Jan Port Results-Income Projection '17

Investment Analysis Clubs Saul’s Investing Discussions
#6

Hi Paul

How do you determine the best security and the worst security in your portfolio? You’ve said this many times, but I haven’t seen you say how. That is nearly the entirety of what we do here at Saul’s Investing Discussions: try to identify the best securities and avoid the worst. To most of us, it is very difficult.

Excellent question.

The best way to determine that is to determine what YOUR goals are-Not everybodys goals-Not Saul’s Goals -Your OWN PERSONAL goals.

For example “I want to make money” is not IMHO a goal.

If you said I am making $75K a year-and I want to retire in 5 years and I want to replace my $75K in work earnings to portfolio earnings of $75K and I have $250K in my portfolio and the portfolio doesn’t make much because whatever I buy doesn’t work out for me. The goals I see there-You are seeking income to replace your work income and your portfolio managing isn’t moving you towards that goal currently. If your goal is income, Your worst stock in your personal portfolio are stocks that don’t pay income and if they haven’t appreciated in value during your ownership.
Don’t expect every decision you make to be 100% correct. But in time you should see improvement if you pay attention and stay away from the excitement of everyone buying AAPL-FB, AMZN and others. If you want to be a big hit at cocktail parties buy those. If you truly want to convert work income into portfolio income learn how to avoid those

To sum up- The worst security IN YOUR PORTFOLIO IS THE ONE THAT IS NOT DOING WHAT YOU BOUGHT IT FOR AND IS THEREFOR NOT HELPING YOU REACH YOUR GOALS–THE BEST SECURITY IS THE ONE THAT IS DOING EVERYTHING YOU WANTED IT TO DO, TO HELP YOU REACH YOUR GOALS-

Clues to reinforce your thinking if you do it correctly. You will find some securities you own are being taken private or merged–You will find securities you own for 1 or 2 years that start to get media attention and you look in your portfolio and see you are already sitting with a 5 Figure income stream received and a 5 or 6 Figure capital gain. that’s when you will know your portfolio is working for you and not wall street.

b&w

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#7

Income for 2017 is currently projected to be up 15.7% from the income received in 2016

What was your overall return (CAGR), or Income, in 2016? Percentages are fine.

HASI just paid a dividend in early Jan that was increased 10% over 2016 and in addition management announced that all 2016 distributions paid were 100% tax deferred.

HASI is up 65% over the past 10 years, equivalent to an CAGR of 5.1%. It’s dividend at today’s price is about 7.12%, which as you point out for is tax deferred (not tax free) until this year (2017).

BTW, have you seen this article: http://seekingalpha.com/article/2589345-an-income-portfolio-… and the latest follow-ups: http://seekingalpha.com/article/4029933-passive-dgi-portfoli… and http://seekingalpha.com/article/4035003-8-percent-income-por…

Not exactly what you’re doing, but in the same vein.

#8

What was your overall return (CAGR), or Income, in 2016? Percentages are fine.

I received 24.84% more income in 2016 than 2015. However my portfolio was impacted in 2016 by a HUGE Tax payment (for me that required a large capital withdrawal of funds) This was from the MWE-MPLX merger in Dec 2015 that was partly taxable. I estimate the income with a more normal withdrawal would have been 30% or 31%. However in full disclosure you have both figures and you are free to use either one

HASI is up 65% over the past 10 years, equivalent to an CAGR of 5.1%. It’s dividend at today’s price is about 7.12%, which as you point out for is tax deferred (not tax free) until this year (2017).

I don’t know where you are getting these figures from HASI has only been public for about 4 years
The tax deferral was 90% in 2014
77% in 2015
and 100% in 2016- Whatever the deferral will be in 2017, will be announced in Jan 2018.

And they raised the quarterly dividend each year in December-Dec 2014 raised to $0.26-Dec 2015 to $0.30–Dec 2016 raised to $0.33

b&w

1 Like
#9

I received 24.84% more income in 2016 than 2015.

b&w, I’m interested in absolute rate of return, not relative - at least that’s the number we use here, and the number that’s important for understanding whether one can earn enough from a portfolio to retire on.

HASI has only been public for about 4 years

My bad - I hit the 10year link in Google Finance and didn’t pay attention to what was actually returned. The 4 plus length of being public puts the CAGR at about 11.25% without dividends. So adding in the 7.1% current dividend rate (at today’s stock price) is a pretty sweet total return per year.

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#10

B&w thanks for the response.

So your scenario you gave in no way fits my situation. At he moment I only own 7 stocks.
My top holdings are the opposite of an MLP. Thy are FB, AAPL, and AMZN. I’ve held them for years, FB since the IPO. I’m not selling.

