Today I’m posting some changes to the rules about the way I’ll open new positions in my portfolio.I’ll discuss the motivations of such change and the way I see the market will flow for the next 20 years.

What makes me change this rule?

The market is recovering from the big deep of the last 2008 crisis and some of my current positions were opened at a good price with decent dividend yields.
Now, as you might guess, stocks are reaching 2007 highs and, opening new positions will be more expensive, with lower dividend yields and lower cushion margin.
I feel that I need a discount!

What might happen to the stock market in the next 20 years?

My opinion is that the market will move sideways and my strategy of dividend Re-Investment works fine with it.
The economic world, I mean, countries, citizens and companies live on debt and debt survive on confidence. Confidence is lost! We can’t live like that longer!
There is a saying that tells me: “Don’t spend what you don’t earn!”.

Some time ago, I’ve discussed that I like companies that produce real wealth and that have low debt. This is my ground rule for the future!
Those companies stick to the basic rules of economics: “They are SELLING something that it’s worth trading for my only good… Money!”

What is behind the strategy change?

Stock Options! Specifically: writing cash secured puts instead of buying the stocks straight away… and covered calls on exercise.
You might say that if, after writing the put, the price of the stock goes all the way up and I’ve lost an opportunity… Forgetting something: I can roll the option!
Don’t forget that I already have my portfolio running and I’m now more selective on the new positions to add.

Can you draw an example?

Sure! 2 Real scenarios that I’ve opened last Tuesday (17/01/2012):

MSFT (Microsoft Corp) – Put Jan/2013 – Strike: $27 – Premium Credit: $2.56
Current Stock Price: $28.31

AZN (AstraZeneca) – Put Jan/2013 – Strike: $45 – Premium Credit: $4.04
Current Stock Price: $47.21

Let’s pick MSFT to draw the example.

MSFT market price was at $28.31 and I’ve sold the Jan/2013 Put $27.00 for $2.56 premium.
1) If I get assigned:
The average cost will be: ($27.00 – $2.56) = $24.44, away (13.6%) from the current marlet price of $28.31;
The current yearly dividend payment is $0.80 = 2.82%… but, on my average cost it turns into: 3.27%;
Depending on the stock proice at assign date, I can decide to write a covered call on the assigned stocks to collect extra premium;

2) If I don’t get assigned:
I’ll keep at least the premium that will represent: 9.48% return on cash;
If the stock prices rises alot, I’ll be able to roll the option and get another premium;
I can use the option premiums to buy new shares of the positions I already own;

Happy trading!

Cheers,
Luis Santos

I’m looking for new stocks to invest and I’ve found these 2:

AZN – AstraZeneca
GLW – Corning Inc

Get a closer look to thir Debt, NetProft, Growth & Payout Ratio… Their current price is a gift from Mr. Market!!

AstraZeneca has an excelent pipeline and Corning an excelent engeneering team that produces the best mobile devices screen glass. Financially speaking, they’re not leveraged at all and they produce excelent return.

For these two companies: all the best! I’m planning a buy on both in the next 2 weeks.

See ya folks! Happy buys!
Cheers,
Luis Santos

There’s been a long time since I’ve posted news around my simple strategy LTDS (Long Term Dividend Strategy) but today I’ve found two minutes of spare time to make this post.
The strategy is rolling since March 2010 and so far… so good!

For the folks that are not aware of the strategy rules, they are very simple:

1. Look for good stocks that provide consistent dividend growth and with healthy finantials (Low Debt + Good Profitability + Stable Earnings);
2. Re-Invest the cashed dividends;
3. Re-Invest a small part of the open profit of the principal YTD;
4. Invest in companies that produce “real wealth/products”! Forget parasitic segments like: Finance!

The good points I’ve found in this strategy so far (This can change in the future, of course):

A. The owned stocks generate quarterly regular cash to be re-invested;
B. So far (and thanks to the dividends), I’ve seen that the portfolio has a good delta compared to S&P500: It’s not so volatile as S&P500;
C. Dividend aristocrats are “tippically” big companies that are not subject of speculative momentum and suits long term investment;

So, how the things are going?

After 1 and half years I’ve already re-invested the dividends and here are the numbers for my LTDS Portfolio:

Current Profit: +15.31% (43% of this profits are Dividends)
(against +6.54% of S&P500)
Current Dividend Yield: 5.54%
(14% increase from the initial 4.86% yield 1,5 years ago)

I’m happy with these modest results!
Like expected, I cannot have HUGE profits because I’m not leveraging to get HUGE risks.
So, let me go with the flow and prepare my retirement!

