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Strategies & Market Trends : Dividend investing for retirement -- Ignore unavailable to you. Want to Upgrade?

To: Ditchdigger who wrote (16575)	8/10/2013 10:42:53 AM
From: Paul Senior	Read Replies (1) \| Respond to of 34328

PPL--->WEC. I hope the crowd is right(seems to be consensus) , as I exchanged 1/2 my shares of PPL last week for shares in WEC. I'm here, and I'm one who won't support it, so i.e.,no consensus. PPL looks like the better bet to me. I have PPL shares which look like a value price to me. I've no WEC, which looks expensive to me at current price. jmo. GLTA

To: Ditchdigger who wrote (16575)	8/10/2013 11:30:28 AM
From: E_K_S	Read Replies (2) \| Respond to of 34328

Hi Ditch - I have a slightly different view. If I still feel the company is a good long term buy and there are other non company specific reasons for the sell off, I will sell some of my high priced shares and look to buy them back in 31 days or more. If it is a company specific issue that can be fixed by a management change or some other company specific action (ie. litigation that will be resolved w/ a one time loss write down) and the company owned assets are good, I may buy more shares on any significant sell off and then sell my high priced shares after the item(s) have been resolved and/or after 31 days. If it is hopeless, I will move on and close out the position. Some examples of stocks that worked out w/ this strategy included HAL (w/ their asbestos litigation). HAL sold off on that news to $7.00/share (2002). I loaded up on cheap shares. The stock recovered, issued a stock split in Feb 2006 and was over $50.00/share by June 2008. The market crashed in late 2008 taking HAL back to $14.00/share. Early on in the sell off to raise cash, I sold some of my higher priced HALshares and bought them back in 31 days maintaining my original position but booking a loss for the portfolio. Since then the company has benefited from the oil shale boom and now is selling over $46.00/share. The key here is to manage your portfolio "buy lots" and "sell lots" so you can soften the blow from unexpected market sell offs. There are many other similar cases but all of the companies owned good assets, had large market capitulations, paid good dividends but typically had company specific problems that needed to be fixed. *The first indication of a problem was a dividend cut and then the exclusion of their dividend all together.* Some of my lowest cost shares were accumulated on such buys (ie. Ford, GLW, El Paso Gas) but you have to have a long term outlook, understand the company assets and try not to be moved by the day to day market action and discussion from the so called experts. Also, keep your stock exposure small and manage your position(s) w/ several small buys over a longer time frame (at least 12 months) hopefully as the problem(s) get resolved. My El Paso Gas buys in early 2000 was one of my better buys as I picked up shares between $5.00-$7.00/share. They had excellent pipeline assets but had issues w/ too much debt and got caught up in the market melt down from the ".com" crash. I had owned a small position in the 90's so I had followed the company. The company downsized reduced it's debt profile over the next 36 months and eventually was bought out by KMI at a $27.00/share in 2012. So, by managing my avg cost basis for each position one can take advantages of portfolio losses (only applicable in a taxable account) while at the same time create a huge potential portfolio (stock) capital gain. It's not an all in or all out proposition but rather evaluating the company, their assets, potential revenue streams and if/when they will become a stellar dividend payer again. I am doing this w/ BP by starting a small position early this year (@ $41.20/share). This one is still a work in process and could still take many years before this event is behind them. I think Steve Felix mentioned that he looked at some of those dividend payers more closely (for possible buys) when they cut their dividends. Rather than sell always and move on, there are times where buying more shares would have worked out too. This strategy does not always work out as was the case w/ SVU. Therefore, you must limit your equity exposure and/or look to buy some other secure assets like secured company debt. I did this staying away from the SVU common shares closing out my position for a small loss and putting the proceeds into their March 2016 8.75% notes. I bought this debt at a 20% discount to par (locking in a 13.5% yield to maturity). Their debt was collateralized by their company owned real estate (w/ loan to value under 70%) so I was comfortable that it was safe. I received semi annual interest payments while the common shares stopped paying their dividend. So far, the trade has worked out fine with this debt selling at a 11% premium to PAR. I plan on holding the debt to term and look to this asset as a source of funds in 2016. Finally, discounted Preferred debt can be an alternative to common dividends. For a taxable portfolio some of these preferreds pay their dividend as a "return of capital". This means that the income is not taxable but rather reduces your cost basis of the security. Therefore, you only incur a tax liability when/if you sell some or all of the preferred security. This is an excellent option in a taxable portfolio if one wants to keep capital gains inside the portfolio AND generate income (ie return of capital). You can "juice" your return by buying the preferreds under PAR. Some MLP's also "return capital" in a portion of their distribution. Therefore, over the long term your cost basis for these types of MLP's fall and your capital gain is held inside the portfolio. Only when you sell the security (preferred and/or MLP shares) do you trigger a tax event. I try to designate my "High Cost" shares and then only peel off a portion of those shares to offset portfolio losses. As one builds a larger taxable portfolio, there are ways to manage your tax liabilities. If you are building your different income streams (mainly from qualified dividend income) you can use a portion or all of your portfolio losses to reduce your tax liability. By maintaining a low avg cost basis and keeping your long term capital gains inside the taxable portfolio, you can better plan your annual tax liabilities. Remember, if you are paying taxes, you are successful in building your dividend income streams. That's a good thing. EKS