March Review / April Preview, 2015

Robber Gremlin here to talk about March and April.  March was a crazy month in many ways for me.  Work wise my boss is retiring in a month.  My wife's car got a new timing belt, and my car decided its cylinders and pistons were not all on the same page.  My car left me with two options - get a new a engine or a new car.  So my old car engine robbed me, it was going to hit 200,000 miles soon too.

This led to a lot of car shopping.  I was looking to get a used car that would last a long time.  However, I found a helluva deal and purchased a new car.  This was not the intent, but it turned out to be a smarter purchase with a family possible and other issues.  The expectation is that this car will last 13+ years as the last one did.  She only needs a name...

March:
My last month's prediction of pain was correct, but not for the reasons anticipated. 

Last month I brought in a total of $73.37 in dividends ($49.34 taxable, $24.03 Roth).  This is an overall increase over last year ($52.19) by 40.58%.  The majority of the growth was from the Roth account.  A dividend increase came from Waste Management (WM) and a cut came from Pengrowth Energy (PGH).

Kraft (KRFT) announced a merger with Heinz to make one of the largest food companies in the world.  I purchased my shares at approximately $55, they are currently worth $87.11!  Plus a special $16.50 dividend per share was included in the deal.  KRFT's merger creates an outstanding chance at capturing future growth.  This all has to be approved of course, yet it makes my dividend goal seem very attainable, but the special dividend will not be a part of future comparisons.  It is only a one time deal after all.

In my Roth I received my last Dupont (DD) dividend; the position was sold and a new position was opened in Deere (DE).  This was done as a forward looking move, with DE providing a better prospect for growth and current dividend.  I added only one share in Kellogg's (K) at Loyal3; the goal was to add more Coca Cola (KO), however car situations required me hold onto extra cash.  We even received a tax refund (unplanned), but that is already spoken for going towards my wife's car.

April:

There are only 2 (two) debts I currently owe; our wedding rings and new car.  The rings are almost done, fitting a new one would pop up.  Once the rings are done, a little extra capital will be funneled the car's way.  I hate having debt.  However, this will in no way slow down future investments; they are just going to be a blip in the long term.

Next month should produce a similar amount of dividends to this month, which will be a negative percentage.  This is due to holding toxic Windstream (WIN) last year, which paid out a massive dividend and to PGH's cut.  However, my Roth should see an increase.  I expect to realize 5 dividend increases: CIBC (CM), Dr Pepper Snapple (DPS), KO, Realty Income (O), and Chubb Corp (CB). 

Change has been coming to my account, better growth trends and stability.  Hopefully, life calms down next month and continues to head in the appropriate direction.

Hope everyone has a great April.
- Dividend Gremlin.
- Long WM, PGH, KRFT, DE, K, KO, CM, DPS, O, and CB

Recent Sale - Buy, March 2015

Investor Gremlin here to talk about a recent buy.  First, I should talk to a sale that fueled this purchase.

Sale:

Recently in my Roth account I sold 16 shares of Dupont (DD).  When I first bought DD it was hovering around $66 / share last summer.  I still like the companies products, the basic materials sector, and its dedication to science.  However, I don't like the pace of growth and the intrusion of activist investors trying to change the company.  Activist investors might be right in some ways to force a company to change and adapt, but there is something stupid and or sinister about them too.  For instance, I've tried home brewing, but you will not see me going in and tell a professional brewer how to make a better product.

Purchase:

The sale generated $1235, a profit of approximately $169.  This money coupled with some new cash allowed me to purchase slightly more than 15 shares of Deere and Company (DE) at a cost of $1366 less commission ($88.50/share).  In total my forward annual dividend income went from $30.16 with DD to $36.36 with DE.  That increase is nice in many ways; DE has a lower payout ratio, a higher current dividend yield, a longer history of raising dividends, better dividend raises, and a better balance sheet.  This sort of change is what I want for my Roth - higher growth.  I understand it is swell to have big dividend payers, but in my Roth I want the majority to be growth stocks - as Dividend Mantra calls them Stage 2 and Stage 3.

Leading up to this purchase I was torn between two industries, Heavy Equipment/Machinery and Railroads.  For the first I was looking at Caterpillar (CAT) and DE.  For the second it was CSX, Norfolk Southern (NSC), and Union Pacific (UNP).  Each of these companies has a low payout ratio, wide moat, and large room to grow.  However, the Railroads are a little above CAT and DE in terms of metrics I wanted, especially P/E ratio.  So my attention shifted to CAT and DE.

CAT and DE both sport remarkably low P/E ratios, but DE's is lower along with a lower payout ratio.  CAT has a higher yield and a good amount of room to grow, but DE is really the leader in offering growth potential in terms of that ratio.  Morningstar rates both to be 3/5 stars in a cyclical industry.  So I made my mind up for growth.  Looking at the balance sheets and data I could find on both only helped to solidify my position on DE.  I know DE and CAT have both been making the rounds on various DGI blogs as well, and in reading those posts it made it even more clear to go with DE.  In the future though, I would like to own CAT along with all of the above railroads.

Full Disclosure - Long DE.

- Dividend Gremlin

Almost to the Tundra

Nice Weather Gremlin here to talk briefly about an upcoming trip to a tropical destination (well not really), some small investment moves, St. Patrick's Day, and taxes.  Not in that order.

St. Patrick's and Travel:

First off, let's talk about St. Patrick's Day briefly.  It is tomorrow, and we can all agree that it might be one of the coolest ethnic holidays celebrated in the USA.  Whether you're Irish, or not, everyone can agree that Ireland has had some rough.  Still even with all that crap, they still love to commemorate it all by having a damn good time.  My kind of people right there.  So in keeping with budgeting; I have a block of Irish cheese and some beer at home for tomorrow night.  So I too can be Irish for a night.

