Freedom Fund Update – September 2013

Well, the time has come to update the Freedom Fund once again as we start another month. The Freedom Fund is my portfolio, and I think it’s aptly named. My portfolio is my way to freedom; freedom from a job I don’t desire to purchase goods I don’t need to impress neighbors I don’t care about. This journey is all about freedom and flexibility. One day the dividend income this portfolio generates will fully replace my day job’s income and my time will be completely my own. What could you possibly want to own more than your time?

I feel extremely fortunate and thankful that I’m able to post these updates every single month which shows the power of monthly contributions to investments because of the high savings rate I maintain. It shows how a relatively large sum of money can be built through the power of time, patience and perseverance.

It’s important to keep in mind that while updating the overall value of my portfolio is important for historical reference and for purposes of keeping track of total return, my main focus is on the rising dividend income stream the Fund provides.

The Fund was extremely active last month as I managed to purchase equity in high quality companies at what I felt were opportune prices at opportune times. This was actually one of the busiest months my portfolio has ever had, and I didn’t actually intend it to be so. But as I recently discussed, my addiction to dividends sometimes gets the best of me!

During the month of August, I added to my position in Digital Realty Trust, Inc. (DLR) and then proceeded to purchase additional shares in Altria Group, Inc. (MO). Next, after some reader feedback and encouragement I decided to initiate a position in American Realty Capital Properties Inc. (ARCP). Finally, just when I thought I was done for the month I decided to initiate a position in what I thought was an attractively valued blue chip in International Business Machines Corp. (IBM).

The current market value of the Freedom Fund stands at $124,203.41. This is an increase of 0.8% over last month’s published value of $123,154.37. This increase is due to a combination of a massive fresh capital infusion along with the reinvestment of August’s dividends, with which I used to make the equity purchases I listed above. Seeing as how the S&P 500 is down 4.49% over the last month, it’s only because of all the purchases that my portfolio actually increased in value. Of course, I’d be happy with continued 5% drops in the broader market so that I can put fresh capital to work at better prices, and hence valuations.

Looking forward, I’m excited to continue adding fresh capital to the Fund and making purchases at appropriate valuations. The broader market’s continued decline has brought the valuation of some high quality companies down a bit, which is something I’m rather happy to see. Hopefully this decline continues a bit further. I was a bit more active than I planned on being during the month of August, so due to this I don’t have a lot of excess cash to work with in September. However, I should have enough capital for two purchases if the prices are right.

I’m currently invested in 39 companies. This is an increase from last month as there were no sales, and the initiation of two new positions as discussed above.

These updates are mainly designed to show the increase in the value of the underlying equities I’m invested in, but the main purpose of investing in dividend growth stocks is for the rising stream of dividends over time. So with that said I don’t put too much emphasis on these monthly updates on the value of my portfolio. I think it is a good idea, however, to keep track of the rising (or falling) value of one’s securities and be aware of where they are in terms of the marketplace and whether or not certain stocks are attractively priced. It proves to be a useful exercise, for me at least, to update the values monthly. It gives me fresh perspective on which equities are performing well and which aren’t, and from there I can make educated decisions (based on further due diligence) on which stocks I’d like to add fresh capital to (while considering portfolio weight as well).

Full Disclosure: Long DLR, MO, ARCP, IBM

How are your portfolios doing? Looking forward to further pullbacks?

Thanks for reading.

Photo Credit: Vichaya Kiatying-Angsulee/FreeDigitalPhotos.net  

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24 Comments

  1. Nice work for the month DM! With the market down as much as 5% it is no wonder you initiated more buys. I too invested more than regular this month, since we do not know when such a great buying opportunity will come next. I bought some K, ARCP, PEP, PM and MCD.

  2. DividendVet,

    Thanks for stopping by.

    You’ve got it right! When the market drops like that I’m more than happy to deploy some capital and buy equities at advantageous prices.

    Nice buys during the month! You and I both like ARCP. Awesome. 🙂

    I would have bought PM as well if my position wasn’t already so large. I think PM is in a great position to do very well for the next 10-20 years or so.

    Best wishes!

  3. I like ARCP, and they have had fairly recent buys from some great hedge funds too. David Simon of Twin Capital being one of the more noteworthy ones.

    Also, the close of LSE and ARCT IV should be very soon.

    2014 should be a great year for American Realty Capital Properties.

  4. Quick question
    If you’re looking strictly for dividends, why no high yield funds? Something along the lines of ACG, PHK, or DHF

  5. Hm, let’s see ACH is .64% exp ratio, not sure what else might be in there but it is definitely not the highest I have seen. Going 24 months back puts you at a drop in NAV of around 14.04% but you received dividends of 6.9% per year minus the expense ratio. Invested in 88%+ us short to long term bonds. I agree with having a certain portion of fixed income, but not sure if these are the best picks, I have seen others like IIM, NEA and NUV (municipals are tax exempt for the most part) lately but these fixed asset funds are definitely not in the same category as leading brand companies that have increased dividends like MO, MCD, KO, PEP and the like.

  6. Sorry ACH is ACG, typo! I thought I would look at 10yr on these and it seems they have a 20-30% drop in value but of course those dividends are there, seems tricky compared to our dividend champ consumer/energy/other based companies. I have a small amount of this in my portfolio but I remain cautious, Warren Buffet said the dividend business is basically bad at this time, every time I look more into it I tend to agree! Proceed with caution. 😉

  7. Hey DM,

    Nice purchases this month! You’ll be at a quarter mill in no time.

