New Purchases

Today I reached the $2,500 minimum in my Zecco account so I was able to make 10 free trades. I made 8 trades today :-)

I purchased a very small holding of AIG for speculation (20 shares). At $1.55 a share, this might be worth it down the road if they recover. Who knows? That of course is why I only purchased a very small amount.

DOW was one of the stocks on my "wish list" and with it falling so much yesterday it seemed like a good time to get in. I also purchased 1 share of JNJ, which was also on my list. $60 a share is a little pricey for such a small investor like me, but I should be able to add a share each month. I didn't want to to it before because there was no way I was going to pay a $4.50 commission just to buy 1 share!

I received my dividend for AOD today, and though I had faxed over to Zecco my request to have dividends invested, they were not. So I purchased 2 shares of it to account for that. For my bank I was debating on BAC and ING, and I finally decided on ING as I would like more non-US stocks in my portfolio. I was pleased to see at the end of the day that the price had risen 8%. I actually considered this stock a couple weeks ago when it was about $7. I guess sometimes I should go with my hunches :-).

I decided on GGB and GNA for my steel companies. They are somewhat related (GGB actually owns about 66.5% of GNA). These two stocks have really been beaten down, and I'm hoping that Obama's plans will really drive up the price of them (especially GNA).

I also added AWP, which I was hoping it would fall lower. When they announced the dividend cut to 3¢ (monthly) I was expecting it to fall, though that would put the yield around 10%, which doesn't sound bad to me. But it did not. This is my first real estate stock. I was actually debating between this and O, but the much lower share price of AWP causes me to believe that this one has more potential for rising in value than O. And probably the fact that I could have only gotten 3 shares of O vs. 20 shares of AWP played a small psychological part as well :-)

Portfolio Tracker

I have looked far and wide for a good site to use to track my portfolio on. At first I tried Google's, but theirs needs lots of improvement. They recently updated it to allow partial shares beyond 2 decimals (that right there was a major deal breaker - since my mutual funds in my 401k are done to 3 decimals the amounts never were correct). Also, it is a pain entering information (the import tool has never worked).

Yahoo's tool was a little better, but still very tedious to add information to. I tried Morningstar's, e-trades', Bloomberg's, and MSNmoney's. Bloomberg's was nice because it would break it down into the individual transactions (so that you could see what each transaction resulted in), but it limited you to 20 entries per portfolio (not 20 stocks, 20 entries!) and you were limited to 5 portfolios. That made it useless.

The main problem I found with most of them was concerning the entry of your data. None of them had any kind of bulk entry - so if you had a lot of transactions to enter it would take forever - entering each one individually, then clicking next, then repeating it over and over.

So I came up with my own. The layout of the spreadsheet I based on one I found from Dividends4life, so I feel I should give credit to where credit is due. But I did modify it quite a bit to meet my needs (and you are welcome to take this and modify it for your needs). You can find the portfolio on Google Docs here. If you would like a copy of it as an *xls file, just send me an e-mail.

Each stock gets it's own tab. The first tab contains a summary of each one. This is also where I enter the current price for each stock (and it's updated on the individual tabs). This main tab shows me the basic information - how many shares, how much I've invested, my dollar average per share, the current value, and how much have I gained/loss. Since I am a dividend investor I also included the annual dividend amount and the percentage of that amount each stock makes up. The next three columns record any amounts that will effect my taxes - and there's a a different column for each type. Next are to percentages - the first one is how much they cost me, the 2nd column is how much they currently make up of my portfolio, and the color of the text will change depending on the percentage.

The tabs for each stock are all set up the same. All the current values are derived from the main tab. Up at the top you'll find an summary of the stock. To the right is information on the dividend - you just enter in the # of times a year dividends are paid and the current amount, and it calculates the amounts. Importing this file into Google Docs seems to have changed the # of times the dividend is paid into a $ amount, but the result is still the same.

I use different background colors for different types of transactions. Purchases are the normal background color, dividends are a teal blue, etc.

