RetiredToWin: Investing My Way

[Retired To Win]

I am creating this thread to journal about my buys, sells and thinking with regards to specific stocks. I think it will help me (and others?) to record what I've done, why I've done it, and the results that have come of it.

It will become apparent that I invest in individual stocks, not mutual funds or ETFs. I am well aware of the mantra in favor of ETF index investing, but I have chosen not to go that way and in this thread I hope to avoid general discussions about it. I have already written enough on the subject in my Saving Advice blog (Retired To Win).

Same goes for the question of what is better: dividend investing or total return investing. My thinking on that is spelled out in detail in my blog. And I have made my decision: I buy high-yield dividend stocks for their dividends, but will cash them out on a total-return basis whenever I can realize 10% or better on the sale.

This will be a thread to track what actually has happened and will happen investing my way. So let the chips fall where they may.

[Retired To Win]

I Am Downgrading NKA and LRE

It is quarterly earnings report season, and I have so far reviewed the reports from 14 of the 19 companies currently in my portfolio. My assessment of 12 of those companies has not changed based on these latest reports. So I will continue to hold or target them to each comprise 6.25% of my portfolio's book value. But the earnings reports from two companies -- Niska Storage Partners (NKA) and LRR Energy (LRE) -- have given me some pause, so I am downgrading both of them to comprise 3.12% of my portfolio's book value.

In both cases, my lowered assessment of the companies is due to what I think is a deteriorating ability to cover future dividends from operating cash flow.

This past quarter, LRE only covered 87% of its dividend payout (which means it borrowed the remaining 13%). But maybe there is something more that I am not seeing, because the company actually just raised its dividend. And on an EBITDA basis, it did generate enough cash to cover 121% of its combined interest cost and dividend payout for the quarter. So I am not dumping the stock. I am just not buying any more for now and that will leave my stake in that stock at that reduced 3.12 portfolio percent level.

NKA's operating cash flow covered 90% of its dividend payout, but only on the strength of a large one-time payment that will not recur. Factoring that payment out, NKA would only have covered 40% of its dividend this quarter from operating cash flow. Not good. However, the company's guidance for the balance of the year forecasts an improving picture, so I am not going to dump NKA either. But I do have to downgrade it from comprising 4.7% of my portfolio's book value down to that 3.12% level. And in this case that means that I will have to sell 450 shares. We shall see whether I take a loss on that sale, and if so how much.

[Nika]

I'm having trouble understanding your "sell after it is up 10%" rule.

Does the company's future prospects change at that point? Does it ability to pay dividends changes?
Guidance? How about any of the things that made you purchase the stock and believe that the company will do well long term?

How about money that you are losing by making a lot of these gains short-term ones, taxed at your regular rate instead of capital gains? That is more than 10% at our income level.

Also, look at how many stocks have doubled in the last year.

The markets will go up and down, and one really has to be there for the ride up to withstand the eventual adjustment.

[bigdaddybus]

My father follows a somewhat similar model to RTW. (but he doesnt have such a requirement for dividend paying stocks)

My .02 is that
1. its alot of work to track individual companies
2. if you have too many idividual stocks your just making a dividend paying mutual fund.

but since retirement, my father has averaged 34% per year increase in his net worth utilizing a combination of mutual funds and individual stocks (that he studies heavily). So with alot of work you can do well. Its not impossible to be a successful individual investor contrary to what the heard wants you to think.

[bigdaddybus]

I'm having trouble understanding your "sell after it is up 10%" rule.

Never be scared to lock in a gain. This is investing 101 stuff

[Nika]

Quote:
Originally Posted by Nika View Post
I'm having trouble understanding your "sell after it is up 10%" rule.
Never be scared to lock in a gain. This is investing 101 stuff

But you re-invest that money, right? Do you check that the new stock you buy has not gone up 10% yet? In what time frame? And what is the difference to holding your old stock? Do you believe you buy all your stocks at the EXACT point in time at the stock's perfect value, and anything over 10% makes the stock overvalued?

