Liebster Award nomination

liebster2

Mr. Starting From Zero nominated me for a Liebster Award, which is something I had heard of, but didn’t really know what it was. As Mr. SFZ explained, it’s a way to highlight new blogs. The point is to answer questions from the nominator and then invite some other bloggers to do the same. Thanks for the nomination!

Here are the questions from Mr. SFZ:
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Two new purchases

I finally got my new brokerage account opened last week and now that we got a small pullback I felt comfortable buying some stocks I have been monitoring for a while.

 

I purchased 13 shares of Johnson & Johnson (JNJ) for $101.99 per share including commissions. This adds $27.1 or 20 € to my annual dividend income after taxes.

I wasn’t planning on buying JNJ as my next purchase, but the price declined quite a lot in last few days and I felt comfortable buying shares at these levels. JNJ seems to be quite fairly valued with a PE ratio of 18.5 and a yield of 2.8 %. However this is such a great company that I don’t mind buying some shares at fair valuation, especially since there doesn’t seem to be a lot of value in the market. I usually would like to get an initial yield of >3%, but again, I’m willing to pay for quality in this market situation.

 

As a second purchase I bought 22 shares of Target Corporation (TGT) for $60.11 per share including commission. This adds $34.1 or 25.2 € to my annual dividend income after taxes.

As I mentioned earlier, TGT has been high on my watch list for a while. I would have actually bought at that moment, but my account opening was still in progress. The price has climbed a little since that, but I think it’s still attractively valued.

 

In total these purchases add $61.2 or 45.3 € to my annual dividend income after taxes and increase it $1257.8 or 930.4 €.

PS. Now I paid $10 as commissions. If I hadn’t changed brokerage, I would have paid $40.. Definitely worth the trouble.

 

Full disclosure: Long JNJ and TGT.

Dividend income page added

I have been tracking my dividends since I started investing, but I haven’t yet published them here. Now I added a page which tracks my historical dividends as well as 12-month forward dividends.

I know that tracking 12-month forward dividends isn’t very useful for me since I’m still very far from the point where I could live off of dividends, but I think it’s really motivating seeing that number grow. The great thing is that it will most likely grow even if I didn’t buy more stocks, thanks to dividend growth stocks. My portfolio is still built mostly on high yield stocks, but I’m increasing the weight of dividend growth stocks.

Portfolio update

I haven’t been very active with my portfolio this year, simply because of lack of available funds. That’s why I haven’t updated my portfolio page here (also laziness..). Now I’m about to get my new brokerage account opened and will probably make 3-4 purchases quite soon after that and I decided it’s time to update my portfolio page before these purchases. I also updated the outlook, since the previous one wasn’t very practical.

I did purchase 108 shares of American Realty Capital Properties (ARCP) in May for $13.06 per share after commissions. This transaction increased my annual dividend by $108. My price before commissions was $12.87 so you can see why I want to change brokerage..

However it’s not a completely bad brokerage. It’s the cheapest one in Finland and it has one great program I have used for about a year now: automatic commission free monthly purchases of certain ETFs. You can see from my Portfolio page that I have two db x-trackers ETFs, one for Europe and one for Emerging markets. I have been accumulating these ETFs with ~120€ monthly additions since the July of 2013. Since my last portfolio update I have added 2 Europe -ETFS and 6 Emerging markets -ETFs. I have now halted this program, because I wish to invest in dividend growth stocks.

I will let you know when I get my new brokerage account opened, hopefully soon as I’m quiet anxious to put some of my capital to work. I will also add a dividend income page, where I will update my past and forthcoming dividend income.

What to buy in the current market?

In this article I will be discussing some companies and funds on my watch list as promised. There are many great companies I’d like to own, but I find it hard to see much value in the current market situation. I think these companies/funds are nevertheless quite attractive:

Dividend growth stocks:

The Target Corporation (TGT) is an American retail company. There have been a lot of problems lately with data breaches and CEO resigning. This has caused the price to drop dramatically after mid 2013. I think these problems are rather temporary and this is an overreaction. After all we are talking about a Dividend Aristocrat with a dividend growth streak of 42 years. The current dividend yields 3.5 % with a payout ratio of 70 % (with EPS of 2013). However I believe that the EPS will be better and the payout ratio will be more like 60 %. The dividend yield has yielded 1.9 % on average during last five years so there has been a huge change in valuation lately. This company is high on my list.

Exxon Mobil (XOM) is an oil and gas company and the third largest company in the world. This company has been raising dividend every year since 1983 and currently yields 2.7 %. I usually would like to get an initial yield above 3 %, but I’m willing to make an exception if everything else looks good. The growth rate of the dividend has been good and the payout ratio (TTM) is very low at 34 %. I think these things compensate the low yield. The PE ratio is currently at 13.9, which is slightly above the 5-year average, but still not bad. This company is high on my list.

