Wednesday, December 4, 2013
I'm reporting my automatic purchases for this week (12/03):
$350 of RDS.B
$500 of DE
$700 of MCD
I used $1550 in new capital and added $54.50/year to my dividend income. This is an average yield of 3.5%.
My forward 12-month dividend income increased to $8558.16.
DE is a new position for me. I've decided I would like to have half positions in both CAT and DE since I think they compliment each other well. I also feel that DE is a little better value right now. My other planned half positions are KO/PEP and MO/PM which are currently full or overweight. I was also due to add to MCD since I haven't added to it in a full year. I added a small amount of RDS.B which I think is at a good value to increase my starting yield on these purchases. It's tough to find good values right now so I'll continue to stockpile some cash in case of a pullback. I still plan to make purchases each week no matter what the markets are doing.
Also you might notice that my forward income went down from last week. That's because DOW is set to get called away this month and it was just easier to replace DOW with DE on my spreadsheet. I don't have the proceeds yet but will be looking for more opportunities in the market to deploy that cash into.
Just for some fun and to add some color I will be posting pictures of places I've been to. It's also motivation to reach FI so I can travel and do what I want to when I want to.
If you were wondering, this is a picture from Austin Comic Con. Yes, that's Thor built solely out of Legos. If you look really hard, Thor was signed by Stan Lee in the center of his chest! I didn't ask the price but it was really cool so I took a picture with my phone.
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Tuesday, December 3, 2013
*photo courtesy of ESPN
Well it's been since March that I actually posted an update using my ranking system of the CCC Sheets.
The original article used the Jan. CCC sheets and can be found here.
I decided to take the CCC spreadsheet and rank the stocks based on their 10-year YOC. If you are unfamiliar with what Yield-On-Cost is (YOC) then refer to my resources tab or see below for an example. If you don't know about David Fish's Champion, Challenger and Contender (CCC) spreadsheet then you are doing yourself a disservice, the link is also on my resources tab.
Let's say you purchased a stock at $10/share in 2013 that paid a 4% dividend or $0.40/share. In order to achieve a 10-year YOC of 10% that stock would need to pay out at least $1.00/share by 2023.
You may wonder why I care about a 10-year YOC instead of just the 1,3,5 and 10-year CAGR's. The main factor that the CAGR leaves out is the starting dividend yield. The starting dividend in combination with the dividend growth rate will greatly influence your returns.
There's a variation of this screen used alot by members of the Seeking Alpha community and it's coined the "Chowder Rule". This can also be found now on the CCC sheets. The rule basically adds the starting yield with the dividend growth rate (5-year CAGR) and looks for it to be higher than a certain number. While this can be a useful screen, there is still a discrepancy between dividend payers that have different growth rates but still arrive at the same number. For instance, a 3% yielder with 5% growth would get the same grade (an 8) as a 5% yielder with 3% growth. Holding a lower yielding stock with a higher growth rate will at some point provide higher returns assuming the growth rates don't change. My 10-year YOC would give this 3% and 5% yielder a 4.9 and 6.7 respectively.
The purpose of this screening process will be to identify unfamiliar companies that have a high expected dividend growth rate combined with a starting yield that would produce greater returns. These companies may be good candidates for further research.
The first step was to sort all stocks by their current dividend yield and eliminate any stocks not paying at least a 2% yield.
Next I sorted all columns by TTM P/E and eliminated every stock with a TTM P/E over 18. I do realize this eliminates a lot of REIT's, MLP's, and telecom stocks. I'm ok with this since I'm not really targeting these stocks right now.
Then I decided to eliminate any Champions with a 10-Year CAGR < 5%, followed by any Contenders with a 5-Year CAGR < 7 % and finally any Challengers with a 3-year CAGR < 7%.
This last screen dropped the list of Champions, Contenders and Challengers to 18, 35 and 28 respectively.
Next I took the latest CCC sheet and added some new columns to calculate a 10-year YOC using each stock's 1,3, 5 and 10-year compound annual growth rate (CAGR). I will call these new metrics 10YOC1, 10YOC3, 10YOC5, and 10YOC10 for simplicity.
After sorting, I looked for any companies that had a 10YOC1, 10YOC3, 10YOC5 or 10YOC10 of 10% or higher. I applied this to the list of Champions, Contenders and Challengers. After applying this rule the lists dropped to 10, 34, and 26 companies respectively.
