Portfolio Update – June 2016 – The Virtues of (Stock) Frugality

This was an interesting month in the market, to say the least. With the Brexit turmoil, resultant hysteria, and then quick rally in prices, it just goes to show how hard it is to predict for the average investor – or even pros – to know where anything will go in the short term.

While the focus with dividend growth investing is to create a predictable, growing stream of passive income, the price we pay matters a lot to not only our future total return, but to dividend cash flow. As Chuck Carnevale points out in this month’s very interesting article in Seeking Alpha:

When choosing the appropriate dividend growth stock, many dividend growth investors will rightfully focus on the company’s dividend record and dividend growth more than they will its price history. However, this can be a detrimental practice if the investor ignores valuation. Unfortunately, this is not an uncommon practice. There are many dividend growth investors who will invest in a blue-chip Dividend Aristocrat even when it is overvalued at the time. Many of these investors argue that since the dividend is what is of paramount importance, being out of a blue-chip will cause them to generate less dividend income. To these investors, a dividend missed is a dividend lost.

He goes on to make that case that contrary to standard DGI orthodoxy time in the market, does not trump timing the market.

Take for instance the case of JNJ:

JNJ Fast Graphs

He notes that if he wanted to open up a position in J&J with $10,000 in 2001 when the price/ cash flow was relatively overvalued, over the course of these many years until today he would have received $4709.08 in dividends, not to mention capital appreciation. Certainly very good. But if he waited patiently for fair valuation to manifest, he would have had to sit on the sidelines for 2 years. But even though he gave up 2 years of dividend payments, he would have received $5218.19 in dividend payments in the remaining years, significantly more than if he had made the same purchase 2 years earlier.

Now the point here is not to try to time the market, I think the point here is to have some discipline and patience, and only buy a great company you like when you think the value is there. And if it doesn’t happen, it doesn’t. That’s why I maintain my own watchlist, and try to keep educating myself about new companies & opportunities.

By definition DGI requires extraordinary patience on the part of the investor for compounding to work it’s magic. And since we’re looking to be frugal in our personal expenses, it would only seem logical that we should strive to apply that philosophy when it comes to purchasing stocks as well.

So after the sell-off late in the month, I used the opportunity to pick up a new position I had been eyeing for about a year in Gilead Sciences (GILD) by picking up 25 shares at $80.05 and increased further my existing position in Cisco Systems (CSCO) by buying 100 shares at $27.59.

With these new positions and additional appreciation of the Div 10 portfolio, the current market value of my portfolio stands at $83,137.35, which is a 12.6% increase since last month’s value of $73,833.66.

Dividend Ten July 2016 Portfolio

Currently I have some cash sitting on the sidelines as I look for some more opportunities to continue building my new and rather sporadic dividend income stream further.

With the new position in GILD, my portfolio is comprised of 12 companies and I’m looking forward to seeing what opportunities will present themselves in July.

So how was your June? What do you think of this philosophy – do you agree/ disagree? Or do you think time in the market is actually more important?

Thanks for stopping by!

 

 

2 Comments

  1. Investment Hunting July 2, 2016
    • Greg Gee July 2, 2016

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