What I want to do is diversify somewhat. I consider all 7 holdings to be core holdings and until I feel otherwise I’m not selling. I also have a large cash position that I want to put to work at some point. I have a few limit orders in, but I’m thinking that an MLP might be a good way to diversify.

Another question I asked, how do you feel about MLP ETFs. Any thoughts?

I’m also looking at MMP. Any thought on this one?

My issue is that I never hold more then 10 or 12 stocks, and I buy big positions. So in order to difersify within the MLP sector is is better to buy an MLP ETF, or do you still think it’s better to just buy a couple of Individual MLPs.

Chris

#11

Smorgasbord1,

b&w, I’m interested in absolute rate of return, not relative

I think you mean you are interested in relative not absolute rate of return.

Andy

#12

Hi Chris:

Another question I asked, how do you feel about MLP ETFs. Any thoughts?

Personally I stay away from the MLP funds. I prefer the individual companies. MLP’s are a tax shelter and therefor belong in a taxable account and all their distributions are tax deferred. There is sometimes a limited amount of income that is taxable but so far not much. MMP is a good company which translates into a low yield of 4.2%

I own 3 MLP’s

ETE I own about 12 years Yields about 6.159%. One of their subsidiaries is building the DAPL in North Dakoda where they just had the Protest by the indians holding up the completion. It appears the pipeline will get the final go ahead–AGAIN–to complete the pipeline. Should be a massive positive for the company. (5th largest holding)

MPLX–I owned MWE for about 13 years big winner- 5.53% yield MWE merged with MPLX (A subsidiary of Marathon Petroleum Corp) and I’ve been adding ever since (Largest holding in portfolio)

EVA -I own 1 1/2 years 8.56% yield–Clean energy-Wood pellets.

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#13

I think you mean you are interested in relative not absolute rate of return.

No, I meant what I said. B&W said he did 24.84% better in 2016 than 2015, but since I don’t know what his returns were in 2015 that doesn’t help me decide if I want a portfolio like his.

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#14

Hi Smorgasbord

No, I meant what I said. B&W said he did 24.84% better in 2016 than 2015, but since I don’t know what his returns were in 2015 that doesn’t help me decide if I want a portfolio like his.

Portfolio income was 8.59% higher in 2015 than 2014.

I assume that you are aware that all the numbers and percentages that I have listed are after all my living expenses-donations-gifts and TAXES are removed from the portfolios. Remember I have no pension- and only limited SS due to income. As I mentioned previously 2017 income is projected to be about double my currently increasing cost of living. That means about 50% of the income received will be reinvested for additional income and the balance will be removed for expenses (OF ALL KINDS-INCLUDING TAXES)

And I am sure you noticed that I haven’t said one word about Capital gains or price appreciation so far in this post.
That is another moving part to my portfolio that you might want to consider --Since the Nov 8, 2016 Election, my income oriented portfolio has had capital appreciation of 13.343%

Best Regards
b&w

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#15

Portfolio income was 8.59% higher in 2015 than 2014.

I believe that his point is we have no idea what the baseline is here. 8.59% higher is a very different number if your income in 2014 was 1% of your portfolio than if it was 10% or 20%.

And, just to make sure that we are on the same page, are you saying that:

PortfolioIncome = Total Gains - ExpensesEtc.

?

#16

And, just to make sure that we are on the same page, are you saying that:

PortfolioIncome = Total Gains - ExpensesEtc.

I’ve been intrigued by all of these posts. I think the key point many of us are trying to understand is what percentage of the portfolio is thrown off as income. It doesn’t matter if this year’s percentage was greater than or less than last year’s percentage.

The problem here is that the portfolio is constantly changing in value. So maybe we can use just one point in time…let’s say the beginning of the year.

So, the question for B&W is the following. What is the income you received in 2016 divided by the value of your portfolio to start 2016?

Am I looking at this too simply?

A.J.

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#17

So, the question for B&W is the following. What is the income you received in 2016 divided by the value of your portfolio to start 2016?

I have answered that question on this board at least once and maybe more.

Here is the answer again if you missed it or never read it because you entered the thread in the middle
====The income received in 2016 divided by the value of the portfolio to start 2016 is 7.17%====

Am I looking at this too simply?

I believe you all are. The point is —The growth of the portfolio over the past 13 1/2 years has produced an income for me today that is more than double my needs after paying all my bills for the entire 13 1/2 years. the portfolio in the 13 1/2 time frame is currently 13 times the original value and that is after deducting all my various expenses for all the years that currently total 3 1/2 times the original value.
The excess income above my needs are reinvested to produce even more income to cover inflation and any higher expenses that become necessary.

b&w

#18

And, just to make sure that we are on the same page, are you saying that:

PortfolioIncome = Total Gains - ExpensesEtc.

