DGI Journey: New Positions, Additions, Dividend Reinvestments And Planned Profit Taking For Building Cash

Is it time to buy yet?

I don't know...but we've had a small pullback since last week and since the high 1700s.... yes, "small" because a normal correction would be atleast 10% but what we've had so far is what? 5%? So that's more like a "pause".

Anyway, short post for now because I didn't update my blog for quite sometime. I've been keeping cash handy to buy on attractive dips. Even though I wanted to wait till September's taper tantrum, I felt that with the chorus of negative news, taper talk may die down and the feds may tone down their taper talk.

So a few stocks on my watch list started to look very attractive and I added to some positions and also started some new positions.

New positions added: (CVS), (COST)

CVS Caremark Corporation (CVS): I started a small position (30% of my intended final position) in CVS and will gradually fill in during sizable dips. This is a fairly new dividend growth story operating in the retail pharmacy segment. Dividends have been increased consistantly for the last 10 years. Like Walgreens, I like CVS as a growth story. It offers a 1.69% dividend yield. Though a low dividend for any dividend growth investor, I bought it early because low payout ratios and growing Earnings Per Share (EPS) make me think that this is a potential dividend growth story.

Costco Wholesale Corporation (COST): Costco operates membership based warehouses offering members lower prices by selling select merchandise products in bulk. Costco has been a leading player in this market and has seen stellar growth over the last year. I did break my rule of going for moderate Price to Earnings ratio (PE) and payout ratio. Costco has a trailing PE of 24 and a payout ratio of 176%. However, I felt compelled because owing to increasing memberships and rapid growth plans, Costco has a guaranteed source of cash flow to sustain dividends and historically, Costco's PE has been hovering around the same mark. I bought a small speculative position in Costco (around 40% of my intended 5 year target) after Costco came down around 8% from its recent highs. Costco has a low dividend yield of 1.1% but it has been constantly increasing dividends for the last few years and I see Costco has a potential dividend growth company.

Growth + Dividend Growth = Well balanced DGI

So looking at my overall dividend growth portfolio, I have three blue chips that pay very low dividends in terms of yield on cost (YoC): Disney (DIS) paying 1.50%, CVS Caremark Corporation (CVS) with a YoC of 1.69% and Costco Whole Sale (COST) with a YoC of 1.1%. My expectation is that these companies will not only sustain their dividends but also grow them.

Additions to existing positions

You need to be able to add to existing positions when you get opportunities and see attractive dips. I did just that with three of my existing holdings. Walmart (WMT), Target (TGT) and Chevron (CVX) took nice dips so I added small amounts equally to these three positions.

Walmart (WMT) came to the low 72s from the high 79s,

Target (TGT) came to the high 62s from the high 73s

Chevron (CVX) came to the low 117s from the high 127s.

These are good dips to add on for anyone going long in this dividend champs.

Dividends Reinvested

I built sizable cash positions from dividends in August so I deployed them to buy shares of Textainer Group Holdings (TGH).

Plans for September:

• Profit Taking And Rebalancing: I'm looking to book some profits on my Apple (AAPL) holdings - maybe to half before September 10th or right after September 10 depending on how sentiment goes. Apple on September 10th will be a classic case of buy the rumor and sell the news. Thanks to the Icahn lift and rumors building up towards the September 10th launch, I'm planning to sell and raise cash to buy on significant dips. I may change my plan and just continue holding if sentiment continues to stay and Apple's current move upwards turns into momentum that can be sustained. With the whole Apple saga and my general negative temperament towards technology, I'm actually looking to exit Apple completely within the next two years and will look to using capital gains from Apple and dividends as a mechanism to build cash positions and redeploy.
• Dividend Reinvesting: I will be building a sizable cash position through dividends in the month of september a couple of pay dates fall in. I'm thinking of adding to my existing Digital Reality position (DLR)

So my current portfolio includes:

1. Apple (AAPL) - 2.5%
2. Conoco Phillips (COP) - 4.8%
3. WalMart (WMT) - 2.5%
4. Abbvie (ABBV) - 4.5%
5. Phillips 66 (PSX) - 2.25%
6. McDonalds (MCD) - 3.8%
7. Disney (DIS) - 1.75%
8. Dynex Capital (DX) - 12%
9. Target (TGT) - 2.6%
10. Digital Reality (DLR) - 5.6%
11. Chevron (CVX) - 3.3%
12. Time Warner (TWX) - 2%
13. Medtronic (MDT) - 2.25%
14. Scana Group (SCG) - 4.5%
15. Walgreen (WAG) - 2.5%
16. Coca Cola (KO) - 2.8%
17. Wisconsin Energy (WEC) - 3.6%
18. Textainer Group Holdings (TGH) - 5.4%
19. CVS Caremark Corporation (CVS) - 1.65%
20. Costco (COST): 1.1%

Until next time, happy investing!

Disclosure: I am long AAPL, COP, WMT, TGT, CVX, PSX, TGH, MDT,TWX, ABBV, MCD, DIS, KO, WAG, DLR, DX, SCG, WEC.

Themes: Dividend Reinvestment, Dividend Growth 

Stocks: COST, CVS,CVX, TGT, WMT, TGH, DLR

[First published on my seekingalpha blog]