Retirement Portfolio Update May 1, 2013

No additions have been made to the portfolio since PennantPark (PNNT) was purchased on February 12 and Prospect Capital (PSEC) and Realty Income (O) were added on February 25.

The current portfolio consists of sixteen stocks (including two business development companies) and five closed-end funds that write call options.
The "Price" column indicates the price of the stock or fund at 2:35 PM EDT on Wednesday afternoon, May 1, 2013. The "Port %" column indicates the percentage of the portfolio represented by each security.

The "Buy" column indicates my target price to buy a few more shares (to stay near the target allocation). The "Sell" column is my target price to sell a few shares (to stay near the target allocation).

I adjust these target "buy" and "sell" prices each time a purchase or sale is made.
The target allocation for individual stocks (and BUI) is 3.0% to 4.0% each. The target allocation for the two business development companies and the other four closed-end funds is 4.0% to 5.0% each.

Company (Ticker)	Price	Port %	Buy	Sell
Genuine Parts (GPC)	74.90	3.2%	71.67	86.00
Johnson & Johnson (JNJ)	84.61	3.5%	74.07	90.91
National Retail Prop (NNN)	39.73	3.8%	32.92	40.51
Realty Income (O)	50.75	3.9%	43.40	52.93
WP Carey (WPC)	70.07	3.7%	64.31	74.55
PennantPark (PNNT)	11.28	4.7%	10.77	12.73
Southern Co (SO)	48.22	3.7%	42.29	50.75
NuSTAR Energy (NS)	49.80	3.4%	47.11	58.89
Natural Resource Part (NRP)	23.81	3.7%	21.20	26.50
Starwood Property (STWD)	27.15	3.9%	25.14	28.85
Eaton (ETN)	59.51	3.3%	55.56	66.67
LinnCo (LNCO)	42.57	3.7%	37.89	46.96
Prospect Capital (PSEC)	10.94	4.5%	10.44	12.57
LTC Properties (LTC)	46.23	3.5%	40.80	51.00
PPL Corp (PPL)	33.43	3.8%	30.00	36.92
Annaly Capital Mgt (NLY)	15.82	3.8%	14.29	17.14
Blackrock Util & Infra (BUI)	19.84	4.0%	17.90	21.21
Eaton Vance Tax Manag (ETV)	13.19	4.9%	11.88	14.40
AllianzGI NFJ Div Int (NFJ)	16.82	4.9%	15.88	18.38
Nuveen Equity Prem (JLA)	12.64	5.0%	11.75	14.46
ING Global Advantage (IGA)	13.16	5.0%	12.44	14.73
Cash		16.2%

The biggest change in the portfolio has been the increase in cash. The cash percentage was only 2.4% at 12/31/12, 5.6% at 02/12/13, and 9.3% at 02/25/13. The cash percentage as of 05/01/13 is 16.2%. As the broader market has risen, the number of purchases has decreased and the number of sales has increased. More stocks have hit "sell" targets and fewer stocks have hit "buy" targets.
The portfolio yield is currently 6.1%.
Let me reiterate that the above targets are mine, and are not intended to be buy or sell recommendations. Everyone's situation is different and everyone's risk tolerance is different. Please do your own due diligence and make your own evaluation.

Disclosure: I am long
GPC, JNJ, NNN, O, WPC, PNNT, SO, NS, NRP,STWD, ETN, LNCO, PSEC, LTC, PPL, NLY, BUI, ETV, NFJ, JLA, IGA.

Realty Income Added to Portfolio

Realty Income Corporation (O) was added to the portfolio in February.  Realty Income is a 44-year-old real estate investment trust, with over 3,500 commercial properties in 49 states, diversified across 44 industries and 150 companies. A majority of the properties are retail, with the greatest revenues coming from convenience stores, chain restaurants, movie theaters and health and fitness industries. The leases generally are "triple net," which means the tenant pays for the taxes, maintenance and insurance on the property.

Realty Income was a previous long term holding. I sold it in June, 2012 when it reached $37.80. The yield at that time was 4.6%, but by comparison the yield of National Retail Properties (NNN) was 5.9% and I thought O was a little ahead of itself.

Sometimes when you sell a stock you feel nothing but relief.  Sometimes when you sell a stock, you feel like you're missing part of the family. For the past few months I've been waiting for a pullback in Realty Income, looking for a new "entry point." Last fall, Realty Income announced a merger with American Realty Capital Trust, Inc.  As a result of the merger, in January, 2013, Realty Income announced a 19.2% increase in its monthly dividend, from $.15175 to $.1809167. This raised the annual dividend from $1.821 per share to $2.171. It also brought Realty Income's dividend yield back into the 5% range. As of February 21, NNN's yield was 4.7% and O's yield was 4.9%.

