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Posted by Martin November 15, 2012
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A great opportunity to add more stocks to my dividend paying portfolio


Recent sell off in the stock market created excellent opportunity to buy more shares to my existing portfolio. At this point I am not adding new holdings to my portfolio, but adding to the existing shares only.

I made a rule on how many shares to hold in a portfolio. I searched the internet to find out how many shares to hold when you have small portfolio and keep it manageable. Some people and advisers will tell you need at least 30 different stocks to have your portfolio diversified. However all those adviser are expecting you having 500k portfolio. With $500,000 it is probably possible having 30 stocks, but I do not believe it is manageable. Watching all 30 companies to catch potential issues isn’t easy.

Then I found that it is not absolutely necessary having that many stocks in your portfolio and that actually you can do even better with lesser stocks if you are picking the best stocks. On top of that, when buying dividend payers and selecting companies who have paid dividends for decades, continuously increasing the dividend, you wouldn’t be too unlucky picking a loser.

So what I have found and now trying to follow? Here is a table of portfolio size and how many stocks to hold in that portfolio:

Portfolio size # of dividend stocks
$0 – $5,000 2 stocks
$5,000 – $10,000 4 stocks
$10,000 – $20,000 10 stocks
$20,000 – $30,000 15 stocks
$30,000 – $50,000 17 stocks
$50,000 – $100,000 20 stocks
> $100,000 30 stocks

Of course you can have a different allocation and I do not have my own allocation according this table yet, since I started practicing this recently, but with saving more money and reinvesting dividends I will get my portfolio in line with this table.

So this is the reason why I am not adding new holding, but adding to the existing ones although it is tempting to add new holdings. It is tempting because there are great companies out there which I want to own, but I want to be systematic and patient.

The sell off in the market however provides excellent opportunities to buy more shares of the companies cheaply as well as increasing my yield on cost.

I opened a new buy order for tomorrow for Armour Residential (ARR). Currently the stock was punch down severely and I believe this was an overreaction and the stock will stabilize and improve in price. The current yield is over 17% which makes it very attractive dividend for high yield hunters. You could even see it in today’s trading how strongly the stock recovered.

Buying more shares of ARR
So I am opening a contingency buy order for ARR if the stock will trade at $6.84 a limit order at max. $6.94 will be triggered. Thus if the stock pops up too much or will trade below the trigger price the trade will not be executed.

If this trade executes it will improve my current average price which is $6.96 per share and it will improve my current yield on cost which is 14.50%

MCD is very tempting too, so adding more shares to my portfolio
I actually entered this order yesterday, but it didn’t execute since the stock traded lower today. So I lowered my contingency order to buy more shares if the stock will be trading at $84.62 or higher then a limit trade at $85 per share will be triggered.

I will not be buying using all my available cash in case the market will push lower (and there is a lot of downside pressure still) and those stock fall lower. In that case I will be adding more shares to my portfolio with another portion of available cash.

Happy Trading!




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Posted by Martin November 14, 2012
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Why are REITs falling and will they recover?


REITs stocks are sharply falling, one would call it a free fall. Even famous, strong and gigantic companies such as Annaly Capital Management is down by 4.2%, American Capital Agency by 3.8%, and ARMOUR Residential (ARR) by 4.4%. What does it mean for you if you hold those stocks?

A tough year for mREITs
Let’s begin with the fact that it’s been a tough year for mREITs in general. As the Federal Reserve has sought to drive down long-term interest rates via quantitative easing, the interest rate spread that these funds rely on to make money has contracted. Since the third quarter of last year, Annaly’s went from 2.08% down to 1.02% today, and American Capital’s from 2.14% down to 1.42%.

It follows that the compression of interest rates has obligated these companies to decrease their lucrative dividends payouts. Over the last 12 months, Annaly’s quarterly payout went from $0.60 a share down to $0.50, and American Capital’s from $1.40 a share to $1.25. And this, in turn, has put downward pressure on many of these companies’ stock prices.

What’s an income investor to do?
While many analysts and commentators have been anticipating a downward move in mREIT stock prices, that is no consolation to investors currently holding shares in the likes of Annaly, American Capital, or Armour Residential. To those shareholders, I say it’s my opinion that the market is overreacting to general trends that we’ve seen coming for some time now. Investors should avoid the allure of trading stocks on the heels of information like this. What investors should do instead is educate themselves further about the companies they own.

Personally I am sitting tight since I believe this is an overreaction of the market and those companies will recover. More to that I will be purchasing more shares as soon as this free fall ends or I will spot a sign of the end and strength. Many investors will be attracted by nice yield which in case of ARR is now breaking 16%. What a great yield on cost when buying now.

Source: The Motley Fool




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Posted by Martin November 10, 2012
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Market sell off, are you scared?


