The Retirees Dividend Portfolio – Recent Purchases And Limit Trades

Trading Charts on a Display

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For those of you who have followed my work, this is a change I decided to make for several reasons. The articles require quite a bit of manual work to update spreadsheets and track dividends coming into the accounts. In recent years I have added more charts/graphs with the hope that it adds value for readers and provides clarity for what I am trying to do.

In the process of doing this, I have made it harder for myself to continue producing consistent articles and ensure that the quality doesn’t suffer. Here are some additional reasons for separating out trades in their own article.

  1. If I have a week where no trades take place I can simply skip writing this article because there is no point in providing an update if nothing happens.
  2. My articles currently talk about trades done as long as 60 days ago, for example, if I do a trade on the 1st of June but the article gets published at the end of July. Producing a separate article allows me to provide actionable trades that are more likely still within a buy/sell range after seven days.
  3. My articles have gotten way too long. A busy month can result in a 4,000+ word article and that distracts from the purpose of the updates.

I would love to receive feedback in the comments about things you like, don’t like, or even ideas that I haven’t yet considered/thought of. Constructive feedback is something I truly appreciate and many of my regulars can attest to the fact that I try to follow up on these ideas whenever possible. Many of the images in my articles are the direct result of tracking that feedback.

July Articles

I have included the links for John and Jane’s Taxable Account update published for the month of July. (The retirement account articles will be coming over the next two Saturdays).

The Retirees’ Dividend Portfolio: John And Jane’s July Taxable Account Update

August 3rd – August 19th Trades

My goal is to write these articles weekly (again, only if there is account activity worth discussing) so that I can keep them reasonably short. I would have published an article sooner but I went on vacation and promised my wife that I wouldn’t bring my laptop as I focused on removing work-related influences. During this time I was still taking time to review the market and make transactions on a case-by-case basis.

Jane’s Traditional IRA

2022-8-19 - Jane Traditional IRA Trades

2022-8-19 – Jane Traditional IRA Trades (Charles Schwab)

Alexandria Real Estate (ARE)

We doubled the size of this position with strong Q2-2022 results (announced in July) and the overall discount relative to the rest of the REIT market including other sectors that we have been bullish on such as communications infrastructure. With stocks like American Tower (AMT) fully recovering their share price we saw ARE as a strong alternative that offers both capital appreciation, current yield, and potential dividend growth.

Chart
ARE data by YCharts

According to FastGraphs, the stock price is currently trading just under its 10-year average FFO of 21.2x which made the addition very reasonable. I believe (along with many other Seeking Alpha authors) that ARE should be trading at a premium valuation based on many of the tailwinds that are helping the company continually offer improved guidance figures.

Alexandria Real Estate - August

Alexandria Real Estate – August (FastGraphs)

Verizon (VZ)

Verizon’s stock price has been negatively impacted by overall poor results that were announced in its Q2-2022 earnings announcement. Although the results were poor across the board, we still see the current price point as an excellent time to accumulate more shares. $44/share has represented a major downward resistance point for nearly a decade.

The image below shows that even though VZ’s dividend yield continues to push higher the stock price really doesn’t drop much below $44/share. $44/share is the price point at which the dividend yield becomes so attractive that anything less would be too attractive for investors to ignore (share price appreciation + dividend yield).

Chart
VZ data by YCharts

Philip Morris (PM)

We have been taking advantage of limit trades with PM for purchases and sales of shares. PM has seen a major fluctuation in share price which allows us to continually buy in the low to mid $90/share range and sell shares somewhere between $102-$105/share. The purpose of these transactions is to lower the overall cost basis of PM because the original shares that were purchased had a rather high-cost basis.

The gain/loss section shows where the overall Unrealized Gain/Loss figures sit (before prior trades there were unrealized losses pending from shares purchased over $100/share).

PM - Unrealized Gain Loss

PM – Unrealized Gain Loss (Charles Schwab)

Boeing (BA)

We decided to sell most of the position in Boeing due to the overall uncertainty, poor stock performance, and lack of dividends. The small number of shares that remain are at an extremely low-cost basis and so we are going to let them ride for the time being.

Owl Rock Capital (ORCC)

We doubled down on this BDC after recently publishing the article Owl Rock Capital – Build A Position Before Q3 2022 For Maximum Upside at the end of May. The reason why I focused on Q3 instead of Q2 is that Q3 is the point at which interest rate increases will actually take effect and benefit ORCC’s interest income. The Q2-2022 earnings announcement was strong even though the cost of capital (interest expense) began to increase and has not yet been offset by the additional interest income that will be generated and fully reflected in Q3-2022 earnings. Now is still a great time to buy and I would look at increasing the size of the position again if shares dropped into the $12/share range.

