Updates since last week:
The week started off as expected, with the dividend of $0.45 per share from Heinz arriving in my account on 1/10. This is one company that I am holding that I haven’t mentioned in past weeks, other than its appearance on “Currently Holding” list. I bought HNZ on 12/15 at $50.36, and quite frankly, it has not performed well since then.
However, I don’t see any specific news that would have directly caused the decline in the price per share, so I will continue to hold it. In fact, now that 4 weeks that have passed since the initial purchase, I may look to increase my position if the price continues to decline, and hold all of the shares at a lower average price until the next ex-dividend date, which will be 03/20/11 . The annual yield on the dividend is about 3.7%, which is respectable. From what I see on Heinz’ income statement, annual sales, margins and net profits have been relatively flat over the past 3 years. My belief about the price of the stock is that it is a normal fluctuation downward in an otherwise upward trend. The strategy of doubling a position will reduce the average cost, making an exit easier to accomplish after the next ex-dividend date.
The expected dividend of of $0.455 per share for Pacific Gas & Electric (PGE) was paid on schedule on 1/15. The share price is still about $1 below where I purchased it, but the shares continue to trade within what I consider a normal range. I will continue to hold it until it moves to the point where I can sell it with a small profit, and if necessary, continue to hold it until the next ex-dividend date if it remains below my break even point. Below is the one year chart for PCG. One of the technical indicators I look for in this strategy is that of a steadily increasing 200 day moving average. If the 200 day MA is increasing, this shows that despite daily fluctuations, the share price is generally rising. (Note: I am trying to upload a png file here for the first time - I hope it works!)
This week also saw a rise in the price of Blackrock Kelso Corp (BKCC). When the ex-dividend date passed on 12/10, the price per share dropped a bit, as expected. It took a few weeks for it to recover, but it finally rebounded and I was able to close my position at $11.73, versus my average purchase price of 11.62. Coupled with the $0.32 dividend that arrived on 1/2/11 , I can declare victory and move on, using the funds from the sale of the stock to another, to capture another upcoming dividend. The annual dividend yield on this company is higher than what is typical on the stocks that I purchase under this strategy – this one has a whopping 11.9% annual yield, as the company returns a high percentage of their earnings to their shareholders. This metric is called the “Payout Ratio”, and it describes the percentage of earnings that are paid out in a dividend. The funds that are left are used for other purposes as the company funds its ongoing endeavors such as expansions, new market entries, etc. Blackrock Kelso is a private equity firm that works with middle market companies. This is somewhat riskier than they typical investment I make in corporations that manufacture and distribute goods or that provide services, such as utilities. The daily volume of shares traded is also somewhat lower than I normally look for when choosing a short term dividend play stock, but this had other attributes that I felt made the risk / reward worth it, and it worked out well, so I will keep BKCC on my list for another possible purchase next quarter.
Verizon announced their plans to market the Apple iPhone as was widely expected. The entire telecommunications sector was not in favor this week, as concerns about price wars in mobile phones and the effect on margins for these companies continued. Both AT&T and Verizon continued to trade in a narrow range, basically going neither up nor down significantly. Selling Verizon would actually be a profitable trade at this point, but AT&T would not, and since I bought twice as many AT&T shares as Verizon, I will continue to hold both into next week, until I am at least at a breakeven position on the weighted average for the combined position. I have no hesitation in continuing to hold both if necessary, as they each have a very nice annual yield.
Most of the other stocks owned moved very little this past week, with the exception of the Royal Bank of Canada
Southern Company stock also moved up slightly and is now above the point where I purchased it.
I didn’t make any new purchases this week in the dividend strategy portion of my account, but with the funds from the sale of BKCC now available, I will continue to watch the market closely, to capitalize on short term selloffs of the companies I am watching that are approaching their ex-dividend dates. It is sometimes better to wait and do nothing than to buy too soon, and wish that you had waited. Patience is indeed a virtue when it comes to investment strategy.
