Doubling Down on Home Depot
“If investing is entertaining, if you're having fun, you're probably not making any money.
Good investing is boring."
- George Soros
The Portfolio
Year-To-Date the portfolio is up +27.25%.
Our benchmark index, the S&P 500 is up 24.83% YTD.
If you're an investor looking for diversification and growth, and you'd like to know more about the way I build a portfolio; please feel free to email me. clay@claybaker.com
Home Depot
Last week I added home improvement retailer Home Depot to the portfolio. I have to admit, I only dipped my toe in the water on that first buy. This morning I doubled down and bought another 10 shares at $218 per share which also lowered our cost basis. I see any pull back in this name as an opportunity to add to a long term position as the stock is now down about 10% from its 2019 highs.
Dividend Performance
Home Depot pays a 2.50% dividend, or $5.44 a year, paid quarterly. This is a company investors should set to automatically reinvest dividends and add on pull backs below your cost basis. Those two strategies are one of the best ways to consistently make money in stocks. Home Depot has consistently raised its dividend every quarter since 1987.
Why all the interest in dividends? "Hey isn't this a growth portfolio?" Yes this portfolio is about growth, but not the kind of high risk growth that comes from day trading, or taking unnecessary risks. High quality, dividend paying stocks are a foundation component to any portfolio. A 2016 whitepaper from Hartford Funds also found that 81% of the total return of the S&P 500 going back to 1960 is attributed to reinvested dividends and the power of compounding. What’s more, dividend income constituted 33% of S&P 500 monthly total return between 1926 and 2015, with the remaining portion coming from capital appreciation. Dividend paying stocks have performed with less volatility over time. Including lower lower volatility stocks in your portfolio is a smart strategy to hedge against volatility and smooth out the ride.
Volatility, or those big swings up and down, are the most common source of investor losses. When stocks suffer a big decline, many investors will panic and sell, thereby realizing those losses. And when stocks are in rally mode, many investors will buy, chasing after those rising stocks, only to find they are buying at the top. Home Depot may in fact decline further; possibly to the $212 level. If that happens I'll plan to buy again and further reduce our cost basis. While we wait for the price of the stock to rise again, we'll enjoy that 2.50% dividend. We're being paid to wait.
Dividends and share buy backs are two ways that a company returns capital to it's owners. However, the IRS doesn't see buy backs and dividends the same way. Ordinary dividends get taxed at 37%, while a stock buy back will tend to cause share appreciation and any gain on those shares are taxed at the lower capital gains rate; when you sell. Capital gains tax rates are either 0%, 15% or 20% (depending on your tax bracket) for assets held for more than a year. Home Depot does both! The company can't invest all their capital in the business each quarter so they return the capital to their owners (you and I the stock holders). The biggest difference in a share buy back vs. a dividend is that shareholders 'choose' to sell shares, dividends, when paid, are mandatory. Because of the high tax rate on cash dividends, investors are far better off having those dividends re-invested in the companies stock. When you re-invest dividends, you'll receive a fractional number of shares, there's no commission and no taxes until you sell. Just log into your brokerage account and set dividends to re-invest.
"Markets don't go to zero, Portfolio's do.
Buy quality, be patient...and look twice for motorcycles."
- Clay Baker
Stay Invested,
Clay
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Keep Me Honest
S&P 500 declines to 2,350 or more (1-3-2019)
Healthcare and Biotech sectors outperform (1-3-2019)
S&P reaches 3,000 by year end (1-11-2019)
CSCO reaches $60/share (1-18-2019)
VEEV reaches $145/share (2-14-2019) (achieved $145.23 on 5-10-2019)
CVS reaches $91.50 (2-27-2019)
Bull market takes another leg up (4-7-2019)
The Fed will lower rates 1-2 times (5-13-2019)
Clay's Rules
Rule #1: Don't lose money
Rule #3: Portfolios go to zero, markets don't, Stay Invested
Rule #4: When a good stock you own drops 10% below your cost basis, add shares
Rule #5: Bull markets aren't sustained without the Transports
Rule #6: When Forward P/E is lower than TTM P/E, expect earnings to increase
Rule #7: When an investment bank sells below book value, buy it
Rule #8: Tips are for waiters. Do your research.
Disclosure: I am personally invested long in some or all of these stocks or funds that appear in the Stay Invested portfolio and may purchase or sell shares within the next 72 hours. I am also invested in other stocks and funds that do not appear in the Stay Invested portfolio but may be mentioned or related to this article. It is not my intention to advise or encourage the purchase or sale of any security. I am invested long in these securities mentioned in this post:
HD, AMRN, BSTC, CVS, CSCO, VEEV, STZ, AMZN, NVDA, BCRX, GS, BDSI, VEEV, VTI, GLD, HD, AWR, XLNX, MRVL, NBRV
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.