Canadian Pacific (CP)

Shares of CP have reached a point where the potential for price appreciation is minimal based on historical peaks in the share price over the last decade. We still like CP a lot but we are comfortable with selling these shares and playing the long game (especially because the contribution to the dividend income is insignificant compared to everything else). The risk/reward benefit looks attractive if the share price moves below $72/share.

Chart
CP data by YCharts

John’s Traditional IRA

2022-8-19 - John Traditional IRA

2022-8-19 – John Traditional IRA (Charles Schwab)

Masco (MAS)

Masco has performed well following the trend of high consumer spending for household renovation which has benefitted stores like Home Depot (HD) and Lowe’s (LOW). Although the earnings reports for HD and LOW were stronger than expected I see MAS as fully valued and expect that shares will be more attractively priced over the next several months. The 50 shares sold represented the highest cost basis of the position and what we are left with is a total cost basis under $53/share (or approximately where the market ended at the end of day on August 22). The graph below confirms that $56/share is a strong resistance point to any additional upside.

Chart
MAS data by YCharts

Altria Group (MO)

Given the fear in the market we decided to push some of John’s high cash reserves to double the current size of the MO position. With the dividend yield near 8% and the stock price trading at a PE of 9.4x the stock is simply too cheap to ignore even with the recent bombshell regarding the massive decrease in value of its investment in Juul. The dividend is still supported and I expect that the downside will be minimal even as we see turmoil in the rest of market. It is also likely that MO will announce its 2022 annual dividend increase before the end of August which is expected to be approximately 6% for an annual payout of $3.82/year.

Deere (DE)

DE represents the only new stock added to John’s portfolio so far in the month of August. DE stock price recently took a hit when it missed Q3 2022 earnings expectations due to “higher costs and production inefficiencies driven by the difficult supply chain situation.” At the same time, annual revenue is up significantly as high crop prices have encouraged higher spending for machinery replacement and upgrades. Stock prices has since recovered but we will be looking to add more to this position on any weakness because I believe it is a great defensive stock to help balance out John’s portfolio.

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DE data by YCharts

CSX (CSX)

We recently sold a large chunk of CSX after having purchased a total of 50 shares between the months of June and July. The 75 shares sold represented the highest cost basis and resulted in a wash for realized gain/loss on the transaction. I don’t necessarily think CSX is overvalued but I believe that there will be better prices available in the future (similar to the share prices of shares bought in June and July). The screenshot below includes recent buy and sale prices.

CSX - Recent Buy And Sale Prices

CSX – Recent Buy And Sale Prices (Charles Schwab)

Healthcare Realty (HR)

HR and Healthcare Trust of America (HTA) recently completed their merger and the share price has sunk to a three-year low which is too attractive to ignore. The 50 shares were purchased at $25.30/share and was still made even though John holds a full position.

We will be looking to trim back the high-cost portion of this position if the share price moves above $27.50-$28/share. We may also look to add additional shares if prices fall below $25/share.

Chart
HR data by YCharts

Lowe’s

The shares sold represent the high cost portion of the LOW position and were essentially sold at a breakeven price. We recently expanded the position in June with an average cost basis $173/share and the five shares sold allowed us to reduce the highest cost basis lot of shares to 25 shares at just under $190/share. Even though LOW’s earnings report showed strong EPS ($4.67 Q2-2022 which was $.07/share above expectations) revenue was down $680 million from expectations. I expect that there is a higher chance we will see shares move lower than the possibility that shares will move higher over the next several months. We would look at adding to the position under $185/share and would definitely pull the trigger if shares drop below $175/share.

At the $185/share we are looking at a dividend yield of approximately 2.27% which previously represented the peak dividend yield prior to COVID. I see this as a strong entry point where the potential for upside is maximized.

Chart
LOW data by YCharts

John’s Roth IRA

2022-8-19 - John Roth IRA

2022-8-19 – John Roth IRA (Charles Schwab)

Digital Realty Preferred Series J (DLR.PJ)

John has been long DLR.PJ for quite some time (the original position goes back to December 2017) and we like the bond-like aspect of this stock and a ridiculously well-covered preferred stock dividend. Shares were purchased as a long-term hold and as a potential offset so that we could sell the high cost portion of the position if shares move back up to PAR value. The original lot of 100 shares were purchased at $24.87/share. Shares are callable but with rising interest rates there is a higher chance that DLR will let these shares ride instead of issuing new preferred stock at a higher yield. Due to the high cash balances in John’s account would consider adding more if the stock price drops below $23/share.

