On Tuesday I bought shares of Exxon Mobil (XOM), the largest publicly traded oil and gas company in the world. I have summarized some of my research in an article about XOM
that was published today at Seeking Alpha.
I bought 15 shares of XOM at the price of $87.40 per share plus commission, giving me a 2.87% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $9.45 from this purchase, which will add a total of $37.80 to my annual dividend income. My forward 12-month dividend total increases to $2,814. This purchase was made in my taxable account by combining some new capital with accumulated dividends. Exxon Mobil is now the 30th stock in my dividend growth portfolio.
It was nice to make a second purchase this month and to increase my portfolio's diversification in the energy sector. I would not mind buying more shares of XOM if the stock price stays in this area, but a few other stocks on my watch list are also in (or near) attractively valued territory. On Monday I should be getting my first full-month paycheck from my new job, so I look forward to seeing how much of it I will be able to allocate toward investments in October.
Friday, September 27, 2013
Exxon Mobil: The Energy Giant Joins My Dividend Growth Machine
A new article of mine has been published on the investing website Seeking Alpha. The article is entitled Exxon Mobil: The Energy Giant Joins My Dividend Growth Machine and it provides an overview of XOM, which I purchased a few days ago for my dividend growth portfolio.
Wednesday, September 18, 2013
Dividend Increase: MCD
McDonald's (MCD) is increasing its quarterly dividend by 5.2%, from $0.77 to $0.81 per share, putting the company on track for its 38th consecutive year of dividend growth (news release). Given that I own 50 shares of MCD, my quarterly dividend increases from $38.50 to $40.50 and my yield on cost becomes 3.63%. The extra $8.00 in annual dividend income raises my forward 12-month dividend total to $2,776. Thus far this year, there have been dividend increases for 25 of the 29 stocks in my portfolio.
Tuesday, September 17, 2013
Dividend Increase: MSFT
Microsoft (MSFT) is increasing its quarterly dividend by 21.7%, from $0.23 to $0.28 per share, putting the company on track for its 11th consecutive year of dividend growth (news release). The company also announced a new $40 billion share repurchase program. Given that I own 115 shares of MSFT, my quarterly dividend increases from $26.45 to $32.20 and my yield on cost becomes 4.14%. The extra $23.00 in annual dividend income raises my forward 12-month dividend total to $2,768. Thus far this year, there have been dividend increases for 24 of the 29 stocks in my portfolio.
Friday, September 13, 2013
My New Employer's Retirement Program
As regular readers of this blog are aware, a short while ago I started a new job. Last week I enrolled in my new employer's retirement program and the first contributions should occur at the end of this month. The retirement program will represent a part of my investing going forward, so I wanted to share some of the details about the program.
The retirement program involves two accounts. The first account is a 403(b) defined contribution retirement plan, to which my employer will make contributions equal to 10% of my annual pre-tax salary (note that these contributions are separate from my salary). The second account is a 401(a) mandatory retirement plan, to which I am required to contribute 4% of my annual pre-tax salary (these contributions are deducted from my salary). As someone who maintains a relatively high savings rate and likes the freedom of deciding where, when, and how to invest my savings, I do not like having to make mandatory contributions. However, I suppose one could view it as an acceptable tradeoff for getting larger contributions from my employer, even though the two types of contributions are separate; that is, they are not "matching" contributions that occur in some 401(k) plans. Thus, total contributions equal to 14% of my annual pre-tax salary will go into the two accounts; based on my current salary, that works out to a little over $10,000 per year.
Regarding investment options, my choices are rather limited. There are four "tiers" of investments available to me:
I am not keen on the bond funds for two reasons. First, as a young investor with a long time horizon, there is not much need for bonds in my portfolio. I do not mind taking the "riskier" approach of having the bulk of my investments in stocks. Second, the two bond funds focus on U.S. bonds, and anyone paying attention to the news this year knows there is a lot of talk about rising interest rates in the U.S. When interest rates rise, bond values fall, so bond funds do not strike me as good investments for the next few years.