    I’m looking to put some cash to work in September myself and have been eyeing Aflac (AFL). DO you know how a rise in interest rates would affect a company like AFL? Are interest rate increases positive or negative for a company like them?

    Thanks for your help.

    Adam

  8. As always, great job. Good, quality additions to the portfolio. I’m actually looking forward to September as it is usually the worst month for the market overall…need some additional dips in order to allocate some capital sitting on the sideline.

  9. Yes I am looking forward to further declines, my trigger finger is getting itchy and I’m not holding my gun!

    Anyways congratulations on a fantastic month, it’s going to be awesome seeing these new shares pay you dividends going forward! I noticed your portfolio page says you own 63 shares of SBSI, did you receive additional shares in May?

    Keep it up!

  10. dividendgamer,

    Absolutely. 2014 should be a great year for ARCP as some of the big acquisitions close as they are accretive to earnings. I’m really looking forward to seeing how ARCP grows.

    Thanks for stopping by. Hope your journey is going just as well as mine!

    Best regards.

  11. Mark,

    Thanks for stopping by!

    Yeah, this past month was one of my busiest months ever. I seen some opportunities and fortunately had the capital to take advantage. It’s not always that way, but I’m always happy when situations favor me.

    Keep up the great work.

    Take care!

  12. BidAskDividends,

    September can be a rough month. I’m hoping for further volatility and perhaps a sharp correction. I don’t have a ton of capital to deploy, but a correction would bode well for my ability to buy quality at attractive prices for the rest of the year.

    We’ll see what we get!

    Best regards.

  13. Anonymous,

    AFL should do well if rates continue higher from here. AFL invests most of their float in high grade, low risk fixed income instruments. Higher interest rates means that these fixed income investments can be reinvested at higher returns. AFL has derisked their portfolio as they were, at one point, heavily invested in sovereign debt from some of the PIIG nations, but they’ve reduced that exposure significantly since. My commentary is assuming we don’t see interest rates that are out of control, which can cause macroeconomic issues beyond AFL’s control. Also, keep in mind that AFL does approximately 80% of their business in Japan.

    Cheers!

  14. Compounding Income,

    Thanks for pointing out the error with SBSI! I was supposed to make the change on my Google spreadsheet when the new shares came my way and never did. Then I never caught the error, compounding my mistake. I corrected that. Thanks.

    Thanks for stopping by. I appreciate the support. Keep up the great work on your end too!

    Best wishes.

  15. Hi DM,

    Recently, I read that you have added some positions from O, good choice! I plan to do the same shortly. After reading some articles and analyzing several REITs, I considered that HCP was also a good choice: good fundamentals, dividend, diversificationi, … So, O and HCP will be the REITs representatives in my portfolio.
    Have you considered HCP?
    I see that you have got some stock from ARCP. This was a little bit surprising to me since this is a relatively new company, only records since 2010. Normally, you put your eyes on companies with longer records, could you please share why this decision?

    Regards!

  16. Hadamard Business,

    I wrote a lengthy post on why I initiated a position in ARCP. Although the operational history is short, the progress has been incredible thus far. In fact, I think one of the biggest risks behind owning shares in this REIT is that it might grow too much, too fast. It’s been doing great so far, however.

    You can read about ARCP here:

    https://www.dividendmantra.com/2013/08/recent-buy_19.html

    I’ve looked at HCP. It’s a great REIT and I may own it someday. OHI is another REIT in the healthcare sector I like.

    Best of luck to you! 🙂

    Cheers!

  17. Thank DM for clarifying. I have read your opinion of ARCP and agree that it seems to be a good choice, similar to O (the historical records may not be comparable though 😉 )

    I see that you have talked about price and business situation, but you did not mention debt. If the company is growing so fast and most of the profit is being given to stockholders, I would consider that the debt may be growing as well.
    I found this interesting article which I use to evaluate REIT debt.
    http://seekingalpha.com/article/131503-must-know-info-for-investing-in-commercial-reits-if-you-dare

    For instance for O, these were my conclusions:
    – Debt / Total capitalization = 32,4% < 100% (75% to be on the safe place) PASS
    – Interest coverage = Adjusted EBITDA / Interest expense = x3,5 > 1 (1,5-2 to be on the safe place). PASS
    – Rating: ” Fitch Ratings has assigned a
    rating of BBB+ with a “stable” outlook, Moody’s Investors Service has assigned a rating of Baa1 with a “negative” outlook,
    and Standard & Poor’s Ratings Group has assigned a rating of BBB with a “stable” outlook to our senior notes. ” PASS
    Now, I calculated Net Debt/EBITDA and it results something close to x8, what worries me a little bit (in case the calculation is correct).
    Have you considered the debt status in your assessment of ARCP, O,…? Would appreciate to know your opinion.

    Best Regards!

  18. Hadamard Business,

    I looked at the debt situations, and neither one concerns me. REITs typically have higher debt loads than other entities because they use debt as a tool to finance acquisitions which are usually accretive to earnings. Because most of the FFO is paid out in the form of dividends, there is little left to grow the business. Therefore, acquisitions are financed by issuing new shares and debt. ARCP is still relatively new, so it’s tough to say where they’re going to end up. They are a small investment for me.

    I hope that helps!

    Best wishes.

  19. DM, I agree with you regarding the way REITs follow to finance their investments.
    Which filters do you use to evaluate debt? Do you have already a post on it (I may have miss it 🙂 )?
    For me it was a little bit shocking the Net Debt/EBITDA (for all REITs I have analyzed this ratio is bigger than x5, ranging from x5-x8), so it would be interesting to understand the result with which knowledgeable people, like you, feel comfortable.

    Cheers!

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