Freedom Fund Update – April 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 traditional 40-year career 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It’s important to keep in mind that while updating the overall value of my portfolio is important for historical reference and for purposes of keeping track of total return, my main focus is on the rising dividend income stream the Fund provides.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 S&P 500 continues the epic bull run we’ve been experiencing since the lows of 2009. Will it continue? Who knows. I don’t try to anticipate market moves or try to predict major macroeconomic moves. What will Washington do tomorrow? What’s up with North Korea? Will the trouble in Europe reach our shores? Questions like these are ones I avoid because, frankly, nobody really knows the answers.

There are no shortage of “experts” out there that claim to have the answers, but they’re all just clamoring for face time (or your money). I’m not an expert. I simply stick to what I know best: saving as much of my net income as I possibly can and then investing said savings into high quality companies that continue to produce products or sell services that people and other businesses want and/or need on a daily basis.

However, that all being said I do hope for a healthy correction in the broader market. A 10% drop in the general market would be a welcome sight by yours truly, and I wouldn’t be surprised to see something along those lines in the near future as some investors decide to take some profit off the table. Although such a drop would have a negative effect on the value of my portfolio, cheaper shares would allow me to buy more for my money. More shares equals more dividends and more passive income, which brings me ever so closer to my goal of financial independence. I look forward to cheaper shares in high quality companies much in the same way I look forward to a sale at the grocery store. Except I spend much more money on the former than the latter!

Over the past month I decided to sell my entire position with UNS Energy Corp. (UNS) after a strong run-up and a 31% total return. Utilities in general have been strong performers over the last year as investors continue to flee to higher yielding securities in the face of prevailing low interest rates. I used the capital from that sale, along with fresh capital from my day job, to add to my position with Lorillard Inc. (LO) and also add to my position with Kinder Morgan Inc. (KMI).

The current market value of the Freedom Fund stands at $103,131.12. This is an increase of 5.06% over last month’s published value of $98,166.64. I finally crossed the six-figure mark, which I’m extremely fortunate for and excited about. I talked about this very recently, noting my portfolio’s rise from $5,000 to $100,000 in three years.

Overall, I’m very happy with the way the Fund is progressing. It’s fairly diversified across plenty of high quality companies, with some of my bigger ownership positions in Chevron Corporation (CVX), Johnson & Johnson (JNJ) and PepsiCo, Inc. (PEP). Whether or not the global economy takes another dump or not, people will still continue to buy the products that the above companies produce. Hell, even as frugal as I am (something I take great pride in), I still buy Pepsi’s products on a regular basis. I don’t own a car, but my little 16 year-old scooter still requires gas and the bus I regularly ride also needs to stop by the gas station before the morning runs begin. If I get a headache, I’ll be anxiously looking for some Tylenol.

I’m currently invested in 30 companies. This is a net reduction from last month, due to the aforementioned sale of UNS.

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. 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 KMI, LO, CVX, PEP, JNJ

How are your portfolios doing? The epic market run-up has you feeling great, or queasy?

Thanks for reading.

Photo Credit: Vichaya Kiatying-Angsulee/FreeDigitalPhotos.net

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29 Comments

  1. Congrats on officially crossing the $100k mark! Just curious how much is cash? I’m very close to $100k myself but only about $85k is actually invested. But over half of the cash is set aside for put options and the rest is waiting for a pullback. I’m hoping to make some purchases this week because it’s been awhile and I want to add to my dividend income.

    PS. Feel free to swap from PEP to KO.

  2. Not to rain on the parade here, but I’m worried about KMI. I think Rich Kinder can keep the musical chairs going for a while, but he’s been playing with fire and under-investing in maintenance for a while. The difference in valuation between KMR and KMP (which are supposedly identical other than cash vs. stock distributions) is the market saying these assets have less future value than current value as the one that distributes stock trades at a massive discount to the cash. There are much better pipeline and/or gas/oil/NGL processors out there. I’m a fan of Kelcy Warren’s ETE family.

  3. Good job crossing the $100.000! Reminds me of a Charlie Munger quote:

    “Munger has said that accumulating the first $100,000 from a standing start, with no seed money, is the most difficult part of building wealth. Making the first million was the next big hurdle. To do that a person must consistently underspend his income. Getting wealthy, he explains, is like rolling a snowball. It helps to start on the top of a long hill – start early and try to roll that snowball for a very long time. It helps to live a long life.” – Page 242, from Damn Right! Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger by Janet Lowe

    About the rising stockmarket, on the one hand, it’s nice to see the companies I own become worth more, on the other hand I wish I just could buy a bunch of Coke stock for $30 a share. Oh well, we just have to find harder to seek for good valued companies!