I've also found it helpful to me to have a spot that I can put in the current dividend information - the declaration date, ex-date, etc, so I know when the dividend is due. When you enter a transaction there are two spaces between the Activity and the Shares to put in a note if needed. You enter the # of shares, the total dollar amount invested and the commision (if any) and it calculates the rest. I got the idea for the gain/loss from Bloomberg's portfolio. So you can see the results for each transaction you made. Also, if you were to sell the stock, this ends up telling you how much you stopped yourself from loosing (or gaining). This will also tell you your current yield on purchase, so 3 years down the road when you have added a ton of purchases and the company has increased its dividend several times you'll be able to see what your yield ended up being for each specific transaction. The Cumulative section lets you see how you've averaged down (or up) in your average purchase price. Lastly, the Percent of Portfolio lets you see the results of each transaction compared to your portfolio as a whole.

Though not included in this file I have also made an additional tab for my main portfolio that I record any selling/dividends/options, etc. On this tab I have separate columns for the types of dividends, any taxes paid for dividends from Canadian stocks, capital gains (both long and short term), losses, options, etc. Since I have 3 different brokers (Schwab, Sharebuilder, and Zecco) this allows me to have everything all together.

I also have another tab where I have entered each stock's sector, industy, and market cap, and I am able to see what my portfolio consists. The beauty of making your own portfolio manager is that it is so highly customizable.

If you do use my file and change it, I'd love to see what you do with it - maybe it's something I can use with mine, too.

Hypothetical Portfolio

There are a lot of stocks that I would like to invest in right now, unfortunately my funds are very limited (if anyone wants to help me out in this area, let me know :-).

I have started a "test" portfolio that contains 20 of the stocks that I would like to own. I started with $10,000 ($500 per stock) and I used the closing prices on 12/26/08. All dividends will be automatically invested on the Date of Payment.

Currently I would receive $722.49 in dividend income for 2009 (A return of 7.2%). However, I am expecting PHK to cut its dividend.

This portfolio contains:

• 2 Real Estate Stocks (AWP and O)
• 3 Banks (BAC, BBT, WFC)
• 2 Food Processing Companies (BGS and CAG)
• 2 Steel Companies (AKS and GGB)
• 2 Healthcare Companies (JNJ and PFE)
• 2 Utilities (DUK and EDE)
• 2 Retailers (AEO and WMT)
• 5 Misc Stocks(DOW, GE, GLW, PG, and PHK)

The layout of the portfolio is based off of a spreadsheet I found on Dividends4Life. If it's useful to you feel free to use it, and if you have any suggestions for improvement please let me know.

EDIT: I apologize for the spreadsheet being difficult to see. I can't seem to get Blogger to display the entire thing. You can view the whole thing on Google Docs here.


Disclosure: I own BGS, DUK, GE, and GLW. I plan on purchasing shares of the rest in the future.

Merry Christmas!!!

Merry Christmas!!

Is the Stock Market a Ponzi Scheme?

You've heard of Madoff and how he bamboozled investors out of almost $50 billion dollars with his Ponzi Scheme. Well, I think there's an even bigger Ponzi Scheme going on. It's called non-dividend paying stocks.

I have only been investing for about 7 months, so I am still a little green behind the ears. I have learned a lot about stocks (and I know I still have a lot to learn). But one thing I just can't seem to understand is why someone would want to own a non-dividend paying stock.

Let's say two friends start a company (we'll call it Company X) and they each go in half for it. They do well and it grows and grows. They decide they could really use more money in order to expand, hire more employees, etc. So they come to me and ask me to invest in their company.

What if they told me that they have no intention of ever giving me any money, rather all the profit made is just re-invested back into the company. I would never receive a dime from Company X. Why would I ever want to do something like that? The only way I would ever make any money is by finding someone who will buy my part of the company for more than I paid for it. But why would someone else want to buy a share in the company knowing that they the company intends not to pay them a dime? The only way he would make money is by finding another person to pay for the investment, and so on – which would seem to me to be a sort of a ponzi scheme.