Current Holdings
Below is the updated list of dividend stocks I am currently holding. The only change from last week is the Blackrock is no longer there, since it was sold this past week. Note that going forward I will show the Current Price in red if it is below where I purchased it, and in green if it is above the purchase price.
| Stock Symbol | Company Name | Breakeven Share Price | Current Share Price (01/15) | Dividend Captured |
| HNZ | Heinz | $50.36 | $48.63 | $0.4500 |
| PCG | Pacific Gas & Elec. | $48.22 | $47.33 | $0.4550 |
| SO | Southern Company | $37.97 | $38.50 | $0.4550* |
| T | AT&T | $29.24 | $28.43 | $0.4300 * |
| VZ | Verizon | $34.84 | $35.46 | $0.4875 * |
| RY | Royal Bank of | $52.17 | $54.40 | $0.5000 * |
On the Horizon
There are a few companies that I will continue to watch over the next few weeks. The first 3 were listed last week, and have each moved up slightly in the past 5 trading sessions. There have not been dips in the price that were compelling enough to jump in, and there is still time between now and the ex-dividend date to make a purchase.
| Stock Symbol | Company Name | Closing Price 01/15 | Dividend Expected | Ex- Dividend Date |
| DUK | Duke Energy | $17.92 | $0.25 | |
| LLY | Eli Lilly | $34.91 | $0.48 | |
| PAYX | Paychex | $32.35 | $0.31 | |
| BCE | | $35.76 | $0.455 | |
Duke Energy had a significant announcement early in the week. They are merging with another utility company, Progress Energy (PGN). PGN was one of the stocks I have followed for this strategy, but have not purchased in the past. It has provided an annual dividend yield of over 5% itself.
I am not an expert on mergers and acquisitions, but from what I have read, the financial transaction to accomplish the merger appears to be reasonable for the shareholders of both companies. Shareholders of PGN will receive 2.6125 shares of DUK, which represents slightly more than a 6% premium over the average recent price for PGN shares. The combined company will serve over 7 million electric customers spread across 6 states. The merger is expected to make a positive contribution to earnings in the first year.
In situations like this, I think it is often good to “wait and see” what transpires. I have seen well intended mergers and acquisitions fail miserably over the years, but in this case, I am comfortable with keeping DUK on my list of potential purchases, since both companies are in the same industry, and one of the primary benefits will be the ability to consolidate administrative operations between the 2 firms, squeeze out duplicate costs, and improve profitability. Both firms were already profitable and well managed going into the merger, and my belief is that this will be good for the long term value of the combined entity, which, by the way, will retain the “Duke Energy” name.
Bell Canada Enterprises (BCE) earns a spot once again on my watch list, as I am looking out to mid-March at this point. I did very well with BCE last quarter. The price of the stock has moved up slightly since I sold it after last quarter’s dividend, and there don’t appear to be any dramatic changes that are likely to impact the company in the next couple of months, so will watch and wait, and hope to make an initial purchase if there is an opportunity with temporary weakness in the price per share.
My only possible hesitation in purchasing BCE again is that I already own both AT&T and Verizon, and adding BCE would put a lot of my dividend strategy investment dollars in one vertical – telecommunications. I’ve discussed the wisdom of diversifying in a past blog, and this is something to consider. Hopefully I will be able to exit T and VZ with a net profit before purchasing BCE.
Closing
Again, I appreciate seeing the statistics as the viewership of this blog continues to grow. I’ve now had over 125 visits, and I noticed that India
I am open to providing my thoughts on stocks that you might want me to evaluate for potential dividend captures. Post a question on the blog, or send me an email (ken.hannan@gmail.com) if you’d like – I can include it with or without posting the source of the question.
Next week I will also try to include a discussion of some high dividend yielding companies that DON’T make it to my watch list, and why.
Have a great week.
Ken
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