The target allocation for Realty Income is 4% of the portfolio.  Two other triple-net REITs in the portfolio are NNN and WP Carey (WPC), with a target allocation of 4% each.

Realty Income's excellent website provides a wealth of information. Since 1969, the company's mission  has been "to provide our shareholders with dependable monthly dividends that increase over time." The company has seven core principles:


1. Acquire properties for cash
2. Own properties with leases already in place that can consistently pay rent
3. Own properties that are critical to the generation of the revenue of the tenants
4. Hold the properties for long-term income production
5. Generate an enduring stream of lease revenue to pay monthly dividends
6. Maintain a strong financial position with adequate liquidity
7. Staff our company with employees committed to our mission.

Realty Income's 52-week price range has been $36.34 to $45.00. The closing price on February 21, 2013 was $44.30. Ordinarily, I would not purchase a stock this close to its 52-week high, but the merger with American Realty Capital Trust and the subsequent 19% dividend increase puts the 52-week price range in a new light.

From the company's website:
Adjusted Funds from Operations for 2012 were $2.06 per share, up from $2.01 in 2011.
Net Income for 2012 was $.86 per share, down from $1.05 in 2011.
Dividends paid in 2012 were $1.772 per share, up from $1.737.

The property occupancy rate was 97.2% in 2012 and 96.7% in 2011.

Realty Income has increased its dividend each year since 1995.

This is not a recommendation to buy Realty Income, but a suggestion for a stock to study. Everyone's situation is different.  Do your own due diligence.

Prospect Capital Added to Portfolio

Prospect Capital Corporation (PSEC) was added to the portfolio in February, 2013. PSEC is a business development company that provides private debt and equity capital to middle-market companies in the U.S. and Canada. Its initial public offering was in 2004. From the company’s website: “PSEC invests primarily in first-lien and second-lien senior loans and mezzanine debt, which in some cases include an equity component. We provide capital to middle-market companies and private equity financial sponsors for refinancings, leveraged buyouts, acquisitions, recapitalizations, later-stage growth investments, and capital expenditures.”

CEO John Francis Barry III has been involved in equity financing since 1990. Prior to that he was an investment banker and an attorney.  The management team has a 23-year history and has invested in more than 200 middle-market companies. The senior executives have worked together for more than a decade, through multiple economic and investing cycles.  From the company website:  “Prospect Capital targets attractive risk-adjusted and consistent, low-volatility returns. Our investment strategy focuses on current cash yields through interest payments and, in some cases, dividend payments. We also target capital appreciation from preferred equity, common equity and/or warrant positions that may be made alongside our debt investments.”

As of December 8, 2012, the portfolio consisted of 79 companies. Eleven companies sell durable consumer products, ten companies are in various aspects of financial services, nine companies are in the healthcare sector, eight are in manufacturing or machinery, five are in oil and gas production, five are in consumer or commercial services and three sell food products. Other represented industries include transportation, chemicals, media, energy, ecological, property management, minerals, metals, insurance, automotive, textiles and leather, software and computer services, business services, and contracting. As of December 31, 2012, PSEC reported investments in 106 companies. (Recent investments are listed in the 2013 Q2 report.)

From the company website:  “Prospect invests in a variety of businesses, industries, and geographic regions. We have expertise across multiple industries, including energy, industrials, media, manufacturing, industrials, business services, financial services, food, healthcare, and many other sectors.

“We focus on middle-market companies in the United States and Canada with EBITDA of $5 million to $150 million. We principally target companies with a history of stable revenues and profitability, strong market and competitive positions, and proven management. We analyze each investment with a primary focus on preserving capital and generating current cash yields.”

PSEC’s first quarterly dividend of $.10 was paid in December, 2004. The dividend was raised each quarter (sometimes by a fraction of a cent) through April, 2010.  Beginning in July, 2010, PSEC lowered its payout and began paying a monthly dividend of $.10.  Since then, the dividend has been increased in small, fraction-of-a-cent increments.  On February 7, 2013, the company announced upcoming dividends, payable on:

March 21 $.11005,  April 18 $.110075, and May 23 $.1101.

For the quarter ending December 31, 2012 (PSEC’s 2013 Q2), net investment income was $.51 per share, compared with $.33 per share in the year-ago quarter. For the six months ending December 31, 2012 (the first six months of fiscal 2013), net investment income was $.97, compared with $.59 for the six months ending December, 2011.

Net asset value as of December 31, 2012 was $10.81.

PSEC’s February 7, 2013 quarterly earnings news release included this statement about its balance sheet:  “Our modestly leveraged balance sheet is a source of significant strength. Our debt to equity ratio stood at 47.8% (29.2% after subtraction of cash and cash equivalents) at December 31, 2012. Our equitized balance sheet also gives us the potential for future earnings upside as we prudently look to utilize and grow our existing revolving credit facility as well as potentially add additional secured or unsecured term facilities, made more attractive by our investment-grade ratings at corporate, revolving facility, and term debt levels.”