Say I went and invested in Company X, and I got 100 shares at $10 each ($1,000 total investment), and say the company does very well and expands, and after 25 years my shares are now worth $500 each ($50,000 total). That’s great. But what if 10 years later Company X starts to do very poorly, and the shares plummet, and now the shares are only worth $5 each? Or Company X goes out of business and my shares are now worth nothing? 35 years of investing down the drain. I’d have been better off putting my money in a mattress.

On the flip side, Company X had said that they obviously can’t afford anything right now, but once their business expands they plan on returning some of the profit to me. In that case, even if after 35 years the doors are closed, most likely I would received my original investment back many times, and at any rate I would received much more than if they had paid me nothing.

I do not understand why people would want to own stocks like GOOG, APL, or BRK.A. They have never paid a dividend. Slackerwealth has an excellent post on this. He used Google for an example. Google last year was at about $700 a share. Today it's under $300.

I've heard some people argue that you don't want dividends because you have to pay taxes on them. (This article here argues that dividend stocks are a mistake).That is just like saying you wouldn't want to win the lottery because you'd be taxed on that. I am also in a low tax bracket so those taxes don't affect me very much either.

I’ve heard (well actually, read) other people saying that instead of issuing dividends the company should buy back stocks. Personally, I am against stock buy backs in most situations. I’d rather have them pay me and then if I think they stock is undervalued then I can use that money to buy more. One stock I hold, GLW, has done buy backs when the share price was recently at around $20+. The stock is now at $8.68. Perhaps that money could have been better used being paid out to shareholders. (They do pay a dividend, but even with a share price of less than 1/3 of its 52-week high it’s only a 2% yield).

My personal view is that as a general rule most companies should return 25%-50% of its net income to the investor. Obviously there are exceptions to that - very small companies wouldn’t be able to do that and they should spend most of their profits on growing their business, or a company might have a couple real bad quarters and need to cut or postpone their dividend. B & G Foods (BGF, BGS) is an example of that. They were paying out a 21¢ dividend but just recently reduced that to 17¢ because they wanted to strengthen their balance sheet because of the way the economy was going. I fully supported that because they explained why they needed to do the cut, and at the same time the made it clear that they are committed to paying out dividends to the shareholder.

I did come across this article entitled “What is the incentive to buy a stock without dividends?” but it really doesn’t explain WHY you would want to buy a non-dividend paying stock. It does explain that you buy them for the capital gains, but again, that all goes back to finding someone who wants to hold a security that is never going to pay them anything, and if the share price falls you will loose money.

Feel free to leave some feedback. If you disagree with me, that’s great – convince me I’m wrong.

2009 Investing Goals

I have re-evaluated my goals for 2009. I’ve upped my dividend goal from $500 to $750. Right now I am looking at roughly $485 (providing of course that no one cuts their dividend, which is a big IF).

I would like to add some more stocks to my portfolio. I definitely want a steel company (I’m thinking right now perhaps AKS or STLD). I also want to get some of the “bigger names” like AFL, JNJ, CAT, MCD, PFE, and PG. My main problem with those is that the share prices are very high (most of them are around $45-$60) which really cuts down on how many shares I can buy, and since Zecco does not allow partial shares that really makes it difficult to reinvest the dividends. I am also looking at adding a bank. BAC, C, ING, and BBT come to mind, though I have not done much research in that area yet.

The following chart shows the percentage of my current dividend income from each stock.





I’m a little concerned with AOD and HTE because they make up a high percentage of my dividend income. I have now established a rule that I will not let a single company make up more than 20% of my dividend income. I would eventually like to get that down to 10%, but at the moment I do not have a large amount invested and so I do not feel that is practical. AOD is supposed to announce on Monday their next three distributions. Currently it has a 35% yield and I am not sure if they will be able to sustain that. If they cut the dividend to 10¢ from 18¢ I still think it’s a good investment, but it will cut my dividend income by about 15%.

While I like BGF and BGS, combined they currently make up 25% of my dividend income, and I will stop future purchases until they go below that. I am looking to add to my positions of DUK, GE, and GLW.

