YARP™ Friday trade recap
YARP™ Friday trade recap
A look into my dividend stock decision-making process
There is a ton of analysis below, in which I describe a set of 11 trades I made in the YARP™ portfolio on Friday, which combined should give anyone reading it a feel for what my investment work is all about. As a reminder, this is what I do with my own money. YARP is not a “model portfolio” with no skin in the game. And our research service provides “trade signals” to follow along with what I do for myself, and apply it as you see fit.
I figured I’d include the snapshot above. This is the current sector allocation of the YARP™ stock portfolio. As you would expect, light on tech stocks, heavier in things like REITs, industrials, consumer staples and others.
That was some month of August! So it is a good time to recap. Not the usual media stuff about the Fed, the election, big tech stocks, or interest rates. I’m talking about the only 2 things that matters to self-directed investors who follow my approach:
Earn total return, with as much dividend income as reasonably possible.
Don’t lose big along the way. Ever.
That’s it. None of those “style points” so many in my field prioritize instead of the 2 simple objectives in bold above matter to me. That’s probably why I’ve been “under the radar” most of my career. Though I’m VERY glad you found me, and vice-versa.
While our paid subscribers naturally get the full trade alerts for all 3 of my portfolios YARP™ CORE and MacroTraxx, (or just CORE if you are a subscriber to ETF Yourself), from time to time we like to let all of our followers in on the decision-making process that takes place “behind the curtain.”
This is one of those educational posts.
Over the coming weeks, I’ll be sharing much more insight and detail about what the YARP™ dividend stock portfolio is about, how it works, and “current events” within it. Subscribers will naturally get the specifics, but I think there is a lot that free subscribers can also learn from. The more I execute the approach in my own account, the more I see it as a unique and highly-effective alternative to the mass-market approaches and theories that exist out there.
While we realize that ours is a premium service offered at a premium price point, we aim to demystify and simplify the investment process that we use to protect and grow our own portfolio. We believe that once investors truly understand what YARP and the other strategies do that is so different from the masses (and their low-cost/low insight subscription services), they will see that what we do is a very good value, for anyone with at least a modest 6-figure-sized portfolio. Now, here’s today’s insight:
I don’t tell the market what to do. Duh.
But I also don’t sit around “because it’s nearly a holiday weekend.” To use a word I rarely use as a professional investor, there is so much “action” in the dividend stock (and dividend ETF) space right now, all I can do is go where my Yield At a Reasonable Price (YARP™ ) process takes me. And on Friday afternoon, there were more situations to prompt action (buys and sells) in the YARP™ portfolio than even I would have expected on the threshold of Labor Day weekend in the U.S.
Some on Wall Street will say “don’t trade the day before a long weekend, volume is low so price moves are deceptive.” My response: those folks are not YARP™ investors! Or to quote movie character Gordon Gecko (played by Michael Douglas) money never sleeps!
YARP™ portfolio adjustments typically fit one of these types:
Increasing and decreasing stock positions (frequent)
Adding or replacing stocks from the YARP™ portfolio (less frequent)
Adding/changing the options that I use to hedge and enhance return (less frequent)
Identifying a select set of ETFs that, unlike in the CORE ETF portfolio, are squarely focused on adding to the total return of YARP™ , beyond what stocks alone can do
And, as I’ll show when I “name names” and explain the 11 trades I did yesterday in the YARP™ portfolio, YARP™ stock and ETF trades are typically motivated by one or more of these situations. Every situation is different, but in parentheses I have written if they are generally things that make a security more or less attractive to me.
Ex-dividend date is approaching (more attractive)
Earnings are approaching (less attractive)
Big unrealized gain in the stock, relative to how long I’ve owned it (less attractive)
Chart pattern over both short and intermediate term (depends on what I see)
Current or upcoming events or trends surrounding the security, that could create unusual and sudden reward or risk, outside of “business as usual”
What I doing in the rest of the portfolio. That requires a mini-rant LOL:
This last point is VERY important and easily misunderstood by folks who have invested for a while, but have not specifically been trained in portfolio management and allocation. And I am of the very strong opinion that Wall Street missed the boat on this one, big time, over the past couple of decades. It has created a highly under-educated and miseducated investing public. So we like to think that those who somehow found us through all of the noise, hype, smokescreens and greed-pandering types out there, realize that how one CONSTRUCTS AND ROTATES a portfolio using an INVESTMENT PROCESS (mine, someone else’s, or their own) is equipped to deal with any market environment. Not only the ones we’ve experienced recently.
This is something I am working on automating in part, to make it easier for subscribers to do more of the research themselves, but in a VERY time-efficient manner. That’s my big “September project” for YARP™ .
