Freedom Fund Update – October 2012

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 working at a job I don’t enjoy to purchase goods I don’t need to impress neighbors I don’t care about.

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It’s important to keep in mind that while updating the overall value of my portfolio is important for historical reference and for purposes of keeping track of total return, my main focus is on the rising dividend income stream the Fund provides.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 large rise in values that an individual investor can see in their portfolios are always nice, but that unfortunately comes at the expense of rising stock prices. This is, of course, not something a dividend growth investor likes to see if they are still in the asset accumulation phase. I’ll gladly take flat stock prices over a long period of time, as that allows me to continue building positions with wonderful companies and a larger percentage of ownership of said companies at cheaper prices. Who doesn’t love a sale?

The current market value of the Freedom Fund now stands at $81,101.40. This is a large increase since my last published value of $76,156.47. This increase is mostly due to fresh capital allocation with which I used to increase my positions with Intel Corporation (INTC) and Norfolk Southern Corp. (NSC). I also initiated a new position with Kinder Morgan, Inc. (KMI) this past month. It was a busy September! Crossing over the $80,000 mark in total portfolio value is very rewarding psychologically, and it does feel great to know that my plan is working! But, it’s still important to realize that my focus is on the rising dividend income stream this portfolio generates.

I’m currently invested in 29 positions.This is an increase since my last update, due to the initiation of a new position with Kinder Morgan, Inc. (KMI).

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 in 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 or not. 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).

How are your portfolios doing?

Full Disclosure: Long all aforementioned securities.

Thanks for reading.

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29 Comments

  1. The Freedom Fund is looking nice DM! You are getting really close to that 100k mark. That will be nice!

    Any thoughts on how many more stocks you want to add? Looks like you’re well diversified as it it stands.

    Have a great October!!

  2. Congrats on surpassing the $80k mark. At this rate, you’ll easily hit $100k early next year! I hope to do so by late 2013 or early 2014. Keep up the awesome work and happy investing! Cheers!

  3. Hey DM,

    Congrats on crossing $80k. Your blog serves as inspiration to lot of people. I am also working towards my goal of generating enough dividend income to pay for my living expenses.

    Way to go!

    Thanks for keeping your blog updated.

  4. The Stoic,

    Thanks for stopping by. I appreciate the support!

    Yeah, I’m getting a bit excited as I near the $100k mark. That should come sometime early next year assuming a flat market.

    As far as total stock positions, I’m thinking I’ll probably cap out around 40 or so. If I continue to find attractive companies then I will continue to buy, but I don’t want the portfolio to get out of hand, either. I think 40 or so will be my limit.

    You have a great October as well!

    Best wishes.

  5. PIP,

    Thanks! I appreciate it. It does feel nice to see the Fund growing.

    I’m hoping for a bit of a pullback as well. I won’t have as much capital in October as I had in September, but I think I’ll have enough ammo for one decent sized purchase. We’ll see what Mr. Market gives us!

    Best regards.

  6. Henry,

    Thanks for continuing to follow the journey. I agree with you; I’ll likely hit the $100k mark early next year, assuming a flat market. They say hitting the first $100k is the toughest, so that means an easier time going forward, hopefully, as the compounding effect begins to take hold.

    Glad to hear your journey is going well, too! You’re going to hit the $100k mark right around the same time as me. Maybe you’ll even decide to blog again! 🙂

    Take care!

  7. Anonymous,

    Thanks for the support!

    I’m really glad you find inspiration here. That is the main reason I continue to write and blog about frugal living and investing.

    I’m glad you’re working on your own journey towards financial independence. I hope you stay in touch and continue to update us about how it’s going.

    Thanks for stopping by.

    Best wishes.

  8. Hi DM,

    Congratulations on passing the $80K mark and on your three recent purchases! You will hit $100K very soon. Don’t go spending all your dividend income on the celebration, though 😉

    Keep up the great work and it is always a pleasure reading your updates!

    -Samir

  9. Speaking of pullback….I have been watching EMR for a while. It has dropped 10% in the last 2 months, and is at about 78% of its historic high. It has 55 years of increasing dividends, a reasonable P/E, debt, and revenue is up slightly in the challenging last three years for industrials.

    If you guys didn’t already have a position in this would you be pulling the trigger on this one now?

    Newbie

  10. I’m curious, how do you determine what percentage of your portfolio each position represents? I try to keep my holdings pretty even. I notice some of your positions are really small compared to others.

    Steve

  11. Samir,

    Thanks! Yeah, I expect to hit the $100k mark early next year. That’s a big milestone, even if you only consider the psychological factor. I’m most excited about the compounding effect growing as my portfolio gets larger.

    You keep up the great work too.

    Best wishes!

  12. Newbie,

    Thanks for stopping by.

    Great question on EMR. I’m long with 60 shares, so obviously I’m a fan of the business. I consider this stock a good value below $50, and I would consider it a definitive buy at anywhere near $45. I purchased some additional shares a few months back around $45 and would be more than willing to do so again if it hits that mark again. A dividend increase is coming up soon with EMR as well.

    Good luck.

    Take care!

  13. Anonymous,

    Great question.

    I’d eventually like to have all my positions fairly equally weighted to a realistic degree. My portfolio is still obviously in the accumulation phase, so I place valuation considerations above weighting considerations. That being said, I don’t want any one position to have an overwhelming effect on my income. It’s only because of this that I haven’t purchased more PM lately.

