Diego Tomazzini
RIG = Ross’s Income Garden
Rose’s Income Garden (“RIG”) is a defensive income-quality value-building portfolio of 82 stocks from all 11 sectors.Yes, this number is down from the 88 mentioned in the August update article, and The September update will reveal these changes. RIG contains most investment grade common stocks, but also high yield (“HY”) business development companies (“BDC”) and real estate investments, some of which are not rated. The goal is to keep 50% of income from defensive sectors/stocks and maintain a minimum dividend income yield of 4% or higher. The current yield is 5.3%.
August
As we all know, August was a red month with all major stock indexes down 4-7.5%.
September
Sorry,… September continued to show its normal properties and was the worst month for the market.
Last week ended badly
Spy/S&P 500 -4.7%
Nasdaq -3.9%
Dow/Dow -4.1%
Dow Jones Transportation -8%
Russell 2000 -4.2%
There is one indicator that is rising and keeps rising: Inflation remains in the 8% range, up from 8.3% at the latest report. The Fed’s 2% inflation target now seems like a distant and distant target, and likely won’t be achieved quickly, especially in 2022. Some say raising this target expectation to 3% or even 4% would also be a tough task from here.
More rate hikes are coming.
Yes, gas prices are lower, but still much lower than they were 18 months ago.
The Strategic Petroleum Reserve is being depleted to bring down gas prices; it works to an extent, but everyone needs to know that it can and won’t last until November’s midterm election time, and then on and off again.
Gasoline prices will go up again, just like utility bills are already doing! Get ready, it will happen.
Proposed S&P Industry Allocation vs. RIG
The chart below shows a compilation of suggested allocation percentages for 11 market sectors since January 2022, which appears to have changed little from year to year. The link from Fidelity has been updated a bit to be closer to the allocations listed below, showing that about 27% of the allocations go to tech/tech/”IT”. The love of technology is huge and real, and it has many parts that make it broad and varied. I admit it’s almost a foreign language to me, and as an older person, never took it upon myself because I didn’t fully understand it. I hold off buying most stocks because they are mostly growth stocks and don’t offer compelling dividends.
As mentioned, RIG takes 50% of its revenue value from defensive industries, and tech has not been considered one of them. Healthcare, communications, consumer staples, and utilities (in bold percentages) are the industries I look for defense.
|
S&P 2022 |
|
|
department |
January 31, 2022 % |
|
information Technology |
28.7 |
|
health care |
13.1 |
|
consumer discretionary |
12 |
|
finance |
11.3 |
|
communicate |
10 |
|
industry |
7.8 |
|
consumer staples |
6.1 |
|
vitality |
3.4 |
|
real estate |
2.7 |
|
Material |
2.5 |
|
utility |
2.5 |
Using the percentage allocation above, I get about 31.7% of the defense value from the selected sector. Just 28.7% tech share is a little short of, oh my gosh. Therefore, my goals and the advice of analysts, brokers or others always depend on individual needs. The Nasdaq is down more than 27%, and I’m happy to have my goals and industry demands. I find the low allocation to utilities especially surprising compared to RIG >10%. Maybe when the crash is over, if they turn out to be real bargains, I’ll consider buying more tech stocks for RIG. Next up is a discussion of RIG technology stocks.
RIG Technology Sector Stocks – 4
RIG’s allocation to technology has been much lower than the proposed rather high level of 27+%. It currently has 4 stocks at 5% value and 1.9% of revenue. It is extremely difficult to earn high incomes from the tech industry. The individual stock charts below are arranged by maximum value.
Use the following abbreviations:
Standard & Poor’s Credit Rating: Standard & Poor’s Credit Ratings
Current price $: Prices at the end of the market day on Friday, September 16
2022 Annual Segment$: Known Annual Dividends
dividend yield = Dividend yield using displayed price and known dividends
|
Technology |
|||||
|
in stock |
company |
S&P |
current |
Per year |
eastern time |
|
stock code |
name |
Chromium grade |
Price $ |
partition $ |
dividend yield |
|
(AVGO) |
Broadcom |
BBB- |
502.5 |
16.4 |
3.26% |
|
(Well) |
MasterCard |
a+ |
315.13 |
1.96 |
0.62% |
|
(CSCO) |
Cisco |
AA- |
43.3 |
1.51 |
3.49% |
|
(ask) |
visa |
AA- |
193.3 |
1.5 |
0.78% |
The above 2, MA and V, are actually referred to as data or financial “fintech” stocks.
So RIG is really only 2 pure tech stocks. Last year, looking back, I happily sold Intel for $50. I kept the CSCO and even its price dropped.
Next, I’ll show a comparison of the current price with some analyst estimates and a 52-week high and low.
$M*FV = Morningstar fair value
Yahoo Finance $ = Yahoo Finance analyst target price
|
in stock |
52 weeks |
52 weeks |
current |
$ |
Yahoo |
|
stock code |
low |
High |
Price $ |
M* FV |
fine $ |
|
Auger |
$463.91 |
$677.76 |
502.5 |
624 |
$656.00 |
|
Mother |
$303.65 |
$399.92 |
315.13 |
369 |
423 |
|
CSCO |
$40.82 |
$64.29 |
43.3 |
54 |
$55.00 |
|
ask |
$185.91 |
$236.96 |
193.3 |
229 |
$261.00 |
They are both undervalued and above 52-week lows, according to analysts. Be cautious when buying as everything seems to be going lower in price.
