Recent Transactions

I’ve been taking a more critical look at my portfolio in recent days with a view of trying to better optimize my dividend income and achieve my goals. While I’m pretty happy with the core of what I have hold, I have taken the opportunity to make a few changes.

 

As people who have stopped by here occasionally may be aware, I’ve set myself an aggressive dividend target of trying to get to $50k/yr in dividend income within the next 5 years. That may sound aggressive, foolhardy even, but the good news is that I am not entirely starting from scratch and my combined US, Australian stocks should throw off somewhere in the vicinity of $27k in dividends in 2013 based on my estimates.

However demanding goals aren’t forgiving on lax stock selection and speculative investments,so I’ve taken the opportunity to try and solidify the portfolio by replacing some less certain dividend payers with prospects that I feel are more secure.

Changes in the  portfolio

I had a few positions in my US portfolio which were in a select number of growth stocks and did not pay any dividends. While I am still optimistic about the total return that I can expect to achieve from these positions, I’d like to further strengthen my dividend buffer.

Accordingly, I made the following changes in the last month:

Sales

  • Exited my position in Yandex – While I still believe in the business model and the growth opportunity that Yandex offers, the unfortunate reality is that this Russian search engine giant wasn’t paying me a dividend, so I have entirely exited this position, netting ~$8k, and a $1k profit.

 

  •  Trimmed my position in Mercadolibre. I still very much like this Latin American start up, which offers an e-commerce business model in the likes of Ebay and Amazon. Mercadolibre also pays a tiny dividend, which is unfortunately so small that it doesn’t make much of an impact to my dividend income. I realized $4k from the sale, and a $1k profit.

 

  • Trimmed my position in Bidu. Bidu has been going through some troubles recently as far as being able to convince the market that it can make it successfully in mobile search. I cut  my position here in half, realizing about $5k and incurring a small loss.

 

  • Sold my position in Quality Systems – I started feeling a little nervous about QSII’s ability to pay out a consistent dividend given its lack of recent sales traction. I decided to take some proactive action here before my hand was forced, and realized $7k from the sale.

 

  •  Sold various Australian positions which were non dividend paying positions. I realized ~10k net here, which I expect to deploy later in the year if I can find suitable opportunities to invest.

Purchases

  •   Increased my stake in BP to $16k – BP was one that I couldn’t pass up at current prices levels. With a current yield of almost 5%, reasonable payout ratio, and ~10% dividend growth, I am happy to sit in BP and wait and watch as the various legal actions get sorted out. I added almost $7k to my investment in BP @$40.50
  •  Acquired a $5k stake in Lorillard. I was particularly attracted to Lorillard by the nice yield on offer ~5%, as well the dominant position that it holds in the US cigarette market. Of course, this is a business that is constantly exposed to regulatory risk, which is something that will limit the size of the position that I take. Revenue and dividend growth for the business has been fairly good for Lorillard over the last 10 years. My thanks to My FI Journey for his excellent analysis which highlighted this stock as one to watch.
  •  Acquired a $5k stake in Lockheed Martin. I was also attracted to Lockheed by the nice dividend on offer, at close 4.75%. Lockheed dividend growth has also been very strong for the last few years, with the dividend most recently hiked 15%. I can’t see this continuing, particularly with some of the budget cuts for defense that will impact Lockheed. As the dominant defense contractor in the US, I expect the company to be able to manage through this, albeit with dividend growth rates in the 5-7% range over the medium term.
  • Acquired a $4k stake in Apple. While Apple doesn’t have the dividend paying history to be considered a dividend growth stock, I could resist the opportunity to snap up a little stake in Apple at an effective yield of 3%. Apple also recently hiked its dividend 15%, something which I’d love to see it do over the next few years to reduce its mounting cash position.  I jumped into Apple @$405 as an entry point, and may consider adding more if I can pick up some more at $350. Apple is very much a company in transition, and I expect it to have a more mature growth profile with declining margins as it introduces more price competitive versions of its products. I am happy with my small entry position here, and won’t consider additions unless price point becomes more compelling.

 

  • Acquired a $7k stake in Cisco. While Cisco is a fairly recent dividend payor with a pretty short dividend history, Cisco itself is a fairly mature business which not only plays the role of traffic cop for the internet, but also is increasingly moving into cloud and mobility offerings. I recently purchased an $8k stake in the company at an effective yield of 3.2%. With a fairly low payout ratio, and high single digit revenue growth I’m confident that Cisco can maintain dividend growth of 10% for the near term.

 

I’ll be updating my portfolio accordingly in the next few days to reflect these changes, but the net of it is that I expect a slight increase to my current estimated dividend income for 2013.

 

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