HomeInvestmentsFebruary Dividend Growth Portfolio Update

February Dividend Growth Portfolio Update

To say that February 2018 was a stressful investing month for me would be an understatement.  I learned some pretty hard lessons about the real risk I am taking on selling naked puts, but once volatility calmed down again I ended the month pretty damn close to where I started.  Notwithstanding ending up about where I was, lessons were learned!

Selling Naked Puts When There is a Spike in Volatility

In addition to purchasing lots of an undervalued dividend growth stock and ignoring it for the next decade, I actively sell naked puts to generate investment income.

What Does it Mean to Sell a Naked Put?

Selling a put requires me to purchase 100 shares from an unknown individual should the stock follow below a predetermined price (the strike price).  For the privilege of ‘putting’ to me those shares I am paid a premium.  If the stock stays above the strike price I keep the premium and walk away at the end of the contract (I keep my contracts under 45 days).  If the stock goes below that strike price I am still forced to buy the stock at the higher strike price (or figure a way to ‘roll out’ of the put contract).  The naked part has to do with the fact that I do not own any of the underlying security.

A Spike in Volatility Could Dry Up Liquidity

There are regulations when it comes to trading naked puts and having enough equity to support the trades.  Normally, that isn’t a problem for me because there is a semi-normal bid/ask when there is liquidity in the market.  However, when we had the hockey stick like increase of volatility there was no one for me to trade with for those particularly thinly-traded option contracts!

What that caused was my maintenance requirement surplus to plummet because the automated system saw my exit price was not a few hundred dollars, but rather a few thousand dollars (times the tens of trades I have open at any one time).  I didn’t panic all that much because I knew that the trades weren’t underwater.  Meaning, that even if I had to hold the trades till expiration I wasn’t going to be put the 100 shares of a company since they were above the strike price.  TD Ameritrade was great and completely understood my position, but it was a lesson learned nonetheless

Dividend Growth Stock Sales

In an effort to correct the requirements I sold two positions.  I took a lot of time to think about whether pumping liquidity into the portfolio (i.e. using my emergency fund) or selling positions.  I opted to sell a few positions with the promise to myself that I would buy them back as soon as things loosened up.  With that on 2/6 I sold:

  • 22.982 Shares of SON for $1,157.86 ($50.38/share)
  • 5.024 Shares of CB for $720.76 ($143.46/share)

It really pained me to sell these positions.  It wasn’t a decision I took lightly.

Dividend Growth Purchases

First and foremost, I was able to repurchase my positions fairly quickly like I thought/guessed.  On 2/15 I bought:

  • 23 Shares of SON for $1,125.90 ($48.95 a share)
  • 6 Shares of CB for $870.90 ($145.15 a share)

Basically even trades that got me through my brief liquidity issue.

My Undervalued Dividend Growth Purchase for February 2018

Prior to creating my February Undervalued Dividend Growth Watch List I had the feeling that I wanted to add to a position rather than start a new one like I did in January.  So I was hoping I would see some familiar names on my watch list. I ended up with

  • CPKF
  • NC
  • MATW
  • AFL
  • CAH
  • EFSI
  • SCVI
  • WEYS
  • ED
  • ORI
  • ADM

Since I had already recently purchased positions in AFL and WEYS I decided to focus on ORI.   Old Republic International ,

offers a diverse range of specialized insurance products to individuals and institutions. The firm’s property-casualty business, which accounted for more than half of premium in 2012, and almost 80% of pretax operating income, offers commercial liability products for risks that include workers’ compensation, autos, and general liability. The title insurance business composes most of the remaining premium, with a minor assist from a tiny life insurance presence.

At the time of purchase, it had the following metrics (vs. industry peers)

  • P/E – 10.48 vs 11.81
  • Book Value to Price 1.11 vs 1.26
  • Return on Equity 12.08 vs 10.54
  • A 3.78% Dividend Yield
  • A 56% payout Ratio

On 2/26 I bought 25 shares for $515.06 (Cost basis of $20.32/share).  I now own 91.621 shares of the company.

My Dividend and Options Income for February

My dividend income dropped hard for February but if I had to guess this is more normal than January but I need a lot more data to see.

  • Dividend income was a paltry $81.64 (vs $29 in Jan.)
  • Options income was reduced to $249 (vs $1,101 in Jan.)
  • Margin Interest paid increased from $0 to $5.42

What did you buy last month?



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