Sunday, March 2, 2014

Project $3 Million - February Results

This portfolio belongs to a 29 year old. I manage it for him.

MONTHLY HIGHLIGHTS:

February was a good month. Two milestones were established.

1. The portfolio closed on 2/28 at an all-time high of $113,001.10
2. The portfolio established a new all-time high in monthly income at $363.19.

Companies that raised the dividend in February:

Pepsico - PEP ................. up 15.4%
Coca-Cola - KO ............. up 8.9%
Kimberly-Clark - KMB ... up 3.6%
-----------------------------------------------------------------------

PRIMARY OBJECTIVE:

Income Replacement!

The objective is to start earning an income stream now to replace the income that will be earned throughout the working years. The goal is to achieve $10,000 per month income in retirement and not have to sell any assets to do so.

The objective also includes having the income stream continue to grow above the inflation rate.

A portfolio of $3 Million with a yield of 4% will accomplish the $10,000 per month in income. Hence the title of this portfolio ... Project $3 Million.
---------------------------------------------------------------------------

MISSION STATEMENT:

To earn an income stream that is reliable, predictable and increasing.
---------------------------------------------------------------------------

STRATEGY:

To focus on the safety of the dividend, then to focus on the growth of the dividend, and then to focus on the total return. The formula to be used to put this strategy into effect is what I call, "The Success Formula That Never Fails."

High Quality + High Current Yield + High Growth of Yield = High Total Return

I explain how to use this formula here:

http://seekingalpha.com/instablog/728729-chowder/2360292-the-chowder-rule
-----------------------------------------------------------------------

TACTICS:

To contribute $500 per month to the portfolio, look to earn 8.25% annually, compounded over 40 years (to age 65). The beginning portfolio value at the time of establishing these goals was $42,204.42.

The link below shows the compounding effect and where the portfolio needs to be at the end of each of those 40 years to achieve the $3 Million.

http://www.planningtips.com/cgi-bin/savings.pl?amt=42205.00&dep=500&cmp=annually&int=8.25&yrs=40&Calculate.x=50&Calculate.y=12

All dividends are currently being reinvested back into the companies paying the dividend. Monthly cash contributions will be used to add to existing positions, or create new ones.
-----------------------------------------------------------------------------------

STATUS:

To stay on schedule for the $3 Million, in the time allotted, according to the link above, the balance at the end of year 2014 needs to be $100,643.33.

This portfolio is ahead of schedule! ... The current portfolio value is $113,001.10.
-------------------------------------------------------------------------------------

DIVIDEND HISTORY:

February Dividend History: (Last 5 years)

2010 ... $98.91
2011 ... $246.16
2012 ... $294.07
2013 ... $317.80 ... up 8.1%
2014 ... $363.19 ... up 14.3%
========================================================

FEBRUARY DIVIDENDS RECEIVED:

Taxable Account (Dividends Reinvested)

General Mills - GIS .............................. $30.03 ... bot 0.637 shares
Deere & Company - DE ...................... $6.12 ..... bot 0.072 shares
Enterprise Products Partners - EPD ..... $44.74 .... bot 0.722 units
Kinder Morgan Partners - KMP .......... $51.42 .... bot 0.641 units
Magellan Midstream Partners - MMP .. $48.94 .... bot 0.701 units
Colgate-Palmolive - CL ....................... $17.25 .... bot 0.276 shares
========================================================

PORTFOLIO HOLDINGS:  ($4,000 equals a full position)

Symbol ... Shares ... Mkt Value ... Gain/Loss ... Company

ADP ...... 39.518 ... $3,073.71 ... up 72.40% ... Automatic Data Processing
CL ........ 51.012 .... $3,205.08 ... up 55.59% ... Colgate-Palmolive
CVX ..... 31.626 .... $3,647.43 ... up 26.95% ... Chevron Corp
DE ........ 12.072 .... $1.037.35 ... up 3.69% ..... Deere & Company
DEO ..... 30.253 .... $3,803.10 ... up 78.95% ... Diagio, plc
EPD ...... 64.640 .... $4,337.99 ... up 69.79% ... *Enterprise Products Partners
FTR ...... 22.454 .... $109.58 ... Received in a spinoff from VZ - Frontier Comm
GIS ....... 79.653 .... $3,985.04 ... up 37.48% ... General Mills
JNJ ....... 44.660 .... $4,114.08 ... up 46.56% ... Johnson & Johnson
KMB .... 37.467 .... $4,134.48 ... up 44.23% ... *Kimberly-Clark
KMP .... 38.452 .... $2,855.83 ... up 1.06% ..... *Kinder Morgan Partners
KO ..... 112.068 .... $4,281.00 ... up 57.03% ... *Coca-Cola
KRFT ... 89.194 .... $4,929.75 ... up 20.60% ... Kraft Foods
LMT ..... 47.922 .... $7,777.74 ... up 91.87% ... Lockheed-Martin
MCD .... 36.230 .... $3,447.28 ... up 21.73% ... McDonald's
MMP .... 84.356 .... $5,708.37 .. UP 138.41% .. *Magellan Midstream Partners
MO .... 109.863 ..... $3,983.63 ... up 66.69% ... Altria Corp
PEP ...... 34.177 ..... $2,736.55 ... up 28.17% ... *Pepsico
PM ....... 45.436 ..... $3,676.23 ... up 5.30% ...... Philip Morris
SO ....... 71.573 ...... $3,031.12 ... up 7.15% ..... Southern Company
SYY ... 116.402 ..... $4,192.80 ... up 19.73% .... Sysco Corp
Cash ....................... $74.12
------------------------------------------------------------------------------
Account Value ........ $78,142.26