Morningstar reports a price earnings ratio of 8.8 at the February 21 closing price of 11.06, with a five-year average P/E ratio of 13.9.  The 52-week high was $12.25 and the 52-week low was $9.80.  With an annual dividend of $1.32, at the February 21 closing price of $11.06, PSEC's yield was 11.9%.

PSEC and PennantPark (PNNT) are the two business development companies in the portfolio. The target allocation is for each to represent 5% of the portfolio, for a BDC total allocation of 10%.

This is not a recommendation to buy PSEC, but rather is presented to help you decide whether it is a stock you may want to study. Do your own due diligence.

PennantPark Added to Portfolio

Since the last update, PennantPark Investment Corporation (PNNT) has been added to the portfolio at an average price of $11.09. It currently comprises 4.9% of the portfolio. The purchase was part of a portfolio rebalance that included selling some shares of JNJ, NS, NRP, ETN and LNCO.

PennantPark is a business development company (BDC) headquartered in New York City, founded and led by Arthur Penn since its inception in January, 2007. The initial public offering was in April, 2007. PNNT invests primarily in U.S. middle-market companies. As of December 31, 2012, PNNT was invested in 56 companies, with an average investment of $19 million. Of these, 29% was in senior secured loans, 20% in second lien secured debt, 39% in subordinated debt, and 12% was in preferred and common equity investments.

The value of the portfolio on December 31, 2012 was $1,064.4 million. Of the debt portfolio, 66% was fixed-rate and 34% was variable-rate.

PNNT paid its first dividend of $.14 in June, 2007. The dividend was raised to $.22 in September, 2007, and it has been gradually raised to the current quarterly dividend of $.28. The dividend was last raised (from $.27) in January, 2012. The annual dividend is $1.12. At a February 8, 2013 price of $11.10, the yield was 10.1%. At December 31, 2012, the net asset value was $10.38. The stock traded at a 6.9% premium to NAV.

The company's 2012 Q4 earnings were $.28 per share, which was the same as the quarterly dividend. At the company's most recent conference call, on February 7, 2013, CEO Arthur Penn stated his commitment to maintaining the dividend. He reminded listeners that PNNT did not cut its dividend during the Great Recession and is committed to at least maintaining the present dividend. He said the company has a healthy cash position and is committed to cover any shortfall (between the EPS and the quarterly dividend) from cash reserves if necessary.

This was in the context of "Will the company make additional investments in order to maintain or grow the dividend?" Mr. Penn said the company would not make investments just for the sake of getting its earnings over $.28 per quarter. They will maintain strong liquidity and will invest the company's funds wisely. He said they would rather dip into the cash to cover part of the dividend rather than to invest in a company that otherwise does not meet their criteria. Mr. Penn's statement expressed both confidence and prudence.

PNNT was added to the portfolio because management seems to have a good business plan, a conservative approach, and has demonstrated a commitment to raising the dividend over time.

The conference call is archived at (888) 203-1112 and is available for replay through February 21, 2013.

As of February 8, 2013, the portfolio consisted of fourteen stocks and five closed end funds (CEFs):

Genuine Parts Company (GPC) 3.9%

Johnson & Johnson (JNJ) 5.2% (reduced from 5.5%)

National Retail Properties (NNN) 4.9%

W.P. Carey Inc (WPC) 5.0%

PennantPark Investment Corporation (PNNT) 4.9% (New to Portfolio)

Southern Company (SO) 4.9%

NuSTAR Energy L.P. (NS) 4.9% (reduced from 7.1%)

Natural Resource Partners L.P. (NRP) 5.7% (reduced from 7.5%)

Starwood Property Trust Inc. (STWD) 5.3%

Eaton Corp. P.L.C. (ETN) 5.1% (reduced from 5.4%)

LinnCo L.L.C. 5.1% (LNCO) (after a sell and a buy, reduced from 5.6%)

LTC Properties Inc. (LTC) 4.9%

PPL Corp. (PPL) 5.0%

Annaly Capital Management Inc. (NLY) 4.9%

BlackRock Utility & Infrastructure Trust (BUI) 5.1%

NFJ Dividend & Premium Strategy Fund (NFJ) 5.0%

Eaton Vance Tax-Managed Buy-Write Opportunities Fund (ETV) 4.8%

Nuveen Equity Premium Advantage Fund (JLA) 4.9%

ING Global Advantage & Premium Opportunity Fund (IGA) 5.0%

Cash 5.6%

The portfolio yield as of February 8, 2013 was 6.7%.

This is not a recommendation to buy, but a suggestion for a stock to study for possible inclusion in a dividend portfolio. Everyone's situation is different. Please do your own due diligence.

