Archive for July, 2013

Ultimate Sustainable Dividend Portfolio – July 2013 Update – Slow And Steady

By: ispeculatornew | Date posted: 07.17.2013 (3:00 am)

retirementIn September 2011, I did some in-depth research to find long term sustainable dividend stocks and have been doing updates on this Ultimate Sustainable dividend portfolio since then in the attempt to show how well such a portfolio can perform over the long term. I would personally say that things have been going very well and will certainly continue to evolve. I do have a few more things planned which I will discuss in the near future.

The USDP is obviously a critical part of my now very public quest to replace my job income with passive income. you can see my most recent update here. I recently came back from vacations and I can tell you that it’s one incredible motivation.. Not that I needed it but wow:)

The USDP continues to do very well and is outperforming the S&P500!! Very exciting stuff and I’m thrilled with how things have gone so far. I have done a couple of trades and continue to work on optimizing it, if ever you would like to receive those types of updates, please join, it’s free:

 

Keep in mind that this portfolio was built by selecting 20 stocks out of thousands. The goal is not to pick the best dividend stocks but rather to pick a diversified, high quality portfolio that will keep dividends increasing over time.

Here are the holdings as of last night to start off:

[table “526” not found /]

Dividends Received

July is not a strong month in terms of dividends but the USDP will receive 20% more this July than the previous one which is fine with me.  Take a look at the progress:

usdp2013072

Ultimate Sustainable Dividend Portfolio News

Not much news to report. Still waiting on the conclusion of the Dover news that I discussed last month. July is obviously a very slow month.

Returns

It’s not necessarily the right target to try beating the overall market of the S&P500 but I do like to compare the performance of the USDP with a fairly well known benchmark which gives more context to the return so far. I have to say, things are looking up as the USDP outperformed the S&P500 once more this month.

usdp201307

Trades

Not much to report. I did decide to reinvest almost the entire $1000 that I’m adding this month into Invesco (IVZ), one of my more recent acquisitions.

The Challenges Of Retiring In A Low/Zero Interest Environment

By: ispeculatornew | Date posted: 07.16.2013 (3:00 am)

2013-07-12 20.33.54-2Over the past few days, I have been looking at retirement and different problems and solutions involved. One of the major problems for recent or near future retirees is the fact that interest rates have been at record lows. In fact, you can barely call them interest rates I guess because they have been near 0% for months now.

The Typical Retirement Portfolio

Traditionally, someone retiring would end up holding CD’s, government and corporate bonds and other low volatility instruments that pay a reliable dividend. In recent years we have seen interest rates on medium to long term government bonds move closer and closer to 0%

It’s Not Going To Get Better Anytime Soon

The issue is that no one expects this to change anytime soon. Governments are stuck with very weak economies, they are trying to stimulate consumption through low interest rates. We might not be in Japanese territory just yet but it does not look promising. Most central banks have been reassuring investors by telling them that interest rates will remain very low for last 1 more year. They’ve been saying that for many years of course and there are no signs that it will change either.

Why 0% Interest rates Change Everything

Most of us start planning our retirement early on in life. We make certain assumptions and expect to gradually move most of our portfolio to fixed income securities by the time we retire in order to live off of interests. In a zero interest world, that is simply not possible.

The New Retirement Portfolio

I personally think there remain many different options in terms of retiring in such an environment. Clearly, fixed income securities should be part of the picture because they do bring some return, diversification and clearly help the overall portfolio return for a given risk profile. I do think though that 2 other types of securities should be used more than ever in retirement portfolios:

#1-Dividend Securities: A long term portfolio such as the Ultimate Sustainable Dividend Portfolio can help an investor generate decent, long term growing yield, in an optimal way. It does require a bit of work to optimize over time but I think that it remains a great way to do well in a zero interest environment.

#2-ETF Portfolio: ETF’s are a great way to gain exposure to multiple asset classes, all around the world at a very low cost. In a challenging environment, being able to save 1 or 2% in annual fees can end up making a world of difference as I have already discussed several times. Some websites such as BuildYourETFPortfolio give a good breakdown of everything that is involved in such a strategy

What Are Your Thoughts Or Strategies? How Will You Manage To Retire In A 0% Interest Environment?

Trading Closed End Funds’s (CEF), Why And How?

