Saturday, September 3, 2022

Week in Review

Happy weekend to everyone and to those in the US I hope you enjoy the long 3 day weekend.

Personal Update: About six months ago I committed to making quality of life changes in my life and I've been working on executing that plan. One big goal & accomplishment was finding a new job that was personally fulfilling and less stress. I made that change about 6 weeks ago and I could not be happier. It took awhile but I've found a role that I genuinely enjoy and I'm working with some great people. 

Another quality of life change that I've committed to is giving myself options in my life. I'm working with a great team of people from Primerica and I've been working on my state life insurance exam and passed this morning! Next will be the series 66. If I can learn a new skillset and help others as a result, then this is a worthwhile endeavor. 

For me, two of the most important things in life are 1) giving myself options into the future and 2) never feeling stuck. You can always make a plan for change but you have to commit to that change. Sometimes it's difficult and takes some time, but you have to stay committed. I'm proud because I set these goals into place ~6 months ago and now I'm seeing the fruit of that effort. 

Weekly Performance:  Overall while the portfolio was down 85bps, the defensive nature of the portfolio helped ensure we were less worse than the major indexes (S&P 298 bps, DJIA 273bps & Nasdaq 343bps).  While I'd love to be net positive, the majority of the portfolio is invested in IRAs so I'm limited by the amount of short selling that I can do.  


In retrospect, buying longer term January puts (XLK, XLF) as a hedge in June was the most inopportune time given the bear market rally. While still quite underwater, those puts are still in play and helped to cushion the losses this week. The puts were purchased to setup the Q3 portfolio and I think I was a quarter early. Most of the data I see still points to margin & EPS compression and with the Fed committed to consistently raising rates, we'll start to see the impact work it's way through the system. 

This week I've also sold off a fair amount of my positions. While there's a month to go before I rebalance for Q4, I'm not comfortable given the macro environment for the remainder of Q3 so I'll sit on cash. Could we go into another bear market rally?  Sure, but I'm more comfortable playing puts from the top instead of holding from the bottom if the longer term trend is pointing toward pain. 

For some holdings ($O, $MRK, $KO, $JNJ) I've sold some deeper in the money covered calls essentially selling at a premium a few months from now. This allows me to keep collecting dividends on the underlying holdings while conditions start to play out for Q3 results. 

For example with JNJ, I sold a $155 October 21st call for $1,066, essentially selling it for $165.66 in October. If it drops below $155 by October, then I've covered the downside. If the stock is between $155-$165, then I'll profit by selling at a premium.  If it's over $165 then I'll be forced to sell at $165 and miss out on potential upside.  Given where I think the general market is going, I'm comfortable making some of these bets and keeping the premiums.  

If you look on the portfolio page, you'll see current holdings are heavily centered around $UUP (dollar), utilities stocks and funds and covered call funds like $XYLD & $JEPI. Given the current shakiness in the market, the covered call funds should do quite well for producing monthly income. 

Portfolio beta will continue to stay VERY low given the overall global environment. I'm not trying to time the bottom but I am looking into the future and I think it won't pay to be risky now. 




Dividends collected:  We've crossed the $7,300 amount which is great. A big week collecting $336. Even though 40% of the portfolio is in cash, we're still pulling down some healthy income while keeping that beta low in quality healthcare and utility stocks.  As I redo the portfolio for Q4, the focus should remain pretty similar: Low beta, high quality, strong FCF stocks.



Options Activity: I spoke about some of the covered call plays above. Most of the underwater options are expiring in January (XLK, XLY).  I also have a big Carvana bear put spread that is with $1.3K of approaching cost that I setup in June. Unfortunately I had to close some big bear put spreads on Coinbase and some September puts that will be out of the money.  

Since I'm limited on shorting directly I hedged using puts at the beginning of Q3 and I'm afraid the bear market rally wiped out the shorter term puts. I think I'm right regarding the direction but off on my timing so I'll continue to be focused on shoring up my game in that area.

I do love covered calls but since we're a large majority in cash I may attempt to collect premiums in Q3/Q4 via Bear Put Spreads on 'safer' dividend stocks I know when implied volatility rises.

Have a great weekend everyone!  Stay safe out there. 


 

Saturday, August 13, 2022

Quick Update

Happy weekend everyone!  It's been awhile since I've provided an update however I've been pretty busy lately with a new job and . .if I'm being honest, enjoying some free time and quality of life changes.

As much as I appreciate the cadence and positive reinforcement of dividend investing, sometimes we have to focus on non-financial, qualitative life dividends that bring us joy. I've been doing that lately and enjoying the results. Going for a walk in the evenings.  Turning distractions off.  Leaving work at a reasonable time. In our #fintwit world, sometimes you get the sense you should be spending every moment hustling and chasing returns. I've been doing that for nearly 8 years non-stop and while it has been beneficial to career advancement and healthy returns, there are other areas of my life that suffered. 

