Leveraged Income Experiment

[George the original one]

After reviewing the 15 stocks used for this portfolio over the past two years, only one (NRGY) has been a clunker. When it comes to capital gains, hindsight suggests that I should have hung onto WPC, MAIN, UHT, & LTC. WPC would have been a good keeper for dividend growth, too.

[GPMagnus]

Hindsight is always 20/20, but if you got 1 clunker out of 15 you are doing very well!

[thebbqguy]

George,
Your portfolio has benefitted tremendously from timing. Do you have any advice for someone who might want to attempt starting a similar portfolio this year with stock market attaining new highs? Would that have impacted your decision making?

[thebbqguy]

Albeit on the riskier side of dividend paying companies due to the coal industry being at the mercy of increasing regulation, I have been liking my research on Natural Resource Partners LP (NRP) today. At 14% ROE and 10% yield with comments in the 10K published in February that they do not anticipate needing to reduce Distributable Cash Flow further in order to pay future principal payments for the next couple of years, I like what I'm reading. Priced only slightly above the 200 day moving average, I might pull the trigger on this one on a pull back in the general market.

[George the original one]

@thebbqguy - the strategy is not dependent on market timing since it's maximizing the difference between the interest rate the broker charges and the yield being paid.
If someone were to follow in my footsteps today, the important thing is to put together a shopping list, understand the fees & interest rate your broker will charge, understand the taxes, and crank some numbers with a spreadsheet before committing.
That being said, one shouldn't overpay for the shares and you'll note that my commentary struggles with using excess liquidity when the market is rising. Unfortunately, if the market declines, then it's likely that the excess liquidity disappears, so the decision to purchase more shares is difficult.

[thebbqguy]

I guess I should have said capital gains in your porfolio have benefitted from timing as money has piled into dividend paying stocks at higher than normal volumes in the last 2 years.

[George the original one]

https://docs.google.com/spreadsheet/ccc ... y=CMHbguoK
Interesting times! Income appears low this month because the $203 TICC dividend didn't hit my account until Apr 1 even though it was due on Mar 29. Mr. Market's strong advance enticed me to add many shares, enough that future income should average $400/mo. Today's decline (Apr 3) pushed my margin loan beyond 50%.

[secretwealth]

Does this mean YOC is going to be in the 30%s next month?
Also, any buying plans for next month? I'm in a few of these names and I've been thinking about getting more TICC, now that it's swinging low.

[George the original one]

> Does this mean YOC is going to be in the 30%s next month?
LOL, I hadn't looked at the numbers that closely. $200+$350=$550, 12*$550/$18k=36%
> Also, any buying plans for next month?
I bought ARCC today in other accounts because they dropped significantly on the news of a secondary offering.
In this account, I'll sit tight for awhile. I think the next couple months will be bumpy, so will let the income build up until I lose patience (or see a good opportunity).

[George the original one]

Volatility in 2013!
Apr 15 was a massive down day and Apr 16 is a massive up day. Swings in the 5% range (gulp).

[JoeNCA]

Watch that margin call George.

[George the original one]

Results for April 2013:
https://docs.google.com/spreadsheet/ccc ... y=CMHbguoK
As expected, due to a big dividend that was a day late hitting the account last month, this month's net income was nearly $600. Things will average out close to the $400/mo figure from here forward.
I might trade out half the OHI after its huge run-up and buy WPZ + NRP as a replacement. Some of that decision will depend on how steep a drop AGNC takes after posting a loss.

[George the original one]

May 2013 results can be viewed at https://docs.google.com/spreadsheet/ccc ... y=CMHbguoK
Good news is that income is over $400/mo. Bad news is that Mr. Market has been pounding down the capitalization for the past two weeks. Sell in May was definitely the order of the day if I wanted to keep capital gains!

[secretwealth]

Up 74% since inception--is that right? 24.82% CAGR?
BDCs and mREITs have been hit hard in May, but the portfolio still seems to be chugging along nicely. Thanks for the update as always, George!

[George the original one]

June 2013 results: https://docs.google.com/spreadsheet/ccc ... y=CMHbguoK

June began with a pounding and convinced me to back out of BDCs and mREITs for the time being. It's time for me to look for bargains outside of the heavily leveraged realm so that I can sleep better...

[secretwealth]

Does this mean the experiment is over?

[George the original one]

Not over, but changing with the times.

[mattgti]

George,
I currently own these foreign dividend ETF's:
Ticker/Yield/Name
SDIV 7.5% Global X Super Dividends
RWX 6.5% Foreign REITS
EDIV 6.5% Emerging Markets Dividends

I enjoyed a huge run up with RWX in my Roth account. SDIV has been chugging along. I just added a position in EDIV as emerging markets seem to have good value now.

I am in the process of opening a taxable margin account with IB and plan on using these ETF's in the portfolio. Have you considered using these yourself?

Also, I plan to employ some formula for using margin based on value. More margin when something looks undervalued, no margin during overvaluations. I haven't figured out exactly yet. Still funding the account.

[George the original one]

No, I'm biased against ETFs. Doesn't mean they're wrong, just that they usually don't fit my style since I prefer to value a company & its prospects rather than an entire market.

How much is the foreign tax on these funds? Are they leveraged? All the ones listed have short histories, so you're taking a guess on a lot of variables concerning their management.

After my brief examination, I'd prefer SDIV to the others. They all have lumpy dividends, so it would be hard to create a predictible income stream.

[secretwealth]

I like SDIV just for its investment strategy and top holdings, but it isn't the greatest option for income generation out there.

BDCs seem to be recovering since June.