Monday, September 24, 2018

How Many Stocks, Is Too Many Stocks?

Phone-a-friend Gremlin here to discuss my portfolio size.  There have been numerous articles posted on websites as to how big a portfolio should be, along with talking heads on TV stating that X number of stocks should be the maximum.  Some people on the internet claim that a portfolio of five (5) stocks is sufficient to make one diversified.  Others state 10, 15, or 20 as their numbers.  These hosts include professionals and amateur internet enthusiasts who are all about making wise long term OR extremely speculative short term investments.  My answer is, that their advice is best for themselves, but it is dated.

Currently my portfolio contains 58 stock positions across my taxable, Roth, and IRA accounts.  They run the gambit of industries, with multiple names in most sectors.  It is as if I am building my own personal index fund, which pays me a higher yield than an index.  Portfolio management is minimal, I rarely sell a stock, and my expected holding period is for as long as possible.  Considering my view point, versus that of others, why am I happy to hold many positions?

My answer is threefold.  First, the elephant in the room that modern professional advisers try to brush off is the internet.  The fact is I could have 200 stocks in my portfolio, and as long as I keep my apps on my phone up to date, I would never miss a news piece, dividend issuance or anything else (if I chose to be that plugged in).  The press release happens and within minutes the notice hits my email.  This was not possible 20 years ago.  So to borrow a phrase from a large investment adviser, I don't need anybody to 'make sense of investing' for me.  I can do it faster than they can, reading the same things that most of them do (sure some in high finance have special access, but the information gap small and closing all the time).  So tracking my 58 positions is pretty easy.

Second, I don't chase momentum or yield.  Those kind of plays require constant attention, tracking daily changes even, or risky bets on companies that are always dancing near a cliff.  By focusing on quality stocks that will maintain or increase their dividends with or above inflation, I eliminate the need to buy and sell (aka feed the brokerage).  So having a bigger portfolio does not increase my handling of it all, unlike some more streamlined portfolios that aggressive chase returns upfront.

Third, and most important to me, is that I memorize stuff rather quickly.  So when I research a company I can quickly understand what they do.  After that I can analyze if the company would be a good investment for me at the moment.  For a long time many educators (I know a lot of people are in teaching...) told me that memorization is not as powerful of a skill as understanding and critical thinking.  I find that argument to be a fool's errand, as they are each powerful in their own right for different things.  Specifically, by memorizing facts I can create short cuts - in terms of finding and accessing the right information.  It also helps me track a company over time, as a stock is easier to track the more familiar you are with it.  Knowledge is cumulative, so the

So in the end, how big should a portfolio be?  My answer is as big as you want it to.  Sure not every stock will be a home run, but home runs aren't the only way to score points.  Consistency is the key to making my portfolio become my personal index fund, which reports to me.

- Gremlin

Friday, September 14, 2018

Recent Buy Part 2, September 2018

Back to back to back Gremlin here to discuss another buy.  Over the past three months, including September, I have managed a buy in my taxable account each month.  This is pushing up my taxable dividend income at a rate that is more rapid than ever before.  This is thanks to three things: a special dividend from DPS merger with Keurig to KDP, the fact my brokerage is moving to E*Trade so my partial shares were all sold, dividends accrued, and the fact that my wife returned to work (which means we are back to being a two income household again).  I am unsure if this rate of growth can be sustained as eliminating debt payments might supersede equity growth priorites.  Additionally, my wife is only paid 11 months of the year.  Still, the rate of growth gives me a lot of confidence that I can get our passive income to a place I want it to be sooner rather than later.

Today, I added to a new position by purchasing shares of Cardinal Health (CAH) in my taxable account.  I bought 20 shares, with a total cost of $1,069.35 ($53.12 / share, plus commission).  The current yield is 3.6%. For a detailed summary of their history, etc. please visit: CAH's Seeking Alpha Profile.