By: ispeculatornew | Date posted: 07.15.2013 (3:00 am)

cef-wsjToday, since I did not have a new tech stock pick to open, I decided to do something that I should do more frequently:) Go into the mail bag:) I get most questions through email (from mailing list members) and that is probably the easiest way. You can also contact me through Twitter or on the IntelligentSpeculator Facebook page:) I answer most questions directly but there are some cases where I feel (after confirming it’s ok) that the answer would be better answered on the blog:) Here is a question I recently received:

I would be very happy if you covered a small portion of your information on “Closed End Funds”. I know your are not crazy about them, but with your expertise you could give a few pointers. I hope one of your pointers is not “stay away from them” Half my investments are closed end funds, and its hard to find people that talk about them. I do have access to CEF connect and a few other websites, but I like to read what other people have to say about them. I have been doing good in them, not a lot of growth but a lot of dividends.

Indeed, I’m not crazy about such funds but I’m not opposed to the idea either. I’ll start off by explaining what I’m talking about here. Generally, funds that trade on exchanges are of two kinds:

-ETF’s, ETN’s, etc
-Closed End funds (CEF’s)

I generally invest in ETF’s but they are not necessarily superior. They are mostly different. The main distinction of course is that CEF’s do not accept new “investments”. It seems like a small distinction but it makes a world of difference.

If you take an ETF such as SPY (S&P500), you will be able to buy unlimited number of shares if you’re willing to pay $0.01 over its value. Why? Because those selling to you will simply ask the ETF issuer (SPDR) to create new units which it will invest. It’s a simple process but it ensures that ETF’s would not (except for extreme situations) deviate from their actual value.

Take that possibility away and you suddenly see what CEF’s are like. Someone wanting to buy 1000 shares will need to find a seller of 1000 shares on the market. That could end up happening at a lower or higher price.  Seems like a decent downside right? In a way, yes. Why would a manager want to launch a fund as a CEF instead of an ETF? There are actually several possible reasons:

-Taking new investments every day is fine if a fund owns extremely liquid S&P500 stocks but can be a problem if the fund owns less liquid assets such as fixed income, illiquid securities, etc. The manager might prefer not having these daily inflows and outflows
In general ETF’s must disclose their holdings, trades, etc. That is fine if you track a fairly public index (like the S&P500) but not great if you’re trading a more active, secret, prop strategy.
-Managing a CEF also gives the manager the possibility to use leverage (it’s possible with ETF’s but much more tricky to do) which many funds use to generate higher income yields, etc.

Is It Still Possible To Trade Closed End Fund’s?

Of course, trading CEF’s is possible, there is simply an added level of complexity. There are a few things to look out for.

Volume (the higher the trading volume, the tighter spreads you should see which will help a lot)
Spread to NAV: even closed end funds will publish the daily NAV (net asset value) and you can see where the fund was trading compared to its NAV. Look at such a numbers for a few days or even longer and you will get a feel. Some funds consistently trade at a 10% discount for example so you know that if you’re able to sell your shares at a 5% discount you’re actually doing well. Others would be trading at a premium, etc. It really varies from fund to fund (because it becomes mostly based on supply vs demand) but can change over time of course.

Do You Trade Closed End Funds? 

image credit: WSJ

Cyberwar – Investing In A Private Army?

By: ispeculatornew | Date posted: 07.11.2013 (3:00 am)

 

I don’t know if you feel the same way but this whole cyberwar thing is something truly fascinating to me. I’ve discussed it in the past but in recent weeks it seems to be coming back to the surface. After years of secrecy, things have started coming out: rumors and discussions about the US & Israel taking down nuclear operations in Iran, China stealing government and corporate secrets, etc. For most of us living in North America, the most recurring one has been China being increasingly aggressive with its cyber spies. Most of us were very curious to see how President Obama would tackle the subject when meeting with the Chinese premier.

Then Came Edward Snow

Edward Snow made major allegations about the NSA and its spying operations on Americans and pretty much anyone else that is using the internet. His allegations have not been denied by the major forces with Obama and others coming to the defense of the program. Another interesting component of his allegations were the details surrounding US hackings of Chinese networks and other data. It was awkward timing to say the least just a couple of days before the Obama-Wu meeting. How will the US be able to try to dictate what China can and cannot do if it is doing the exact same things? Especially with details emerging of how and when the US has been active on that front. It’s going to be very difficult for the US to try to tell China what to do in terms of cyber security and spying.

Will We See An Escalation?

In a world where a “virtual attack” can be as bad if not worse as most conventional attacks, I don’t think it’s unreasonable think that we will see some escalation. Superpowers such as China, Russia and the US will certainly continue to invest resources into this increasingly important part of fighting wars.