    Take care.

  4. Nice growth in your portfolio! We’ll see if the market corrects soon or not. It appears to be vacillating at the moment, but overall the market seems to be so unhinged from economic reality that I have no idea what it’s going to do. I’ll just keep hunting for solid stocks like I’ve been doing.

  5. Pursuit,

    Haha. Switch to KO, huh? Well, maybe you need to become a part-owner in PEP! 🙂

    Actually, I buy both…whichever one is on sale at the time. I prefer the taste of Coca-Cola, but I really like Pepsi’s new product Next. It’s half the calories, and from a long-time cola drinker it does taste pretty close to the real thing. No diet flavor.

    The $103k is all invested. I don’t list cash. You can see my holdings on my portfolio page, and all that market values add up to the listed amount above. I usually keep $4k or so in the checking account, and some cash in the brokerage account…but right now I have more cash than usual due to the lack of great opportunities. I plan on deploying some serious cash in April regardless.

    Best wishes

  6. Headed Home,

    I wasn’t aware of the lack of investment in maintenance. There is obviously heavy depreciation going on here due to the asset-heavy business KMI/KMP operates in, but I didn’t know they were far behind in maintenance. I’ll have to look into that.

    As far as the KMP/KMR difference goes, they’ve had a healthy spread for quite a while now. At least as long as I’ve been watching.

    ETE is high quality too. I’ve looked at that one before and liked what I saw. I think there is room for more than one in a diversified portfolio.

    Best regards!

  7. Exponential Dividends,

    Great quote from Munger there. One of the brightest to ever do it. I certainly hope he’s right about the $100k being the most difficult part of building wealth. That would mean things are looking up for me. 🙂

    I hear you on the market valuation. On one hand it is nice to see the portfolio value rise, but on the other that means new capital doesn’t go as far. Obviously as we are net buyers and asset accumulators, a cheaper market would be far more preferable. We’ll see what we get. I try not to worry about it too much. I just continue to focus on what I can control and pick out the best companies I can at reasonable prices.

    Keep up the great work there. I see you almost hit $100 in dividends for March. You’re on your way!

    Take care!

  8. Journey,

    I agree with you that the market seems to be unhinged from economic reality. News out of Europe (heard of Cyprus lately) doesn’t even have the market blinking. A bit unnerving, actually.

    I’m with you, however. I’ll just keep hunting for quality companies at attractive long-term prices and ignore the noise.

    Best wishes.

  9. Nice work making the 100k official! With the summer doldrums coming, I am hoping for some profit taking and a pullback as well. That correction would do wonders for the portfolio!

  10. I’d like to own some PEP eventually but it seems like it’s more chronically overvalued than KO. My favorite is actually Warren Buffet’s favorite, got to love the Cherry Coke. Maybe my returns can be like his.

    I’ll have to try Pepsi’s Next and see how it is. I do like what Dr. Pepper has been doing with their 10 series (10 calories). I’ve only tried the Dr. Pepper 10 but it does taste a little more like the original.

    I have to admit I was just lazy and didn’t feel like checking the portfolio since I was on my cell phone. My cash has been building too and I’ve been trying to put it to work through puts but I’m thinking April will bring at least 2 purchases no matter what the markets do.

  11. Congrats on hitting $100k! It’s super impressive how quickly you have pulled that together

    I think Munger is right, $100k is a key milestone both financially and psychologically. Dividends on $100k start to really look sizable compared to the paycheck, and you can really start to see the light at the end of the tunnel

    Earlier in comments, you mentioned Cyprus. The talking heads in the press love to talk about crisis, it’s so much more exciting than good news for them. Thing is, the economy of Cyprus is less than that of Shreveport, LA. Before Cyprus, it was Greece. The size of the Greek economy is less than that of Rhode Island. When was the last time they talked about the Rhode Island economy in the news? 🙂

    Congratulations again, and I’m looking forward to seeing the March dividend report.

  12. Glad to see you have overcome this 100 K hurdle. Carry on and I’ll be glad to look at you ten years from now with 1 M barrier broken. Just joking !

  13. writing2reality,

    Thanks so much! Yeah, the $100k is now definitely official. It feels great! 🙂

    Thanks again for all the support. I’m hoping for that long awaited correction/pullback as well. We’ll see what we actually get!!

    Best wishes!

  14. Aspenhawk,

    Yeah, a heck of a hurdle it was. It was a great three years, but certainly didn’t come without some serious hard work. But, anything worth having in life is worth working hard for. I find that we appreciate the things in life most when they are worked for.