OK, Rob’s “lecture” is out of the way. Now let’s take that perspective and apply it to 11 specific trades I made Friday, August 30. Because as is the case with every trade I make in all 3 of our strategies (YARP™ , CORE, MacroTraxx), they don’t just happen. They all follow what I would refer to as a highly deductive process.
YARP™ TRADE SUMMARY & RATIONALE for 8/30/2024
(% of portfolio before and after the trade noted next to ticker)
BUYS
LMT from 1 to 5
Bought a 1% starter position at $466 on 4/30, added 1% at $477 on 7/18, stock flew higher to $559 by 8/15 so I shaved it back to 1%. I’m not greedy, and ex-dividend was still 15 days away. LMT only yields 2.2%, though it yielded 2.7% when I first purchased it.
That’s the YARP™ factor in action. I’ll review this in a future live session, but LMT was a “classic” YARP™ setup, which made me decide to include it in the portfolio despite its relatively low yield compared to the rest of my dividend stock coverage universe.
Stock has been at risk of rolling over after that big move, so I stayed with the 1% position. But as ex-date arrived (this Tuesday), and with a big gain in the stock, my attitude is “why not reward myself by taking in more dividend yield?” So I increased it to 5% and will get 5x the dividend income this quarter, versus if I had stayed with the 1% position.
This is what I decided to do, but all I did was reclassify how part of my return in LMT will accrue to me. The stock price will drop by around 0.55% Tuesday AM due to the ex-dividend occurring. At that point, I will watch the stock closely, with a bias toward reducing it to 3% or possibly down to the minimum 1% position. It all depends on chart pattern, and especially the rest of the opportunities I see across the portfolio. If the portfolio had been packed to the gills with stocks I did not want to reduce or eliminate, I would not have had the cash available to increase LMT from 1% to 5% as I did.
This one was an example that I think needed a more detailed explanation than the rest, due to the high unrealized gain/relatively low yield situation with LMT. The other 10 trades will require successively shorter explanations!
ANGL from 2 to 5
I initiated a position in this High Yield bond ETF that owns a basket of “fallen angels” - bonds that were issued at ratings of BBB or higher (“investment grade") but have since been downgraded to “junk” status (BB or B, typically). I promptly wrote an article for Seeking Alpha about it, and the title started with “I can’t believe I’m buying…” since I am not a huge high yield bond fan.
But the chart and the market’s extreme patience with this asset class, and ANGL’s 5.9% yield prompted me to take a starter position of 2% on 8/21, knowing that I’d need to revisit it as the ex-dividend date approached (it is on Tuesday).
The ETF has not yet moved much in price, but I felt that grabbing the dividend with a 5% position was well within my risk comfort zone. So I did. 5-10% is a typical ETF position within the YARP™ portfolio, so keeping it at 2% was not going to last long anyway. The next move would be to go to 5% or higher, or to cut the 2% position loose.
I also note that while CORE is an all-ETF portfolio (no individual stocks), ANGL does not currently fit my criteria for inclusion in that portfolio. The mix of equity and US Treasury ETFs I have there are attractive enough as a unit to not yet prompt me to add it. It is on my CORE watchlist, but that’s it for now. Different portfolios, different objectives.
TLTW from 5 to 10
Sometimes I buy a stock or ETF and expect good things, and get great things. This has been the case so far with TLTW, which I discovered in my research right after it came to market a couple of years ago. I have written about it on Seeking Alpha as well as etf.com. It simply takes the long-term Treasury ETF (TLT) and writes slightly out of the money covered calls around it.
That simple strategy, at a time when long-term bond rates are declining, has produced a very nice total return so far. I bought a 5% TLTW position at $25.37 on May 7, and have received 3 monthly dividend payments so far, which in total amount to about 1% a month.
And, the ETF’s price had risen to $26.74 by the time I bought it yesterday, which translates into about a 5% price gain on top of the monthly dividends. All this in just 4 months. Like I said, I aimed for good and got great in this case.
I have enough “evidence” in my process to feel that doubling the position to 10% and get that much more dividend yield was a good move here.
MMM from 5 to 3
Some Seeking Alpha readers threw some fairly negative comments my way when I first wrote there about buying this Dow Jones Industrial member stock at $91.61 back in April. They were about to spin off their healthcare division, and with that went part of the dividend. All I saw was a quality company with a nice chart and a still-decent yield.
Since that time, I’ve been fairly active, taking that starter 1% position in MMM up to 3%, then 5% to get the June dividend, then cutting it back in July, only to increase it again in August, as the stock continued to surge. My last buy on 8/15 brought it from 1% to 5% (like the LMT trade above), and I qualified for that dividend when it went ex on 8/26. With that income “in the bag,” and the stock up to nearly $134 from my initial $91 purchase price just 5 months ago, and with many other opportunities around, this translated to a 3% weighting in the YARP™ portfolio, not a 5%. Again, I’m not greedy, and I don’t just look at a stock and say “I can’t sell any of it because it has done so well.” That’s not investing, that’s…I don’t know what it is. I just know it is not how I operate.