CAH is a major distributor of medical goods, especially pharmaceuticals; I will borrow the Seeking Alpha description:

"Cardinal Health, Inc. engages in the provision of pharmaceutical and medical products. It operates through the Pharmaceutical and Medical segments. The Pharmaceutical segment distributes branded and generic pharmaceutical, specialty pharmaceutical, and over-the-counter healthcare and consumer products in the United States. The Medical segment manufactures, sources and distributes Cardinal Health branded medical, surgical and laboratory products, which are sold in the United States, Canada, Europe, Asia and other markets. The company was founded by Robert D. Walter in 1971 and is headquartered in Dublin, OH. "

CAH has been battered this year.  One horrible quarter coupled with intense political / public pressure on their industry (due to opioids) and the Amazon (AMZN) scare are definitely the biggest causes, but not the only reasons.  They operate in a thin margin industry, but it is one of an long term oligopoly.  The distribution industry is something that takes time to build.  Its low margins means those thinking about joining the industry, such as AMZN, would probably look to other parts of that food chain for better margins (they did buy an online pharmacy).  For this reason, along with the long term trends of better availability and necessity of medications, it is clear that CAH and the industry will be around for a long time competing primarily among themsevles.

That is the 800 lb gorilla in the room.  CAH also sports a comfortable payout ratio and still has a steady Medical segment arm.  This gives me exposure to multiple sides of the healthcare sector, which is always appreciated.

This purchase will add around $38 to my forward 12 month dividend income.

I will update my portfolio page at the end of the month.

What do you think of CAH?

- Gremlin
- Long CAH, KDP

Thursday, September 6, 2018

Recent Buy, September 2018

Grab Your Popcorn Gremlin here to discuss my most recent buy.  Also why the popcorn?  Well tonight the NFL season starts.  Though I am not the biggest or best fan by any means, my team is still coming off their first championship win and they start the season tonight.  So go Eagles!  This should be a good season, though if past experience serves my memory right they will probably tank.  Almost no one has their division in back to back years, though I want to see myself proven wrong.

Otherwise, I added to my Roth account today.  I have been mostly neglecting my Roth account due to our former single income set up, and because my focus is now heavily on the taxable income positions that I want to build.  Still today is my Roth's day.

Today, I added to a new position by purchasing shares of Broadcom Inc (AVGO) in my Roth account.  I bought shares, with a total cost of $1,091.04 ($216.82 / share, includes commission).  The current yield is 2.29%. For a detailed summary of their history, etc. please visit: AVGO's Seeking Alpha Profile.

AVGO is a major producer of semiconductors and other technological components; I will borrow the Seeking Alpha description:

"Broadcom, Inc., is a holding company, which engages in the design, development and supply of analog and digital semiconductor connectivity solutions. It serves four primary end markets: wired infrastructure, wireless communications, enterprise storage and industrial & other. Its products include data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems, and displays. In April, 2018, Broadcom redomiciled from Singapore to the United States. The company was founded in 1961 and is headquartered in San Jose, CA. "

AVGO has been growing its dividend at a massive clip for the last 8 years.  In addition, the payout ratio is super low and the stock is clearly undervalued at this point.  However, what is most exciting is that they are a direct supplier to something that will definitely only become more important over time - technology.  I already own MSFT and AAPL, but this perspective is one of the physical needs that drive technology production and efforts.  Sure having a smartphone is a necessity for life, but it is clear that people find it harder and harder to separate themselves from technology.  I try to get away from it all the time, but it is nearly impossible to avoid it - even when you work hard to do that.  So in the meantime AVGO and similar companies will make the chips and materials that feed the tech beast.

This purchase will add $35 to my forward 12 month dividend income.

I will update my portfolio page at the end of the month.

What do you think of AVGO?

- Gremlin
- Long AVGO, AAPL, MSFT

Thursday, August 30, 2018

August Review / September Preview, 2018

Back to school Gremlin here to talk about this month and the next.  The end of this month coincides with the tortured 1 income timeline ending.  My wife is just now finding out that working and being a parent at the same time is just as exhausting (or more so) as being at home full time is with the baby - something she clearly never wanted to hear from me.  However, all the work and tired eyes are not in vain.  Her income will allow us to take on financial independence in a way we have not been able to for a long time.  Though honestly, she doesn't care about this stuff as much as I do...  So how did we do last month?
August:

This month I made one new purchase adding a new, acquiring shares of Eastman Chemical Co. (EMN) in my taxable portfolio.