How about if we do it this way.

1)Let’s say Portfolio Income is all dividends/distributions received during the calendar year

2)Expenses are anything I spend during the same year

3)My total expenses are currently running less than 50% my portfolio income
4)The excess income received above the “less than 50% spent” is reinvested into additional shares to grow the portfolio and further increase the income to cover coming increases in the cost of living I anticipate for the future.

Best regards
b&w

#19

B&W,

Apologies for missing the 7.17% income before.
That is all I wanted to know and the rest makes sense to me.

It all still boils down to picking the right investments, no matter what path you choose - growth, income, etc…

And that ain’t easy, but it’s not impossible either.

Thanks,
AJ

#20

AJ:

It all still boils down to picking the right investments, no matter what path you choose - growth, income, etc…

And that ain’t easy, but it’s not impossible either.

You are right it ain’t easy but not impossible—But IT IS EASIER THAN YOU THINK.

Your problem and most others have the same problem–Is you are trying to find the PERFECT STOCK AND YOU STUDY THE HISTORY AND somewhere along the line you decide THIS IS IT=THIS is the one I’m going to put my money in- And actually what has happened -A number of people with different objectives have looked at one stock and all have convinced each other that it is the greatest stock. My question the greatest for WHO??? The company or THE GREATEST FOR YOU???

ANY stock I buy COULD MAKE ME A MILLION DOLLARS OR MORE if it works out-- However When I start to buy it. all I’m buying is 100-200-300 shares and it pays a growing dividend . As time goes on as it proves itself in my portfolio I allocate additional cash. If it doesn’t make me money it gets no more money from me and if necessary it gets sold. Stocks that perform get additional monies For example-Take HASI as an example. I own it in 4 accounts-but we’ll talk about 1 because they are similar I started buying HASI on Feb 9, 2015 at $14.31 In the 2 years since I have added 17 more cash purchases plus 4 dividends were dripped and cash taken for the others in that account. Stocks like this will move the needle of my portfolio while an AMZN and Chipolte and AAPL will not. If I’m wrong along the way I will sell probably have a big chunk of change to move on to something new.
The questions you have to ask yourself–How many shares of an AMZN will you buy at $850 and are you willing to stomach a $30 loss per day for a few days? And if it doubles in price HOW MUCH WILL YOU MAKE BASED ON THE LIMITED NUMBER OF SHARES OWNED-No income is paid along the way so the only thing you can hope for is capital gains. HASI on the other hand has paid me about 12% in the 2 years which I have added additional shares. HASI and the other securities in my portfolio have collectively paid all my bills for those 2 years–Even if I have to take a loss down the road I have at least the 12% additional share as a cushion.
I believe dividends/distributions are more stable than share price. If a company cuts the dividend it is an important move. Share prices can fluctuate 10%-20% or more and could be only street noise.

Best regards
b&w

5 Likes
#21

I started buying HASI on Feb 9, 2015 at $14.31 In the 2 years since I have added 17 more cash purchases plus 4 dividends were dripped and cash taken for the others in that account. Stocks like this will move the needle of my portfolio while an AMZN and Chipolte and AAPL will not.

HASI closed today at $18.35, up $4.04 (29.6%) since then, plus it’s paid dividends totaling $2.31. I don’t have a DRIP calculator handy, so I’ll be generous and say the full $2.31 is also up 29%, which makes another $0.67. That totals up to 49%.

So, better than CMG of course. And, better than AAPL, even with its dividends DRIPped. But, not better than Saul-stock AMZN, which is up 116% since Feb 9,2015. That really moved the needle.

And if it doubles in price HOW MUCH WILL YOU MAKE BASED ON THE LIMITED NUMBER OF SHARES OWNED-No income is paid along the way so the only thing you can hope for is capital gains.

“Limited number of shares owned” is not an argument. One can say the thing about any stock, whether dividend paying or not. That’s why we talk AAR (Average Annual Return) as a metric that let’s us compare how well vastly different portfolios do. Perhaps I’m missing something, but it seems pretty clear to me that making 116% in 2 years is better than making 49% in the same 2 years.

As for “income along the way,” you can’t have your cake and eat it too. You can either DRIP or you can take the dividends to live on, but not both - at least with the same money - and have the same returns. AMZN doesn’t pay dividends, but you can sell share to pay your living expenses. Yes, that hurts your returns, but then so does not DRIPing dividends.