So for the first time in ages I'm metaphorically taking a breath and a reassessment of things. 

Now the great thing with dividend growth investing is I can make the process as active or as passive as I want. Currently the portfolio is pretty low-beta, reasonable yield, hedged with some longer term options in Jan for Q3 results. I don't anticipate much of a change during Q3 as I believe both rate hikes and persistent inflation will continue to wind their impact through the economy, despite the bear market rallies at the slightest instance of good news. For Q3, I plan on taking more of a hands off approach and that works for me at this point of my life. 

For Q3 I'm focusing on a couple things:

  • Finishing the State insurance licensing exam
  • Spending more time learning a new job
  • Spending more time focusing on family and mental well being
On the investing side I'm happy with the plan for Q3/Q4. If you look at the graphs you can see the shift in sectors for Staples, Utilities, Healthcare and Real Estate. Mostly low-beta, high quality picks. Capital preservation is the name of the game in these turbulent times.

I've given real estate so much thought but if I'm honest with myself I never want to manage a property. I don't have the time or patience. However there's many passive ways to get involved so I've thrown about $10K to Fundrise after months of agonizing. I've been looking into Reality Mogul, Roof Stock and some others, and may allocate more after some research.

From a dividends standpoint we're about to cross over the $7K dividends received which is pretty great!

That's all I have for today, I'll share some more soon. Have a great weekend everyone!

Saturday, July 9, 2022

Week in Review - Q3 Rebalancing

Hope everyone had a great week! 

On Tuesday this week I rebalanced the Dividend Town portfolio for Q3. Overall there are a lot of themes in play to help shape Q3. Let's go over a few of them.

Overall there's more headwinds and risk going forward than opportunities, so it's time to downshift a little more and reduce the overall portfolio risk. How can we do that and keep income rolling in as a dividend focused investor?  There's a couple ways.
  • Shift allocations into more cash, treasuries and bonds, and away from equities.

  • Shift the equity sectors towards 'recession' friendly sectors. Bump up utility, staples and commodities (US Dollar/GLD) and away from Tech, Discretionary. 
  • Since I cannot go short in my IRA accounts, I can purchase longer term puts to hedge against less friendly sectors to offset risk. Currently I'm sitting on ~$9K of puts covering about $60K in value to bring my portfolio to net negative coverage in Tech, Financials and Discretionary. 
    • I have a mixture of Sep/Dec puts in play for XLK, XLF, XLY & XRT. 
  • Reduce the equity beta. Companies like $LMT, $KR, $MRK, $POR, $VZ all have beta lower than 0.30, meaning when the market goes up/down 1%, these companies will perform at about 30% of that 1%. 
After considering all that I had to change some positions that I wanted to keep but did not make sense.  $TGT, $MED, $MAIN & $TXN didn't make the cut and were instead replaced by $KO, $TSCO, more $CSCO and $PG. While Dollar General is considered Discretionary, I consider this a good place for recessionary environment so I took a higher stake.

After the first week, I'm down 2% while the market rose ~2%. Not good, however I have conviction that Q3 earnings season will not be as strong as we think and the continuing rising rate environment will play out in unfavorable ways to the consumer.  

Dividends: For the month of June the portfolio returned $642 of dividends. After the rebalance, the PADI is at $7.4K annually, so we're still drawing good income with a defensive portfolio.  

Performance: Overall we're at ~ -8.6% vs. S&P of -12.8% since the start of the portfolio in October. We lost some of that gap this week with an up market vs. put exposure and closing out some untimely shorts, but I think we're positioned well for Q3.

Next steps: A whole of lot of waiting! Earnings season begins soon so we'll keep a close eye on forward indicators and look for opportunities to deploy some cash.  

Hope everybody has a great weekend!!

Saturday, June 25, 2022

Adventures in Perfect Information

When I was younger (in the early days of the internet, I'm not that old!) I always envisioned that as the information age washed over us, better information would be more readily available and we as a society would achieve a greater sense of knowing the path forward and make better decisions overall. 

Do you remember in economics classes we learned that in an economy that people were rational actors and that there was a concept of "perfect information".  The description from Wikipedia is below.

https://en.wikipedia.org/wiki/Perfect_information

In economicsperfect information (sometimes referred to as "no hidden information") is a feature of perfect competition. With perfect information in a market, all consumers and producers have complete and instantaneous knowledge of all market prices, their own utility, and own cost functions.