    I certainly hope you’re right about that $1 million barrier. That would be wonderful.

    I hope your journey is going just as well over there on your side of the pond! Please keep me informed!

    Best regards.

  15. Jeremy,

    Thanks!

    Yeah, it seems like it happened almost overnight…but it was three long years, and the struggles are all listed clearly in the blog. One of the great things I love about this blog is that it chronicles all my ups and downs as I continue to strive towards financial independence. I don’t sugarcoat any of it. It can be difficult to live well below your means and invest that spare capital on a regular, consistent basis.

    Great points there about the economy of Cyprus. The overall effects of it will be limited on an absolute basis, but I do rather think most economists are worried about some kind of domino effect if they were to leave the euro zone. I personally think Europe would be better off without the euro, but who am I to judge.

    Thanks for the warm wishes. I’m looking forward to following your travels!

    Best regards.

  16. Mike,

    Thank you so much for the congratulations. Much appreciated!

    My passive income is just over $3,500 annually at this point, meaning my effective yield is somewhere around 3.5%.

    Please stay in touch!!

    Best wishes!

  17. Congrats on crossing the 100k mark! That is a great milestone. I like and am invested in all five companies you mentioned. Like you, I continue to make regular investments and ignore all of the market noise even though I believe we are overdue a correction. However, It keeps getting harder to find great companies at fair value or better.

  18. AAI,

    Congrats to you too for your recent milestone of $4,800 in forward dividend income. That’s really fantastic. I hope to be somewhere near that mark late next year.

    I agree with you that it’s getting difficult to find high quality companies at a price that’s fair to pay. I’m staying patient, but at the same time remembering my overriding prime directive for starting this journey and blog: growing my passive income. While I like deploying capital at slower speeds when the broader market is giving me less value, I still plan to continue selectively making purchases no matter what. Hopefully that correction, or pullback, does come sooner rather than later so that I can deploy capital at a greater rate.

    Best wishes!

  19. Wow – I am completely jealous of your Freedom Fund! My Dividend Income Portfolio f/k/a perpetual income machine is no where near that yet.

    I only unload stocks positions when they cut or halt their dividends. Since you seem to take a more hands on approach, when do you decide to sell? Just when you’ve made enough? Why not let it compound until it cuts its dividend. For example you sold KMI why not just ignore it for decades to come?

  20. Evan,

    Thanks so much for stopping by!

    No need to be jealous, I promise you that. You have many more assets than I, while most of my net worth is represented here in my Freedom Fund.

    To answer your question, I don’t sell very often. I certainly never sold KMI. I’ve only made a few sales since I started investing. For instance, I sold Telefonica S.A. (TEF) a while back because I thought the dividend was going to be cut and the fundamentals weren’t strong. They cut the dividend about a week after I sold. I also recently sold UNS Energy Corp. (UNS) because the dividend growth has slowed to almost nothing and the stock was, in my opinion, overvalued as many utilities currently are.

    I usually only sell when one of the following conditions are met:

    1. The stock is vastly overvalued.
    2. The dividend is cut, held static for multiple years or the growth slows to the point that growth is negligible.
    3. The fundamentals have changed or eroded since the purchase was made.

    I do regret selling XOM a while back. I sold because the low yield and lower growth rates were making it a less attractive investment. It has since picked up the dividend growth. I recently sold ABT and ABBV because I didn’t agree with the company split. I’m okay watching from the sidelines for now.

    I hope that helps!

    I also wrote an article on this a couple years ago:

    https://www.dividendmantra.com/2011/12/when-to-sell-dividend-growth-stock.html#more

    Best wishes.

  21. Good job for the $100k mark, another step toward the end of your slavery.
    Mine goes OK, I took some profits, about like yours, with a stop loss, and I virtually (concretely at dec. 31/2013) passed my 2013 goals in capital (with +$500 difference) and in revenue (with +$300), and the year isn’t even finished. By that I lowered of 1 year my AES (Age of End of Slavery), isn’t it pretty? 🙂

    Keep it up DM, our life time is more valuable than any sh*t you can buy in a store.

  22. JF Baconnet,

    Congratulations on blowing away your goals so early. That’s fantastic! I still have a long way to go for my dividend income goal, which is my primary goal. I hope to pass that mark by November, but we’ll see. The market is not cooperating like I’d like.

    Shaving 1 year off your journey is fantastic! 1 year of life is something that you really can’t put a price on.

    Keep up the great work!

    Best wishes.

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