I have left ACAS in there for now. It has to pay at least one dividend in 2009 (unless of course it goes bankrupt). I do not plan on adding more shares though.

I may add another ETF. A lot of these have really been beaten down. Some I am considering are: AWP, AGD, and PHK. Of course I haven't done any research on these yet.

Some Tips for New Investors

I made my first stock purchase almost 7 months ago (SIRI @ $2.78). Since then I have come a long ways in my understanding of the stock market. I’m amazed at how foolish I was back then (and I’m glad I didn’t have more money to invest!).

 

These are some of the most important things I have learned:

 

1. Before you do any investing it’s best to do a lot of reading. You might even want to just save your money and do some “practice” trading for a month or so to allow you to get a feel for it, and hopefully a better understanding of what you are doing.

 

2. Do not get your investing tips from newsgroups like Google’s or Yahoo’s. There is some helpful information on there, but keep in mind that anyone can post, and very often a lot of the posts are from very ignorant people who know no more than you do (and often even less). If someone points out a good stock, then great! But do your own research first. Never invest just because someone else told you to. Also, don’t invest in a company just because you recognize it. My first 3 purchases were in SIRI, S, and F, pretty much only because I recognized those names and the share prices were pretty low. Well, they have since gotten much lower. If you want to invest in companies you’re familiar with, that’s great, but you still need to do research.

 

 

3. Dollar-cost-averaging is very important. If you are going to invest a sizable amount into a stock, you’re best off breaking it up into several transactions over a couple weeks/months. This of course is more important in a bear market than in a bull market.

 

4. For a buy-and-hold investor, dividends are the way to go. It really makes no sense to hold non-dividend paying stocks, and honestly I do not see in the big picture why someone would want to own a stock that does not pay a dividend – you’re only hope of making any money would be that someone else will want to buy it from you for more than you paid. But since that person would be in the same predicament and so on, then why would they want to buy it? Of course people still buy stocks like these, but I don’t see why.

 

 

 

Final Stock Purchase for the Year

I am planning on making one more stock purchase for the year (about $260). Currently in my Dividend Portfolio I hold AOD, BGF, BGS, DUK, GE, GLW, HTE, PGH, PVX, and TTM. AOD is out because I just purchased some earlier this month, and I also want to know what they are going to do for the next 3 distributions (which shouldbe coming any day now). I am not looking to add to my ConRoys right now, so that excludes HTE, PGH, and PVX. TTM only pays dividends 1/year, so right now I am not looking to purchase more of that. GLW doesn't have much of a dividend (about 2%), and the current outlook for it is a little bleak, so that one is out.

That leaves BGF, BGS, DUK, and GE. I really like DUK. It has a consistent dividend, and it has been relatively stable over the past few months (when very few stocks were). GE is at an all time low, and it had a steady dividend. However, I really don't like the recent announcement from the president that they would no longer be offering the quarterly guidance.

BGF and BGS have done very well in my portfolio. The dividend is nice (currently at 13% for BGS). I listened to the last shareholder presentation/conference call in October and I was really impressed. Unlike other companies' conference calls I've listed to, they seemed very open and honest.

At today's prices this is what I would have gotten (whole shares):

BGF: 25 shares, $9.61 Q Dividends, $38.45 Y Dividends (14.7% Yield)
BGS: 49 shares, $8.33 Q Dividends, $33.32 Y Dividends (13.0% Yield)
DUK: 17 shares, $3.91 Q Dividends, $15.64 Y Dividends (06.3% Yield)
GE: 15 shares, $4.65 Q Dividends, $18.60 Y Dividends (07.1% Yield)


Based on that comparison, I think BGF is going to be the best one. BGF is a combination of 1 share of BGS and a debt note. The debt note is for $7.15 at 12%, due in 2016. It can be called before then at a premium. Until the note is called, each note receives a quarterly interest payment of 21.45¢ in addition to the normal quarterly dividend for the common shares (currently 17¢) for a total of 38.45¢. So at today's prices, buying a share of BGF for $10.36 would be buying one share of BGS at $5.23, and then the $7.15 bond for $5.13.