Procter & Gamble (PG) is an American multinational consumer goods company. I’m sure we can all agree that PG is a great company, so the only question is the valuation. Currently it has a PE-ratio of 21.1, which is quite a bit over the 5-year average of 17.3. The dividend yields 3.2 %, which I think is good, considering current market situation and quality of the company. I can count on PG to raise its dividend year after year. The valuation of PG is currently so much above the historical valuation, so this stock is not on top of my list, but I still see it as a good candidate.

Amsterdam Commodities N.V. (Acomo) is a Dutch company operating in the field of agricultural products. This company was brought to my attention by Robin at A Dividend Dream!. The company offers a 4.5 % dividend yield with a sustainable payout ratio of approximately 50 %. The stock isn’t valued too highly, having a PE of 14.6. Stable industry, good yield and reasonable valuation sounds good.

 

Dividend ETFs: 

Vanguard FTSE Europe ETF (VGK) tracks the performance of FTSE Developed Europe Index. This is completely European ETF, so there isn’t that much geographical diversification here. However, many of the companies on the list are multinational. If you take a look at the ten largest holdings you find some good dividend growth stocks like Royal Dutch Shell and Nestle there. The fund uses full replication, which means that they actually invest in all of the companies. Here you can see the important numbers of the fund:

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Global X SuperDividend ETF (SDIV) tracks the performance of companies that rank among the highest dividend yielding equity securities in the world. There are certain dividend stability filters, which should provide some stability to the high dividend yield. As the fund’s name says, this is a global fund. The US is the largest area and accounts for about 25 %. Here you can see the important numbers of the fund:

sdiv1

A wild card: 

Seadrill (SDRL) is an offshore drilling company founded in 2005 by ex-Norwegian billionaire John Fredriksen. He still has a major ownership in the company and he makes sure the owners are rewarded with dividends. The dividend currently yields 10 % with a payout ratio of 37 %. The PE ratio is ridiculously low at 3.6, which means that investors see huge risk in this stock. This is a really volatile stock, but offers great possibilities as well.

Side note to Finnish readers: Dividends from this company are taxed as earned income.

 

I haven’t been yet able to open the account to the new brokerage so I haven’t yet pulled the trigger on any of these. I should get my account opened soon. I’ll let you know what I decide to buy; currently I’m leaning towards a mix of TGT, XOM, SDIV and SDRL. I’ll update my portfolio after the purchases, there has already been some changes.

Do you see any value in the current market situation?

 

Full disclosure: None

 

 

 

Cutting expenses by changing brokerage

Like I explained in my previous post, I have been expanding my diversification recently and continue to do so. Currently my brokerage charges high fees when buying foreign stocks, but it’s still the cheapest in Finland. However considering my rather small purchases and high fees, I decided I needed to look outside Finland. Now I believe I have found my brokerage…from Germany.

I will still keep my current brokerage account, because there are no monthly or annual fees and it’s still the cheapest in case I want to buy or sell some Finnish stocks. So after the change I have two brokerage accounts, which might cause some extra work. Also the application papers are all in German, which means I’ll have to dig up my dictionary.. After opening the account, the interface is in English. So all my costs are non-monetary costs.

How about benefits? Well, they definitely are monetary. My current brokerage charges min. 15 € ($20) per trade when buying stocks from North America or Europe. The new brokerage charges min. $5 per trade for the same transaction. There are no monthly or annual fees.

Let’s say I make 6 purchases a year, which is quite realistic in my current situation. As I said in my previous post, my next purchases will be outside Finland, either Europe or North America.

So, my current brokerage would charge:
6 * $20 = $122 (90 €)

The new brokerage would charge:
6 * $5 = $30 (22 €)

This means that my transaction costs reduce by 75 %! Even though opening an account to new brokerage is going to require some effort, that percentual reduction… And as if that wouldn’t be enough, I’ll also receive a bonus of 50 € when opening an account.

After opening the account, I will have to make a 4000 € deposit to start using the account. In my next article I will discuss how I have planned to use the 4000 €.

 

My current geographical allocation vs. my ideal allocation

When I first started investing I spent the first two years monitoring Finnish stock markets and bought only Finnish shares, which is why my current allocation is so strongly focused on Finnish stocks. At some point I got more familiar with the US markets and dividend growth investing and started expanding my portfolio to the US markets. As a result, my current geographical allocation looks like this:

Current allocation

Now when I look at this I feel stupid.. How have I let my allocation to get like this? I am taking a lot of unnecessary risk by having Finland in so big overweight. Well, like I said, in the beginning I felt comfortable only investing in Finnish stock markets. I haven’t bought any Finnish stocks in a year, but I haven’t had much free capital to buy a lot of foreign stocks either, which is why the chart still looks the way it looks. Of course I could sell some Finnish companies and make my allocation more rational, but I really don’t like to sell my stocks. So I’ve decided to just let the percentual portion of Finnish stocks shrink over time by buying foreign stocks.

Recently I have thought about what my ideal geographical allocation would look like and I think it would be something like this:

Allocation goal

I’m sure this will slightly change over time, but I think this would be a good foundation for the final allocation. This wouldn’t make my portfolio dependant on the performance of any single area, but would still give me good exposure to different markets.

What’s your allocation like? I’d be interested in hearing about your allocations and maybe some argumentation!