[97guns]

my dad made dividend stocks work for him in retirement but he was a buy and hold investor. only holding and adding into 2 companies hawaiian electric and GTE which is now verizon for the past 60 years turned him into a million air before his passing. he lived off a $800 social security check and $5,000 in dividends every quarter for his 30 years of retirement

[Retired To Win]

The NKA Trim Sale Turned Out OK

... NKA's operating cash flow covered 90% of its dividend payout, but only on the strength of a large one-time payment that will not recur. Factoring that payment out, NKA would only have covered 40% of its dividend this quarter from operating cash flow. Not good. However, the company's guidance for the balance of the year forecasts an improving picture, so I am not going to dump NKA either. But I do have to downgrade it from comprising 4.7% of my portfolio's book value down to that 3.12% level. And in this case that means that I will have to sell 450 shares. We shall see whether I take a loss on that sale, and if so how much.

Well, that turned out OK. I only lost 11 cents per share on the 450-share NKA trim sale (including commission). The thing is, 2 days ago I collected 35 cents in dividends from each of those same shares. So I have ended up smelling like a rose here.

[Retired To Win]

SHORT Answers to Nika's Questions

That is a lot of questions, Nika, but they are good ones. You can find detailed answers to all of them in the Investing My Way section of my Saving Advice blog. I will give you the SHORT answers here. You will find them in bold type below.

I'm having trouble understanding your "sell after it is up 10%" rule.

Does the company's future prospects change at that point? Does it ability to pay dividends changes? No. I subscribe to the "enough" theory of investing. Enough money is enough. At a 10% gain, when I sell I am collecting in advance a year's worth of dividends on the sold stock. It is enough for me and it is IN MY POCKET.

Guidance? How about any of the things that made you purchase the stock and believe that the company will do well long term? See above. Also, it is very very common for me to buy back that same company's stock a while later, when the price has dropped down again.

How about money that you are losing by making a lot of these gains short-term ones, taxed at your regular rate instead of capital gains? That is more than 10% at our income level. Not a worry for me. Most of my holdings are in tax-deferred IRA accounts. Even if they were not, I don't believe one can let taxes prevent one from making money. Also, I refer you back to "enough."

Also, look at how many stocks have doubled in the last year... The markets will go up and down, and one really has to be there for the ride up to withstand the eventual adjustment. I think your statement assumes that the cash from the profit-taking sales stays in cash. It does not. With the 10% realized gain in the cash register, I put it and the original capital into other high-yield dividend stocks. Overall, at any given time I am about 80% invested and the rest of the money is simply waiting to be properly deployed (right company, right price).

[jpham540]

Hey I have both index funds and individual stock. I just started building my long term dividend stock portfolio in the last 2 – 3 month. You can check out my holding in my blog down below my signature. As far as selling goes, I am a buy and hold investor and hoping my stocks will dish out some passive income in the future. I will still monitor my stocks to see if companies are growing or not. Hope to see you grow your portfolio also.

[Retired To Win]

Never Thought I Would Buy Another Telecom BUT

Nowadays, it is not often that I find a "new" company to invest in for its dividends. But I'll be darned if I didn't find one this week... and it was a telecom, of all things.

I have learned to stay away from telecoms because I have tracked how the landline business is a dying dinosaur for every company I have studied. And such companies always end up cutting their dividend. But I think I have found a different situation with NTELOS Holding Corp (NTLS).

The NTLS business is all wireless. Wave of the future (which is already here). The stock sports a $1.68 annual dividend which is supported by operating cash flow 2.8x the dividend payout. Which is huge in my book.

The company's other financial ratios are also very good:
-- current assets at 286% of current liabilities
-- total assets at 128% of long-term debt
-- operating income at 120% of interest expense

I had been holding back on NTLS for about a year, because a major wholesale contract that it had with Sprint would be up for renewal this year, and I have already seen once before the financial debacle that hits a small telecom when such a contract does not get renewed. But this contract got renewed and will now run until 2022. Works for me.