Last month I brought in a total of $281.30 in dividends ($69.00 taxable, $64.30 Roth, and $148.00 IRA).  This is an increase from last year (239.61 total) by 17.4%.

In terms of dividend increases, I realized* three raises from Bank of Montreal (BMO), Starbucks (SBUX), and John Deere (DE).  The increases are from 3% to about 20%.  I have now realized 37 raises thus far this year.

Next month I will realize six raises from Hershey's (HSY), Kellogg's (K), Target (TGT), Discover (DFS), J.M. Smuckers (SJM), and Westlake Chemical (WLK).  The increases are from about 4% to about 19%.

* I only count increases when realized, because until that money is delivered any statements or declarations are simply conjecture.

September:

The mortgage continues, so at least part of our 'rent' counts towards our house. Our debts currently outstrip our assets (I choose not to count the house as an asset).  Outside of our house, we still have very low interest auto debt (1.9 and 1.5% for our cars).  Both my car and house are receiving slightly out-sized payments monthly.  We are effectively eliminating debt, while still building and assets.  Even on just one income (for now) With a second income, investments and debt will be crushed!

August was family beach time, and I am now slightly tanner because of it (that tan should last 10 more minutes).  Back to school means everything picks up in the near term as the new routine starts.  Soon my accounts will begin to transition from Capital One to E-Trade, which won't change anything for investments.  My next purchase should be in September, potentially two of them.  I am looking to make a buy every month from here on out for 2018.

Next month should produce around $400 in dividends, which is a 25% YOY increase. It will be close, but if I break $400 it will be the first time ever.

My portfolio page is currently up to date.

Hope everyone has a great September.
- Dividend Gremlin
- Long all stock tickers mentioned

Monday, August 20, 2018

Recent Buy, August 2018

Tan(ner) Gremlin here to discuss a recent buy.  I just got back from the beach, and I was hit by the general realization that everyone returning from vacation faces - that they would prefer to stay on vacation.  That is the goal here, to build this passive income stream so one day I can make every day a free day.  Part of building that income stream is purchasing quality dividend stocks.  Today I added one that has long been in my cross hairs, but is rarely mentioned in other places...

Today, I added to a new position by purchasing shares of Eastman Chemical (EMN) in my taxable account.  I bought 12 shares, with a total cost of $1,189.80 ($98.578 / share, includes commission).  The current yield is 2.29%. For a detailed summary of their history, etc. please visit: EMN's Seeking Alpha Profile (for the record my time is getting more limited by the day, thanks to having a kid, so I am cutting out this section and giving a general view, I do read multiple websites, this just seems to be one of the more accessible ones).

EMN is a major producer of chemicals; I will borrow the Seeking Alpha description:

"Eastman Chemical Co. engages in the provision of specialty chemicals. It operates through the following segments: Additives and Functional Products; Advanced Materials; Chemical Intermediates; and Fibers. The Additives and Functional Products segment includes chemicals for products in the transportation, consumables, building and construction, animal nutrition, crop protection, energy, personal and home care, and other markets. The Advanced Materials segment produces and markets its polymers, films, and plastics with differentiated performance properties for value-added end uses in transportation, consumables, building and construction, durable goods, and health and wellness markets. The Chemical Intermediates segment consists of large scale and vertical integration from the cellulose and acetyl, olefins, and alkylamines streams to support operating segments with advantaged cost positions. The Fiber segment offers cellulose acetate tow for use in filtration media, primarily cigarette filters. The company was founded by George Eastman in 1918 and is headquartered in Kingsport, TN."

EMN is the kind of company I love because of their super small payout ratio and massive earning potential.  The dividend is only 8 years old, growing at around a 10% clip, and their is tons of head space.  They provide products that are constantly in demand, and the barrier to entry is really high.  In addition, EMN has excellent geographic distribution, which means they can meet demand as it ebbs and flows in parts of the world in smooth fashion - relying less on middlemen.

I have eyed this company for a long time.  It, along with my position in Westlake (WLK), should stand to be in demand for the foreseeable future.  They make products that plenty of people use, but few want to be in the business of making.  The industry is capital intensive, but through conservative leadership they have both created strong financial positions.