What follows is some information on each of these stocks. The statistics listed are taken from the subscriber service FAST Graphs managed by Chuck Carnevale.
Broadcom
AVGO operates in two technology areas: semiconductor solutions and infrastructure software, and is headquartered in San Jose, California.
The current price-to-earnings ratio is 13.8, and the 5-year normal is 15.2.
Current EPS yield of 7.25% with 18.8% earnings growth potential
5 Year Dividend Growth = 53.3% vs 16.7% over the past 2 years.
It is proposed to raise the current dividend of $16.40 to $18.83, or a 14.8% increase. It maintains a payout ratio close to 50%, which suggests dividend security.
The current yield is 3.26%, which means this is a great candidate for a buy-and-hold dividend investment with a return of 18%+. I found this to be a very pleasant addition to RIG, and very cheaply caught my eye a few years ago as a fortune teller’s trading alert advice on the Wheel of Fortune service.
It does have an investment grade credit rating of BBB- with many excellent attributes to hold in RIG for the long term.
Cisco
Cisco is principally engaged in the design, manufacture and sale of Internet protocols for international communications technology equipment. It was founded in 1984 and is headquartered in San Jose, California.
The current price-to-earnings ratio is 12.8, and the 5-year normal is 15.4.
It is currently trading at 7.8% EPS and has an earnings growth potential of 4.1%.
5 Year Dividend Growth = 6.5% vs. 2.8% over the past 2 years.
It is proposed to raise the current dividend of $1.50 to $1.54, or a 2.7% increase. It maintains a payout ratio close to 45%, which suggests the dividend is safe.
The current yield is 3.5% due to low valuations. I would like to see a higher dividend rise to provide better total returns. It’s not a big position in RIG, but I’m holding it now because its AA- credit rating adds to its quality-safe dividend, and it’s been up for 12 years now.
MasterCard
Mastercard is known internationally as a technology company involved in financial transaction processing and payment solutions. It was established in 1966 and is headquartered in the New York purchasing department. That city’s name fits the company well.
The current P/E ratio is 31.9 and the 5-year normal is 35.8.
It is currently trading at 3.14% EPS and has an earnings growth potential of 19.3%.
5 year DGR “dividend growth rate” = 18.5% vs. 15.6% over the past 2 years.
The current $1.96 dividend is proposed to be raised to $2.04, however, as pointed out by high DGR, it is already higher and could be closer to around $2.24.
It maintains a payout ratio close to 20%, which suggests that the dividend is very safe.
With a current yield of 0.62%, its appeal is largely due to its excellent dividend growth. It usually always seems to be overvalued and is now falling to a 52-week low of $303, but not yet.
An A+ credit rating gives it a score for a quality and safe investment.
visa
Visa is a global payments technology company founded in 1958 and headquartered in San Francisco, California.
The current price-to-earnings ratio is 26.5, and the 5-year normal is 33.
Earnings per share are currently at 3.77% and earnings growth potential is 16.8%.
5 year DGR “dividend growth rate” = 18.15% vs 13.3% over last 2 years.
It is proposed to raise the current dividend of $1.50 to $1.64, representing a 9.3% increase, which would be lower than normal.
It maintains a payout ratio of around 22%, which suggests that the dividend is very safe.
The current yield is 0.78%, and its allure lies primarily in high dividend growth and capital price appreciation. It usually always seems to be overvalued and is now falling, but still not enough to match its 52-week low of $186.
The AA credit rating gives it a score for a quality safe investment.
department
Most industries are in a bear market, and the biggest winner is energy, and that shouldn’t change. This is followed by utilities, some commodities, and even healthcare.
Rose and RIG are pleased with their goal of 50% of their revenue coming from defensive sectors, which appear to help keep their value close to balance. Goals are important, and I’ve positioned RIG as a defense.
Summary and Conclusion
The portfolio continues to be close to the mean, with an income yield of 5.3% and cash at 8.1%.
RIG is listed and maintained exclusively on The Macro Trading Factory which offers 2 main portfolios.
FMP is a fund managed exclusively by The Macro Teller.
As mentioned, RIG is primarily owned and managed by RoseNose.
For those who don’t have the time/knowledge/want to manage their portfolios themselves, and/or want a simpler but more risk-oriented (less volatile) way to get exposure to the market.
Each of our product portfolios, across all domains, provides you with solutions that are hassle-free, easy to understand and execute.
RIG does contain and I still continue to look for quality low debt/high credit rating companies and have started a “WTB”, or want to buy a list of non-RIG stocks for subscribers to focus on. I also offer low-buy and deep-buy prices for RIG’s plugins.
The search for RIG candidates is always ongoing, with objectives and details including the following:
– Quality rated dividend paying stocks.
– Undervalued but could gain additional quality at fair value.
– Low debt/high credit rating.
– As dividend growth rate increases, payments and cash flow can easily pay dividends.
– Defend with a product or service that I understand and can easily follow.
The market is still too volatile and weak to consider adding new positions, but the WTB list will always wait for the right moment. Cash should be king, so my behavior is very much in line with keeping cash and collecting dividends, currently RIG is about 8.9%. With an established quality dividend portfolio like RIG’s, I believe it will ride the valuation roller coaster, while using the quality expectations and targets mentioned, dividends/income will continue to flow in as expected.
Happy investing everyone.