Assuming that the notes are not called earlier, I will receive a total of $12.30 from now until January 2016 (I'm not sure of the exact date they are due). This consists of $5.15 in interest payments and the $7.15 note. When the note is paid, all that will be left is a share of BGS.

So my investment of $261 will pay me $307 over the next 6 years. I'd say that's a pretty good investment. I have confidence in the company and I look forward to adding more shares to my portfolio over the next few months.

Alpine Total Dynamic Dividend Fund (AOD)

Well, we finally got some news today.

NEW YORK, December 11, 2008 – The Board of Trustees of the Alpine Global Dynamic Dividend Fund (Ticker: AGD), Alpine Total Dynamic Dividend Fund (Ticker: AOD), and the Alpine Global Premier Properties Fund (Ticker: AWP) announced today that it does not anticipate paying either a short-term or long-term capital gains distribution this year.


This is from their website. A PDF file of the news article is available from there.

While not set in stone yet I guess that would pretty much settle that. But after the past couple months I really wasn't expecting much of a year-end dividend anyway. I still am anxious to find out about the coming dividends.

UPDATE:

Today they announced that they will continue with the 18 cent dividend for January. However, they said that they will no longer be declaring 3 months of dividends at a time, but rather do it every month. 

I was fully expecting a cut and I had considered selling all of my shares today and buying them after the price had fallen (and being able to buy several more shares with the money). I am glad now that I didn't have a chance to do that.

Iron & Steel Companies

I've been looking at adding a metal company to my portfolio. A lot of them have been very hard hit over the past couple months. If Obama does what he says and creates millions of jobs fixing the infrastructure then these stocks should do well.

Here are some I am looking at:

GNA. Gerdau Ameristeel Corporation (USA) closed today at $5.50 (a gain of 17%). It's 52-week high is $19.50. It declares quarterly dividends, currently of 2¢ 3x a year, and then a larger one in Feburary (last year it was 27¢), for a yield of 1.45%.

GGB. Gerdau S.A (ADR) is a Brazil-based company. It closed today at $7. It's 52-week high is $26.22. It pays semi-annual dividends. The amounts have varied a lot recently, from 22¢ to 8¢, so I'm not sure what to expect with it.

TX. Ternium S.A. (ADR) is a Louxembourg-based company that operates in Central and South America. It closed today at $8.49. It's 52-week high was $45.99. It appears to only have been on the market since 2006, and has paid a 50¢ annual dividend in 2007 and 2008.

STLD. Steel Dynamics, Inc. closed today at $11.16 (up 13%). Its 52-week high is $40.92. It has a dividiend yield of 3.58%. I considered this a few weeks ago at around $7. I wish now I had gotten some them.

AKS. AK Steel Holding Corporation closed today at $9.76. It's 52-week high is $73.07. Curreng yield is 2.05%. They have paid dividends for the past 3 quarters, but they haven't paid them before since 2001.

Alpine Dynamic Dividend

After debating between GE and AOD I finally decided to add to my AOD position. My shares were purchased at $6.11, bringing my holdings in AOD to 17% of my dividend portfolio (31% of the dividends).  I'll be looking at $11.34 for the dividend for December. I am not sure if they will be doing a special dividend. Google has it listed last year as a 54 cent dividend. That would certainly be welcome this year :-)

AOD is also trading at a discount to it's NAV. The NAV ended today at $6.75, and the price of the stock was $6.33, a discount of almost 8%.

They are currently buying back shares at these low prices, which will increase the value of the remaining shares. 

AOD announces their dividends three months at a time. The last announcement was on September 2nd for the distributions for October, November, and December. They should be announcing the distributions for January, February, and March shortly. I would not be surprised if they do announce a dividend cut (the yield is currently at almost 35%!!!).  Even if they do cut the dividend I still think this is a good buy.

The two main reasons I invested in AOD is because of the nice dividend and the foreign stocks. I have been wanting to add foreign stocks to my portfolio but I have neither the time nor the expertise to do so. AOD allows me to do that.