Regarding the stock funds, I tend to view the domestic vs. international categorization as a misleading dichotomy. Many U.S.-based companies, especially the large-cap ones, do business in dozens or hundreds of countries around the world, including both developed and emerging markets. For that reason, I see no compelling need to own an international stock fund.
Given that large-cap U.S. companies represent the most stable stocks in which to invest, and the S&P 500 companies have produced a decent rate of return for decades, I decided to allocate 100% of the contributions in both retirement accounts to VINIX, which tracks the S&P 500 index. I get exposure to a diversified group of some of the best companies in the world while paying the lowest expense ratio of all available investment options.
Of course, I am free to change my investment allocation in the future, so this decision is not set in stone. Each year I will take some time to re-evaluate my investment options and decide whether an alternative allocation is preferable. For example, after interest rates eventually rise and plateau, it might be worthwhile allocating a portion of my contributions to a bond fund. For the time being, though, I will simply let my retirement accounts track the S&P 500 index.
Once the first contributions are made to my retirement accounts, I will start reporting their status in my monthly reviews, most likely beginning with my October review.
The retirement program involves two accounts. The first account is a 403(b) defined contribution retirement plan, to which my employer will make contributions equal to 10% of my annual pre-tax salary (note that these contributions are separate from my salary). The second account is a 401(a) mandatory retirement plan, to which I am required to contribute 4% of my annual pre-tax salary (these contributions are deducted from my salary). As someone who maintains a relatively high savings rate and likes the freedom of deciding where, when, and how to invest my savings, I do not like having to make mandatory contributions. However, I suppose one could view it as an acceptable tradeoff for getting larger contributions from my employer, even though the two types of contributions are separate; that is, they are not "matching" contributions that occur in some 401(k) plans. Thus, total contributions equal to 14% of my annual pre-tax salary will go into the two accounts; based on my current salary, that works out to a little over $10,000 per year.
Regarding investment options, my choices are rather limited. There are four "tiers" of investments available to me:
- Target-date funds: A mix of various stock and bond funds based on an individual's age. For someone my age (31 years old), a typical mix is 90% stocks and 10% bonds. The mix becomes more conservative over time, with a decreasing percentage of stocks and an increasing percentage of bonds.
- Index funds: Passively managed funds that track various stock and bond market indices.
- Actively managed funds: Funds managed by investment professionals and usually geared toward specific investing styles (e.g., value vs. growth, domestic vs. international, etc.). Fees are higher than in the other tiers, even though higher returns are by no means guaranteed. In fact, history shows that most actively managed funds tend to underperform passively managed market index funds.
- Brokerage account: Provides a much broader selection of investment possibilities, except it is restricted to investment in mutual funds and there are transaction fees. The purchase of individual stocks is not permitted.
| Symbol | Name | Index Tracked | Expense Ratio |
| VINIX | Vanguard Institutional Index Fund | S&P 500 Index (Large-Cap Stocks) | 0.04% |
| VIEIX | Vanguard Extended Market Index Fund | S&P Completion Index (Small- and Mid-Cap Stocks) | 0.12% |
| VFWSX | Vanguard FTSE All-World ex-US Index Fund | FTSE All-World ex US Index (International Stocks) | 0.12% |
| VBTIX | Vanguard Total Bond Market Index Fund | Barclays U.S. Aggregate Float Adjusted Index (U.S. Bonds) | 0.07% |
| VIPIX | Vanguard Inflation-Protected Securities Fund | Inflation-Indexed U.S. Bonds (i.e., TIPS) | 0.07% |
I am not keen on the bond funds for two reasons. First, as a young investor with a long time horizon, there is not much need for bonds in my portfolio. I do not mind taking the "riskier" approach of having the bulk of my investments in stocks. Second, the two bond funds focus on U.S. bonds, and anyone paying attention to the news this year knows there is a lot of talk about rising interest rates in the U.S. When interest rates rise, bond values fall, so bond funds do not strike me as good investments for the next few years.
Regarding the stock funds, I tend to view the domestic vs. international categorization as a misleading dichotomy. Many U.S.-based companies, especially the large-cap ones, do business in dozens or hundreds of countries around the world, including both developed and emerging markets. For that reason, I see no compelling need to own an international stock fund.