I am freaking out! It is not a pleasure watching my holdings evaporating and showing a loss. It is also difficult to hold and sit tight. It is even harder investing more money into falling stocks.

Some people say “do not try catching the falling knife…” others say it is a great opportunity to buy more shares, some are crying sell, sell, sell!

Which way are you going with your investments? Are you sitting tight, raising cash, trading options, or selling like crazy?

I am trying to sit tight, talking myself into not panicking and hold. I hold dividend payers. Those are the companies which should sustain any similar sell off better than others or growth stocks. But my concerns and double guessing are growing and doubts are increasing. Will those stocks really hold and will they recover?

Or are we seeing rich people really fleeing out of dividend stocks due to Obama’s policies on rising taxes on dividends for rich people. Does he realize that this drop will damage middle class although he is claiming that it wouldn’t?

Or is it a drop because of many other fears we experienced in the past; because of Europe, fiscal cliff, and many others and the stocks will recover?

Does it even make sense seeking the answer?

In times like this I am trying to remind myself what dividend investors and professionals say about investing into dividend stocks:

When is time for selling the dividend paying stocks?

Many experienced investors will tell you, that there is only one reason when you should considering selling dividend payers. If you answer yes to any of the following questions, then you should consider dumping your stock:

  1. Is the dividend in jeopardy?
  2. Has the company changed its dividend policy?
  3. Has the company failed raising the dividend?
  4. Has the company cut the dividend?
  5. Did the stock spiked up (climax top) too much?

None of it happened recently. Many of my holdings are just out of favor due to either increased investing, or market panic. So why liquidating a money making machine, which is currently paying me $550 annually in dividends?

I am sticking to my plan, sitting tight, saving more cash to buy more holdings and as time comes, buy more when those stocks are quite cheap.

What will be my next plan? I still am working towards saving 10,000 of dollars into my Lending Club account (my current value is $7,600) and as soon as I save I start focusing on my TD account. The goal will be to raise cash up to another 10,000 dollars, keep 30% in cash, invest the rest, buy more shares on my current holdings (to reach 100 shares on optionable stocks, which would allow me start selling covered calls) and after raising the cash, start selling puts on current holdings (buy in thru the puts).

As Mr. Miller says it in his book “The single best investment”

“Holding successfully requires a kind of spartan attitude, a kind of warrior attitude, in which you hold your ground, never tromping away, through thick and thin, through storms and sun, never becoming excessively excited or happy by profitable rallies, never sinking into gloom or depression or second thoughts when prices are on wane. A warrior attitude in which feelings may be felt, even deeply felt, but not necessarily acted out…

As a warrior you understand that there are many ways to win the battle of investing, there are many ways to come out on top in the end.”

So what helps when the mood becomes gloomy? I take my dog and go out!

I am getting my cash ready to buy more shares of ABT, O, JNJ, PPL, or MCD, T, WMT. Most likely it will be Realty Income stock, since I will have 100 shares and will be able to sell covered calls (although options on this stock aren’t those among best, but we will see when time comes).

Happy Trading!




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Posted by Martin November 07, 2012
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Full Circle Capital Corporation (FULL) will report financial results


Full Circle Capital Corporation (FULL) will report financial results for the first quarter of fiscal 2013 ended September 30, 2012 and its quarterly report on Form 10Q after the market closes on Thursday, November 8, 2012.

A live webcast of the conference call and the accompanying slide presentation will be available at http://ir.fccapital.com/CorporateProfile.aspx?iid=4151676. All participants should call or access the website approximately 10 minutes before the conference begins.

Consensus Estimate: $0.21




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Posted by Martin November 04, 2012
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Lending Club Performance

Lending Club Performance

Recently I posted my Lending Club performance, showing my return rate chart from the beginning of investing, my account value growth and my interest paid. You can see it here.

I also was claiming in several of my older posts that I was able to avoid default notes or even late notes due to my strategy of watching notes. To prove it I decided to post the following printscreen showing my account and showing my results.

Lending Club

You can click on the picture to enlarge it.

As I said before, I have been investing with Lending Club for almost three years (this coming March 2013 it will be three years), I have saved slightly above $7,000 and my rate of return is now at 13.12% and rising. As you can see from the picture under the “My Notes at-a-Glance” I have zero late, default or charged off notes so far (and I hope it will stay like that in the future).




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Posted by Martin November 02, 2012
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Diversification is often a hedge for ignorance


Investors are often advised to diversify their stock portfolios to minimize risk. But IBD research shows that it’s actually less risky and more rewarding to own just several carefully chosen stocks.

“The best results are achieved through concentration, by putting your eggs in a few baskets that you know well and watching them very carefully,” IBD founder and Chairman William J. O’Neil wrote in “How To Make Money In Stocks.”