This purchase will add $26.88 to my forward 12 month dividend income.  Part of the funding for this came from the sale of partial shares in my brokerage account.  Capital One's brokerage arm is being purchased by ETrade, so my stock quantities are getting cleaned up into nice round numbers.

I will update my portfolio page at the end of the month.

What do you think of EMN? 

- Gremlin
- Long EMN and WLK

Thursday, August 2, 2018

July Review / August Preview, 2018

Beach Gremlin here to talk about July and ponder about August.  Its that time of year again, beach time - to be fair I did not get any beach time in last year.  In a few days I head off to a warm sunny place to catch up on work inside, get some long runs in, cook a few huge dinners, and maybe get some sand around my feet (I can work from anywhere so I save time off when I can for use when I really need / want it).  Life will take on a huge new flavor this month as my wife returns to work.  I know she is in some ways ready, but in many ways it is hard to leave your child for any extended period of time.  At least her job will keep her close to him, and he will be with family.

In addition, we will no longer just have 1 income.  This means that debt will be slashed faster, savings will rebound, and investments will be made.  The remainder of this year will be strong.

July:

This month I made one new purchase, acquiring shares of Kraft Heinz (KHC) in my taxable portfolio.

Last month I brought in a total of $81.72 in dividends ($62.22 taxable, $9.50 Roth, and $10.00 IRA).  This is an increase from last year (73.19 total) by 11.6%.

In terms of dividend increases, I realized* two raises from Realty Income (O) and Leggett & Platt (LEG).  The increases are 0.2% to about 5%, respectively.  I have now realized 34 raises thus far this year.

Next month I will realize three raises from Bank of Montreal (BMO), Starbucks (SBUX), and John Deere (DE).  The increases are from 3% to about 20%.

* I only count increases when realized, because until that money is delivered any statements or declarations are simply conjecture.

August:

The mortgage continues, so at least part of our 'rent' counts towards our house. Our debts currently outstrip our assets (I choose not to count the house as an asset).  Outside of our house, we still have very low interest auto debt (1.9 and 1.5% for our cars).  Both my car and house are receiving slightly out-sized payments monthly.  We are effectively eliminating debt, while still building and assets.  Even on just one income (for now).

August has family beach time.  I will be semi working while at the beach as to preserve some of my paid time off.  Likely my next buy will be in August too as my accounts will begin to transition from Capital One to E-Trade, which means my fractional shares will be sold.  That capital along with existing funds should allow me to make some more purchases.  Its fine by me, since I prefer round numbers anyway!

Next month should produce around $269 in dividends, which is a 12% YOY increase.

My portfolio page is currently up to date.

Hope everyone has a great August.
- Dividend Gremlin
- Long all stock tickers mentioned

Tuesday, July 17, 2018

Recent Buy, July 2018

Reunion Gremlin here to talk about a recent buy.  Over the weekend was family reunion time, which is always fun and exciting.  Sure it requires a good bit of driving, but its important to see people you care about - even more so when they are scattered about the globe.  Before we left on this journey I added to an existing stock position.  This was partly fueled by the merger of Dr Pepper Snapple (DPS - formerly) with Keurig to form Keurig Dr Pepper (KDP).  I will continue to hold my new shares of KDP, I do think there is value in the combined company.  Now to the proceeds, what did I buy with them?

Last week, I added to an existing position by purchasing shares of Kraft Heinz Corp. (KHC) in my taxable account.  I bought 17 shares, with a total cost of $1,087.81 ($63.58 / share, plus commission).  The current yield is 3.88%

This purchase nicely rounds out this position, and is in addition to KHC shares I hold in my Roth account.  I am not going to rehash the fundamentals of this stock as it is an existing position.  However, it is in an industry that will always be in demand - food.  Sure they are a little bit of an aged giant, but they have the ability to add newer products and acquire new brands.  I suspect that KHC, and its competitors, will continue to gobble up smaller / healthier products until each has its own respectable portfolio of these items.  Each added product might not move the needle on its own, but collectively I suspect companies will be seeing ever higher profits in the long run as trends continue.

This purchase will add $42.5 to my forward 12 month dividend income.

I will update my portfolio page at the end of the month.

What do you think of KHC? 

- Gremlin
- Long KHC and KDP