Luckily for me, the NTLS stock price is -- for now -- well below my calculated $13.68 maximum-buy-price. In fact, I bought a half-position (3.12% of my portfolio value) at 12.07 a share. Which yields me a whopping 13.9% annual dividend.

And, as I write this, the stock price is up 4% from where I just bought it... but still low enough for me to buy some more. Which I really think I should do, because I have given NTLS the OK for a full portfolio share position.

[Retired To Win]

More Short Answers for Nika

Nika,

Those are more good questions. As before, I refer you to the Investing My Way section of my Saving Advice blog for full explanations of what I do and how I do it. But below, in bold italics, are some short answers.

1. But you re-invest that money, right? Right.

2. Do you check that the new stock you buy has not gone up 10% yet? Yet?? Price trends do not factor into my buying strategy.

3. In what time frame? I buy when I have room in my portfolio for a "right" company and the price of that company's stock is "right." (Lots of detail about that in my blog).

4. And what is the difference to holding your old stock? The 10-percent-plus realized gain I have pocketed on the sale of the old stock.

5. Do you believe you buy all your stocks at the EXACT point in time at the stock's perfect value? No, I am not a magician. I just make sure I DON'T buy any stock at a price above what I call its maximum-okay-to-buy price. I calculate that price limit by finding the stock's strongest price support point on a chart and adding its annual dividend to that. (If a stock's support price is $10.00 and its annual dividend is $0.90, then I won't buy it for more than $10.90).

6... and anything over 10% makes the stock overvalued? Over what 10%? See my answer to your question 2.

[Nika]

If all you care about is 10% and have no intention of owning that stock past that point, why don't you buy shares in blocks of hundreds and sell covered calls for 1.1x of the price you bought it for?

That way, if it goes up, you won't only sell at 10%, but will also get the money for the sale of the call, which is likely to be even more than the dividend.

[AnotherReader]

Much of what Retired to Win buys and sells could be considered speculative in nature. He holds the shares and collects the dividend for as long as it makes sense to do so. If the total short term return on his investment so indicates, he will sell and take profits. Because these stocks are mostly relatively volatile small caps, getting out often is the correct investment decision.

If he buys and sells three times in a year and makes at least 10 percent on each turn, well, he's up over 30 percent, less trading costs. He has to pay ordinary income tax, unless the shares are in a tax deferred or tax free account. Although not every pick will be a winner, if he's a really good trader, he should consistently grow his account over time. Probably by more than you will with your various Apple positions.

There is both art and science to what he is doing. Very, very few people can do this successfully over the long term. More power to him if he is one of the successful traders.

[Retired To Win]

Added to Several of My Portfolio Positions

... Luckily for me, the NTLS stock price is -- for now -- well below my calculated $13.68 maximum-buy-price. In fact, I bought a half-position (3.12% of my portfolio value) at 12.07 a share. Which yields me a whopping 13.9% annual dividend.

And, as I write this, the stock price is up 4% from where I just bought it... but still low enough for me to buy some more. Which I really think I should do, because I have given NTLS the OK for a full portfolio share position.

And today I did just that, adding 564 NTLS shares (13.3% dividend yield) to my portfolio. I also added 30 shares of SeaDrill/SDRL (10.8% dividend yield), and 65 shares of Natural Resource Partners/NRP (8.5% dividend yield). Those buys top off my positions for all 3 companies.

I've got buy orders in for New Source Energy Partners (NSLP) and Tsakos Energy Navigation preferred shares series c (TNP-PC), but the prices need to drop a smidge for my buy orders to get triggered.

These are all companies I have studied and invested in before. I just finished reviewing each of their just-released quarterly reports, and the financial situations of all the companies has either remained stable or actually improved. Suffice it to say that they all passed my financial ratio tests for current assets/current liabilities, longterm debt/total assets, ebitda/interest cost + distributions, and/or distributable cash flow/distributions.

I am now almost 100% invested, so my investing workload is going to get trimmed down a lot, at least for a while. Good!