October and November Update

This is somewhat late for October and close to November that I decided to include both months into one. In the future I'm considering posting quarterly updates rather than monthly, but I digress. Hopefully there are some non-Swedish readers who derive value from my writing here. Since I do not write as often here as I do on the Swedish version of my blog I try to summarize as much as possible and hopefully higher quality as well. Here is a chart with my portfolio development YTD (The numbers on the left are in SEK):

The financial markets have been in turmoil lately and my portfolio went down 15% only to rebound later on. ARCP did weight down heavily at the end of the month as well as Awilco Drilling. I'm not worried about my holdings, the importance of which was amplified during the month. I also learned that I need to keep a reserve of cash if good opportunities arise. I'm quite often to quick on the gun and bought way before bottom. The thing is, I did it more because I wanted to use capital than that the stocks were attractively valued so I will try to focus more on that in the future. Likewise I could have waited for more information from ARCP before increasing my position slightly. I'm currently looking forward to more ARCP news when they release their report for their third quarter.

Iron Mountain released their report in November. AFFO was 2 cents lower than estimates at 0.35$ which is still substantially higher than the regular dividend at 0.275, which gives a nice payout ratio of 78%. Income increased 4% y-o-y which is in line with management plans and the lower AFFO is mainly related to REIT related costs. Overall there wasn't much new. The share price has appreciated nicely and I intend to evaluate what I want to do with my holding at year-end. I imagine that the catalysts I've been waiting for will be done by then. I still expect an extra dividend to compensate for the lower dividend at the first two quarters of this year and a normal dividend before year-end. I'm also waiting to see if the price will appreciate more as funds and indices start to include IRM in their respective portfolios.

In November IRM announced their final dividends for the year as follows:
A catch up dividend of 0.255$ with an ex-dividend date the 25 November and payout on the 15th December, and a regular dividend of 0.475$ with an ex-dividend date at the third of December and payout on the 22nd of December. They also gave out the special dividend which for me meant 4 additional shares and 90$ in cash. The additional shares give me an extra 7.6$ in annual dividends.

Kinder Morgan also released their Q3 earnings. The dividend increased 7% y-o-y and 3% from the last quarter to a dividend of 0.44. They reported growth on all fronts which will support the aggressive dividend growth for the upcoming years which I'm looking forward to collecting. Unfortunately I did not have cash on hand to increase my position before the report but I shouldn't complain when they released such a good report. The merger also finalized which apparently was a trigger as the price appreciated somewhat.

Dividends YTD looks as follows and the projected anual dividend is at 1700$ (updated holdings can be found in the portfolio page on the menu):

For December I'm looking at BHP Billiton (BBL) and Main Street Capital Corporation (MAIN) which both seem like attractive option for 2015 at current prices.

How has the last quarter of the year been for you? See any attractive opportunities in the market?

September and Q3 Update

September is over. My portfolio lost some market value this month for the first time this year. I never thought it would go as well as it has and I have to keep reminding myself that I shouldn't expect these kinds of return all the time. So far I'm up 22% YTD and since I started investing last year. I'm happy about it but shouldn't let it go to my head :) This month has already kicked my but somewhat but I'm not particularly worried. I now get to buy more companies with cheap valuations.

The Phoenix Group and Iron Mountain had their ex-dates during the month so I won't see that income until next month. This means that there is a lag or dip in total portfolio value. Since I do, in fact, sell securities at some point in time, I think it's is a good measurement for me to track progress in total portfolio value. I also use total return in order to compare it to a funds to see if it was worth investing privately or not. Now I've found I enjoy investing a lot as a hobby besides the added benefit of long term economic security. Back to the dividends, Iron Mountian had one regular dividend and one special dividend. The special dividend is in the form of 80% shares and 20% cash or 100% cash. I did not have the option of choosing shares through my Swedish broker which I would have liked. I'm still considering adding to my position in IRM with the dividends combined with some fresh capital but we will see what looks attractive at the end of the month.

The dividends recieved during September are the following:

Date	Ticker	Shares	Amount (SEK)	Amount (USD)
2014-09-16	ARCP	190	112.96	15.59
2014-09-22	Awilco Drilling	225	1852.17	255.64

With current exchange rates my dividend for the year are the following:

March 199$

April 267$

May 384$

June 578$

July 15$

August 35$

September 271$

Total: 1750$

As I mentioned above I aim for total return, dividends are a big contributor but not the only source of return. My "trading return" YTD is 1127$, i.e. what I've gained or lost from selling securities over the year. I aim to earn more from this type of return by buying undervalued stock. My one disappointment for the year so far is that I've bought and sold way more than planned, around 40 transactions. Some of the transactions have been dollar cost averaging but I'm not satisfied with some of the companies I've bought in the past and aim to be more selective with what companies I choose to own in the future.

