Stealth Wealth Are you under the radar?

If I had $3,000 right now to spend freely and didn’t need the money in the near future I would start my dividend portfolio made up of the following companies.

I have a couple conservative companies, but the rest are somewhat higher yield and a little more risky. Do you think I’m too greedy?

All have been paying dividends for at least 10 years except Vanguard Value ETF (VTV) and Advantage Energy Income Fund (AAV). That makes me more confident that they will continue to do so. I would have about 10% in each company to make it evenly distributed and have the dividends reinvested. The dividends would even out to about $22 per a month during the first year which doesn’t sound like a lot, but I would hope to add to the pot every year if not month.

I chose to use $3k because that is what I’m getting from my tax refund and my bonus at work added together. I hope that if I get this promotion I’m working on I will be able to afford to start this portfolio in March.

What does your ideal portfolio contain?

I just checked out Sharebuilder’s new website. They have changed the colors to match ING’s now. I think it looks pretty good. They say nothing about my account will change and login is the same also.

One of my favorite things I noticed when I first saw the site is that real-time trades are just $9.95 now. That’s not free like Zecco is offering, but its a step towards it. It doesn’t matter what pricing plan you are on EVERONE pays $9.95 per real-time trade. Pricing plan only seems to affect your automatic investments along with gaining a few helpful tools with bigger plans.

They still offer the promotion where you get 5 free auto investments if you refer someone as of now.

I’m excited to see what ING comes out with to streamline sharebuilder and ING’s banking. I’m really interested in the Electric Orange checking and will be definitely checking into it sometime next year.

Click the thumbnail for a screen shot of the remodeled site.

Today I wrote my biggest check I’ve ever written out of my account. I wrote a $2,000 check to my employer to pay for my 2008 ESPP contributions. I know I looked at that check more than 20 times before I put it in the envelope before I mailed it off. Even after putting it in the envelope I pulled out a couple more times to double check (25 times check) to make sure that I had written it out correctly along with the correct address. I’m paranoid on things like that for some reason.

Now I’ll have a little over $75 extra every paycheck. The company pays a little over 4% dividend so I’ll be making about the same as it sitting in my money market account. When economy straightens up and the banking industry gets settled from the sub prime mess I expect the stock will climb back up to where it was a year ago, which is about a 50% climb. My employer isn’t directly hurting from sub prime lending, but indirectly it is being hit as is most every company right now.

Over the past few weeks I’ve felt like I need to liquidate some of my holdings and have some more cash for now.  I’ve struggled trying to figure which of company I wanted to pull the trigger on and let go.

• Middleby - this was my largest gainer… well only gainer with over 22% gain in 6 months.  It was my hardest to let go because this is the company I’m pretty sure will continue to grow.  Everytime they announce earnings the price goes up.  Selling this makes me feel like I’m firing my best employee.
• Coldwater Creek - my biggest loser.  I debated just cutting my losses and moving on…but I’ve done that before and regretted “cutting my losses” when I see the company back up 6 months later.  I’m pretty confident the new CEO is going to start running a tighter ship and earnings will follow.  I need to be patient with this one.
• My employer’s stock - I really wanted to sell my holdings here because I already have so much exposure to the company in my ESPP (Employee Stock Purchase Plan).  I even went as far as setting a sell limit up on sharebuilder for $16(about a $75 loss), and the quote was $16.03 at that moment.  I was pretty sure I was just going to take the loss and get it over with at that time.  Well quotes are delayed and some shares traded during the 15 minute delay which is rare.  It has since then dropped down to around $15 and I’m still holding.  I don’t want to sell this low.  I get about a 4% dividend so it’s not too bad.

In the end I sold Middleby for a profit of $227.98, which is a 22.80% gain.  I now have $2803.31 in my money market account, but over $1k at the moment is going to pay off my credit card in January.  It’s interest free until them so I’ll make a few bucks by waiting until January.

Monday I got an e-mail from Sharebuilder telling me that they were bought out by ING Direct. I don’t think its a bad thing as long as things don’t change because I haven’t had a problem with Sharebuilder so far in the over 2 years I’ve been with them. I actually hope that my sharebuilder actually make it easier to get an ING account if I decide to in the future. I’m not sure how long it takes to get an ING account now, but I hope it streamlines with Sharebulder.

I’ve known about ING’s checking and saving accounts, but haven’t actually thought about opening one until they bought sharebuilder. I may actually try the electric orange checking account, which pays over 3% interest and free bill pay and debit card. I’m going to see how they handle Sharebuilder first before I jump into it. I really don’t need two checking accounts, but I wouldn’t mind the 3% interest on money I use to pay my bills. I need to keep a checking account at my bank I work at for obvious reason.

One possibility would be to receive my direct deposit and transfer my paycheck into electric orange account and just pay everything from that account. We’ll see later though.

Here is the e-mail I received from sharebuilder announcing the buy. I’ve replaced my name with “Stealthy”.

 

November 19, 2007

Dear Stealthy,

ShareBuilder has some exciting news. As of November 15, ShareBuilder has been acquired by ING DIRECT, the nation’s largest direct bank with over 5.5 million customers and $75 billion in U.S. assets (part of Netherlands-based ING, NYSE: ING). ING DIRECT shares our vision of helping Americans increase their savings.

