I’ve been making some selective changes to my portfolio recently. While markets have been booming in general, there have still been pockets of opportunity around. There’s never a better time than the present to capitalize.
Logic for recent transactions
In spite of markets continually moving higher, I’ve been seeing a lot of great value among large cap, Dividend Classic payers. I couldn’t be happier with this. One of the weaknesses that I’ve identified with my dividend portfolio strategy is a need to really strengthen my core with some stable, wide moat dividend payers with long term track records of paying increasing dividends.
Given this is where pockets of value have been in the market, I’ve been helping myself to some opportunities amongst the Dividend Classics. I’ve also observed that I am a little light on some quality healthcare stocks. The healthcare sector should be a fairly promising area to go searching for dividends. With aging populations, and ever growing medical budgets, there is ever more money being thrown at healthcare, which should mean some nice dividends as well.
In addition to being a good source of dividends, healthcare stocks also have the advantage of having significant non discretionary spend. If you need diabetes monitoring, you have no choice but to spend on supplies. I like the solidity and stability of underlying consumer demand for the same reasons that I like the consumer staples sector. Demand isn’t likely to be affected by fads and trends. It will be stable and ongoing and companies will benefit from demand that doesn’t vary too much price. That will mean increased dividends over time.
With that said, here are the moves that I have made recently:
- Completely exited Bidu. Bidu was one of the last of the growth stock positions that I owned. I have sold off most of my other growth stock positions earlier on in the year to free up capital to further build out my US dividend portfolio. I still own Medidata Solutions, which has more than doubled in under a year, and that is one that I don’t intend to sell for a while. My Bidu position was somewhat troubled and was less than $90 for the longest time. However rising markets have meant that I was able to get out of Bidu at $135, at better than my $120 buy price.
- Increased my position in Coca Cola. Great company, great franchise of products. While this purchase was a little outside my Dividend Zone, I was pretty happy to pick up another $1.5k worth of KO stock @$38. The concerns of a slowdown in Coca Cola are overblown in my opinion. International markets account for the majority of sales, and Coca Cola now has 25% of sales outside of carbonated beverages, a number which will increase over years. A slowdown in US carbonated sales doesn’t concern me too much at this stage.
- Increased my position in McDonalds by $1.5k. Like Coca Cola, this was another position addition aimed at strengthening my core portfolio holdings and made possible by the weakness in the McDonald’s share price. My purchase of McDonald’s @$95 puts it right in my Dividend Zone with an initial yield of 3% and dividend growth of greater than 10% annually. I expect this purchase will serve me well over the years.
- Started a position in Female Health Company (FHCO). I like this hidden gem, particularly because it’s an early mover in the potentially huge female contraceptives market. I’ve bought $5k worth @$9.10. I’ll be looking to add to this on further drops of 10%. At a yield of close to 3% and dividend growth of almost 15% annually, this was in my Dividend Zone.
- Started a position in Resmed to further strengthen my holding of health care stocks. Bought $4k worth @$49.30. With explosive market growth and many millions with sleep apnea still undiagnosed, I have strong expectations for the dividend growth and income from this company going forward. Slightly lower yield to start with of 2.1%, but I expect dividend growth of 15% or more annually for the next 3-5 years.
Mid Week Money
Some great stuff across the web in recent weeks. The pick of what I’ve been reading recently:
- Dividend Mantra had a great interview with Derek Foster recently. Derek gets much flak from the dividend investing community because he’s believed to have sold out most of his stocks during 2009. Nevertheless, I still remember reading one of his early books in 2007 which really got me thinking that a dividend retirement was a viable option.
- Passive Income Pursuit had a great write up on Visa. Admittedly its more of a total return play than a pure dividend growth play, but the economics and moat of Visa is so strong that I had to make space to accomodate a position in Visa. I expect it should pay handy dividends over time.
- My FI Journey had a very interesting write up on Verizon. It goes to show you that you should look beneath head line EPS numbers when looking to the payout ratio. I had no idea that the artificially low EPS numbers from telcos could be attributed to Pension cost write downs, which the big telcos have been doing recently. Cash flow wise, payouts are very healthy.
- Dividend Growth Stocks provide an update on his progress to achieving his dividend goals. I love seeing the progress of other dividend growth investors who have been investing for a while. It provides additional motivation.
- Dividend Growth Investor raised a very legitimate question on his blog regarding why he keeps talking about the same companies all the time. Sometimes the best ideas are the ones you already have. You don’t necessarily need to go chasing new ones for strong returns.
- My Money Design had a great post on achieving early retirement and how to plan for it. Some excellent insights into the different pathways to follow.
- Dividend Ladder had a good post on the 5 safest dividend payers on the market. A list like this is always going to be a little controversial, but some well known names on here
- DividendGrowthStockInvesting had a post on building a starter dividend portfolio and the best stocks for the long term. Some very familiar names on this list
- HelloSuckers had an thought provoking post on the pitfalls of rushing to pay off the mortgage. It certainly caused me to stop and reconsider our strategy of aggressive payoff.
- Captain Dividend and Dividend Tactics also both had dividend portfolio updates which showed solid progress