NOTE: subscribers don’t have to “YARP™ ” their portfolio the way I do. It is a DIY research service, and there are any number of ways to use that research, including many I am sure I have not thought of yet. This will be a key discussion point in the upcoming live sessions.
IP from 5 to 3
Same idea as MMM, except different dates and returns involved. I qualified for the upcoming dividend payment with a 5% position, by increasing my weighting from 3% to 5% on 8/12, days before IP went ex-dividend.
With that full batch of income now due to hit my account on payment date, and the stock looking more like a 3% position again, I made room for other activities in the portfolio by cutting this one back, booking a 7% price gain on the portion I sold. IP has gone from about $38 to nearly $48 since my first purchase.
DOW from 5 to 3
Similar to MMM and IP, except that I was not “playing with house money” here, since DOW has languished since my first purchase in April at around $60. It is testing my patience, but the 5.2% annual yield was tempting enough to get a full share of when it went ex-dividend recently. But this stock does not encourage me, chart-wise, and the dividend is not the most secure in my stock universe.
So, I cut it back to 3%, and I’ll be watching to see if it can again move higher from its current spot, smack in the middle of its 2-year trading range. If not, I’m scouting for alternatives, as always. But for now, 3% fits the overall reward/risk tradeoff, which is my bottom line for all decisions.
CVX from 5 to 1
This big energy stock sits near the bottom of its long-term trading range. The energy sector is frustrating many these days, though I’ve not really seen much reason to carry a big position in that part of the market this year. Still, I grabbed the yield earlier in August when it went ex-dividend, and I am just above flat on the stock in price terms (so the dividend return is my total return).
There’s no urgency to get on the energy bandwagon as I see it. Too many other promising candidates out there. So I cut this from the top weight to the bottom (1%). If I get any more negative on it, the next step is to kick it out of the YARP™ portfolio, keep it on my watchlist for trading/dividend accruing purposes, but not reward it with a “full time” position in the portfolio.
PRU from 3 to 1
Lather, rinse, repeat. Except that this one was a 1% position starting in May: bought around $120, dipped to $114 in August, shortly before ex-date, but I saw some “daylight” in the chart so added 2% on 8/15 at that lower price. Grabbed the dividend with 3% of the YARP portfolio instead of 1%, and stock is now up about 7% since initial purchase.
However, financials are my least favorite sector. Always. Maybe because I’ve worked in that sector my whole career LOL. Anyway, I’m happy to knock this one down to 1% and look elsewhere for now. I booked a gain and earned a quarter’s worth of PRU’s 4.3% yield. So far, so good, but like I said, this is not a sector I like.
LYB from 2 to 1
Another stock that has gone nowhere. I don’t have many, and this yields 5.4%, but that implies some risk. I had it at 2%, which is an in between position (1/3/5 are typical). So I cut it back to 1%, since I needed to raise cash for the LMT and ETF buys noted above.
That said, it is very much in the portfolio and showing some signs of moving higher. So it is certainly still on the “major league roster” if you will.
HSY from 1 to 0
Full disclosure: I’m a chocoholic. And while that did not interfere with my investment discipline (I bought HSY using the same process as any other stock), I see a weak chart and a yield too low (2.8%) to be very patient with. My initial purchase was around $200 in May, and I bought more at $209 shortly afterward. I cut some back at lower prices, and it has stood at a 1% weighting since June 21, when knocked it down from 3%.
Now up around $191, and with a mediocre outlook by my metrics, I sent it off the roster, and onto the watchlist. That means I might float into and out of it, but it is not part of the 30-40 stock main YARP stock portfolio.
Postscript: I cheered myself up by stopping at the store and buying a Hershey’s Special Dark bar. No hard feelings LOL.
TROW from 1 to 0
Another financial stock, and my leash on those is very short. While it has been a 1% weighting for a while, it hit a key level, down 10% from cost. That always prompts me to revisit a position, regardless of what else is going on. In this case, it was expendable. So it leaves the YARP™ portfolio and goes to the watchlist. I hear HSY saved a seat for it :-)
MOVING FORWARD
Is that a lot of information to process? Absolutely. But it should go a long way toward informing anyone who is part of what we affectionately refer to as SIRG (Sungarden Investment Research Group), our paid subscribers, or someone considering joining us, just how much goes into the process.
Also know that we are rapidly automating things so that virtually everything written above can be made available to subscribers, in consolidated, actionable form. We’re looking forward to announcing that YARP™ research tool in the coming weeks, and including it in our series of upcoming live sessions.