Eventually, It Will Come Down To Outsourcing

At some point, it will become very tempting for the government to start subcontracting some of these operations. As they’ve done with Blackwater in Iraq, they will be able to outsource critical national security issues that relate to cyber war out to smaller companies. I really do think there will be major opportunities and I’m keeping my eyes and ears open

Passive Income Update – July 2013

By: ispeculatornew | Date posted: 07.09.2013 (3:00 am)

retirement2It was a fairly slow month, I guess it’s not a big surprise when you consider the fact that it’s summer, and no one has much going on. I am on the right track though. Why? I’m convinced that I want to carefully start investing on margin and build my own mini-Berkshire empire. It’s been tricky to save as much in the past few weeks so I’ll be putting more focus on reducing my spending to set more aside.

The reason I post this monthly update is both to keep myself accountable but also have a more public discussion about my plans and how I can become financially independent as quickly as possible.

As time goes by, my objective is to be able to live entirely off of these new income streams but also be able be diversified enough to be ok no matter what happens. In many ways, that is what’s behind my interest in dividend income. For now, I prefer to avoid using actual numbers (might change later on) so what I will do is express all of this data in %. The objective of course is for all of these flows to end up generating 100% of my current income. I also want to gradually make sure that my income producing assets are not all locked away in accounts that will only be available upon retirement. In terms of income, I will be using my gross household income. Counting the bonus would only make things more difficult to track and would not represent how I currently live on my finances.

For example, if my base salary is currently 100K, my objective is to make 100K of passive income on an annual basis. This could be done through a variety of methods which I will be exploring of course. A few people tried to figure out how much capital I have by looking at the USDP size. The main issue is that the USDP is only part of my dividend income. I also get income from my ETF holdings, etc.

My primary objective remains to generate 100K in passive income on an annual basis as soon as possible, ideally from a few different sources. My partner just wrote about how he hopes to retire at age 35 which you can check out.

June Updates

-I posted the latest USDP update, with another one coming later this week
Time to start investing on margin?
How to build your own mini-Berkshire empire

How Much Do I Really Need?

I am aiming for an income of 100K or so, before taxes as a first goal. To be clear, I feel like I need significantly less than that. Why? I’ve described how I am living off of significantly less right now (I’m paying taxes, paying my house, saving, etc). I also have the option, as discussed of retiring in a foreign location.

Overall, I feel like aiming for the same level of income as I am currently making is very very reasonable and I could easily live with less but why aim lower if I’m confident I can reach that 100K?:)

Why Am I Doing This?

I’m a strong believer in working with clear objectives but also holding myself accountable so writing about these objectives will without any doubt help me reach financial independence more quickly.

Current Passive Income Flows:

5.48% – Dividend/Investing Portfolio: I am currently generating a dividend yield of about 3.43%. This portfolio will be increasing over time. I use a bucket system which I will be writing more about but the main retirement components are a long term dividend portfolio (see the Ultimate Sustainable Dividend Portfolio) and an ETF portfolio (see BuildYourETFPortfolio for more details on how I build mine). I saw a slight increase here thanks to markets rising and a similar yield.

7.48% – Private Investment In My Online Company: I have discussed how my web company has been the best investment of my life so far. I’m happy to say that I was able to slightly increase my monthly income from the company even though it wasn’t expected. I certainly hope that will keep happening.

Total: 12.96%

It’s not spectacular by any means yet. That being said, I am 32 years old and do have a decent base (I could live with less easily).. I will continue to work on getting that total as close as I can do 100%:)

Passive Income Ideas

0% – Real Estate: I have started writing about adding real estate to my income flows. One aspect that I love about Real Estate Investing is how much of an inflation hedge it will represent for my portfolio. So I started looking into some aspects such as investing into residential or commercial real estate as well as the question of becoming (or not) a landlord.

0% – P2P Lending – I started exploring the idea and wrote my first post about it here🙂

0% – Annuity – No intention of buying an annuity for the time being

0% – Farming – I know it sounds crazy but I’ve started looking into it as you can see from my post a couple of weeks ago

0% – Other ideas – I could end up starting other businesses or projects will I’ll certainly keep you posted about.

What I Am Not/Will Not Include

Pensions: I do know that the government will be paying me a sum of money once I retire. However, given how poor government finances look like these days, I personally think it’s crazy to count on the government actually fulfilling its promises. It won’t happen. Yes, there will be money, but not anywhere what is currently being promised. Whatever I do end up getting will be a nice surprise.

I feel like I am being extremely conservative here. By not including my government pension and also not including the fact that lower revenues will mean less taxes to be paid, I’m overestimating the amount of passive income that is truly needed. That is more than fine by me. I’d also like to think that my house will be paid by then making my level of spending lower all things being equal.