Given that large-cap U.S. companies represent the most stable stocks in which to invest, and the S&P 500 companies have produced a decent rate of return for decades, I decided to allocate 100% of the contributions in both retirement accounts to VINIX, which tracks the S&P 500 index. I get exposure to a diversified group of some of the best companies in the world while paying the lowest expense ratio of all available investment options.
Of course, I am free to change my investment allocation in the future, so this decision is not set in stone. Each year I will take some time to re-evaluate my investment options and decide whether an alternative allocation is preferable. For example, after interest rates eventually rise and plateau, it might be worthwhile allocating a portion of my contributions to a bond fund. For the time being, though, I will simply let my retirement accounts track the S&P 500 index.
Once the first contributions are made to my retirement accounts, I will start reporting their status in my monthly reviews, most likely beginning with my October review.
Wednesday, September 11, 2013
Dividend Increase: PM
Philip Morris International (PM) is increasing its quarterly dividend by 10.6%, from $0.85 to $0.94 per share, putting the company on track for its 6th consecutive year of dividend growth (news release). Given that I own 50 shares of PM, my quarterly dividend increases from $42.50 to $47.00 and my yield on cost becomes 5.58%. The extra $18.00 in annual dividend income raises my forward 12-month dividend total to $2,745. Thus far this year, there have been dividend increases for 23 of the 29 stocks in my portfolio.
Tuesday, September 10, 2013
Surpassed Last Year's Dividend Total
A quick note: Thanks to some dividends I received today, my year-to-date dividend total ($1,674.93) has now surpassed last year's total ($1,649.63). I still have a few more dividends to collect in September, plus an entire quarter's worth of dividends to finish the year. It looks like I might be able to reach a dividend total of $2,400 in 2013, which works out to an average of $200 per month.
Wednesday, September 4, 2013
Stock Bought: KMI
Today I bought shares of Kinder Morgan, Inc. (KMI), the third-largest energy company in North America and operator of an extensive network of pipelines for transporting natural gas, crude oil, and petroleum products. My most recent previous purchase of KMI was in July 2013.
I had not been planning to increase my position in KMI (it was already the second-largest holding in my portfolio), but today the stock price suddenly fell over 5%, apparently because some hedge fund person voiced a negative view of KMI and its associated entities. I think the decline pushed the stock into undervalued territory. Using a Dividend Discount Model with a dividend growth rate of 10% (which is the company's long-term target) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $39.17. Morningstar gives a fair value of $41.00 and a 3-star rating. The average of those two estimates is $40.09, which implies an 11% margin of safety at my purchase price.
I bought 35 shares of KMI at the price of $35.61 per share plus commission, giving me a 4.47% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $14.00 from this purchase, which will add a total of $56.00 to my annual dividend income. This purchase was made in my Roth IRA by combining $1,215 in new capital with accumulated dividends. I normally prefer to make slightly larger purchases, but I can only contribute another $1,235 to my Roth IRA before I reach the limit for 2013, so I left some room for one more contribution and purchase down the road. I now have a total of 165 shares of KMI (80 in my taxable account and 85 in my Roth IRA) and I will receive combined quarterly dividends of $66.00. My forward 12-month dividend total increases to $2,727. After this purchase, KMI remains the second-largest holding in my portfolio with a weight of 6.5%.
As mentioned in my monthly review, I will likely contribute about $1,000 to my taxable account that I can combine with accumulated dividends to make a purchase. I am satisfied with the size of my KMI position, so I will buy something else -- perhaps a new stock for my portfolio.
I had not been planning to increase my position in KMI (it was already the second-largest holding in my portfolio), but today the stock price suddenly fell over 5%, apparently because some hedge fund person voiced a negative view of KMI and its associated entities. I think the decline pushed the stock into undervalued territory. Using a Dividend Discount Model with a dividend growth rate of 10% (which is the company's long-term target) and a discount rate equal to the current yield plus the dividend growth rate, I calculate a fair value of $39.17. Morningstar gives a fair value of $41.00 and a 3-star rating. The average of those two estimates is $40.09, which implies an 11% margin of safety at my purchase price.