I’m planning to increase the size of my portfolio in the next weeks.
What I have in mind is to binvest more money in my current holdings and buy one or two new dividend paying stocks.

See ya, Folks!
Happy Trading!

Luis Santos

Wondering around the market and I’ve been forgetting a nice investment spot: Preferred Securities!

This area of investment, with non speculative goals, is capable of returning a very nice Yield of > 8% on Average. Not a bad number.

Here’s some hints:

(NYSE:BCSPRD) Barclays Bank plc, 8.125% Non-cum Callable Dollar Preference Shares Series 5 ADR
-> Perpetual, Call From: 6/15/2013, Yield: 8.125% @ $25
-> Rating -> Moody’s: Baa3 -> S&P: A-

(NYSE:HCSPRB) HSBC Holdings plc, 8.00% Exchangeable Perpetual Subordinated Capital Securities
-> Perpetual, Call From: 12/15/2015, Yield: 8.0% @ $25
-> Rating -> Moody’s: A3 -> S&P: A-

(NYSE:JPMPRZ) JPMorgan Chase Capital XXVI, 8.00% Fixed-Float Capital Securities, Series Z
-> 5/15/2078, Call From: 5/15/2013, Yield: 8.0% @ $25
-> Rating -> Moody’s: A2 -> S&P: BBB+

(NYSE:WCO) Wells Fargo Capital XIV, 8.625% Enhanced TRUPS Trust Preferred Securities
-> 9/14/2068, Call From: 9/15/2013, Yield: 8.63% @ $25
-> Rating -> Moody’s: Baa1 -> S&P: A-

(NYSE:STDPRE) Santander Finance Preferred, 10.5% Non-Cumul Guar Series 10 Preferred Stock
-> Perpetual, Call From: 9/29/2014, Yield: 8.63% @ $25
-> Rating -> Moody’s: Baa2 -> S&P: A-

Why not allocate some risk capital on this pot?!

Cheers,
Luis Santos

In the last months, my portfolio experienced a new market adventure:

- Sovereign Debt

US Companies are not investing as much… They’re holding cash… Why?

- They can easily decrease their debt or avoid the exposure of the next extreme sport that is yet to come: Borrowing!

Jonh Doe here will state some common sense opinions to the defts:

Question 1: What builds a Country GDP?
Answer: Corporations and taxes that come from “Production” (Production?! -> Companies)!

Question 2: What builds the REAL wealth?
Answer: Corporations that build and transform products or provide REAL services!

Question 3: What role play the Finantial Instutuitions?
Answer: They provide ways to trade the real wealth, they are important, but most of the time, they behave like a parasite!

Question 4: Can you ennumerate one important advantage of big corporations or why invest on them?
Answer: Companies, nowadays, are global and not fully dependent on the US economic state. They play in the whole “field” and “hedged”!

So, I’ll keep investing in companies that create REAL wealth, provide regular dividends as an act of good will!

(Sorry for my English)

Cheers!

Luis Santos

Things are quite confortable on my LTDS Portfolio.

The companies I have in the portfolio are very active in M&A activities.
In the long run, the merges and aquisitions will return value… I’m confident on that!

I’m very happy with my latest aquisition: INTC – Intel Corp., why?

1. They raised dividends 2 times in the past 6 months;
2. They lunched new technology to fuel their strong position in the market;
3. The levels of leverage are very low;
4. The profitability is above average;

Long live to Intel Corp.

Now, some insight about dividends… I’m becoming a huge fan of dividends.
Why?! In simple terms, this is what’s going on in my head:

1. Dividends work as an interest for the simple investor that gives his own money to increase company capital (we all know this), by buying a stock;

2. This is a simple way to allow any company have a certain amount of cash to operate its business, giving something back to the stockholder as dividends;

3. The growth of the stock price is just a simple equation of the company earnings. More earnings means more value!

4. Can you imagine a how much a company would pay to borrow the same capital from a bank for the entire lifetime of its business?

5. So, keeping a dividend payer stock for a lifetime it’s something that worths thinking…

6. and… a company that shares their profits among the ones that holds trust on them…

is a company built on good will!

Cheers!

Press Release

In the past 11th of April 2011, Procter & Gamble raised quarterly dividend payment to $0.525 from $0.4818 or +9.0% increase in the quarterly dividend rate.

This raises my P&G position cost from a Dividend Yield of 3.17% to 3.47%.
This changes my Portfolio Dividend Yield from 5.31% to 5.34%.

Small steps, but Welcome!
Long live and success to P&G.

Cheers!

So far so good!

After the first anniversary of my Long Term Dividend Strategy (LTDS) portfolio, it’s time to do some re-investments.
Only for the shares of BP I’ve failed to re-invest due to their stop in dividend payments for 3 quarters of last year period.