ING DIRECT is widely recognized for offering some of the most popular and easy-to-use savings products. Joining the ING DIRECT family will benefit you by providing simple and innovative products and services that can help you meet your saving and investing goals including savings, checking and mortgages.

Rest assured there have been no changes made to your ShareBuilder account. You can continue to use the same account number, login and password, and can access your account anytime at sharebuilder.com. Over the next few weeks, you’ll begin to see ShareBuilder adopt ING DIRECT’s signature Orange color. Also, get ready to see some innovative new products, services and additional value as ShareBuilder becomes part of ING DIRECT.

We look forward to sharing more information with you over the coming months. If you have any questions, we invite you to contact us at 1-800-747-2537.

The ShareBuilder team is really excited by what this news means for you!

Best regards,

Dan Greenshields
President
ShareBuilder Securities Corporation

I now own a total of 128 shares of my employer’s stock in my ESPP.  I also own another 65 shares in my sharebuilder account.  That makes a total of 193 shares.

I don’t need this many shares because it is making my portfolio WAY too heavy with the company.  Over 50% of my portfolio is made up of the company.  Shares are trading around $17-$18 per share.  I plan on selling my 65 shares in my sharebuilder account when it reaches about $20.

Allied Capital Corporation (NYSE: ALD)?  I’ve been looking for new places to put some of my money once I get out of my current holdings.  I’m looking for a somewhat more permanent home that pays dividends.  I want to start in January setting about half of my left over money into dividend paying companies and the other half into paying off one of my student loans.  This is the plan as of now, but if you know me then you know I’ll probably change this  “strategy”

Allied Capital Corp. pays a dividend of about 8.4% they have been paying dividends since 1987.  So I feel somewhat comfortable putting some of my money with them.

Also I’ve been looking at Alliance Bernstein Income Fund (ACG) and DNP Select Income Fund (DNP).  I don’t have much experience with income funds, but they seem like they would provide a steady dividend each month at around 7% - 8%.  One of my goals over the several years is to build up a portfolio that will pay enough dividends for me to retire if I wanted or start my own company.

Does any one know anything about income funds?  I haven’t found where either one I have listed charge me a fee directly for purchasing shares outside of the fee charged by my broker.  Am I missing something?

(I have invested in Advantage Energy Income Fund, but it was too high risk for me and I had Canadian taxes taken out each month.)

I was reading an investment blog and found this article that mentions that you should check your mutual fund holdings and compare them to make sure they are diversified from one another. The writer uses two funds as an example with one being Amerifunds Washington Mutual A (AWSHX) and the other being American Century Select Inv (TWCIX). One is classified as a value fund while the other is classified as a growth fund. They both had JP Morgan in their top three holdings, which would mean that if JP Morgan had a bad quarter and the stock went down then both funds would lose value under their holdings in the company. Opposite would happen if the JP’s price went up as you can imagine. I think it would be a good idea to know what companies your mutual funds are investing in because it is your money that is being that stock indirectly in a way.

I just compared my growth and value funds and found that none of the top 10 holdings are the same. If you want to check yours just go to yahoo finance and enter the fund symbol and then scroll down to holdings in the left navigation bar.  Check out investing blog when you need something to read.

I’ve changed my 401k contributions to:

25% - Fidelity Value Fund (FDVLX) - A Midcap Value Fund

50% - Rainier Small Mid Cap Equity (RIMSX) - A Midcap Growth Fund

25% - Fidelity International Discovery Fund (FIGRX) - An International Fund

Previously I had 75% going into a Midcap Value and 25% into an International fund. I changed because I should take somewhat higher risk with the growth fund. I also changed my Midcap Value to a different one with lower management fees with a slightly better history of return.

Many people don’t think about the future dividend growth and how it affects your return on your original investment. For example lets look at an investment in Advantage Energy Income Fund(AAV). Your purchase price is $10.30 and the dividend is at $.14 per month in US dollars. You would be making about 1.36% per month or 16.31% per year on your investment at the current dividend rate of $.14 (us dollars, its $.15 in canadian dollars. I got the numbers by dividing $.14 into $10.30)

OK lets say they make their way up to doing their dividends like they used to and pay about $.26! (once again us dollars, $.28 in canadian) That would be a return of 2.52% per month or 30.29% per year!!! Even though yahoo may say the dividend yield is only 13% you would base it on the purchase price of $10.30 instead of the current price. I love seeing those % returns. Also as dividends are increased the share price goes up. so when they are paying $.26 per share the share value could be around $18 which is an 80% rise in stock price alone.

Same thing with any dividend company… GE, WM, SO, or BAC as long as its a company that continues to increase their dividends yearly. The above example is an extreme case and most stocks wouldn’t create the high of a value in a short time, but with any dividend paying company (GE, WM, SO, BAC, etc…) the same theory works as long as the company consistently increases dividends each year. While the company says they are paying a 5% dividend, they may be paying you 10% because you bought the stock 5 years ago when they were paying $.20 per share compared to $.40 per share now. Your dividend payment doubles over the past 5 years, so does your yield compared to your purchase price.

If I lost you while trying to explain this theory please let me know. I’m terrible at explaining things.

Just remember to give investments time to grow. They will eventually grow to where they can supplement your income for retirement and hopefully more if you save diligently. (When I say YOU, I mean me too!)