I believe it’s a question of perspective and time frame. Some companies pay profits as dividends because they don’t have better uses for that money, except to buy back stock (which involves less commitment than paying dividends). Apple’s in that boat, having more money than they have imagination. Other companies, like Amazon, reinvest their profits into new businesses that will accelerate the company’s growth and future profits.

I understand the appeal of dividend paying stocks. It’s the bird in the hand, and so is appropriate for people who can’t or don’t want to take on as much risk in their portfolio. But, beware that along with the potential advantages of DRIP in a dividend paying stock, there is also the risk that your “If I’m wrong along the way I will sell probably have a big chunk of change to move on to something new” statement ignores the risk that if you’re wrong, the stock could actually decrease in value, perhaps even wiping out the gains you made via dividends.

There are many investment strategies from which to choose, and that’s good. Some are not appropriate for some investors, and it’s fine to point that out. But, saying that AMZN wouldn’t have moved the needle in one’s portfolio in the past two years just isn’t true.

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#22

So, better than CMG of course. And, better than AAPL, even with its dividends DRIPped. But, not better than Saul-stock AMZN, which is up 116% since Feb 9,2015. That really moved the needle.

How much of that 116% AMZN appreciation were you able to corral into your portfolio? Was that 116% the movement of your portfolio’s needle or AMZN’s needle? Did Bezos make that 116% or did you?

The important metric for me is that in 13 1/2 years my ENTIRE portfolio is up 13 times after paying all my bills. I guess that’s unimportant for many here because they have as good or better results over the same time frame. I would be interested in hearing the portfolio results of others over that time frame if you are willing to share.

b&w

#23

According to Standard & Poor’s, the dividend component was responsible for 44 % of the total return of the last 80 years of the index.

http://www.simplestockinvesting.com/SP500-historical-real-to…

This site has excellent with and with out dividend graphs of the S&P 500 and also with inflation adjusted.

There’s no arguing that dividend reinvestment works well. It’s just that typical dividend paying stocks do not usually have very good price growth. They are usually more steady stocks compared to the growth stocks that may have much higher price appreciation, but also have the large swings in performance.

They say politics is local, well investing is personal. It depends on your tolerance for risk and your time frame of interest.

Good luck to all whatever path you use. Just own it.

4 Likes
#24

ANY stock I buy COULD MAKE ME A MILLION DOLLARS OR MORE if it works out-- However When I start to buy it. all I’m buying is 100-200-300 shares and it pays a growing dividend . As time goes on as it proves itself in my portfolio I allocate additional cash. If it doesn’t make me money it gets no more money from me and if necessary it gets sold. Stocks that perform get additional monies For example-Take HASI as an example. I own it in 4 accounts-but we’ll talk about 1 because they are similar I started buying HASI on Feb 9, 2015 at $14.31 In the 2 years since I have added 17 more cash purchases plus 4 dividends were dripped and cash taken for the others in that account. Stocks like this will move the needle of my portfolio while an AMZN and Chipolte and AAPL will not. If I’m wrong along the way I will sell probably have a big chunk of change to move on to something new.

B&W,

2 points:

  1. Let me edit to make that last sentence more clear: “If I’m wrong along the way I will sell AND LOSE MONEY.” I’m happy for you that you have been able to grow your portfolio however many times over the last several years, but recognize that if you had picked different stocks you might very well have LOST money over that time period. It doesn’t much matter if your stock pays a dividend or not if shares crater 50% or something. It’s the same as if that happens to AMZN or CMG. I’m glad you’ve done well, but there’s no magic in the method. You must have just chosen the individual stocks well.

  2. To misquote Acts 19:15, “XOM I know, and KO I know, but who is HASI?” I agree that dividends can be a nice, safe, less volatile strategy than growth stocks. It’s what I’ve helped my dad do to reduce risk, and it’s been great. But you have to distinguish between the risk in blue chip companies who are almost certainly going to be around for years and years, and the risk in companies no one has heard of. It’s completely believable that you’ve done your homework and totally understand what you’re doing. You just haven’t displayed that on these boards. You say to stay away from the darlings of wall street, but when someone asks about one of your stocks like HASI you say “go do your own research.”

Bear

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#25

Was that 116% the movement of your portfolio’s needle or AMZN’s needle? Did Bezos make that 116% or did you?

B&W, apparently you’ve been successful, which is great, but you’re just carrying this argument too far. The objective measurement is that for the past couple/few years, AMZN has had better returns than HASI.

I’m not knocking your returns, it seems like you’re doing really well, exceeding an CAGR of 21% for those 13.5 years, which is great.