I bought 35 shares of KMI at the price of $35.61 per share plus commission, giving me a 4.47% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $14.00 from this purchase, which will add a total of $56.00 to my annual dividend income. This purchase was made in my Roth IRA by combining $1,215 in new capital with accumulated dividends. I normally prefer to make slightly larger purchases, but I can only contribute another $1,235 to my Roth IRA before I reach the limit for 2013, so I left some room for one more contribution and purchase down the road. I now have a total of 165 shares of KMI (80 in my taxable account and 85 in my Roth IRA) and I will receive combined quarterly dividends of $66.00. My forward 12-month dividend total increases to $2,727. After this purchase, KMI remains the second-largest holding in my portfolio with a weight of 6.5%.
As mentioned in my monthly review, I will likely contribute about $1,000 to my taxable account that I can combine with accumulated dividends to make a purchase. I am satisfied with the size of my KMI position, so I will buy something else -- perhaps a new stock for my portfolio.
Monthly Review: August 2013
August was a busy month for me, especially once the university's fall semester started in the third week. Prior to that, I had several new-faculty orientation tasks to do and events to attend, then I began teaching. Given that it is my first time teaching, I have had to put a lot of time and effort into lecture preparation and related activities. It has left me with barely any time to do research, although that is okay for the moment because I am still waiting on some lab-related things. However, my lab should be up and running in about a week or two, so I will need to find a balance between teaching and research. Overall, things are coming along well at my new job, but it is keeping me busier than I have ever been.
On the investing front, here is a review of what happened in August:
Dividends: I received a total of $316.26 in dividends from 9 stocks, as indicated on my Dividends page. This represents a nice 61.9% increase compared with the same month a year ago. As noted in a milestone post, it is also the first time I have received over $300 in dividends in a single month. My year-to-date dividend total is now $1,516.92.
Dividend Increases: I was pleased to see dividend increases announced for the following stocks (click on each stock to see my post about the increase): I am always happy to see double-digit percent increases. Thus far this year, there have been dividend increases for 22 of the 29 stocks in my portfolio. The mean increase has been 10.8%.
Savings: Given that my new job did not officially start until mid-August, I did not have any income for the first half of the month, which skews my savings rate. For reasons I will discuss in a forthcoming post, it will not make much sense to track my savings on a monthly basis going forward, but I will start reporting an alternative measure that is more meaningful for investing purposes.
Transactions: I made two purchases during the month (click on the transactions to see my posts about them): I decided to take advantage of the recent sell-off among REITs to build a medium-sized position in HCP, a diversified healthcare REIT. (I have also been watching several other REITs.) Both purchases were made in my Roth IRA by contributing $3,050 in new capital. These purchases will increase my annual dividend income by $157.52. My forward 12-month dividend total is now $2,671.
Portfolio: My portfolio (taxable account and Roth IRA together) currently consists of 29 stocks and has a market value of $88,325.30 (including cash), which is a 0.9% increase over last month's value. The above-average contribution of new capital just managed to compensate for capital losses that occurred during the month. Early in the month I managed to hit a portfolio value of $90,000 for the first time, as noted in a milestone post.
Seeking Alpha: This month I published one new article on the investing website Seeking Alpha: It was my first time writing a single-stock analysis, which I did to help organize some of my research and thoughts about HCP around the time I made my purchases. Interestingly, the pattern of pageviews was very different for this article compared with my previous articles. Usually, I get a spike in pageviews on the first day or two after the article is published, then they rapidly fall off and become negligible. For my HCP article, I had a below-average spike on the first day (about 2,500 pageviews), but a more gradual decline in pageviews over the following three weeks, so by the end of the month I had a respectable 5,000 pageviews for the article. I earned $62.93 from pageviews in August, increasing my Q3 total to $174.94 and my year-to-date total to $893.25.