In my opinion this is going as expected.
I’m expecting some good Yield growths during the next months.
Remember that I’m re-investing also a small piece of the profits from the last period.

Here’s the re-invested shares, prices and % added to the original position:

Bot/Added +14.00% of TCLP @ $51.50;
Bot/Added + 9.00% of MO @ $26.00;
Bot/Added +14.55% of CTL @ $40.81;
Bot/Added +12.00% of T @ $29.31;
Bot/Added + 5.41% of KO @ $65.22;
Bot/Added + 6.25% of JNJ @ $59.26;
Bot/Added + 7.69% of MRK @ $32.54;

Here’s the current performance and yield return of the COMPLETE portfolio:

Date: 2011-03-29
Performance: + 9.26%

Dividend Yield: 5.31%
Yield Growth: + 7.71%

Here’s the current average cost on each position of the COMPLETE portfolio:

T AT&T $26.77
MO Altria Group, Inc. $20.95
TCLP TC Pipelines, LP $39.35
BP BP Plc $56.47
MRK Merck & Co. Inc. $37.29
KO Coca-Cola Co. $54.58
JNJ Johnson & Johnson $64.66
PG Procter & Gamble Co $60.50
INTC Intel Corporation $21.51
UL Unilever PLC $29.86
CTL CenturyLink, Inc. $36.94

Some notes:

The COMPLETE portfolio started with a Dividend Yield of: 4.86%.
After some growths in dividend payments and the re-investment: 5.31% (+0.45%).

The LTDS portfolio is here to stay.

Happy investments!
Cheers!

Luis Santos

My LTDS Portfolio completes the first year of it’s long life. I’m happy with the strategy and I’ll stick to it.

LTDS Portfolio Performance Y01 @ 2011 March 24:

Performance: +8.47% (*)
Current Dividend Yield: 4.91% (**)
Next Year Expected Dividend Yield: 5.47% (***)

Major world events that affected the LTDS Portfolio during it’s first year:

2010, April 20 – DeepWater Horizon Accident – BP
2011, March 11 – Japan Earthquaque, Tsunami and Nuclear incident

During the last period I’ve included more cash in the Portfolio to open 2 new positions: INTC and UL. I’ll continue to add more cash in the portfolio to re-invest in the current holdings and, possible, include one or two more positions.

Cheers, and long live to my LTDS Portfolio!

——————————————————————————–
(*) – Include dividends. Includes all positions of the Portfolio even the recent added ones INTC and UL;
(**) – Includes all positions of the Portfolio even the recent added ones INTC and UL, without re-investment;
(***) – Dividend Yield after re-investing the earned cash;

As you know I’ve been sharing some details about my Long Term Dividend Strategy.

Some of my friends keep telling me that they don’t have time and patience to wait for dividends. They prefer more risk and a speculative approach to stocks. In part, they are right… but, I’ve a diferent aproach!

We should choose a strategy that suits us best. Mine is: Investment for future Income.

Wondering around my thoughts, I’ve decided to test 3 hipotetic scenarios. What happen if…

1. If the world market, after the last recession, start moving sideways for several years?
2. Or if the world enters in a slow bear market?
3. Or if the world enters in a slow bull market?

In all 3 scenarios, I’ll assume that the dividend yield on the portfolio keeps growing in a moderate rate of 2% and the initial yield is about 5%. Other hipotetic assumptions:

- Initial share price considered is $27.00
- Initial shares: 92 with an initial investment around $2.5k
- With 5% Yield, the yearly dividend per share is $1.35
- Re-Investing dividends for 30 Years
- No stock splits
- Re-Investment yearly

- Scenario 1: Sideways Market

After 30 years, re-investing dividends in new shares, our initial 92 shares will be transformed in 740 shares.
Imagining that the price was moving inside a sideways tunnel and the price after 30 years is the same as when we started the strategy our market value would be around $20k.

- Scenario 2: Slow Bear Market

After 30 years, re-investing dividends in new shares, our initial 92 shares will be transformed in 856 shares.
Imagining that the price was decreasing 1% a year and the price after 30 years is around $19.97 our market value would be around $17k.

- Scenario 3: Slow Bull Market

After 30 years, re-investing dividends in new shares, our initial 92 shares will be transformed in 446 shares.
Imagining that the price was increasing 1% a year and the price after 30 years is around $36.39 our market value would be around $16k.

Strange you may say… How can this be possible?!… This is the beauty of the compound return when we re-invest the earned cash. You can test it for yourself.

After this thoughts, in such scenarios. can you imagine holding a stock without dividends?

Cheers!