Income Portfolio quarterly review

Posted by Tim

July 2, 2008

On this site I track a pair of stock portfolios, an Income Portfolio and a Special Oportunities Portfolio. The primary purpose of these portfolios is to keep track of the performance of stocks I am interested in and I write about here. I want to start with several caveats about the portfolios.

These are not recommendations to buy or sell any securities. The portfolios are for informational purposes only.
Although the stocks I own are included in the portfolios, I do not own every one of them.
The portfolio results come from starting each quarter with an equal, dollar weighted, amount of each stock. If a new stock is added during the quarter, it starts with the same dollar amount.
I believe all of the stocks in my portfolios are good companies with good prospects. However, timing is very important and a quarterly buy and hold is most definitely not the best way to own them.

Now to some results. After the results in the markets over the last month it is surprising to go back and find the last quarter was only down slightly. The S&P 500 was off 3.5% and the NASDAQ was down 0.6%. My income portfolio had stock price depreciation of -4.1% and dividends earned of 2.47% for a net return of minus 1.6%. This small change really does not show how volatile the individual stocks in the portfolio were, with gains of over 40% and one stock losing 60% of its value.

Tops in the loser bracket are the two financial stocks: City Bank (CTBK: 6.32 0.00 0.00%) and Aircastle Ltd. (AYR: 4.82 -0.55 -10.24%), off 60% and 45% respectively. Earning a dividend over the quarter did little to help. I believe these are fine companies that have been driven down by unrealistic market expectations. I track this portfolio as a buy and hold, but for actual investing, an income oriented buyer would be well advised to place a stop-loss on dividend stocks, and if stopped out put the money to work in a better performing stock until the falling share prices level off and show signs of recovery. Both CTBK and AYR have been showing signs of life over the last few days in spite of overall market weakness.

Top gainers from the portfolio were Nordic American Tankers (NAT: 29.41 +0.66 +2.30%), up 43% plus a $1.18 dividend, Terra Nitrogen Holdings (TNH: 88.27 -1.73 -1.92%), up 29% when dropped from the portfolio and Penn West Energy (PWE: 11.56 -1.19 -9.33%), gaining 24% plus $1.02 in dividends. PWE is in the very strong energy sector, enough said. TNH is in fertilizer and I dropped it from the portfolio due to a significant increase in the amount of future earnings that will go to the general partner, managed by Terra Industries (TRA: 12.545 +0.225 +1.83%). NAT had had a couple of sub-par quarters, but in the first quarter tanker rates shot up and so did the dividend, I expect even better in the first quarter.

Overall, it was a very difficult quarter as the market hammered the financial stocks, then started down as a whole. The yields of the stocks in this Income Portfolio look very attractive if you believe, as I do, the companies have not really had a downturn in their business. Average yield for the portfolio, based on the most recent dividend, is right at 10%. For the next quarter I expect 4 dividend increases, and the rest staying the same. Quarterly earnings reports will start showing up in the next 30 days and I am hoping for some positive stock price action.

Note: I have long positions in CTBK, AYR, NAT and PWE.

Income