So from a personal standpoint, have we achieved an internal sense of informational nirvana? How are we doing on this "perfect information" concept? Do we know where the economy is going based on rule-based-data based off historical results? 

As an individual investor I think it's harder than ever to make good decisions based on information. For every post/site describing an imminent recession, there's another saying the bottom is in. Do you trust analysts? Look at the range on analyst expectations below?  Everywhere you look you see diverging views from experts. 

https://www.cnbc.com/market-strategist-survey-cnbc/
  https://www.cnbc.com/market-strategist-survey-cnbc/

So after 9 months of managing my money, what have I learned?

  • Perfect information does not exist
  • Do not fall for confirmation bias
  • Pick a few investing strategies, learn them well and follow the experts
  • Embrace diverging opinions and think critically about them
  • Protect your capital: 50% loss is 100% gain needed to breakeven
While it may seem obvious I think it's critical to think this way as someone with limited time on my hands and endless information. For myself, I've gravitated towards a dividend growth strategy and following some great macro analysis to help guide the sectors I should stay in or avoid depending on the macro environment. A part of me would love to buy and hold everything forever, and for some companies I think this is a great strategy, but there's too much great macro information out there to help guide decision making. 

Where do I usually go for my information? The links below (in no particular order and no references) are where I tend to gravitate for great information, as well as a number of mainstream resources.
So while I don't have perfect information, I'd like to think I have enough divergent opinions to help guide me through the current macro environment and aid in my decision making as an individual investor.

Let me know if you have some great resources to share!

Saturday, May 28, 2022

Week in Review

Happy weekend to all, and to those in the states I hope you enjoy the three day weekend. 

I've been making some readjustments the past two weeks, more to the defensive end. I am by no means a macro expert but I wholly enjoy reading the tea leaves trying to figure out where we're going. For me I'm seeing cracks in the foundation and I want to position myself ahead of where the ball is going.

A few days ago I retweeted below:  

This was an excellent summary of credit risk which is something we don't see making the news everyday. If you look at the St. Louis Fed graph below, you can see the high-yield spread rising over the last few months. 

While the Fed raises interest rates, I don't think we'll see inflation vanish immediately, but we will see slowdown in some businesses. We're already seeing some '22 outlooks being revised, most notably Target, due to inflationary pressure and uncertainty. As rates rise and pricing starts to lose it's stickiness, corporations would rather slow down hiring than surrender margin. 

All in all I think we're in for a challenging back half of '22, so with that I've reallocated a good chunk of the portfolio even more defensively.


For the first half of '22, Treasuries were not the flight to safety I expected. Along with the overall stock market they've declined substantially. With more challenging times ahead, I do believe there will be a flight to safety and I'm positioning myself ahead of that and keeping some powder dry for longer term opportunities as they present themselves.

From a sector basis I've heavily shifted to Utilities, Healthcare and Energy. I was already heavily positioned in Energy since the first part of the year, but I've bumped up utilities ($XLU) substantially. 

PADI: Projected Annual Dividend Income has declined to $8.5K mostly as a result of being heavy cash and the lower yield from treasuries. 

Dividends: Crossed the $4.8K mark thanks to Starbucks and Williams Sonoma (which I recently exited). 

Options: Rough week for covered calls as I had to buy back at a loss. I was able sell an $AMC $17 put for $100 profit. Overall I'm still negative $400 for options but I'm slowly clawing my way to the green by being more disciplined.

What's Next?  Right now I'm keeping my eye on forward looking signals to either confirm or deny my hypothesis. I'm comfortable with the allocations and may make little tweaks here and there, but will keep the overall profile above for the next few months as things develop.

Have a great weekend!

Sunday, May 15, 2022

Week in Review

Happy weekend everyone!  A short update this week as I'm nursing myself back to health after being sick for the week.

Performance:  Week over week -.47% compared to S&P at ~ -2.2% and NASDAQ at ~ -2.3%.  With violitlity high all last week and more headwinds coming, I cannot allocate more funds towards growth. I would love to, but I'm not ready yet. As I mentioned earlier this week, I have convinction in my picks but not in the general market at this time. 

Michael Gayed brings up a great point below. With stocks & treasuries down, where does one go for flight to safety?  Who's safe from getting crushed?  When Luna and other crypto ponzi schemes come crashing down, where will the money go?  I'm in agreement that treasuries have to pick up the slack at some point. I've been allocating a portion of the portfolio to $SCHO and moved some more last week ready to deploy into opportunities as I find them.



 Dividends:  When you can lose 2% - 3% of your portfolio any given day, sometimes income feels like a drip into a leaky bucket. Since we're going for the long-term here though, I'm comfortable the dividend growth stocks we've selected will weather the long-term fluctuations and keep adding up over time.