*Increased Dividend in 2014
=======================================================

ROTH IRA: (Dividends Reinvested)

February Dividends:

Verizon - VZ ......................... $63.74 ... bot 1.366 shares
Procter & Gamble - PG ......... $21.32 ... bot 0.272 shares
Realty Income - O ................. $15.42 ... bot 0.359 shares
Kinder Morgan, Inc. - KMI ... $29.06 ... bot 0.867 shares
Healthcare REIT - HCN ........ $35.15 ... bot 0.63 shares
-------------------------------------------------------------------------------

PORTFOLIO HOLDINGS:  ($4,000 equals a full position)

Symbol ... Shares ... Mkt Value ... Gain/Loss ... Company

D ........ 72.507 ... $5,031.99 ... up 46.46% ... *Dominion Resources
HCN .. 44.840 ... $2,633.90 ... up 5.14% ...... *Healthcare REIT
IBM ... 5.00 ....... $925.85 ...... up 0.08% ....... International Business Machines
KMI .. 71.733 .. $2,284.70 .. <dn 13.25%> ... Kinder Morgan, Inc
MO .... 73.758 ... $2,674.47 ... up 1.68% ....... Altria Corp
O ....... 85.018 ... $3,776.50 ... up 22.08% ..... Realty Income
PG ..... 35.721 ... $2,809.81 ... up 23.67% ..... Procter & Gamble
VZ ... 112.626 ... $5,786.97 ... up 25.04% ..... Verizon
Cash .................. $578.34
-----------------------------------------------------------------------------
Account Value .... $26,502.52

========================================================

THRIFT SAVINGS PLAN: (TSP) - Federal Version of the 401K

There isn't any matching employer funds in this account. Therefore, only 5% of income is being contributed. Index Funds and Life Cycle Funds are the only options to choose from.

Fund - Tracking Index ..... Shares ..... Value ..... Percentage of Portfolio

C Fund (S&P 500) ..... 106.6259 ... $2,570.48 ... 30.76%
S Fund (Small Cap) ..... 92.7202 .... $3,228.62 ... 38.64%
I Fund (International) ... 98.7226 ..... $2,557.22 ... 30.60%
-----------------------------------------------------------------------
Account Value: ................................ $8,358.32

Contribution Allocations:

C Fund ... 20%
S Fund ... 35%
I Fund ... 45%
==================================================

SOLD POSITIONS - REALIZED GAINS/LOSSES:

Company ... Date ... Gain/Loss ... Reason/Result

BMY ... 11/09 ... $1,001.21 - up 25.85% - Froze dividend, bot VZ and JNJ

KMR ... 02/11 ... $504.94 - up 27.09% - Replaced in taxable account with KMP
O ........ 03/11 .... $639.63 - up 34.55% - sold @35.42 bot back @34.43 don't recall why
ZTR .... 04/11 .... <$55.58> - dn <10.09%> - Cut losses, bot SYY
VZ ...... 05/11 ... $618.16 - up 30.15% - Moved to Roth and added to existing position
CLX ... 06/11 ... $25.25 - up 1.57% - Concerned with debt, replaced with KMB
VFC ... 10/11 ... $897.99 - up 53.07% - Yield dropped below 2%, bot PEP

O ....... 01/12 ... $79.73 - up 3.01% - Moved to Roth
UHT .. 01/12 ... $233.60 - up 10.32% - Wanted to spread tenant risk, bot HCN
FTR ... 03/12 .. <$1,095.08> - dn <49.90%> - Dividend cut, cash to Roth, bot COP
ABT ... 11/12 .. $872.46 - up 31.38% - Company split, took profits, bot KRFT
BP ..... 12/12 ... <$554.03> - dn <17.23%> - Took loss, cash to Roth, bot COP
NUE .. 12/12 .. $164.61 - up 7.33% - Slow dividend growth, cash to Roth, added to COP

COP ... 04/13 ... <$2.46> - dn <0.10%> - Froze dividend, bot MO
------------------------------------------------------------------------------
Total Cash Gains ... $3,330.43






















































9 comments:

  1. Chowder,

    Thanks for the great updates and guidelines! I've been following for a few months now and I was curious if you had considered keeping some of your information in a cloud-based spreadsheet. Might be easier for organization and sharing!

