Want to change portfolio, need opinions

[Turvok]

Hi all,

I've been full-time into dividend growth investing for about a year now. I'm in my early 30s, so I'm still young and looking for the buy-and-hold stocks to compound my retirement. Right now, I have 28 stocks in my brokerage account, but am looking to make some changes and the diversification percentages is where I am stumbling. Currently, I own:
AAPL 4.61%
ABBV 4.24%
ABT 2.11%
AFL 2.21%
CLX 3.28%
COP 5.15%
CVX 7.02%
GIS 1.93%
JNJ 3.13%
JPM 2.51%
KMB 3.38%
KO 3.23%
LMT 3.24%
MCD 4.21% -- Probably sell. I think the best days are behind it. Would need a replacement for Consumer Discretionary though (Possibly TUP)
MSFT 3.28%
O 3.83%
PEP 2.82%
PG 2.60%
PM 4.84%
RTN 2.86%
SAN 4.11% -- Love the Div and have faith it'll come back to pre-recession prices
SO 4.51%
T 3.12%
TGT 5.35%
VZ 3.15%
WEC 4.45%
WFC 2.50%
WMT 2.34%
(I plan to add OHI soon)


Currently, my ideal break down of the sectors is:
Consumer Stables - 20%
Financials - 15%
Consumer Discretionary - 12.5%
Technology - 12.5% (I include telecom in tech)
Healthcare - 12.5%
Energy - 10%
Utilities - 10%
Industrials - 7.5%


Do the sectors look okay? I would like to own 30 stocks overall. I have my wildcard growth in there (SAN). Any suggestions for deletions or additions? I'm still fairly new at this.

[Kerim]

Hey Turvok -- Welcome to the forum!

At first glance, that looks like a pretty great collection of stocks to me. Can you please give some more details as to why you think you need to make changes? Have you calculated your current sector allocations, and can you share that with us so we can see why / how you are missing your targets?

Generally, though, if you are in your early 30s, I'm assuming that your portfolio is going to grow a lot before you retire, and my high-level advice would be not to do yourself any harm by unnecessarily churning your portfolio. Why not map out a long term-plan to achieve the allocations that you desire by just directing your new investment dollars to get you there?

In other words, if you think you are currently underweight sector X and overweight sector Y, instead of selling Y right now to buy more X, just concentrate your new money in sector X opportunities for a few years until you get to the allocation you want.

One of the dangers of dividend growth investing is that it is incredibly boring, and there are long stretches of time where you take no action at all. The temptation to "do something" can be very strong, but more often than not you're just undermining your long term results. Your list of stocks seems great -- no obvious dogs at all. It seems like you've done a careful job putting it together, and I'd want a very compelling reason to change course.

Finally, hang on to MCD. It is going to be just fine.

[EricL]

For the most part I think the sector balance is okay, although I'd probably weight energy higher and financials lower. Financials look good now, but they do have a tendency to blow up every 10-15 years so be careful.

Also, consider this recent article from Tim McAleenan regarding McDonald's.

It can be tough to ride out the down turns for boring companies, but McDonald's won't be going away any time soon.

[earthtodan]

You should listen to Kerim first because he's a far more experienced DGI than me. However I will offer some alternative thoughts to consider.

If you don't like MCD (nor do I), you should sell it, because it will always bother you. However, don't sell into fear. Wait for a better exit point.

VZ has a nice yield, but the dividend growth rate is less than 3%. Per the Chowder rule, the DGR + yield gives you a long term projected total return of about 7%. For that low growth you get yield and stability, but that makes it better for a retiree than someone with 30 years to go. For this reason I don't own any telecoms, which are "like a utility." I also don't own any of the typical utility stocks.

In general churn is bad, but on the other hand, we're on a learning curve, and as we refine our strategy we find that not all of the decisions we made in our first year were good ones. I think it's okay to make some adjustments in order to get your portfolio on the right track. For example, I bought VZ last year, but then figured out I didn't want it after all, and I used that money for better ideas. Like you I've been into this for about a year. By the way, if you have or can get to $25k, you can get 30 free trades per month from MerrillEdge, which means zero friction trading. I've been using it since February and I think it's great. This also allows you to reinvest dividends manually into the best looking opportunities instead of using DRIP.

Like Kerim said, what is your current sector allocation? That will help us recommend some adjustments. Any particular reason you're underweight industrials? There are some nice opportunities in that space right now, as several of them have just experienced a correction, and pulled the Dow down with them (ETN, UTX, PNR, ROK, PH, and to a lesser extent GE and MMM).

One thing to add: TUP has a nice yield but I wouldn't buy it, I just don't see the moat in plastic containers. Instead I would suggest trading MCD for SBUX. However I would wait for MCD to recover and SBUX to cool off. Or if you want something less richly valued, buy CVS or WAG. Personally I own CVS.

[Turvok]

Thank you for the warm welcome and all for the replies!