  • $MED - $42.64
  • $MMP - $137.99
  • $COST - $8.10
  • $MAIN - $21.72
  • $O - $28.65
  • $APPL - $11.27
Crossed over $4,500 in total dividends this week which feels great. In about 3 weeks we'll get to $5,000. 

Projected Annual Dividend Income (PADI) is ~$9.6K. Some of this is a function of some higher yield buys like $XYLD, $MMP, $ETO, $VZ, but I'm comfortable with the balance now.

Dividend Increases: Two weeks ago we received another increase in Telus, a Canadian telecom company. 


Options:
Netted $154 mainly trading $SBUX covered calls as they went downhill. Also sold $AFL and $PFE covered call expiring next week <.30 delta. I'm closing my red gap on covered call income and hope to be in the black by July. I am sitting on an $AMC $17 put that expires in July which should have room to grow. 

Sectors: I'm a little overweight on Consumer Discretionary in this enviroment. I don't consider Dollar General 'truly' discretionary if we're looking at a recessionary enviroment and while Lowes and Target may be down, these are comfortable longer term holds.



 I'm disappointed with Williams Sonoma performance. They rank very highly on my screener (23 out of 25 points), and a quick view on Stock Rover shows some great consistent performance. Sales growth, FCF, Gross Margin, Net Margin, all heading the right direction except the stock price. In a recessionary enviroment I'm sure they will not do as well, so I'll need to think about either holding or selling. It feels like the right company at the wrong time. 


Other Trading: Sold my remaining $NVDA shared Friday at a small loss. Fortunately I purchased in October, rode a wave to ~>50% increase and sold some shares at a high so was mainly playing with house money.  As a lifelong gamer I'm very familiar with $NVDA and have been using their products since early 2000's! As interest rates rise and we start seeing more crypto crashes, less drive towards crypto in flight of safety and real assets, NVDA will take a hit. Granted I think it's an awesome long term company, but I think they're still very overvalued.

Next steps: While I keep meaning to rebalance I have had very ltitle free time. If I felt the portfolio was grossly unbalanced I'd find time so for now I'm okay. 

Saturday, April 30, 2022

Week in Review

Glad to make it to the weekend after a brutal week in the market. 

After six months of tracking we're right back where we started! Pretty much dead even. Given what's happened in the market in the last 4-5 months, I'll take it. Starting in January I reallocated the portfolio towards a lower beta (~0.59) and shifted my sector weighting more towards consumer staples, utilities, energy and real estate. 

In some areas I've started a position in sector ETFs where to help balance out areas. Currently I have positions in $XLP (Consumer Defensive) and $XLU (Utilities). Both produce some yield and are sufficiently diversified until I can decide where to allocate towards individual companies.

I've also taken some of the portfolio and shifted to a higher allocation of short term treasury bonds $SCHO. Even as bonds take a hit, I think staying in the shorter term space is a good place to park some cash until I can see my way through the risk.


Unfortunately there is no telling when we can flip the switch from risk-averse to risk-taker. And by risk-taker I mean steer the dividend growth portfolio into a higher beta zone. While I'm not convinced we have seen the bottom yet, it's becoming clear there are some great dividend growth companies out there that are getting cheaper by the day. Great companies like Lowes, Target, Microsoft and Apple are off their 52 week highs. When I'm doing research I'm using SimpleSafeDividends primarily looking for companies that can weather the upcoming risk and continue to return capital. Lowes has done it for 59 years! 

While I won't make any major changes yet, I'll continue to monitor and ensure I'm investing in high quality companies with dividend reinvestment and any covered call income. 

Lowes annual dividends per Share

Dividends:  This week we had $210 worth of dividends.
  • $XLYD - $69.26
  • $CMCSA - $27.00
  • $QQQ - -$4.34
  • $ETO - $77.10
  • $AMT - $40.60
Dividend Increases:  
  • Apple lifts payout by 4.5%, achieving 10th straight year of dividend growth

    Apple announced its next dividend of $0.23 per share, a 4.5% increase over the company's previous payout of $0.22.

    The iconic technology leader has enviable brand loyalty and market positioning, which has allowed the firm to build a fortress of a balance sheet, consistently grow earnings, and maintain a conservative payout ratio.

    Increased annual income $1.96. (Big money!)

Options:
  • Bought some $54.00 $KR calls at close of business Friday hoping to capitalize on a bounce Monday. 
Next Steps:
  • I need to revisit the quarterly rebalancing but I'm not in a big hurry as I'm overall happy with things. Need to take a few profits on energy & utilities and take some consumer discretionary ($WSM) off the table and likely allocate towards more Consumer Staples. Not sure yet.  
Have a great weekend everyone!