Saturday, December 31, 2011

Project $3 Million ... 2011 Year End Results

Project $3 Million .............................

Towards the end of 2008, I decided I would change direction with my Son's (currently age 26) portfolio and go with a Dividend Growth Strategy and reinvest the dividends.

The goal is to contribute $500 monthly and earn an 8.25% annual compounded rate of growth. Based on his portfolio value at the end of 2009, he will have accumulated a little over $3 Million by age 65.

The link below provides the site I used to determine the objective. The criteria:

40 years of $500 monthly. An interest rate of 8.25% compounded annually. Initial amount $42,205.00 (year end 2009 value of portfolio).

http://www.planningtips.com/cgi-bin/savings.pl?amt=42205.00&dep=500&cmp=annually&int=8.25&yrs=40&Calculate.x=58&Calculate.y=14

Project $3 Million is ahead of schedule.

In order to be on target at the end of 2011, he needed to accumulate $62,746.55.

Mission accomplished. End of year total was $70,221.20.

Dividend income is listed below.

Portfolio Value (PV):

2009: $42,205.42 ..... 2010: $54,949.87 ... 2011: $70,221.20.

Although the portfolio has some capital gains, capital gains is not the top priority. The top priority is to build an income stream from dividends that is reliable, predictable, and increasing. As long as he does this, I believe capital gains will follow.

Dividends:

....... Year 2009 : ..... Year 2010: ..... Year 2011:

Qtr 1: ... $108.00 ..... $264.95 ....... $542.81
Qtr 2: ... $102.00 ..... $357.17 ....... $575.40
Qtr 3: ... $132.55 ..... $518.24 ....... $583.40
Qtr 4: ... $341.83 ..... $510.71 ....... $703.63
Yr Tot .. $684.38 ..... $1,651.07 .... $2,405.24

The income stream increased 45.6% over 2010.

His holdings are spread among three portfolios. I will list the account, company symbol and number of shares.

Taxable Account ... Portfolio Value - $55,742.32

ABT - 54.236
ADP - 37.208
BP - 38.088
CL - 24.229
CVX - 22.034
DEO - 28.774
EPD - 57.962
FTR - 18.025
GIS - 49.90
JNJ - 41.824
KMB - 25.248
KMP - 33.529
KO - 53.033
LMT - 21.306
MCD - 23.193
MMP - 38.397
MO - 97.862
NUE - 53.153
O - 76.174
PEP - 32
PM - 31.36
SO - 43.427
SYY - 68.462
UHT - 63.539

In January, I will sell O and UHT and move the proceeds into his ROTH IRA. I will repurchase O and I haven't decided whether to repurchase UHT or go with HCN.

You can't exchange stocks from a taxable to an IRA. You have to sell, pay your capital gains tax, and then repurchase.

ROTH IRA ... Portfolio Value - $10,342.94

D - 46.29
FTR - 242.392
PG - 33.291
VZ - 109.934

Of the 27 companies he owns, 26 of them raised the dividend in 2011. Nobody lowered or discontinued a dividend. FTR paid the same dividend in 2011 as in 2010. All dividends are reinvested back into the company that paid them.

Thrift Savings Plan (TSP) - Portfolio Value - $4,135.94

He does not get any matches in his TSP, so he's just putting 5% of his income in. Index funds are the only choices.

F Fund (Fixed Income) - 4.70% of portfolio value.
C Fund (S&P 500 Index) - 36.27%
S Fund (Small Cap Index) - 31.39%
I Fund (International Index) - 27.64%

Since his other portfolios cover the S&P 500 rather well, we adjusted his contributions going forward. The contribution allocation is now as follows:

F Fund - 10%
C Fund - 10%
S Fund - 35%
I Fund - 45%

Portfolio value target for year end 2012 to stay on track for Project $3 Million is ... $74,355.59.

Thursday, December 15, 2011

Another correction

I just realized that VFC is showing in the portfolio. It shouldn't be there. VFC was sold and PEP was purchased.

I think I'm straight now!

Wednesday, December 14, 2011

Portfolio Objective

The primary objective of this portfolio, is "income replacement" later in life.

We're trying to build an income stream that is reliable, predictable, and increasing.

My Son is contributing $500 per month into this project. Based on his age back in 2008, and the amount of time he had to age 65, and the amount of value already in his portfolio at that time, the portfolio only needs to grow at an annual compounded rate of growth of 8.25%, which is historically lower than past long term performance for the market. So, I think there is a small margin of safety there.

The $3 Million Dollars will generate $10,000 per month in income at age 65 as long as the portfolio has a yield above 4%, which it currently does. Hence, naming the portfolio; Project $3 Million.

With an annual dividend yield of 4%, we only need a little more than 4% compounded share price growth to hit the objective.

Portfolio correction

Under beverage, I forgot to add PEP.

This portfolio will be updated the first week of January with 2011 results and I will post the position sizes as well.

I will also provide the breakdown via the ROTH IRA, Taxable account and, Thrift Savings Plan (TSP).

In January, it is my hope that O and UHT will be sold in the Taxable account and repurchased in the ROTH IRA. These REIT's have their dividends taxed at the Ordinary rate as opposed to the Qualified rate. My wish is to minimize the taxes due on these positions as they start to grow.

I may replace UHT with HCN though. I haven't decided yet. I'm concerned with the property breakdown within UHT as one property represents a high percentage of their real estate portfolio. If I decide to go with HCN, they also provide a discount on reinvested shares. That can add up over time.

Getting started

Towards the end of 2008, I decided I would change direction with my Son's (currently age 26) portfolio and go with a Dividend Growth Strategy and reinvest the dividends. 

The goal is to contribute $500 monthly and earn an 8.25% annual compounded rate of growth. Based on his portfolio value at the end of 2009, he will have accumulated a little over $3 Million by age 65. 

The link below provides the site I used to determine the objective. The criteria: 

40 years of $500 monthly. An interest rate of 8.25% compounded annually. Initial amount $42,205.00 (year end 2009 value of portfolio). 

http://www.planningtips.com/cgi-bin/savings.pl?amt=42205&dep=500&cmp=annually&int=8.25&a... 

In order to be on target at the end of 2010, he needed to accumulate $52,053.79. 

Mission accomplished. End of year total was $54,949.87. 

Dividend income is listed below. 

Portfolio Value (PV): 

2009: $42,205.42 ..... 2010: $54,949.87. 

PV as of JUL 1 ... $63.064.15. 
............ OCT 1 ... $60,269.59 

Dividends: 

Qtr 1: 09 ... $108.00 ... 2010 ... $264.95 ... 2011 ... $542.81 
Qtr 2: 09 ... $102.00 ... 2010 ... $357.17 ... 2011 ... $575.40 
Qtr 3: 09 ... $132.55 ... 2010 ... $518.24 ... 2011 ... $583.40 
Qtr 4: 09 ... $341.83 ... 2010 ... $510.71 

Holdings: 

Drugs: ... ABT, JNJ 
Beverage: ... DEO, KO 
Food: ... MCD, SYY 
Utilities: ... D, SO 
Bus. Srv.: ... ADP 
MLP's: ... EPD, KMP, MMP 
Tobacco: ... MO, PM 
Cons. Disc.: ... VFC 
Cons. Staples: ... CL, GIS, KMB, PG 
Oil/Gas: ... BP, CVX 
Telecom: ... FTR, VZ 
Materials: ... NUE 
Defense: ... LMT 
REIT's: ... O, UHT