Sunday, December 30, 2012

Milestone: $200 in Dividends in a Single Month

Back in March I reached the milestone of getting over $100 in dividends in a single month. It turns out I managed to reach that mark every month thereafter.

My next milestone for monthly dividend income was $200, which I originally did not anticipate reaching until early 2013. However, thanks to a few accelerated dividends that were paid this month instead of in Q1 2013, I have now received over $200 in dividends in December. This represents another important milestone on my road to building a sustainable and rising stream of dividend income.

Looking at my expected dividend payments going forward, there will be more variation from month to month than I experienced this year. I will reach $200 in Mar-Jun-Sep-Dec, whereas in most of the remaining months I will be below that mark. I do not make any special effort to buy stocks to "smooth out" my dividends across months; my main goal is to ensure the dividends keep growing over time.

Sticking with $100 increments, my next monthly dividend income milestone is $300. At this point it is difficult to predict when that might be reached, but it could be possible at the end of 2013.

Wednesday, December 19, 2012

Book Review: Even Buffett Isn't Perfect

Even Buffett Isn't Perfect (2008) by Vahan Janjigian

Most books about Warren Buffett tend to focus on his long-term investing success and rarely offer much in the way of criticism. In contrast, the aim of this book was to discuss some of the inconsistencies and potentially problematic aspects of his approach to investing, with the goal of helping readers learn from Buffett's missteps. However, I was disappointed in how the author went about trying to achieve that goal.

A prime example is the first chapter, which discusses Buffett's views on diversification. The author argues that Buffett is inconsistent on the topic: Sometimes he has advocated that investors maintain a small portfolio of 5-10 stocks that they know really well, whereas there are other times he has advocated widespread diversification via passive investment in index funds. What the author does not seem to fully appreciate is that Buffett's views were addressed to different kinds of investors. If someone has the time, knowledge, and ability to thoroughly evaluate companies and actively manage a portfolio (which Buffett is capable of doing), then it makes sense to have a small portfolio that represents only the very best investment prospects. However, if an investor lacks those qualities and is not interested in active portfolio management, then it might make more sense to passively invest in index funds.

There are some other purported inconsistencies, such as whether Buffett invests more for value than for growth, and the extent to which he conducts due diligence when buying entire companies. The latter criticism is in reference to Buffett mentioning in letters that he has sometimes made acquisitions within a day or two of being contacted about the possibilities. In the last few chapters the author discusses Buffett in relation to corporate governance, stock options, and taxes, but these issues mainly serve as springboards for the author's personal opinions, which may or may not be any better than Buffett's. Overall, I did not come away with an improved understanding of Buffett's imperfections or how they might inform my investing strategy.

Note: I read this book in November 2012.

Friday, December 7, 2012

Monthly Review: November 2012

Here is a review of what happened in November:

Dividends: I received a total of $137.95 in dividends from the following stocks:
  • ABT: $22.95
  • GD: $10.20
  • GIS: $23.10
  • HRL: $15.00
  • KMI: $14.40
  • PG: $28.10
  • T: $24.20
This was a satisfactory month for dividends and it was nice to get my first dividend payment from KMI. I now have a year-to-date total of $1,412.14. Back on November 1, I achieved my goal of receiving $1,300 in dividends for 2012.

Dividend Increases: I was pleased to see dividend increases announced for five(!) of my stocks (click on each stock to see my post about the increase):
  • BDX: 10% increase, $4.52 more in annual dividend income
  • HRL: 13.3%, $8.00
  • T: 2.3%, $2.20
  • UNP: 15%, $3.60
  • VOD: 7.2%, about $2.74
Most of these increases take effect in 2013. Dividend increases occurred for 24 of the 25 stocks in my portfolio in 2012, which is great -- that's what dividend growth investing is all about! The lone holdout was ADM, but I am hoping for an increase to be announced early in 2013, which would enable them to maintain their long dividend growth streak. (In an earlier post I expressed some concerns about ADM, but I've decided to continue holding it for the time being.)

Savings: This month I saved an estimated $1,640 (55.1%) of my net income, which is similar to the previous two months and results in year-to-date savings of $15,950. It is an estimate because of the difficulties in accounting for travel expenses associated with my recent work-related trips. I pay for my travel expenses upfront and then get reimbursed at a later date; for example, today I received the reimbursement check for a trip in mid-November. I have been using my reserve cash fund to temporarily take care of larger expenses such as airfare (the amount withdrawn from my reserve fund is restored when I get reimbursed), but I have not done that for smaller expenses (a few incidentals are not reimbursable), hence the estimate. It will be the same way with my December savings.