My Long Term Passive Income Objectives

January 2014: $12,000/year
January 2018: $25,000/year
January 2023: $50,000/year
January 2030: $100,000/year

I love seeing that little blue line above the red one, it’s a very nice thing to see:) The trend isn’t as convincing but I do expect jumps to occur on year-ends as I receive a bonus from my day job. Hopefully that will happen in a few months:)

Do you have any questions or comments? I’d love to hear any ideas or how you’ve been managing on your end as well!

 

Long Google ($GOOG) & Short Yahoo ($YHOO)

By: ispeculatornew | Date posted: 07.08.2013 (3:00 am)

Well after a few better picks, my 2013 long & short picks are looking better. It’s far from over of course and I don’t want to talk to fast. I try to not beat myself up when things don’t go as well but then that also means not taking too much pride when things are better! You can always take a look at my results here:

My 2013 Tech Stock Long & Short Trades

This morning, I am opening a new trade on companies that I’ve discussed quite a bit. As you probably know, I’m a big believer in Marissa Mayer and what she is doing at Yahoo. Bringing in a strong leader can make a world of difference (as I discussed last week regarding Zynga). That being said, it might be a bit early for investors to expect a big turnaround in Yahoo’s numbers don’t you think? Before going further here are the numbers on these two companies:

[table “525” not found /]

And the quarterly Y/y revenues growth:

YHOO Revenue Quarterly YoY Growth Chart

YHOO Revenue Quarterly YoY Growth data by YCharts

googLong Google (GOOG)

Google has been doing extremely well in recent months as it continues to work on its world domination plan both through the more likely channels (advertising, mobile, Youtube, etc) but also more high-risk, high reward type of projects (Fiber, self-driving cars, flying internet balloons, etc). I continue to believe in Google as a medium to long term play and think the company is a good buy at these valuations.

GOOG

Next earnings release: July 18

yhoo1Short Yahoo (YHOO)

Yahoo has been doing extremely well in every day since Marissa Mayer took the top job and Yahoo’s asian assets (stakes in Alibaba, Yahoo Japan, etc) have also drive a lot of the recent stock growth. Can the company break through? It’s on the right path with new mobile products (Yahoo Weather, etc), an upgraded Flickr, several promising acquisitions (Tumblr, etc). My main issue though is that I can’t imagine justifying the fact that they both trade at a 16 forward P/E ratio. Especially not given the medium to long term growth differentials.

YHOO

Next earnings release: July 16

Disclaimer: No positions

Weekend Readings – Long Weekend:)

By: ispeculatornew | Date posted: 07.05.2013 (3:00 am)

summertimeFor most of you readers, this is a long independence weekend. For many others in Canada, that long weekend ended a few days ago:) In any case, I hope all of you are enjoying the summer so far, it’s going by so quickly but I guess it’s ok if we’re enjoying it:) I know that this weekend will be about watching Wimbledon finals.. You can’t imagine how happy I am that I was able to set aside some time for this:)

General Readings

The risks of too big too fail institutions has only gotten worse @ CuriousCat
Why behavior is half the battle @ ReformedBroker
Gold continues its massive decline @ WSJ

Dividend and Passive Income Readings

PepsiCo: Not bad at $80 for 2013 @ DividendMonk

Tech Stock Readings

Amazon to take on Fedex and UBS or should it buy it? @ SeekingAlpha
Google is working on a watch AND gaming console? @ FloatingPath
Apple (AAPL) finds it difficult to divorce Samsung @ WSJ

Potential Left For Zynga ($ZNGA)?

By: ispeculatornew | Date posted: 07.04.2013 (3:00 am)

In general, I’ve not been a big believer in Zynga (ZNGA) and I can’t imagine a complete reversal taking place.  There are a few brighter signs though. I did discuss the potential of Poker and online gambling becoming legal and how Zynga would be very well positioned which is certainly one part of the story.

Zynga Made The Right Move

A few days ago, Zynga made a huge move by hiring Don Patrick. Who is he? He was heading the xBox group at Microsoft (MSFT). Needless to say that no matter what you think of Microsoft, it was a huge job in one of the star divisions of the Seattle based company.  To be clear, this is a very expensive option as Mr Patrick’s compensation could increase beyond $50M depending on how well things end up going. There had been doubts about founder Mark Pincus and his ability to lead Zynga to a successful recovery. This seems like exactly the type of move that was needed. Unsurprisingly, the stock rallied big time:

ZNGA

Do you think it’s too late to jump on the bandwagon? May I remind you of another “dead” tech company that hired a star CEO just a few months ago? When Yahoo (YHOO) hired Marissa Mayer? Look how things have gone since then:

YHOO

I’m starting to believe in the potential of going long Zynga. Again, as is the case for Yahoo, any turnaround will take a long time but if the market starts believing, it could be enough for a nice little gain

Disclosure: No position on Zynga (ZNGA)

Dividend Stocks vs Dividend ETF’s – The Debate About Fees

By: ispeculatornew | Date posted: 07.03.2013 (3:00 am)

dvdI know it’s somewhat rare for an investor to be using both dividend stocks and ETF’s. I must be the exception then and I certainly think more should try it.  It should not be a choice between the 2 but rather how much mony to invest in ETF’s you should add to complement your dividend portfolio. There are several asset classes that are important enough to be part of your portfolio (bonds, international stocks, etc) but difficult to buy outright. I’ll certainly discuss this in more details eventually.

Today though, I wanted to take on a debate that continues regarding the comparison between owning a dividend portfolio and a dividend ETF. Clearly, there are benefits and downsides to each method and some have argued that it should be a clear choice. I’d disagree 100% on that. There are some aspects that are very subjective (such as being able to select your own stocks, have more control over what type of yield and growth you’re aiming for, etc. I think those are certainly benefits of buying the stocks directly when you know what you’re looking for. I would not get too excited about those though. It’s never enough to look at yield for example. If a dividend portfolio is able to yield more than an ETF such as VIG (Vanguard Dividend Appreciation ETF), it does not make that portfolio superior.  If that was all there was, we’d all jump on ETF’s such as BKLN (Bank Loans) and GII (Global Infratructure) that pay 4% or more in yields. It’s about more than yield. There is usually a tradeoff between dividend yield, price and dividend growth. Looking only at yield can often lead to issues. Owning a 4% dividend portfolio is obviously not bad but it does mean that it might have less dividend growth and price appreciation than a 2-3% portfolio.

The Fees Debate

I’ve often seen debates about the fees aspect. When you’re holding on to ETF’s, you certainly have low brokerage fees but you pay management fees through the ETF’s that can add up to 0.20% per year. The argument is that if you own a $50,000 portfolio, you’ll end up paying $100 in fees which is cheaper than the brokerage fees you might incur on your dividend portfolio. As much as I agree that ETF’s should be part of almost any portfolio, that argument is flawed. The fact is that while it’s close when you start off, as years go by, the difference becomes more significant.

If 10 years later, the portfolio is now 3 times bigger, you will basically have the same brokerage fees (same number of stocks) but those management fees in the ETF’s grow as assets increase so they would be 3 times more important. That is significant and it’s certainly a knock on ETF’s, when you compare with buying stocks.

You Do Get Additional Value Though

I’m sure you’ve seen several comparisons between active managers (that try to beat the market) and on average they fall short (way short). I’m not even talking about guys like you and I, but rather about professional money managers.

By building a dividend porfolio, you are effectively performing active management. You are trying to select  which stocks will do better than the overall index or market. Odds are that you’ll fall short on that mission. It’s sad but true. By how much is hard to say. But those buying an index ETF know how far off they’ll be (more or less)… by selecting dividend stocks you are betting that you’ll do better.

I’m not saying you won’t succeed, but I do think that this part of the argument is too rarely mentioned when looking at the fees involved in the construction of an income portfolio.

Top 100 Dividend Stocks – July 2013 Edition

By: ispeculatornew | Date posted: 07.02.2013 (3:00 am)

56Dividend investing is a huge part of my investment strategy. As I’ve mentioned in my now monthly passive income updates, receiving dividend income from my both my Ultimate Sustainable Dividend portfolio and my ETF portfolio is a primary driver of how my retirement will be like a few decades from now:)

Today I’m looking at the top S&P500 dividend stocks. Why? It remains much easier and less risky to go for bigger cap stocks that have more history.

Find Out More

In the next few days, I’ll be doing some research on Teco Energy (TE), Pitney Bowes (PBI) and Diamond Offshore Drilling inc (DO) which all performed very well with a reasonable payout ratio which is obviously key. You can find out more by joining our mailing list, it’s 100% free:)

 

Windstream-200x125Top Name This Month….

The top name this month in terms of dividend yield is Windstream Corp (WIN) which has been on this list in the past. The dividend yield is high but the actual dividend has not changed in some time as you can see below:

WIN Dividend Chart

WIN Dividend data by YCharts

So why is the dividend yield rising? Because the stock price is diminishing (thus all things being equal the dividend yield increases)… that’s never a good sign.

WIN

In the meantime, here is the list!

[table “524” not found /]