Stocks We Own

Sep 14, 2012 by

standard oil stock certificateI’m taking some heat for my views on stock investing, as explained in my Bargaineering guest post. Understand please: I’m only explaining what I do and why. I’m confident (and my wife’s in general agreement) the approach I take is appropriate for my family, and the results speak for themselves. By that I don’t mean that I’ve made a killing by mostly avoiding stocks. I simply mean that my wife and I are satisfied with the results of our financial strategies, given the risks we’re taking.

I don’t make investing recommendations. That’s not any part of what Money Counselor is about. You’ve got to decide that for yourself based on the specifics of your situation and your risk tolerance and ambitions. But the main thing you can and should do, in my opinion, is get educated. And that is what Money Counselor is about, plus there are many excellent blogs targeted more precisely on investing than is Money Counselor.

With that said, I thought I’d give my critics another opportunity to take potshots. I rather enjoy the condemnation, and hearing a broad range of views makes this site more useful to readers I think. I resolved early on to make Money Counselor about you, not about me, but today’s post will be an exception.

Stocks We Own

As noted in my Bargaineering post, we do own stocks. But they comprise a much lower proportion of our overall financial assets than virtually all “experts” would recommend for our ages and circumstances. And the stocks I own almost all pay substantial dividends and, in my view, are less risky than average. For example, we own:

Bristol-Myers Squibb – Dividend yield today of nearly 6%, based on the price I paid. Though I consider this a bonus, on paper I’ve notched a 50% capital gain. Unless and until the U.S. were to adopt a true universal health insurance system, I like pharmaceutical companies (as cash generators), generally. That means I will like pharmaceutical companies for the remainder of my life, which is the limit of my investment horizon.

Bank of Nova Scotia – In Canada, genuine regulation and conservative management of the financial industry still reigns (in obvious contrast to the U.S.). Again based on the price I paid, my dividend yield today on this investment is 5%. Yes, the dividend is paid in Canadian dollars. To the likely surprise of many American readers, the Canadian dollar is worth about 2.5% more today than the U.S. dollar, and many predict the Canadian dollar will continue to rise in value versus the U.S. dollar over the long term. This effect would boost my U.S. dollar-denominated dividend yield.

General Electric – I took a beating on this one during the 2008 financial meltdown thanks to GE’s dependence on equipment financing for profits. After one of the longest—perhaps the longest—streaks of uninterrupted dividend increases in history, GE slashed its dividend in 2009. The Board has partially restored the dividend, and the company is working to reduce the relative importance of its financial services arm. Still, now that the dust has I hope settled, I’m earning a 2% dividend based on the price at which I purchased GE stock.

TransCanada Corporation – Perhaps my most successful investment of the past decade, I’m earning a 6.2% dividend based on my purchase price, plus on paper I have today a 52% capital gain. TransCanada is behind the 1,179-mile Keystone XL Pipeline from Hardisty, Alberta to Steele City, Nebraska. Despite being bogged down for the time being by politics, this project will inevitably move ahead, in my opinion, regardless of the outcome of this fall’s U.S. election and unless Americans stop driving inefficient, oil-powered vehicles. There’s far too much money waiting to be made—a nearly always irresistible force in capitalist economies—when the project is complete for it to be cancelled permanently. Again, dividends are paid in Canadian dollars; see Bank of Nova Scotia above for my take on this.

Summary

Okay, that’s not everything, but it’s enough. As you can see, first and foremost, I like income. Show me the money. Because of their ephemeral nature—going “poof” is always a possibility, until you sell—I don’t stake my retirement comfort on capital gains. (Imagine if you planned to retire in 2009 and watched as half of your retirement portfolio and all of your capital gains vaporized in the second half of 2008. Talk about stress!) I’ll always take $1 today in lieu of a speculative $2 or $3 (or possible 50 or 25 cents—many investors don’t consider that prospect) far in the future. But that’s me; you have to make your own judgement.

Individual Stock Investing Is Inherently Riskier

I do recognize that investing in individual companies is inherently riskier, generally, than investing in mutual funds. Individual stock investments comprise a small portion of our financial assets. To complement our individual stock holdings, we also own a couple of equity mutual funds as well, namely Vanguard International Growth (VWIGX; expense ratio = 0.47%) and the T. Rowe Price Equity Income Fund (PRFDX; expense ratio = 0.68%). The Equity Income Fund is actively managed, something I’ve preached vehemently against. However, it’s always been conservatively managed, has a very low expense ratio for an actively managed fund, and pays a substantial (2+ percent) dividend.

Our single largest financial investment, by far? It’s not in equities, but rather the Vanguard Inflation-Protected Securities bond fund (VIPSX; expense ratio = 0.20%). Some argue that stocks are the best—if not only—insurance against inflation. I prefer to rely in part on TIPs (Treasury Inflation-Protected Securities).

Investing Failures

I certainly do not mean to imply that I’ve a great stock-picking record. I definitely do not, and I’ve made loads of investments that did not work out as hoped. C’est la vie.

Next post: Stocks in which I do not and would not invest.

Your Holdings?

Anybody care to reveal one or two of their financial investments and your rationale for the choice?

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  • William_Drop_Dead_Money

    The biggest investment I had until recently was Felcor Lodging (FCH), a hotel REIT. Most I bought last year when the market drop really hammered this stock unjustly (classic value investing). So I got in for around $2.50 on average. I believe its fair value is around $6, but I got out at $4.80 because that was close enough for me. This may sound funny, but I thought it would take two years to get to $5, which was my price target, so now I’m sitting on a pile of cash wondering what to do next.

    As the market moves up without me! Not smart probably, but I don’t jump in until I know the company I’m going for, so if I have to wait I’ll wait. I’d rather be conservative and make less when I’m surer of myself than jump in so as not to miss out on a rally. In Alaska they have a saying: there are old pilots and there are bold pilots, but there are no old bold pilots. I tend to go for the old, rather than the bold.

  • Andy Hough

    I used to own GE as well and lost money on it selling after they cut their dividend. I should have sold it sooner, but they kept promising they wouldn’t cut the dividend. I’m considering putting some of my IRA money into a TIPS mutual fund also.

  • frugalportland

    For me, it’s just a 2040 index retirement fund thing.

  • Those are some solid stocks. BMS is probably the most risky because of the pipeline and recall risk of its products, but I do agree with you in that these are established companies that have paid dividends over the long run.

  • RichUncle EL

    I recently took a risky approach in Win telecom stock and a not so risky approach and invested in KO Coca Cola. The reason I went with Win is because of the high yield and the low stock price and the reason I bought Coca cola was because of a recent stock split which made it worthwhile for me to own at 37 dollars a share. The portion of these assets compared to my net worth is less than 10% of my assets so I consider it play money. Bullish on Win purchased at 9 dollars a share and looking to sell when it hits $15, as for coca cola I am in it for the long haul will make purchases every year until I retire.

  • Great list, Kurt! You may want to think about JNJ. I own both GE and JNJ as I used to work for both companies. These two stocks alone are providing me about $1000 per month in dividend income.

    • Thanks for the tip, I’ll take a look at JNJ. Nothing beats income for me.

  • I like to invest in what I know. Two of my favorite buys: Mead Johnson (MJN) right after the IPO. They make Enfamil baby formula, which just has a crazy hold on the formula market. The other is eBay. That stock was way down at the beginning of the recession, which didn’t seem right, so I scooped up some shares! 🙂

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