Moving on, in a few days I will be in sunny warm Fargo, North Dakota.  Yeah that's right, Fargo.  Oddly right now Fargo is predicted to be in the 40s and sunny, essentially the same early spring weather I am used to in the Mid-Atlantic US.  Why go there though?  Sports, every year I make 1 big trip for sports, and this is it.  It should be a good time, doing nothing but playing and having a good time away from the grind.  Everyone needs a little break from the normal to get ground again.

Taxes:

Tax wise, this has turned into a surprisingly nice month.  I thought at the beginning of this month I'd owe a solid tax payment, I was wrong.  Filing jointly with my wife we got a sizable return back.  Last year she had done even better, because of her continuing education credits.  Those education credits, combined with our income disparity (I make more than her), led us to get almost $700 back.  Now, normally I aim for zero or slightly negative, but that along with the rest of my life is slightly redefined via marriage.  Its not a bad thing, especially since she was happy and it was nice to not face the marriage tax 'penalty.'   I'd like to eventually get that number down close to zero, but for now I'm excited that I don't have to pay anything. 

On the investment front, this nice tax windfall has enabled me to put a little more money into the market.  I will be using Loyal3 to purchase approximately 1 share of Kellogg's (K) and 3 shares of Coca Cola (KO).  The market has been riding a wave downward of late, which is nice and allows me to expand on some positions that are suddenly better valued.  If this continues my plan for the year might be slightly altered.  Lower prices would push me to kick in some more capital to my Loyal3 positions and allowing me get even closer to the day I combine it with my Sharebuilder account.

One last thought on investing is my position in DuPont (DD).  I like basic materials a lot.  However, DD does not appear to provide the long term growth I am looking for.  DD will probably be sold soon, in doing this my new capital will be quickly turned around into another worthwhile investment.  There are several stocks I would like to add, all of which have better yields and growth potential.  So keep an eye out for that change.

How has your tax season and recent investing been?

- Gremlin
- Long all stocks mentioned, for now.

Cut In Half

Blown-Away-Gremlin here to talk about a dividend cut.  This month my efforts at building a dividend growth portfolio will hit a slight snag, a dividend cut to my position in Pengrowth Energy (PGH). 

History:

First however, a little history is needed.  When I first got into investing it was the spring of 2010.  I was a little blind to what I was doing and was buoyed more by confidence instilled from my brother who had started investing.  I started with $1000, and spread it out into several companies.  Clearly this all shows how much I really knew.

My spreadsheets don't even go back that far.  I did not even keep track of several of the stocks that I sold in the first 3 years.  My strategy was to buy what I knew - mainly energy, environmental, and beer / wine (what I am good at!).  Some of those such as the Ceco Environmental (CECE) and Sonic (SONC), and Nevada Energy (NVE) I should have held.  Since then CECE has performed decently, SONC just declared its first dividend, and I lost NVE to a take over via a Warren Buffett affiliate.  Nonetheless, most other positions I had are not worth repeating, with the exception of my investment in then HOOK, now known as the Craft Brewery Alliance (BREW).  This process taught me via a baptism by fire (best way I think to learn) and I came out head overall.

Now to my two legacy holdings PGH and Willamette Valley Vineyards (WVVI).  Both were purchased before I started investing for dividends.  I keep WVVI around because it is cool to be a part owner of a vineyard.  Period.  PGH has managed to hang around because its dividend.  Despite lack of growth, even with Canadian Dollar / Loonie conversion to US Dollar and Canadian foreign tax, PGH has provided a solid base to invest in other securities.  Up until 2013 the stock was also dripped, which when combined with prior investments allowed my account to rack up 428 shares.

Dividend Cut:

Last month PGH announced its monthly dividend would decrease from $0.04 to $0.02 (both amounts in $CAN).  Burn.  In addition the value has dropped on my cost per share from $6.72 to around $3.20.  Holy crap!  Why did this happen?  Two main reasons:

1st - The main oil sands PGH shifted as PGH began a massive capital project to move its main production to the new Lindbergh Terminal in Cold Lake, Alberta.  That capital cost is a huge part in all of this.
2nd - The cost of oil in general has plummeted compared to prior years big time.

Those are the main two factors.  The 1st factor does bother me a little bit, but my understanding, as a technical professional, of the project tells me when it is done it will be totally worth it.  For a better explanation please view this Seeking Alpha PGH article from 2013.  All kidding aside, this is a great long term move.  My only question is with the 2nd issue, which is controlled by Mr. Market, how long will it take for oil to recover in cost?  No one really knows, but a lot of people think they do.

What To Do:

f I were to sell right now I would net enough for one decent buy, and yield will be likely less half of PGH's reduced level.  Still I would get around half my money back, but the tax claim is barely worth taking a loss.  It is the 'safer' short term option, but is it really better?  If held, my total capital value will likely stay in the crapper for a long time as PGH has the proverbial mountain in its path to climb.

My decision is to hold.  Oil prices can rebound at any time, and if they do PGH and its respective yield may do the same.  Also in holding, the option to sell is still there and it could happen at a better price.  The plan is to hold through the summer and then reevaluate.  In the big picture the fact is that PGH will likely at some point be sold, just that point is not now.  It will happen after other positions are established with strength to afford me the ability to sell it at a profit or loss and not worry about the consequences of a little lost revenue.

What are your thoughts?

Full Disclosure: Long PGH and WVVI.