buy on a pullback that never came.

    I set a target cushoin of how much cash I want to. Usually around 20% of my portfolio. If something has a pullback or some weird crash then I am ready to pounce. If nothing I am watching pullsback I can safely buy in to other things at less then perfect prices without sacrificing opportunity.
    I think too many dividend investors stampede to deploy their cash and get dividends without considering enough the cost.

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  21. I'm 100% invested right now. My latest picks were done this summer (MCD, WMT and DIS).

    I don't Target will have a great year in 2014. They will have to allocate a lot of budget to push their stores in Canada and so far, it is a disaster.

    I think there is also room for AAPL to shine.

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  22. PIP,

    Nice problem to have 'can you guys give me some ideas to invest all this cash I have......'. Much better than a new bike, car or toy of some description. We are 100% cash for the minute, forcibly on the sidelines until I see what kind of cash my property investment requires (waiting for the banks to decide how big a pound of flesh they want, I'm guessing that it will be bigger than the flesh we have available). Once we get this out of the road I will be doing a huge amount of research on Aussie dividend payers and the opportunities available. Luckily our cash is parked in a 4.4% high interest instant access account, the benefits of a high interest environment. You guys are unfortunate to not have offset mortgage accounts, if we had a mortgage our funds would be sitting in a offset reducing the interest bill on our mortgage, you earn zero on the funds in the offset but the mortgage balance is reduced by that amount and therefore the interest bill reduced by an equivalent percentage. With an offset you effectively earn your mortgage interest rate (tax free) but the funds are completely free and available to remove whenever you want. Your payment amount stays the same but the P component increases significantly, consequently reducing the term. You can even set up your checking account to be your offset so any cash whatsoever gets offset of the mortgage.

    Hopefully some opportunities arise to get that cash working for you soon.

    KM

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  23. BCE (BCE: TSX) is currently yielding 5% right now, the largest telecom provider in Canada. I would also suggest ExxonMobil (XOM: NYSE) if you are looking to add another oil stock.

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  24. That's what I am doing - selling puts. I like a few companies such as KMP, O, VNR I am willing to buy at the recent prices (they actually are losing now), but other companies I am selling puts against them lowering my potential cost basis.

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  25. I like DE right now and also AFL. I think they are offering decent values still currently. Unfortunately for me, these are two companies that I'm overweight in and hesitant to add more to my portfolio at the moment.

    I like the idea of selling put options against some of the companies you'd like to get but wish the prices were just a little lower. This could allow you to earn a return while waiting for prices to come down. I'm going to look into this strategy more at the beginning of the year.

    ReplyDelete