Transactions: I bought one stock in November (click on the transaction to see my post about it): I was happy to take advantage of an opportunity to average down on my NSC position. At this point it is as large as I feel comfortable having it, so I doubt I will add to it in the near future. This purchase increases my annual dividend income by $50.00. I did not sell any stocks for the 11th consecutive month.

Portfolio: My portfolio currently consists of 25 stocks and has a market value of $63,497.85 (including cash), which is a 3.6% increase over last month's value. The increase primarily reflects new capital, with the remainder split about evenly between dividends and capital gains.

Seeking Alpha: Due to travel and being generally busier than usual, I did not publish any new articles on the investing website Seeking Alpha. However, in November I earned $8.00 from page views of my previous articles, increasing my Q4 total to $100.07 and my year-to-date total to $679.67.

Looking Ahead: December will be an above-average month for dividends, in part because two of my companies (GD and ITW) have moved their next dividend payments up into December in case of a potential dividend tax hike in 2013. I am not expecting any dividend increases to be announced in December. My savings rate will take a hit due to some large annual expenses and holiday spending, but it should rebound in the new year. As in November, I only have enough new capital from savings to make one purchase, which I did at the start of December by increasing my position in INTC. It was my last purchase for 2012.

As regular readers of this blog are aware, I've been busy with travel for the past few weeks, which is the reason for the lack of blogging activity. My final work-related trip for 2012 is next week and it will be followed a few days later by a personal trip to see my family for the holidays. I am not a seasoned traveler, so having a total of 5 trips in 6 weeks has been a bit of a strain; also, the work-related trips have been rather intense (but in a positive way). As a result, my blogging and investing activities will remain minimal until the new year.

That said, I will take this opportunity to wish everyone a great time during the holidays! I hope our portfolios finish 2012 in good shape and our investing success continues into 2013. With 2012 being my first full year of dividend growth investing, I am quite pleased with the results (I plan to write an annual review in January). I am definitely looking forward to my second year and beyond!

Monday, December 3, 2012

Stock Bought: INTC

Today I bought shares of Intel (INTC), the world's largest semiconductor chip maker. This is my third purchase of INTC this year, with previous purchases occurring in September and October.

The stock has declined recently due to concerns about earnings, PC sales, mobile market penetration, and the CEO stepping down. I think Mr. Market has overreacted to these issues, focusing too much on the short term and ignoring the company's long-term potential. Samir Patel recently wrote an excellent article on Intel at Seeking Alpha that provides a comprehensive look at the company and its prospects.

I continue to think that INTC is undervalued, with a P/E of 8.5 (its 5-year average P/E is 17.1), P/S of 1.8, and PEG of 0.8. I have seen a wide range of fair value estimates, but even the lowest values (such as $22.50 from S&P) give a margin of safety of at least 10%. The current dividend yield of 4.6% is well above historic levels and provides a nice reward for patient investors as they await a better appraisal of the stock by the market.

I bought 75 shares of INTC at the price of $19.56 per share, giving me a total of 190 shares at an average price of $21.17 per share and a 4.23% yield on cost. My previous cost basis was $22.22 per share, so this purchase reduced it by 4.7%, which is a nice example of averaging down. At the current dividend rate, I can expect to receive quarterly dividends from INTC of $42.75, which is $16.87 more than before this purchase. INTC will now contribute a total of $171.00 to my annual dividend income, which is $67.48 more than before. This purchase makes INTC the fourth-largest position in my portfolio, with a weight by market value of 5.8%.

This also happens to be my last purchase for 2012. It used up a good portion of my November savings and I have insufficient cash for another purchase. Now I can sit back and watch how the market reacts to the ongoing "fiscal cliff" issue as the year draws to a close. Actually, I probably will not be following the market too closely over the next few weeks due to my heavy travel schedule. I returned a few days ago from a work-related trip and tomorrow I leave for yet another one. I wanted to squeeze this post in before I go, though my monthly review for November will have to wait until the end of this week. As mentioned before, updates to my blog (and comments on other blogs) will likely be sporadic for a while.