Stock portfolio update
I hope to increase my stock portfolio and P2P lending amount. Right now, doing that depends on selling RP#4, which should net me about €10,000. That will be used to pay for RP#3 renovation, which means that all the money I save from November on can be used towards the stock market and P2P lending.
For now, I am assuming I don’t have any extra cash, and so I can only play with my stock wallet. As I had about €1,000 free, I decided to look around for hot stocks and buy them. These are temporary, small purchases that will enable me to mark a few stocks. Hopefully, if I flip RP#4 until the end of the year, I can increase my stock portfolio to €10,000 this year alone.
How I am picking stocks
I have written before about assessing the stock market as a whole.
For single stocks, I follow a free cash flow model, which essentially means that I pick cash flow over appreciation. In stocks, that is no different. I look for stocks with high yields and moderate appreciation prospects. This means that I sadly discard companies I really believe in, such as Tesla Motors. Plus, I don’t do mining stocks, which have been a great way to FIRE for some.
Based on this, I look for high dividend stocks, but this can be quite tricky sometimes. Many high dividend stocks are not sustainable over the long run. One company may distribute more in dividends than what it has made in the past calendar year. If that happens, it is certainly not a very sustainable decision. In my opinion, there is a variety of factors that make a company sustainable, and I typically look at:
- Dividend yield: even if one company is highly sustainable, I only look at dividend yields that are higher than 8%. Anything below that is definitely not interesting for me.
- Payout ratio: I typically look at payout ratios between 10 and 30, which means that a company pays between 10% and 30% of the earnings of the previous year in dividends.
- P/E: The price over earnings is a very important indicator for me. It basically tells me the performance of a given stock in comparison to its price. Ideally, I pick stocks with P/E <= 6.
This being said, keep in mind that this is merely a set of filters to select the best stocks. I personally wrote an algorithm that finds these stocks and sends me a message whenever they are found. Then, I look closely… and I end up buying whenever I like the company. Sadly, I haven’t been investing much over the last months, but I hope to change that in 2018!
Based on my criteria (along with a few good hours of work), I decided to add the following stocks to my portfolio:
- Armour Residential REIT (ARR). This REIT has been paying monthly dividends of $0.19 in 2017 ($2.28/yr). I bought shares at $25,76, which means a yield of roughly 9%.
- Concurrent Computer Corp (CCUR). This is a software/solutions company that develops applications and being a software guy, I see the merits of it. I bought shares at $5.84. If the dividends are $0.12 per quarter (meaning $0.48/yr), the yield will be above 8%.
- Oxford Lane Capital (OXLC). This is essentially a financing company, that finances growth, and acquisitions, among others. It was recommended to me by a Canadian friend, who knows the company inside out. With quarterly dividends of $0.4 ($1.60 per year), I expect a dividend of 16%, as I bought shares at $10.
- Big 5 Sporting Goods Corporation (BGFV). Big 5 Sporting is a sporting goods retailer with 420 stores across the US. I like to be exposed to retail as well, so this will be a minor position yet a long one. With quarterly dividends of $0.15 ($0.60 per year) and a buy in price of $7.45, this stock will yield a little over 8%.
I’ve got some more purchase orders following similar logic, but I will only post about those companies if the orders go through.
How my stock portfolio looks like now vs the future
Adding these stocks to my previous portfolio, here is my current portfolio:
I have built my portfolio with relatively balanced positions among the stocks by purpose. My goal is to continue to grow it buying different stocks such that the portfolio is not too imbalanced. Over time, the positions may become imbalanced again, due to appreciation or depreciation, but in the long run, they should be fairly balanced. Right now, RENE is very big in value but that is due to my expectation of appreciation, and so I bought a decent amount of stock so that I can sell when the moment presents itself.
What the future will bring…
I use DeGiro as the broker, and quite honestly I am not quite sure it is entirely reliable, so I will be opening accounts on other brokers eventually. When I hit my first goal in terms of net worth (€680,000), I will have about €100,000 of that on dividend-paying stocks. This should generate about €6,500 net a year. Although 6.5% net a year is not that easy to get, I will be choosing high dividend, low appreciation stocks, so it should be very attainable. If I do it right, it enough to pay for my fixed expenses, including property taxes on my primary property, condo fees, utilities, and groceries.
In the near future, I hope to double my portfolio and increase my positions in energy and retail. Ideally, I want to have a high dividend portfolio, with moderate exposure to Portugal (for tax purposes) and the US.
If you have any comment, let me know down below.