The table above is a chart of the sample portfolio of RSY near the close of markets on Friday. It is looking good so far. ANAT is the laggard and was quite volatile since we have added it to our portfolio. We already had plans to exit it after being owner of record for the last dividend disbursement-which has passed. We could try to squeeze out a little more profit with a limit order of like $78.99 or higher but for the model portfolio we will set the limit order on Tuesday of $78.49 {good-til-canceled (GTC)}.
Gladstone Investment Corporation {GAIN} is a micro-cap without options and was ranked highest on MyStockFinder under a modified RSY search criteria. The next ex-dividend date is on the 20th of this month of 4 cents, but since it pays monthly then the next payout is always 30 days or less away. The estimated dividend yield is close to 7 1/2 percent. The strongest buy signal is strong, recent insider buying. Our sample portfolio will start out with just a buy of 400 shares at the Tuesday opening of $6.49. While this would only be a little over 2 1/2 percent on a $100,000 portfolio, we could add some more at an even lower price point, thus engaging in dollar cost averaging.
Summary of trades:
Buy 400 of GAIN at limit price of $6.49 (GTC).
Sell 100 of ANAT at limit price of $78.49 (GTC).
PS: We are recording a buy of GAIN of 400 shares at $6.47 and the trade for ANAT has not met our strike price.
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One of our readers sent in the following link to discuss: 3 Stocks Poised for Dividend Growth. The article starts with a few pertinent facts that relate to Sabrient’s principle guidelines in establishing the RSY virtual portfolio.
Large-cap stocks yield as much current income today as Treasury bonds. The Dow Jones Industrial Average (DJIA), which tracks shares of 30 household names like McDonald’s (MCD~) and Caterpillar (CAT~), has a dividend yield of 2.8%. The 10-year U.S. Treasury bond yields just under 2.7%. A typical five-year bond issued by a company of good-not-great creditworthiness yields about 2.8%.
Many investors have taken this unusual condition to mean that bonds are overpriced, or that stocks are a good deal, or both. In recent weeks, I’ve highlighted plenty of stocks with secure yields of 3%+. However, investors shouldn’t necessarily avoid companies with modest yields.
To achieve the RSY portfolio goal of 5-6% yields, we will likely include 2-3% dividend yield stocks and balance that with higher yielding stocks. It certainly is true that many investment choices now currently yield very low rates of return like US Treasuries but the decision on what is overpriced is of little concern to us here. We consider equities as the surest way to long term wealth growth. The RSY portfolio is designed to out perform fixed income portfolios, especially in the low interest rate envioronment we have now.
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It certainly was a good day for the bears and not so good for long portfolios. We are currently looking to add more to our portfolio but given this climate then caution might be the best move for the moment. Portfolio as it looks now:
For larger, clearer image click on picture.
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The positions our model portfolio {RSY} has open at the present time are:
ANAT 100 at $78.01
IVR 400 at $20.51
NGPC 500 at $7.71
I also should have noted that when I mention limit orders that I am considering it a GTC (good until canceled) order. Thus we will need to keep a record of the open orders as well as the executed transactions in our tracking, which at present are none.
IVR and NGPC are sagging some with the market malaise. ANAT has shown a lot more volatility than we desire but we will be waiting until after the ex-dividend date to look for an exit strategy.
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Welcome to Sabrient’s first publication of Rock Solid Yields (RSY) portfolio. We believe you will find it worth your time.
A note about RSY: Rock Solid Yields Portfolio {RSY} generates cash flow from stable high paying dividend stocks derived from creating a value portfolio based on Sabrient’s proven track record of picking stocks that will outperform the market. We start our search for stable high paying dividend stocks by using a modified MyStockFinder search tool called “Rock Solid Yields” and then pick only the best ones based on a variety of qualitative factors including but not limited to the following list: a) Insider Buying/Institutional Buying, b) Earnings and estimated earnings per share, c) Revenue and Cash Flow, d) Analyst Research and e) noting any flags and the overall score from a forensic accounting analysis. We pick strong-buy Sabrient rated stocks as well as buy. Since we are picking more value oriented stocks, we are not looking for the next stock with meteoric rise in price but a more steady and consistent growth pattern. Dividends give us the icing on the cake and provides a base of income for down markets. From our track record and analysis of available stocks that provide good dividend yields, we will target overall dividend yield of around 5% and growth of assets of around 10% per year. This of course will vary based on market conditions at any given time.