“Keep things manageable. The more stocks you own, the harder it is to keep track of all of them,” O’Neil wrote.

He says investors should conduct thorough research and choose a limited number of stocks that can be followed easily. This involves first creating a watch list focused on industry-leading companies with top-notch fundamentals.

People with $20,000 to $200,000 to invest should limit their holdings to four or five stocks. Those with $5,000 to $20,000 should consider buying at most three stocks, and those with around $3,000 should limit their holdings to two stocks, O’Neil writes.

Continue reading this article




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Posted by Martin November 02, 2012
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New trade – Gold ETF (GLD)


As I wrote in my previous post I wish to have some exposure to gold and be buying on dips. I believe that in long term gold will gain value, so I will be buying these corrections in gold as we could see today, for example.

I had an open order from last week to buy GLD if the price drops below 162.7 a share. It happened today and I added few more shares into my portfolio.

11/02/2012 12:42:35 Bought 4 GLD @ 162.64

As of today I own 7 shares. As I mentioned before I have a small account and my plan is build a strong dividend paying portfolio. I do not have more cash available so as of now I will be in saving mode saving more cash for future additions.

Happy Trading!




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Posted by Martin November 02, 2012
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New trade – McDonald’s (MCD)


Today I bought more shares of MCD to my dividend portfolio at $87.25 per share.

11/02/2012 09:30:43 Bought 10 MCD @ 87.25

Total shares held as of today: 10
Estimated annual dividend: $38.80
Consecutive Dividend Increase: 35 years
Dividend yield today: 3.20%
Dividend 5yr Growth: 34.87%
Dividend paid since: 1976




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Posted by Martin November 01, 2012
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Is McDonald’s (MCD) a buy?


I believe McDonald’s is a buy at this price. The fast food chain was beaten down by slowdown pressure in fast food industry although this giant is able to survive even in tough economic times. I remember I was once reading in 2008 an article how fast food chains were prospering due to cheaper price for food and many families went dining out in these restaurants.

People will eat no matter what and McDonald’s is a leader in this industry. Innovation, coffee menu (which was accepted very well and became a serious competitor to Starbucks) and innovations in menu (such as Angus 1/3 lb Hamburger) will make this giant overcome today’s pressure which is considered by some analysts a cyclical one.

I already owned this stock in the past. I bought it when it was selling at $76 per share and sold it at $98 per share. At today’s prices at $86.8 per share I believe it is time to add it back to my portfolio.

The company increased dividends lately as well.

Per Morningstar:

McDonald’s generates revenue through company-owned restaurants, franchise royalties, and licensing pacts. Restaurants offer a uniform value-priced menu, with some regional variations. As of March 2012, there were 33,500 locations in 119 countries, including 27,100 franchisees/affiliates units and 6,400 company units.

What can I say about MCD that hasn’t already been said? Nothing, really. I recently wrote that the sell-off in MCD shares offers the long-term dividend growth investor a solid value at current prices under $88 per share. The P/E ratio stands at 16.57 and the yield is currently at 3.50%. That’s a pretty strong entry yield for a global juggernaut like Mickey D’s. I currently have 40 shares of MCD in my Freedom Fund, but would gladly pickup more if the weakness continues here.

Using a Dividend Discount Model to value the shares here, I used a 10% dividend growth rate for the next 10 years, followed by a terminal 8% growth rate and used a conservative 12% discount rate. That gives me a fair value of $107.50. Seeing as how MCD actually has a 10-year dividend growth rate of 27.4% along with 36 years of raising the dividend, I think the value is justified. The reasonable balance sheet doesn’t hurt, either.

I will use the same entry model as in my previous purchases to buy a few shares (unfortunately I do not have enough capital yet to buy more, so I have to be accumulating slowly although my commission per trade will be higher in this case). My plan is however continue investing into good quality dividend paying stocks with good dividend history and good dividend growth. I will be reinvesting all dividends and the first task is to reach 100 shares in each selected company so I can apply covered call strategy to boost the income. Lately when I raise capital further I plan also applying selling naked puts. But that will be my next step.

As far as this trade I opened an order to buy MCD if the price raises above 87.15, but not more than 87.20 per share.

Happy Trading!




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Posted by Martin November 01, 2012
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New trade – Realty Income (O)


Today I bought more shares of Realty Income to my dividend portfolio at $39.72 per share.

11/01/2012 12:26:49 Bought 19 O @ 39.72

Total shares held as of today: 66
Estimated annual dividend: $120.12
Consecutive Dividend Increase: 14 years
Dividend yield today: 4.50%
Dividend 5yr Growth: 2.66%
Dividend paid since: 1994




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