Recent Buy: Gilead

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Gilead reported Q4 2016 yesterday and it finally looks like the disaster everyone was anticipating. Big declines in revenue, sales of the HCV products are dropping like a falling stone (flagship product Harvoni with over 50% Q/Q decline). To make it worse, management was anything but determined or showing any signs of leadership in the conference call. The guidance for sales in 2017 was dropped to $23.5 B (from $30 B in 2016). Adding a pending law suit with a potential one time payment of $2.5 B – $7.5 B plus a 10% license royalty of all HCV sales and I’m finally at a point where I’ve to think about my initial investment.

When assessing the situation, it’s important for me to remember the initial investment thesis. When I started to accumulate GILD, I bought it for the low P/E and the growing cash reserves, which I thought, would be used to buy another revenue producing assets.

So trying to be objective – there is no change in my thesis. Even though I’m still waiting, cash is still pouring in, but the cash source dries up faster than expected and the once promised HIV pipeline doesn’t show the long term quality I was hoping for (there seems to be two important patent cliffs before 2020). So I’m going from an optimistic to a more speculative view. I’m still hoping for an acquisition, which would at least stabilize the revenue. But in the meantime I will collect the increased dividend (by 10.6 %) payment. I really don’t hope to enter another Seadrill / Kinder Morgan type of “catching the falling knife” episode. But I really don’t see the case here – even with increased competition. I still see a future Gilead finding new cures and enhancing their existing products. I don’t see them falling back to the pre-HCV company, but utilizing their new sales experience, grown R&D department and liquidity.

Therefore today I added 50 shares at $64.82 to my existing GILD position. My averaged cost per share gets lowered to $78.17 and I’ve added $104 to my annual dividend income.

Goals updated

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As I want to revive my blog, I’ve updated my past 2015 goals and added the goals for 2016. As I wrote in my last post, I sold most holdings end 2015 and mid 2016 and my dividend income was cut in half.

It seems silly two month before end of year to write down the goals for 2016, but especially the projected forward annual dividend income will be tough to achieve.
At the moment I’m at $ 1,406 and $ 300 more means putting $ 10.000 at 3% yield (or $ 15,000 at 2%) to work. This implies selling one or more of my speculative holdings to free up cash.

We’ll see how it goes.

Thanks to DividendTIME for reminding me to update the goals 🙂

Time to say hello again

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One year passed and I haven’t updated this blog since then. But so many things happened and so much is going on right now. I think now it’s time to write about it.

End of last year I realized that I will not succeed with my investment strategy (note the absence of “dividend”), because I had none. I was more or less on a constant search to push the yield and finding speculative investments. When I started with the idea to join the dividend trail I said to me: no speculative stock investing where I end up watching the stock chart all day. I ended up watching the stock charts. Everyday.
Not only this but also the increased use of margin: I always found an excuse for myself to raise the usage. “I can’ let this opportunity pass – I simply have to buy this or that NOW…”
It felt like treading on a conveyor belt. On one side I wanted to decrease the margin on the other I wanted to buy new stocks with my fresh deposited money. So I ended up with a constant use of margin. Needless to say my vast exposure to oil drilling companies and the continued slump of it wasn’t something I needed to improve the psychological situation.

In the end I sold most of my holdings and ended up sitting in cash. Everyone was talking about the big crash which is coming right now. The perfect opportunity to end the margin misery and wait for the big crash. To bridge the waiting time, I bought some gold miners in January and sold them (but way to early). I also fiddled in some extreme speculative investment instruments and lost more money than I made with it – all the time waiting for the crash. The crash didn’t come. But of course tomorrow he will!
I realized I need to reassess my investment “strategy” – especially the ratio time/reward. Which was extreme low and only made my broker rich.

So back to the drawing board. What do I want?
1) I want a strategy to build up a portfolio with a rising income stream.
2) I want to speculate because deep down in my heart I’m a soldier of (mis)fortune.

These two points exclude them selves. So I have to separate them from each other. I now hold a portfolio of several speculative investments – which is always there to be liquidated. This portfolio will be restricted in total value.
And I have my dividend portfolio which will not be touched or when then by good reason (overvaluation, business deterioration). The use of margin will only be justified for speculative investments which are short term in nature. I’m not sure if I should include writing about my speculative positions, what do you think? I consider them as gambling and don’t think this should be included here.