The above table shows a collection of stocks that rank high on our MyStockFinder stock search tool with a modified RSY search criteria. We could just pick the top 10 stocks and go with them for some above market performance, but a closer look at these choices reveals that certain stocks do not give us the confidence of long term growth and dividend cash flow which we hope to achieve with this portfolio. So let us go through them now and see if any should be eliminated from investing in.
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It is always important when analyzing data to consider the relevance and importance of such numbers. So, before looking at the numbers from the lastest ISM reports, let us look at what Briefing.com states about the ISM manufacturing reports at Economic Releases: ISM Index. Under the title “Big Picture” it states the following:
This is a highly overrated index. It is merely a survey of purchasing managers. It is a diffusion index, which means that it reflects the number of people saying conditions are better compared to the number saying conditions are worse. It does not weight for size of the firm, or for the degree of better/worse. It can therefore underestimate conditions if there is a great deal of strength in a few firms. The data have thus not been either a good forecasting tool or a good read on current conditions during this business cycle. It must be recognized that the index is not hard data of any kind, but simply a survey that provides broad indications of trends.
Obviously any report can be overrated if interpreted in the wrong way. One way this report seems to be over used and misinterpreted is by relative changes in the index instead of considering the “breakevens” in practice. For example if the headline ISM index drops by 6 points it is significantly more important if it drops from above 50 to below 50 than if the index drops from the 60s to 50s range. The first signifying a reversal of growth and the second a slowing of the growth rate which might actually be good. That is, instead of an overheated economy with growing number of bottlenecks it may signify a stable growth trajectory.
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In the coming days we will begin publishing our Rock Solid Yield portfolio here at The Sabrient Blog. However before doing so, I wanted to address an issue outside of the normal dividend yielding stocks issues but an issue that is still important when considering long term investments. In this post, I want to cover some of the problems investors run into when attempting to convert a retirement account to a Roth IRA. The impetus for writing this was a couple of recent articles that downplayed the benefits of a Roth conversion.
The first article is from Market Watch at Why You Shouldn’t Convert to a Roth IRA. Annie Gasparro provides 5 important reasons why someone would not want to convert.
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The Institute of Supply Management (ISM) has again graced us with another two reports on the Manufacturing and Non-Manufacturing ISM Report On Business®. In this and other posts on the ISM, we wish to delve deeper into the raw numbers and get a better degree of understanding of the underlying currents in the macro-economy. Along the way let us also look at other voices and opinions of the macro-view.
Headline Numbers of ISM Report On Business®.
The PMI index {manufacturing index} was reported as 56.2% and NMI (non-manufacturing index/composite index) was reported as 53.8%. Both numbers missed Market Watch’s Economic Calendar consensus numbers with ISM Manufacturing consensus at 59% and Non-Manufacturing at 55.3%. Econoday reports ISM Mfg Index as 59 consensus and the range as 57.6 to 59.7 and ISM Non-Mfg Index as 55 consensus and the range as 53.5 to 56 which indicates that only non-manufacturing fell within the range of consensus.
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Anytime is a good time to consider adding dividend paying stocks to a portfolio and especially now with the market breaking the S&P 1040 technical support levels. Without short side protection this means less return derived from capital gains. So instead of feeling like Sisyphus and breaking through the DOW 10,000 mark {How many times?}, it might help to purchase value stocks with dividends to lock in gains through accumulation of cash.
Reshma Kapadia and Elizabeth O’Brien point out some positive news about dividend investors prospects at Investments That Crank Out Cash.
Notwithstanding BP’s recent decision to suspend its dividend, dividend-hunting investors are generally seeing some encouraging signs. Companies like mining giant Freeport-McMoRan Copper & Gold (FCX) and cruise line Carnival Corp. (CCL) have reinstated dividends they suspended during the 2008 meltdown; in all, 157 companies increased their dividends in 2009, and at least 108 more have already done so this year according to Standard & Poor’s. That could mean executives believe their companies are getting their mojo back, says Henry Sanders, manager of the Aston/River Road Dividend All-Cap Value fund: “Dividend increases are the best legal source of insider information.” {Page 5}
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