Brixmor (BRX)

Unfortunately we didn’t jump on adding shares of BRX soon enough (this is where setting up limit buys can be a really useful tool since we really should have bought at or under $22/share). BRX has received a number of positive upgrades from analysts at J.P. Morgan, Credit Suisse, and Mizuho. I expect that BRX will serve as a strong inflation hedge and that should bode well for the stock price moving forward. We would look to add additional shares if the stock price drops below $22/share.

Chart
BRX data by YCharts

Pinnacle West (PNW)

For a utility stock this has been quite the ride with a number of swings between the 52-week-high and 52-week-low over the last year. PNW’s lows came after Arizona regulator rejected their proposed rate increase which was expected to put quite a bit of pressure on earnings and potential growth. The most recent quarter was exceptionally positive but we used the opportunity to eliminate the high-cost portion that have a cost basis of approximately $82/share. We are looking to get rid of another 30 shares potentially which would ultimately drop the cost basis well below $70/share which is a good margin of safety and pushes the dividend yield up to 5%.

Chart
PNW data by YCharts

Dominion Energy (D)

We recently used a limit sale to eliminate the high-cost position of 25 shares at $85/share (which resulted in a wash due to the cost basis of $84.98/share). Dominion is performing well and I am pleased overall with its performance but upside over $85/share is basically nonexistent especially when we consider its dividend yield of 3%. If the share price moves below $75/share this would push the dividend yield back up to 3.5% which is a much stronger entry point with actual upside potential.

Chart
D data by YCharts

Recent/Pending Limit Trades

We have had a number of orders fill from the stocks covered in the previous section and four limit orders remain open. All four limit orders are sales and currently two limit orders are waiting to be filled in the Taxable Account with another two pending in John’s Traditional IRA.

Taxable Account Pending Limit Trades

2022-8-19 - Taxable Account Limit Trades

2022-8-19 – Taxable Account Limit Trades (Charles Schwab)

These are the same limit orders as the last update so I won’t rehash the reasoning for these.

John’s Traditional IRA Pending Limit Trades

2022-8-19 - John Traditional IRA Limit Trades

2022-8-19 – John Traditional IRA Limit Trades (Charles Schwab)

We covered the reasoning for the sale price chosen for HR in the previous section but Lowe’s was selected as the price point to where I see basically no additional upside and it becomes worthwhile to sell shares and recycle the capital. I don’t believe we will see the share price reach $230/share but I’d rather leave the limit trade in place just in case it does.

Realized Gain/Loss

As always, my goal is to be transparent and to provide as many screenshots as possible to validate what I am doing. The screenshots below should serve as confirmation as to the reason why we sold certain shares.

Capital Gains – BA and CP are the only two stocks that we sold simply because the share price was at a point where we felt compelled to take the gains and redirect the funds to other investments.

Capital Loss/Wash Sales – All remaining stocks fall into this category with the purpose of selling shares were to eliminate a high-cost position. Stocks like MAS, PM, or PNW have slightly larger losses associated with them which was due to the fact that we didn’t see higher upside available and still wanted to reduce exposure to that position.

2022-8-19 - Jane Realized Gain-Loss

2022-8-19 – Jane Realized Gain-Loss (Charles Schwab)

2022-8-19 - John Realized Gain-Loss

2022-8-19 – John Realized Gain-Loss (Charles Schwab)

The images above represent a 30 day window of realized gain/loss sales.

Conclusion

My goal is to provide these updates on a more regular basis (as I mentioned before, my going on vacation was to detach from technology hence the reason why there are so many position updates). There has been major volatility over the last few days but readers should take notice of the high number of sales relative to the previous article. I would describe many of the transactions above as opportunities to rotate capital which is why I focus on selling existing positions with a high cost basis at a wash and then reinvesting the capital in shares that we considered to be undervalued.

I use limit trades as often as possible to make sure that I am able to buy or sell shares at an attractive price. Limit trades are not something you can just “set and forget” and a general rule is to focus on limit sales when the market or a specific sector is in an upswing, or to use limit buys when the market or a specific sector is experiencing a downtrend.

The following link can be used for my previous update – The Retirees Dividend Portfolio – Recent Purchases And Limit Trades

John and Jane are long all stocks mentioned in this article.

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