Right now, my current sectors are:
24.4% Consumer Staples
15.1% Financials
9.6% Consumer Discretionary
14.2% Technology
9.0% Utilities
12.2% Energy
9.5% Healthcare
6.1% Industrials

I am pretty close to my goals, I wasn't sure if I was overweight in one sector or not.
Kerim, I guess you're right. I try to adjust my portfolio about once a year. I have been investing for a while and went with DGI at the end of last summer and completely rebalanced for that. I have been picking up stocks like CVX and ABBV when they had their corrections a few months ago. One big reason I am thinking of selling some is because I'm margined. I was playing the margin game for a while during Apple's big climb and it paid off well. I kept some of that margin during the accumulation phase of margin investing. However, I have reached a point I don't want to be margined anymore, especially with QE ending and interest rates going to climb.

Earth, I owned SBUX until recently actually. That was one of the first to go when trying to downsize my margin. I had great capital gains on that as well as I bought it about a year and a half ago in the low 50s. I also sold LEG and IBM. LEG's DGR was too low for me. You make good points about VZ and T. Their DGR is below that of inflation. I may keep them for another year or so until inflation starts picking back up while I'm still in the accumulation phase. As for the industrials, I guess I haven't done enough research on them yet to find another one I like. With MerrilEdge, is that $25k in assets or an initial deposit? I do have over $25k in my DGI account.

One problem I run into is I want to own a ton of companies, but then it spreads me out too much. With self-capping at 30 equities and adding OHI soon, I will have room for just one more. I guess I'll need to look into an industrial if I can find one I like.

Also, do you guys typically have equal weighting of stocks in sectors? (ie, 5 stocks in financial all at 3%, or do you break it up with one at 4%, one at 2%, etc?)

[Robandcindy2]

Need some international exposure including emerging markets:

RDS.B
BP
ACN
RSI
BCE
NSRGY
NVS
WBK

Or an ETF:
IDV
VEA
VSS
DWX
DEM
Dvye



Looks like you have some nice choices.

[earthtodan]

(08-10-2014, 12:37 PM)Turvok Wrote: As for the industrials, I guess I haven't done enough research on them yet to find another one I like.

Industrial conglomerates can be difficult to understand economically because they're so diverse. The best example of this is probably 3M. The company's website gives you an idea of the dizzying array of nondescript products that simply permeate the built world. So you just have to approach it from a bottom-up perspective and evaluate it by the numbers. But it has a reputation for excellent management that invests for the future and doesn't use financial gimmicks. Personally it's too expensive so I don't own any, but I'm waiting for a pullback.

Another thing that appeals to me about industrials is that they can invest a lot of time and money into R&D to come up with wide-moat products that are hard to displace. GE is one of my favorites, and I added to my position today. Jet engines, train engines, wind turbines, oil exploration equipment, power & grid, water treatment, the list goes on and on and on. Never mind the consumer appliances, they might be getting rid of that. Also be aware that a large part of their market cap is a bank, which they're slowly spinning off.

UTX is my other core industrial holding, which I picked up recently and have been adding to for a cost basis of $107. It's the other major jet engine maker, plus they make Sikorsky helicopters and aerospace parts, Otis elevators, HVAC equipment, and building control systems. It takes years to develop most of these things and gain credibility in the end markets.

I also like PNR as a water infrastructure play, although I see less of a moat, so I picked up 1/2 position last week on the dip.

Quote: With MerrilEdge, is that $25k in assets or an initial deposit? I do have over $25k in my DGI account.

That's $25k in assets. I have a big enough portfolio now that I actually get 100 trades a month. It's extremely liberating. When I have cash I can average down into multiple positions day by day, or redirect dividends wherever I want, and not worry about fees.
http://www.merrilledge.com/pricing

You get access to Morningstar, S&P, and of course BofA/Merrill research reports.

[rapidacid]

(08-12-2014, 11:13 PM)earthtodan Wrote: I have a big enough portfolio now that I actually get 100 trades a month.

Sorry for off topic, but are you saying you get 100 free trades a month because of your portfolio size?

Is there online documentation for that?

I have TD Ameritrade with a pretty large portfolio and I still pay a commission each trade. Would like to eradicate that as much as possible.

[EricL]

(08-10-2014, 11:12 AM)EricL Wrote: For the most part I think the sector balance is okay, although I'd probably weight energy higher and financials lower. Financials look good now, but they do have a tendency to blow up every 10-15 years so be careful.

Also, consider this recent article from Tim McAleenan regarding McDonald's.

It can be tough to ride out the down turns for boring companies, but McDonald's won't be going away any time soon.

Just a thought that if you want more energy exposure, take a look at KMI. The restructured company announced a $2 dividend for next year (approx 5% yield) and said that it expects to grow the dividend by 10% per year between now and 2020. There aren't many (if any) stocks in the market that will give you that kind of yield plus growth.

[earthtodan]

(08-15-2014, 09:27 AM)rapidacid Wrote:

(08-12-2014, 11:13 PM)earthtodan Wrote: I have a big enough portfolio now that I actually get 100 trades a month.

Sorry for off topic, but are you saying you get 100 free trades a month because of your portfolio size?

Is there online documentation for that?

I have TD Ameritrade with a pretty large portfolio and I still pay a commission each trade. Would like to eradicate that as much as possible.

Yep, it's now called Preferred Rewards. Used to be called Platinum Privileges. The number of free trades per month varies with your portfolio size (actually your combined assets at Merrill/BofA), but the tiers are buried in fine print at the bottom of the page and kind of hard to find. They've been rolling it out in various states over the past year. They do a terrible job of publicizing it.

http://www.merrilledge.com/pricing