    Just a thought.

    Thanks again! Really enjoy the updates and the careful thought you put into things.

    Best,

    JM

    ReplyDelete
    Replies
    1. I'm a relic! I don't have any idea of what a cloud-based spreadsheet is and I don't know how to set up or use regular old-fashioned spreadsheets.

      Everything I do is kept in spiral notebooks and legal pads. There's something to taking down notes and rewriting them out every month.

      I type this report out from scratch every month and since I type with my index fingers, it takes a couple of hours to do this update. ... Ha!

      I think there is value in the process of typing it out every month. It seems to help solidify the goals, objectives and purpose of this portfolio from a psychological point of view. This is something I think would be missed in a spreadsheet.

      Delete
  2. Hey Chowder, two questions:
    (1) Is there anything foreseeable that might cause you to adjust your investment criteria, whether it be that no new ideas meet your criteria, or you underperformed expectations for a few years in a row? Nevermind that these may seem unlikely now, just curious if you have a "plan b"?
    (2) You misspell Diageo as "Diagio" and I never wanted to write a separate comment to point it out, because that seems tacky, so I am adding it on to this comment.
    Thanks as always for the updates

    ReplyDelete
    Replies
    1. It depends on what you mean by under-performing. I'm not concerned with share price volatility. I'm not concerned with how this portfolio performs against the indices.

      My concern is the quality of the companies in the portfolio and whether they continue to pay and grow the dividend. If the dividend growth slows down, I'll look to replace those who aren't growing with those who are. Simple as that.

      Delete
    2. I know you don't care how you do against the indices, so you "read" the question correctly. I was thinking more in terms of falling behind the pace you need to be to achieve your goal, more than just by a small amount.
      Thanks again, Chowder

      Delete
  3. Hi Chowder,
    I recently discovered your site and really applaud you for the education you are sharing. I personally feel I get a lot out of your posts and comments.
    A quick question if I may: With LMT closing in on being nearly double in value, and almost twice the size of your stated full position, what is your strategy going forward with this stock? Ride it out? Sell half and re-invest? Other? Just curious.
    Cheers.
    Michael.

    ReplyDelete
    Replies
    1. I'm going to let my winners run. Although the position is over-weighted at this time, all of the positions in this portfolio will be added to over time, so I might as well keep the low cost basis as opposed to adding more later at higher prices.

      I simply won't add to LMT until the other positions catch up.

      Delete
  4. Hi Chowder,

    Do you plan on selling DE since they decided not to raise their dividend?

    Thanks,
    David

    ReplyDelete
    Replies
    1. No, I don't plan on selling DE. Keep in mind, that dividend increases aren't based on 4 consecutive quarters, they are based on calender year. DE has the rest of this year to raise the dividend and keep the annual dividend streak alive.

      2011 ...

      1st Qtr. ... 0.35
      2nd Qtr. .. 0.35
      3rd Qtr. ... 0.41
      4th Qtr. ... 0.41
      --------------------------
      Total ..... 1.52

      2012 ...

      1st Qtr. ... 0.41
      2nd Qtr. .. 0.46
      3rd Qtr. ... 0.46
      4th Qtr. ... 0.46
      -------------------------
      Total ...... 1.79

      2013 ...

      1st Qtr. ... 0.46
      2nd Qtr. .. 0.51
      3rd Qtr. ... 0.51
      4th Qtr. ... 0.51
      --------------------------
      Total ...... 1.99

      2014 ...

      1st Qtr. ... 0.51
      2nd Qtr. .. 0.51

      As you can see, DE can raise the dividend in either the 3rd or 4th quarter of this year and keep the dividend streak alive.

      The way I manage this portfolio is different than mine due to age and the difference in the amount of time needed until starting the distribution phase.

      In my case, I don't own DE. It's not only a cyclical in business, it's dividend increases are cyclical as well. In other words, although they have a history of dividend growth, they don't have a long history of growing the dividend every four quarters. Annually, yes. Quarterly, no. I need more reliability on the dividend income (quarterly) since the yield is so low. This portfolio doesn't.

      The person that owns this portfolio is only 29 years old. Although the objective is to build an income stream, that income won't be needed for a long time. So, I've decided that as long as a company is still financially sound and one of the leaders in their industry, I will be more patient with them them.

      This portfolio will be more of a collector of high quality companies that pay a dividend, where my portfolio needs more dependability in the income stream.

      I purchased DE in this portfolio more for the capital gains potential that cyclical's provide over decades when reinvesting the dividends through all cycles.

      Delete