Portfolio Update

After the changes cited in the most recent posts, as of January 22, the portfolio now consists of thirteen common stocks and five closed-end funds.  The current portfolio yield is 6.7%. Here are the holdings with the January 22 closing prices, as well as the percentage of the portfolio comprised by each holding:

Genuine Parts Company (GPC), $66.06,  3.7%

Johnson & Johnson (JNJ), $72.69,  5.5%

National Retail Properties Inc (NNN), $32.50, 4.9%

W.P. Carey Inc. (WPC), $54.13,  5.1%

Southern Company (SO), $43.85, 5.0%

NuSTAR Energy L.P. (NS), $51.57, 7.1%

Natural Resource Partners L.P. (NRP), $22.18, 7.5%

Starwood Property Trust Inc. (STWD), $24.05, 5.0%

Eaton Corp. PLC (ETN), $56.98, 5.4%

LinnCo LLC (LNCO), $39.18, 5.6%

LTC Properties Inc (LTC), $36.91, 4.9%

PPL Corp. (PPL), $29.60, 5.0%

Annaly Capital Management Inc (NLY), $14.87, 5.0%

BlackRock Utility & Infrastructure Fund (BUI), $18.93, 5.0%

NFJ Dividend & Premium Strategy Fund (NFJ), $16.43, 4.9%

Eaton VAnce Tax-Managed Buy-Write Opportunities Fund (ETV), $12.93, 4.9%

Nuveen Equity Premium Advantage Fund (JLA), $12.48, 4.9%

ING Global Advantage & Premium Opportunity Fund (IGA), $12.00, 5.0%.

Cash  5.7%

ING Global Advantage & Premium Opportunity Fund

The ING Global Advantage & Premium Opportunity Fund (IGA), according to the fund's website, invests in 750 to 1,500 common stocks, seeking through diversification to reduce exposure to individual stock risk. IGA seeks a target holding of 60% in U.S. stocks and 40% in international stocks.

IGA sells, or writes, call options on selected security indices and/or ETFs, on an amount equal to approximately 60-100% of the value of the fund's common stock holdings. The fund also hedges major currency exposure to reduce volatility of returns.

As of January 18, 2013, IGA's market price was $12.05. The net asset value was $12.79, for a discount of 5.79%. The current quarterly dividend is $.28. At the close of trading on January 22, the market price was $12.00, for a yield of 9.33%.

According to Morningstar, the annual expense ratio is 1.0%. The fund does not use leverage.

The top common stock holdings as of 9/30/2012 were: Apple Inc (2.72%), Exxon Mobil Corporation (1.83%), Microsoft Corporation (1.24%), and Pfizer Inc (1.05%).

Shares of IGA were purchased for the portfolio in January, 2013. It comprises 5.0% of the portfolio. It was chosen because of its international exposure and the use of writing call options to enhance income.

Eaton-Vance Tax-Managed Buy-Write Opportunities Fund

The Eaton Vance Tax-Managed Buy-Write Opportunities Fund (ETV), according to the fund's website, invests in a diversified portfolio of common stocks and writes call options on one or more U.S. indices on a substantial portion of the value of its common stock portfolio. The purpose of writing (or selling) call options is to generate current earnings from option premiums received. The fund evaluates returns on an after tax basis and seeks to minimize and defer federal income taxes incurred by shareholders in connection with their investment in the fund.

Specifically, ETV writes call options on the S&P 500 Index and the NASDAQ 100 Index. As of 9/30/2012, the fund's largest holdings were Apple (11.2%), Microsoft Corporation (4.9%), Google (4.1%), Oracle (2.9%), Intel (2.5%), and QUALCOMM Inc (2.3%).

Shares of ETV were purchased in January. It comprises 4.9% of the portfolio. This fund was chosen for inclusion in the portfolio for several reasons. NASDAQ stocks are well represented in the fund. Technology stocks are prominent among the fund's top holdings. My portfolio does not include any individual tech stocks, so this is a way to get some exposure to that sector.

This fund has been featured in several Seeking Alpha articles by Douglas Albo. Eaton Vance is changing the distribution for its funds from quarterly to monthly. In August, 2012, Eaton Vance announced a 10% repurchase of all its funds.

As of January 18, 2013, the net asset value of ETV was $14.20. The market price was $12.96, for a discount of 8.73%.

Quarterly distributions have been steady at $.3323 per share.  The closing price for ETV on January 22, 2013 was $12.93, for a yield at market price of 10.28%.

According to Morningstar, the annual expense ratio for ETV is 1.09%.

ETV is one of five closed-end funds in the portfolio that write call options to generate a higher yield. None of the CEFs in the portfolio uses debt or leverage to enhance yield.

This is not a recommendation to buy ETV. Do your own homework. Everyone's situation is different.