Looking Ahead: I expect a good dividend total and a solid year-over-year increase in September. During the month my year-to-date dividend total will surpass my annual dividend total from 2012. September will hopefully be a good month for dividend increases because I am expecting announcements from four companies: MCD, MSFT, PM, and UTX. At the start of September I contributed $1,215 to my Roth IRA and made a purchase with those funds today (to be discussed in a forthcoming post). I will likely contribute about $1,000 to my taxable account that I can combine with accumulated dividends to make a purchase. It is refreshing to see some undervalued to fairly valued investment opportunities that are currently at or near my price targets: KMI, KO, MCD, O, PM, WMT, and XOM. I purchased one of them today for my Roth IRA and I might soon decide to purchase one of the others for my taxable account.
On the investing front, here is a review of what happened in August:
Dividends: I received a total of $316.26 in dividends from 9 stocks, as indicated on my Dividends page. This represents a nice 61.9% increase compared with the same month a year ago. As noted in a milestone post, it is also the first time I have received over $300 in dividends in a single month. My year-to-date dividend total is now $1,516.92.
Dividend Increases: I was pleased to see dividend increases announced for the following stocks (click on each stock to see my post about the increase): I am always happy to see double-digit percent increases. Thus far this year, there have been dividend increases for 22 of the 29 stocks in my portfolio. The mean increase has been 10.8%.
Savings: Given that my new job did not officially start until mid-August, I did not have any income for the first half of the month, which skews my savings rate. For reasons I will discuss in a forthcoming post, it will not make much sense to track my savings on a monthly basis going forward, but I will start reporting an alternative measure that is more meaningful for investing purposes.
Transactions: I made two purchases during the month (click on the transactions to see my posts about them): I decided to take advantage of the recent sell-off among REITs to build a medium-sized position in HCP, a diversified healthcare REIT. (I have also been watching several other REITs.) Both purchases were made in my Roth IRA by contributing $3,050 in new capital. These purchases will increase my annual dividend income by $157.52. My forward 12-month dividend total is now $2,671.
Portfolio: My portfolio (taxable account and Roth IRA together) currently consists of 29 stocks and has a market value of $88,325.30 (including cash), which is a 0.9% increase over last month's value. The above-average contribution of new capital just managed to compensate for capital losses that occurred during the month. Early in the month I managed to hit a portfolio value of $90,000 for the first time, as noted in a milestone post.
Seeking Alpha: This month I published one new article on the investing website Seeking Alpha: It was my first time writing a single-stock analysis, which I did to help organize some of my research and thoughts about HCP around the time I made my purchases. Interestingly, the pattern of pageviews was very different for this article compared with my previous articles. Usually, I get a spike in pageviews on the first day or two after the article is published, then they rapidly fall off and become negligible. For my HCP article, I had a below-average spike on the first day (about 2,500 pageviews), but a more gradual decline in pageviews over the following three weeks, so by the end of the month I had a respectable 5,000 pageviews for the article. I earned $62.93 from pageviews in August, increasing my Q3 total to $174.94 and my year-to-date total to $893.25.
Looking Ahead: I expect a good dividend total and a solid year-over-year increase in September. During the month my year-to-date dividend total will surpass my annual dividend total from 2012. September will hopefully be a good month for dividend increases because I am expecting announcements from four companies: MCD, MSFT, PM, and UTX. At the start of September I contributed $1,215 to my Roth IRA and made a purchase with those funds today (to be discussed in a forthcoming post). I will likely contribute about $1,000 to my taxable account that I can combine with accumulated dividends to make a purchase. It is refreshing to see some undervalued to fairly valued investment opportunities that are currently at or near my price targets: KMI, KO, MCD, O, PM, WMT, and XOM. I purchased one of them today for my Roth IRA and I might soon decide to purchase one of the others for my taxable account.
Monday, September 2, 2013
Implications of the Verizon Wireless deal for Vodafone shareholders
Today it was announced that Vodafone (VOD) will be selling its 45% stake in Verizon Wireless to Verizon Communications (VZ) for $130 billion. There is a lengthy press release with details, but I wanted to break down some of the implications of this deal for VOD shareholders such as myself. Note that what follows is my interpretation of the press release, which I cannot guarantee is completely accurate (feel free to leave a comment if I have misinterpreted or miscalculated anything). In addition, some of the numbers depend on fluctuating exchange rates and share prices, so the final numbers will likely be slightly different.