Maybe this doesn’t sound like news for you. But for me it is. Over the last year I learned a lot about myself. How does it feel when a position is going to -90%? How does it feel when the margin is already in use and the market keeps going down and you can’t buy anything, because this is only the beginning of the big crash? How does it feel to sell positions which then starts or keeps rising big in value? I think I made many of all possible mistakes (buying high selling low, chasing yield and trying to catch a falling knife etc.).
It was quite an experience, but I’m also tired of it. The learning process will never end, but I will avoid to repeat my mistakes. And I’m thankful for all my endeavors and mistakes. Considering that I’ve started investing just two years ago, it’s fine for me.

So what’s the new agenda for my dividend portfolio going forward?
1.) Growing EPS
2.) Low long term debt
3.) Low dividend payout ratio
4.) Buy only below historical average valuation (fair value)

And just to show the execution of the new plan:
my last buys where Gilead Sciences (GILD) and Novo Nordisk (NVO).

GILD doesn’t exactly correspond to (1) but the absurd low valuation and low payout ratio will make this an auto-buy for me.
NVO recent slide into fair valuation was another trigger for me. Diminished growth prospects, but an excellent business. Both companies have nearly no long term debt.
I will continues to add, if their valuation keeps below the historical average.

There are many very interesting health care related companies which are coming down to fair valuation:
ABBV, AMGN, CAH, CVS, MCK, …

TROW looks also very interesting!

So I will keep working hard to earn more money and try to save all of it.

Monthly Update September 2015

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Last month was once again a month driven by market volatility. This means: plenty of buying opportunities!
But first I want to list my income and expenses. After the expensive July, I’m back on track to show a steady high savings rate! This doesn’t mean I denied the beauty of life – I just refused to choose the expensive ones. For example on one weekend in September we went hiking to the top of the nearly 8000 ft (2400 m) Swiss mountain Niesen. It was beautiful – and you know what? It only costs us a few liters of gasoline. Enjoying life and saving at the same time is the key to a sustainable high savings rate.

(assuming €:$ 1:1.2 currency exchange rate )

Income

Day Job Paycheck $4304
Dividend Income $186

Total Income $4490

Expense

Total Expense $1449

Saved Net Income 68%

 

68% saved this month! This is the second highest saving rate this year (after January).
In the following months I see quite some unusual expenses coming (new brakes and monthly loan payment for the new car), but we’ll see!

 

Purchases

Stock Units Price Date Cost
TPVG 100 $11.13 2015-09-14 $1113.00
RDS.B 37 $47.69 2015-09-22 $1764.53
AMGN 10 $137.73 2015-09-25 $1688.96
MAIN 64 $26.39 2015-09-28 $1688.96
KMI 50 $27.69 2015-09-28 $1384.50

 

I’m following all of my holdings if they fall below my predefined target prices, mostly 10% below my last purchase price. This month, nearly all holdings fell into the buying zone, but not at the same time.
I had to choose between a great variety of stock names. In the end I only added one new holding to my portfolio: AMGEN. The bluechip version of a biotech company with an attractive yield (comparing to GILEAD) and a fair valuation at 137.73. I had a hard time deciding between GILEAD and AMGEN but decided to add a new name to the list.

The energy sector also continues to give opportunities all over – OKE, KMI, BP, BBL, RDS.B, HP. But I choose to add to KMI this time. OKE was below my target price too, but unfortunately I had no money left.
The industrial sector is giving another good entry valuations in DOV, MMM, ETN, UTX, EMR, CAT, PH, DE and CMI. I’m especially interested in ETN, but I had no reserves left. Hopefully the market continues to decline and give me more time to deploy my money at these exceptional prices.

 

Sells

100 shares of ZIOP
 

I thought – let’s add a growth stock to my portfolio – but what do you do if this stock gains 70% in under a month? It really shows to me that the dividend investment strategy is the way to go for me. I couldn’t let the opportunity pass to sell the stock at a much greater price. Maybe I add it again, but I won’t include it here in my portfolio because I consider this as stock trading not investing.