Next, I wanted to look to see if the DGR was increasing or decreasing. I highlighted in red the 10-year YOC's of companies that were both reducing their rate of increases and still under 10%.
This is a previous example of how it looked:
This is a previous example of how it looked:
Companies got credit for increasing their dividends at faster rates. For example: The 10YOC5 for AWR in the example above was 4.97 and did not get highlighted in red because its 10YOC5 was higher than its 10YOC10 of 4.09.
Next, I decided to remove any company that had a 10YOC1 in the red for Champions and a 10YOC1 or 10YOC3 in red for Contenders and Challengers.
For the Example Champions list above this removed LEG, MDT, NUE and WMT.
This elimination dropped the list sizes for the Champions, Contenders and Challengers to 5, 11 and 21 respectively.
Here are the 37 candidates left that may be worthy to do further research on.
The list I came up with in March had 45 candidates. It's not surprising that this number has dropped as the markets have gone up, which has caused starting yields to go down.
Coincidentally, MCD has made the list and I had already planned on adding a little more tomorrow with my weekly buys. TGT is also one of the only 5 on the Champion list and I've recently increased my position there also. I noticed DE made the Contender list and I've been watching it closely. I've decided that I will invest in DE and CAT as both half positions instead of putting a full allocation into CAT. Therefore I'll start by adding some DE as part of this week's purchases.
Keep in mind that this is just a starting point and I feel these companies need further research before making an investment.
Monday, December 2, 2013
I look forward to these updates each and every month. It's exciting to watch my dividends grow and to track the progress I'm making.
I hope everyone had a great Thanksgiving. It feels like both November and Thanksgiving just flew by. I've noticed lots of lights and Christmas trees already going up where I live. We're now into the last month, December, which is one of my favorite times of year. Not only am I looking forward to the Christmas holidays but December is also one of my highest dividend paying months.
Below is a summary of my activity for the month:
New Purchases ( $14,391.27):
$2150 of TGT
$2050 of RDS.B
$750 of MO
$700 of TEVA
$600 of V
$400 of MDT
$250 of J NJ
$250 of WFC
85 shares of KMI ($2950.27)
100 shares of SO @ ($4291)
Posts about new purchases can all be found by following the "Buys" label here.
November was quiet from an options standpoint. My only options transaction was the assignment of a SO put that I sold previously. My total profit for the year so far is still $4149. I've updated all of these trades on my Options tab.
I earned $364.23 in dividends for the month. This is a little better than last month but lower than August due to a large dividend from VOD. My total year-to-date dividend income is now $4740.72. I've updated my dividend income on my Dividends tab.
Forward 12-month Dividends:
My expected forward 12-month dividend income has increased to $8644.11 from $8002.20, an increase of 8% in one month. You can find my all of my monthly dividend information from the Dividends page.
My last achievable goal will be met this month. That goal is to have $5000 in dividend income for the year. I only need about $260 and am projecting over $1000 for the month. All of my goals can be found on the Goals tab.
I mentioned the possibility of buying a commercial space for my business. Well I now have an offer on a place and am moving forward with the purchase. The building is a "shell" so the entire inside has to be finished out. This could take until March of next year to finish. I'll post more details of that soon. This will obviously push back another rental purchase.
My solar system is finally installed! I'm just waiting for a couple of final inspections and I'll be live on the grid. I'm excited to start producing some cheap alternative energy.
All of my real estate posts will be found on my real estate label.
My goal was to hit a net worth of $450k by the end of the year. I achieved this goal in October and am now at $512k. This is an increase of $45k Since last month. A lot of this was due to my income and bonuses but the markets also helped this number out. My revised goal is $525k by the end of the year which I think is still achievable.
I posted a 500K Net Worth Milestone titled, I'm Half a Millionaire!
December is one of my best paying months. I'm expecting close to $1200 in dividend income for December which will break through the $5k in dividend income that I set for a goal this year.
My revised forward income goal of $8500 has been met however I am expecting TWGP to quit paying its dividend which would be a big hit. If this happens, I will need to add $304.96 in additional income to make my $8500 target. I'll need to add $8700 of new capital at 3.5% interest to do this. I'm currently averaging $9656/month in contributions so It should be close.
I hope everyone has a Merry Christmas!