Overview: VOD shareholders will receive a "Return of Value" of $84 billion (71% of the net proceeds), which is equivalent to 112 pence per ordinary share. Of that total, $23.9 billion (28.5% of the Return of Value) will be in cash and the remaining $60.1 billion (71.5% of the Return of Value) will be in VZ shares. At the current exchange rate of £1 = $1.56, the Return of Value equals $1.75 per ordinary share. However, 1 ADR share = 10 ordinary shares, so the Return of Value equals $17.47 per ADR share.
Cash payment: Given that 28.5% of the Return of Value will be in cash (effectively a special dividend), shareholders will receive a payment of $4.97 per VOD ADR share.
Verizon shares: Given that 71.5% of the Return of Value will be in VZ shares, shareholders will get $12.50 in VZ shares per VOD ADR share. The exact number of shares received will depend on the price at which VZ shares are trading before the deal is completed, but the transaction is structured such that the price will not be less than $47 or more than $51 per share. Thus, VOD shareholders would own VZ shares in addition to their VOD shares. Verizon pays a decent dividend and today the company increased its quarterly dividend by 2.9% to $0.53 per share.
VOD dividend increase: VOD shareholders still get to keep their VOD shares and receive dividends for them. In the press release, Vodafone announced they plan to increase their dividend by 8% for 2014 and the Board "intends to grow it annually thereafter."
My Return of Value: Given that I own 125 shares of VOD, I should receive a special dividend of around $621 ($4.97 x 125) and between 30 ($12.50 x 125 / $51) and 33 ($12.50 x 125 / $47) shares of VZ. At the current dividend rate for VZ, that would result in quarterly dividends of $15.90-17.49 or annual dividend income of $63.60-69.96. Plus, I will continue to receive higher semi-annual dividends from VOD. Finally, I will likely see further capital appreciation of my VOD shares.
The deal is expected to be completed and the Return of Value realized in the first quarter of 2014. All in all, it sounds like a pretty good deal for VOD shareholders. Once the deal is completed, I will likely hold my VOD and VZ shares, unless I find compelling reasons to sell either or both positions.
Overview: VOD shareholders will receive a "Return of Value" of $84 billion (71% of the net proceeds), which is equivalent to 112 pence per ordinary share. Of that total, $23.9 billion (28.5% of the Return of Value) will be in cash and the remaining $60.1 billion (71.5% of the Return of Value) will be in VZ shares. At the current exchange rate of £1 = $1.56, the Return of Value equals $1.75 per ordinary share. However, 1 ADR share = 10 ordinary shares, so the Return of Value equals $17.47 per ADR share.
Cash payment: Given that 28.5% of the Return of Value will be in cash (effectively a special dividend), shareholders will receive a payment of $4.97 per VOD ADR share.
Verizon shares: Given that 71.5% of the Return of Value will be in VZ shares, shareholders will get $12.50 in VZ shares per VOD ADR share. The exact number of shares received will depend on the price at which VZ shares are trading before the deal is completed, but the transaction is structured such that the price will not be less than $47 or more than $51 per share. Thus, VOD shareholders would own VZ shares in addition to their VOD shares. Verizon pays a decent dividend and today the company increased its quarterly dividend by 2.9% to $0.53 per share.
VOD dividend increase: VOD shareholders still get to keep their VOD shares and receive dividends for them. In the press release, Vodafone announced they plan to increase their dividend by 8% for 2014 and the Board "intends to grow it annually thereafter."
My Return of Value: Given that I own 125 shares of VOD, I should receive a special dividend of around $621 ($4.97 x 125) and between 30 ($12.50 x 125 / $51) and 33 ($12.50 x 125 / $47) shares of VZ. At the current dividend rate for VZ, that would result in quarterly dividends of $15.90-17.49 or annual dividend income of $63.60-69.96. Plus, I will continue to receive higher semi-annual dividends from VOD. Finally, I will likely see further capital appreciation of my VOD shares.
The deal is expected to be completed and the Return of Value realized in the first quarter of 2014. All in all, it sounds like a pretty good deal for VOD shareholders. Once the deal is completed, I will likely hold my VOD and VZ shares, unless I find compelling reasons to sell either or both positions.
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