This year I've collected 1750$ in dividends (12668SEK) which amounts to a yield of 7% with my currents holdings. My expected yearly dividend (i.e. for next year) with current holdings is 2600$ excluding potential dividend increases and special dividends. Awilco Drilling does have power to offset the dividend quite a bit as they are expected to lower their dividend in Q4 2015. Unfortunately they stand for 37% of my dividend income which I hope to remedy in the future.

During the month my only purchase was Kinder Morgan Inc which I wrote about HERE. I feel that KMI will be a good and solid holding for many years to come and still think it's cheap with a >5% dividend and ample growth. I have updated my portfolio page to reflect the changes of this month, as well as sector allocation and currency allocation. Worth to mention; I do believe that KMI with their pipelines are more secure against the recent fall in oil prices because no matter the price of oil it still needs to be transported.

In the future I'm looking to add some BDCs, namely FSIC. MAIN and NMFC are also options I'm considering depending on pricing. In the Nordic markets I'm considering adding to my holdings in Atea or too some of my Norwegian insurance companies. A fellow Swedish blogger also made me notice Admiral (ADM) which is a British car insurer with high margins and a high sustainable dividend which sounded interesting.

Recent buy: Kinder Morgan

Last week I bought 55 shares of Kinder Morgan at 40.22$ per share including commission for a total of 2212$. This purchase adds ~95$ to my yearly dividend based on today's dividend. I'm expecting the increase to 0.5$ per share per quarter in 2015 so I'm expecting to have added 110$ to my yearly dividend with further growth in the future.

Kinder Morgan is a holding company that owns, for now, parts of several pipeline systems. In August they declared that they would buy all shares of KMP, KMR, and EPB. The purpose of the "merger" is to decrease the cost of capital. Since with the current structure the cost of getting more capital, in the form of issuing more shares, is costly, both with regards to fees and the high distributions. The MLP structure will still be in effect so KMI will still receive lower tax on income and it will be easier for KMI to take in new capital. The merger makes them into the largest energy infrastructure company in North America and the third largest energy company overall.

I find the pipeline business somewhat more attractive in the doorman position they have. They get paid regardless of oil and gas prices and the only time that  these prices might affect are if they drop significantly which I don't believe they will.

I am somewhat unsure about how long it takes before gas and oil wells are depleted and if pipelines can be reused once a well empties and the pipeline is no longer needed there. With the recent oil and gas boom in America I anticipate that Kinder Morgan's pipelines will be used for a long time yet and bring an increasing profit to shareholders. It seems there is demand for more infrastructure until 2035 and contracts are on avereage of 16 years which is comforting.

KMI has always, to me, seemed like the best option of the oil and gas companies. Statoil was at the top before but has since rallied. KMI on the other hand after its recent merger news and plans to raise dividends significantly with a current yield of around 5% looks very attractive unlike most S&P companies. The plans to raise dividends by 10% per year until 2020 is also good news. Even if the market does not realize the value that lies here I believe I will receive ample return on my investment. But the question is, can they do what they promise?

In the past KMP has been able to achieve more than promised in 13 out of 14 years. EPB and KMI has also been able to distribute more than management had expected from the beginning which speaks to the possibility of an even more aggressive growth of dividend. It seems they have historically been conservative in their estimates and more often surprise on the upside rather than on the downside. They have also managed to grow both organically as well as through acquisitions.

For current dividend stability one must look at KMI financials, after the merge is complete KMI management anticipates an investment grade rating. KMI has recent years enjoyed some of the lowest interest levels on bond issues fighting with Berkshire Hathaway (BRK) about being able to issue the lowest yielding bond. Which means they are deemed to be able to pay back their money (low risk of capital loss for buyers) in such away to achieve such a low interest expense rate.

In the feature synergies received from the merger as well as the cheaper cost of capital for further expansion should enable a steadily increasing dividend. As mentioned at KMI's past predictions they have been spot on or distributing more than forecasts most of their active years. Management project an 10% annual growth rate until 2020 with a 10% coverage margin.

Some of the main risks involve regulatory risk, crude oil production volumes and commodity prices. Even though I'm hoping people will start using less fuel I see that it is a slow process and anticipate oil/gas to be important for a long time ahead. Some other risk factors are environmental (e.g. pipeline/asset failures), terrorism and economically sensitive business (e.g. steel terminals). Higher interest rates would of course also affect but as mentioned earlier KMI enjoys low interest rates on debt and an <5.5 debt /EBITA leverage ratio as to enjoy investment grade rating. I do find the business somewhat complicated and will try to keep myself informed. Usually the biggest risk are the ones that you aren't aware of.

Thoughts on KMI? Have I made any incorrect assumptions?

Full disclosure: Long KMI

Sources used: Merger presentation and press realease.