 

Dividends

MAIN $12.79
BP $29.75
HP $23.38
ESV $27.00
RDS-B $31.02
GILD $9.14
NOV $17.60
STAG $4.89
TPVG $30.60
Total $186.16

$186 in collected dividends! National Oilwell Varco and Triple Point Venture Growth paid their first dividends to me and I’m more than happy to take it from them! For the record – I mistakenly included the TPVG dividend last month, but it was paid in September! The correct dividend amount is reflected in the following bar charts:

 

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Monthly Update August 2015

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August was a month with ups and downs – the ups were definitely the countless beautiful moments in our two week vacation on Corsica – what a gem, the downs were a sudden market crash on August 24, which lasted only a few minutes. It was a down for me because I had a) not enough cash to go all in on my conservative DGI watchlist (JNJ, HAS, SBUX,etc.) and b) I never could have caught the drop – it was so damn fast.
Fortunately the vacation wasn’t as expensive as I’d imagined – and I’m back at improving my saving rate.

(assuming €:$ 1:1.1 currency exchange rate )

Income

Day Job Paycheck $3946
Dividend Income $297

Total Income $4243

Expense

Total Expense $1727

Saved Net Income 59%

Nearly 60% saved this month! Even with all the expenses from the vacation.
I think it helps when you’re travelling with a tent and like to go on white sand beaches and climb in the mountains. Because this costs me almost nothing! Making something tasty to eat on a camping stove with all fresh ingredients from the island in front of your tent while enjoying the fabulous sunset? I call this a romantic dinner – which again, costs me not more than eating at home. Of course we tried a fantastic multi-course dinner and ate plenty of super tasty pizza, but when you mix it up with some tent cooking experiences your average food cost is decreasing very fast. And you’ll value and enjoy the pizza even more this way!

But on the other side, some costs will be carried over to September, because I used my credit card sometimes (which will always debit one month later from my bank account).

 

Purchases

Stock Units Price Date Cost
OKE 30 $34.92 2015-08-05 $1047.60
ZIOP 100 $7.75 2015-08-24 $775.00
DOC 75 $14.59 2015-08-24 $1094.25

 

As mentioned, I didn’t go all in on all the opportunities on August 24, because I had only little to give. In the end I added a new position in another (small cap) healthcare REIT and a small biotech company which doesn’t even pay a dividend. But I want to participate in the upcoming CAR T-Cell therapy solutions – I think ZIOP is the way to play this, even when it won’t pay a dividend ever.
So did my negative portfolio balance made me become a total return investor? No, but I don’t want to limit my portfolio to dividend paying companies only. I’d love to add GOOGL at the right price. I have a small selection of stocks on my watchlist which aren’t paying a dividend – ZIOP was on of them and it traded below my target entry price, so I pulled the trigger with only 1.24% of my portfolio (cost) value.
I also added OKE, another energy company which is focused on gathering, processing, storage, and transportation of natural gas and to a small amount of natural liquid gas. As stated in the last report, I’ll continue to add around $1000 per purchase and it feels much better to be able to buy more companies instead of bigger chunks of just one company.

 

Sells

25 shares of GILD (reduced position)
 

This one is a bit unfortunate. Seeing the drop in share price of GILEAD, I wanted to add more, but had no cash to do so, so I thought, I’ll sell some shares and buy them back when Mr. Market decides it’s time for a dip again. In hindsight, this is exactly the market timing, I wanted to avoid from the beginning. But on the other side, I made small gain and still got 25 shares of GILEAD. I’ll add again to the position if the time is right – even when it means at a much higher price.

 

Dividends

MAIN $12.79
HCP $24.01
T $24.37
TIS $26.78
OHI $23.38
AAPL $6.63
HTGC $52.70
KMI $20.83
NE $56.25
STAG $4.89
CPSI $13.60
TPVG $30.60
Total $296.82

 

As usual the best part comes last – I’ve collected $297 of dividends! Wow! This is almost as big as my all time high from June, but this time it’s different.
Look at all the quality companies which contributed to my ever growing snowball! Apple, AT&T, OHI, HCP .. I love them all.
 

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