    Some of my smaller positions have run up in value, or become less attractive, since my initial purchase. KO is a great example. I purchased in the low $50’s and it ran up to $80 before the split. Fantastic company, and I’d LOVE to have a bigger allocation to it, but it has been expensive for a while. I wouldn’t mind purchasing a little more at a fair value, which is near to where it’s trading now, only because it’s such a fantastic business and worth paying a fair price for.

    Hope that helps.

    Best regards!

  14. Headed Home,

    Thanks for the support. I’ve been extremely lucky and blessed to have had such a run of progress this year. I’d be even higher had I not taken a detour this summer, but it was best for the long haul.

    Good luck on your journey home!

    Best wishes.

  15. Joe,

    Thanks! I’ve been blessed. It feels good to have tangible progress, and the dividends are proof in the pudding.

    I’ll have to look into KRFT. Kraft fell off my radar a while ago due to the static dividend, but the spin-off is interesting. I’d be a little concerned about the growth with KRFT, and I’d liken it to the MO side of the Philip Morris split…no? It seems MDLZ would have the better growth prospects.

    I’ll have to look into this one a bit more after the split is final. You’ve never steered me wrong!

    Best wishes.

  16. Anonymous,

    KRFT is the new ticker symbol for Kraft Foods Group Inc., the North American grocery side of Kraft post-split. Could be an interesting dividend story, but it will depend on the growth going forward.

    Best wishes!

  17. DGM,

    Thanks for your continued support of my journey. It feels great to grow together. You’re doing fantastic as well!

    It does feel great to pass the $80k mark, even if I continue to remind myself it’s all electronic/paper gains. It just means the compounding effect will really start to take hold just based on the percentage of companies I own.

    Take care!

  18. MOA,

    Haha! I don’t think so. I’ve got a LONG ways to go before I catch up to you!

    Great work on your end! You’re dividend progress is inspiring and a great target to shoot for.

    Best wishes!

  19. Thx DM for the perspective on EMR..I am still trying to feel comfotable with my ability to do a reasonable analysis. Its at 48 now and will pull if it reaches 46.

  20. Great progress. Wow, 80k already, huh? Seems like everytime I check your portfolio, it increases another 5k or 10k. So, you must be doing something right 😉

    I’m with you, and tend to focus most of my attention on counting the growing dividend income stream, versus focusing on total portfolio value. Still, the total value serves as a good barometer on how the overall progress is going.

    It would really be disheartening to invest 2k every month, only to see the total portfolio value continually diminish every year. OTOH, it is a great feeling to see the portfolio rise by say 10% or 20% a year, when you know you didn’t contribute that much in that timeframe.

    In general, I try not to look at portfolio value from month to month, since that mostly resembles noise, given the market volatility. However, if I see my portfolio losing value over a period of years, it would force me to rethink my strategy and gameplan.

    Cheers!

  21. Indeed, a bit similar to MO in that respect.

    On some investor literature a couple months ago they projected a mid single digit revenue growth for KRFT, which seems pretty plausible to me. It also seems to me that they will likely grow the dividend like that. That is my assumption, anyway.

    KRFT is lunchables, cheese, clausen pickles…Cream cheese…All that crap, Americans will likely keep buying that until the cows come home. School lunches, oreos, all that crap.

    MDLZ I sense will be an amazing capital appreciation story…I didn’t get the feeling that management really cared that much about the dividend. When describing KRFT, they said “competitive” dividend (and yes, 4.5% is very competitive), but with MDLZ, they said “modest” dividend.

    BTW the 4.5% yield is based on the fact that management expressed their desire for 2 dollars/share dividend for KRFT going forward.

    KRFT almost reminds me of COP in the sense that it is a large, elephantine dividend which will probably chug along and grow in the mid single digits.

    If management does something stupid like freezes the dividend, my thesis will be proven wrong. But I think that after the whole Cadbury acquisition, the dust settling with the splitting of the companies, I think this indicates management finally has it together about being a consistent global company.

    My impression is that MDLZ will be an amazing capital appreciation story. Foreign snack food sounds AWESOME. But from the perspective of people like us who want stocks to retire with sooner, I think KRFT makes a lot of sense. I’m proud of the fact I never steered you wrong:)

    This one is a hunch, as yet unproven…I think KRFT will prove to be a good buy for people like us.

    That’s my $.02 and I push it because I know we are on similar trajectories…It is a hunch, but an educated hunch. My feeling is KRFT will be 4.5% yield with about 5-6% growth in the next couple years. Not bad in a low interest environment, with pricing power to raise when inflation hits.

    Cheers my friend!

  22. Joe,

    Thanks so much for that information. It sounds like you feel pretty optimistic about this play. It’s now on my radar for a purchase. I’ll look into this a bit more myself, but the business and yield sounds compelling. Whether or not they decide to grow the dividend is the big question.

    Again, thank you!

    Beset wishes.

  23. FI Fighter,

    Thanks. The progress has been amazing. If I wouldn’t have “taken the summer off” I’d be in even better shape. But, live and learn.

    I hear you on the portfolio value vs. dividend income. It all comes down to valuation and what’s preferable. Of course, I am firmly in your camp. Why would I want paper gains that make it more expensive to grow my wealth? Makes no sense to me.

    You’re making great progress as well. It looks like you’re going to beat me to FI, as you are doing much better at 28 than I was!

    Best regards!

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