Wednesday, June 8, 2016

Modification to my monthly DSPP/loyal3 investment plan

My current monthly DSPP/loyal3 investment plan, which has been in place for some time now, is as follows:
TickerRatingDGIDiscount?Shiller
P/E
YieldMonthly
Invest
SectorSector
Total
Sector
Percent
BDXB+2AN31.911.57%$100.00Healthcare$100.003.23%
WMTA1AN15.872.82%$200.00Staples
$600.00
19.35%
KOA+1AN25.443.09%$100.00Staples
BUDA+2CN26.253.07%$100.00Staples
PEPA1AN25.522.94%$100.00Staples
ULA2DN24.133.07%$100.00Staples
XOMB+1AN12.263.30%$200.00Energy$200.006.45%
AFLB3AN13.832.37%$200.00Financial
$450.00
14.52%
BRK.BA+2DN22.900.00%$150.00Financial
BMTCDCN19.752.67%$100.00Financial
INTCA2DN17.573.26%$100.00Tech
$300.00
9.68%
MSFTA2BN24.092.76%$100.00Tech
MOCODDN21.743.17%$100.00Tech
EMRA2AN17.513.55%$150.00Industrial
$400.00
12.90%
VMIDBN22.011.10%$150.00Industrial
NSCA2BN16.702.83%$100.00Industrial
SJIDBY20.943.55%$150.00Utility
$350.00
11.29%
EXCB2DN10.813.67%$100.00Utility
YORWDBY36.912.20%$100.00Utility
MCDA2AN26.312.92%$150.00Discretionary
$600.00
19.35%
VIABB3CN13.403.58%$150.00Discretionary
VFCA+2AN31.292.36%$100.00Discretionary
NKEA+2BN41.891.19%$100.00Discretionary
MATB2DN17.424.72%$100.00Discretionary
SONC2AN22.783.06%$100.00Material$100.003.23%
Total21.382.73%$3,100.00$3,100.00100.00%

There are a total of 25 stocks, all of which I automatically invest either $100, $150, or $200 monthly, depending on how much I liked the stock. For a stock to even make this list is a testimony to how much I like it, since it represents a commitment to invest in the same through thick and thin.

Total investment is $3100/month. Weighted average Shiller PE is 21.38 and yield is 2.73%. Investment is across 9 different sectors, with no sector accounting for over 20% of portfolio. Higher rated stocks and dividend growth stocks are preferred. 

Rating is based on Morningstar as follows:
A=Wide Moat; B=Narrow Moat; C=No Moat; D=Not rated by Morningstar
+=Exemplary; [blank]=Standard; -=Poor stewardship
1=Low; 2=Medium; 3=High; 4=Very High uncertainty

DGI (Dividend Growth investing) as follows:
A=25+ years of higher dividends;
B=10-24 years of higher dividends;
C=5-9 years of higher dividends;
D= less than 5 years of higher dividends.

Couple reasons for change:
1) BMTC used to offer a discount, but no longer does. As such, there is little incentive to continue investing in this. I'd like to replace it with NNN, a dividend champion offering 1% discount on DRIP. 
2) I want to increase exposure to stocks with higher Rating and DGI, while minimizing those with lower Rating and DGI.

New monthly DSPP/loyal3 investment plan:
TickerRatingDGIDiscount?Shiller
P/E
YieldMonthly
Invest
SectorSector
Total
Sector
Percent
BDXB+2AN31.931.57%$100.00Healthcare$100.003.23%
WMTA1AN15.902.82%$200.00Staples
$600.00
19.35%
KOA+1AN25.473.09%$100.00Staples
BUDA+2CN26.243.08%$100.00Staples
PEPA1AN25.552.94%$100.00Staples
ULA2DN24.113.07%$100.00Staples
XOMB+1AN12.243.31%$200.00Energy$200.006.45%
BRK.BA+2DN22.890.00%$200.00Financial
AFLB3AN13.842.37%$200.00Financial$500.0016.13%
NNNDAY31.063.68%$100.00Financial
INTCA2DN17.563.26%$100.00Tech
$300.00
9.68%
MSFTA2BN24.052.76%$100.00Tech
MOCODDN21.713.17%$100.00Tech
EMRA2AN17.533.55%$200.00Industrial
$500.00
16.13%
NSCA2BN16.742.82%$150.00Industrial
VMIDBN22.001.10%$150.00Industrial
SJIDBY20.993.54%$150.00Utility
$350.00
11.29%
EXCB2DN10.833.66%$100.00Utility
YORWDBY36.862.20%$100.00Utility
VFCA+2AN31.302.35%$150.00Discretionary
$450.00
14.52%
NKEA+2BN41.831.19%$150.00Discretionary
MCDA2AN26.282.92%$150.00Discretionary
SONC2AN22.783.06%$100.00Material$100.003.23%
Total22.632.60%$3,100.00$3,100.00100.00%

Changes implemented:
1) BMTC, VIAB, and MAT are dropped. These all had low rating (B2 at best) and low DGI (C at best).
2) NNN is added. It has an A for DGI and offers discount.
3) Quality is improved. Weighted percentages in rating A:B:C:D is now 58:19:3:19. Old allocation was 50:27:3:19.
4) DGI is also improved. Weighted percentages in DGI A:B:C:D is now 52:26:3:19. Old allocation was 45:23:11:21.
5) Shiller P/E, unfortunately, rose about 6%, to 22.63. But this is a small expense, for it is better to buy a great company at a fair price, than a fair company at a great price, over the long run.
6) Yield dropped 13 basis points, which is an improvement, for it lowers my tax liability. (I have to pay 15% tax on dividends.)
7) The monthly plan now has 23 stocks, instead of 25, which facilitates record keeping. These are all fine stocks I buy either direct via no-fee DSPPs, or through no-fee loyal3. Three of them (NNN, SJI, YORW) even offer discounts!

Additional notes:
1) Total monthly investment is $3100. This still leaves about $4000 surplus each month for flexible investing. I tend to buy good stocks near 52-week low. Further changes to my monthly DSPP/loyal3 investment plan will likely be to increase overall monthly investment, focussing on the higher quality stocks first. This I hope to do upon the arrival of the next recession, which will bring some much needed relief to currently high stock prices.
2) I have maintained investment across 9 sectors, with no sector accounting for over 20%.
3) Most sectors (5 of 9) have 3 stocks within it, which I consider optimal number to represent a sector for diversification. Staples sector has 5 stocks, due to the plethora of high quality stocks available, which I would feel amiss if I further limit the number of stocks to invest in this sector, having already excluded some good stocks that undoubtedly would have made good candidates for investment, had they belonged to another sector. On the other hand, 3 sectors (Healthcare, Energy, Material) only have 1 stock each, because I was unable to identify other stocks within these sectors of high enough quality available for investing via either no-fee DSPP or loyal3.

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