Freedom Fund Update - February 2014

Well, the time has come to update the Freedom Fund once again as we start another month. The Freedom Fund is my portfolio, and I think it's aptly named. My portfolio is my way to freedom; freedom from a job I don't desire to purchase goods I don't need to impress neighbors I don't care about. This journey is all about freedom and flexibility. One day the dividend income this portfolio generates will fully replace my day job's income and my time will be completely my own. What could you possibly want to own more than your time?

I feel extremely fortunate and thankful that I'm able to post these updates every single month which shows the power of monthly contributions to investments because of the high savings rate I maintain. It shows how a relatively large sum of money can be built through the power of time, patience and perseverance.

It's important to keep in mind that while updating the overall value of my portfolio is important for historical reference and for purposes of keeping track of total return, my main focus is on the rising dividend income stream the Fund provides.

This past January was one of the most active months for the Fund ever. I didn't intend for it to be so busy. I don't view activity in itself as something an investor should aim for. I subscribe to the old adage that your investment portfolio is like a bar of soap; the more you handle it, the less you'll have in the end.

The first change I made to the portfolio in January was adding to my position with Target Corporation (TGT) after the stock price continued to sink. This purchase allowed me to average down and add to a high quality retailer that's been around for more than a century. Although everyone is talking about the data breach, Target is not the first business to be affected by such an event and certainly won't be the last. While this will cost money to rectify, I'm actually more concerned about the stalling expansion in Canada. I would think Canada would be an easy transition for Target because shoppers' habits are somewhat similar to ours, and the culture is obviously quite similar. So if growth there stutters, I do wonder how that bodes for further international expansion. However, I'm still willing to give Target the benefit of the doubt and assume they'll connect with Canadian shoppers over time. 

My additional investment in Target was the only activity I really planned for January. However, certain events forced my hand. Most notably, I decided to sell Intel Corporation (INTC) after the company declared its seventh straight unchanged quarterly dividend. I'm a dividend growth investor who is seeking passive dividend income that increases annually over the rate of inflation, and Intel just didn't seem to have my best interests in mind in regards to the dividend policy. Proof of that was in the fact that management had been mum on why it stopped increasing the dividend, and whether it would be increased at any point in the future. Furthermore, there were more questions than answers for me after I took a hard look at Intel's future in mobile processing. I was a shareholder for almost three years, but in the end changes are sometimes required.

With this proceeds from the aforementioned sale, I first initiated a position in Omega Healthcare Investors Inc (OHI). The growth for this REIT over the last five years or so has been outstanding, but we'll see how it does going forward. I'm excited about the yield and the dividend growth, and even a slowing of the growth rate still provides for strong risk-adjusted returns.

I then took the capital left over after that transaction and added some fresh cash from my day job in order to add to my position with The Coca-Cola Company (KO). Th world's largest beverage company really needs no introduction from me, but after a full quantitative and qualitative analysis I felt very comfortable adding to my investment with Coke. There are few companies that provide clockwork 7-10% growth with great earnings visibility, and this is one of them.

Finally, I added to one of the largest positions in my portfolio after Philip Morris International Inc. (PM) continued its downward slide with seemingly no major catalyst. This was an investment I was actually trying to avoid, as I don't like one company being such a large portion of my portfolio. Going forward, I want no one company to be more than 4% of my portfolio. However, my portfolio is still growing month by month so I hope the rest of the Fund grows in around PM over time and shrinks its weighting.

I don't anticipate the rest of the year to be anything like this, but I suppose it's a bit exciting when it does occur. I rather hope for 1-2 equity investments per month in high quality companies that have records of dividend growth going forward. I'm also not planning on selling off any other investments, but we'll see what happens.

The current market value of the Freedom Fund stands at $144,078.80. This is a loss of -1.94% over last month's published value of $146.930.61. I don't often publish monthly reductions in the value of the Fund, but this will occasionally happen as the value of the portfolio increases and monthly stock market gyrations cause greater value fluctuations than the capital infusions I provide to offset such. Of course, much of the loss can be attributed to the fact that the broader market is down some -3.5% over the last 30 days, and more specifically some of my big positions, like Philip Morris International, are down much more over the last month. Of course, I've often discussed how I look forward to seeing the price of stocks I invest in to decline so this has actually been a very exciting month for in that regard. And that accounts for part of the reason I've been as active as I have been over the latter part of January.

Moreover, I'm hoping the broader market pullback continues throughout the rest of the year. This allows my fresh capital (which is now more limited due to changes at work) to go even further by buying cheaper shares, thereby increasing my yield and the passive income I can possibly generate. 2014 is starting out wonderfully!

I'm currently invested in 43 companies. This is unchanged since last month.

These updates are mainly designed to show the increase or decrease in the value of the underlying equities I'm invested in, but the main purpose of investing in dividend growth stocks is for the rising stream of dividends over time. So with that said I don't put too much emphasis on these monthly updates on the value of my portfolio. I think it is a good idea, however, to keep track of the rising (or falling) value of one's securities and be aware of where they are in terms of the marketplace and whether or not certain stocks are attractively priced. It proves to be a useful exercise, for me at least, to update the values monthly. It gives me fresh perspective on which equities are performing well and which aren't, and from there I can make educated decisions (based on further due diligence) on which stocks I'd like to add fresh capital to (while considering portfolio weight as well).

Full Disclosure: Long TGT, OHI, KO, PM

How was your January? Did you have a particularly active month as well?

Thanks for reading.

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