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The Good Business Portfolio: All 24 Positions

Summary The portfolio of good company businesses is doing 3.62% better than the DOW average year to date (YTD) of -0.41%. The 24 businesses comprise 99% of the portfolio with the other 1% cash and the average total return over the DOW average for the 30 month test period is 32.52%. Create a portfolio that is balanced, not income, not dividend growth, not bottom fishing, not value, but balanced among all styles. Of the 24 companies in the portfolio 19 beat the DOW average for total return and 5 missed the total return over the test period of 30 months. This article gives my 10 guidelines for company investment selection for the complete Good Business Portfolio. The intent in these guidelines is to create a portfolio that is a large cap balanced portfolio between the different styles of investing. Income investors take too much risk to get their high yields. Bottom fishing investors get catfish. Value investors have to have a foresight to see the future. You see from the guidelines below that I want a portfolio that is defensive, provides income and does not take high risks. I limit the portfolio to 25 companies; more than this is almost impossible to keep track of. At present I have 24 companies and have open slots awaiting General Electric (NYSE: GE ) and Hewlett Packard (NYSE: HPQ ) spin-offs. Guidelines (Company selection) 1. NEVER buy any company or security that has more than three letters in the symbol. I know this eliminates just about all mutual funds, Apple (NASDAQ: AAPL ), Microsoft (NASDAQ: MSFT ), Intel (NASDAQ: INTC ) and a lot of other large cap good companies, but it also eliminates the small cap startups and many others that are not good investments for a retirement portfolio. The only exception to this guideline is the purchase of a high grade corporate investment grade bond fund. 2. Capitalization should be at least $7 Billion (share price times number of shares outstanding) 3. Company should have a dividend of at least 1.0% on a yearly basis and the dividend should have been increased in 7 of the last 10 years. 4. Cash flow should be strongly positive. This allows dividends to increase, do share buy backs, and purchase of other companies to expand the company business. You can’t make cash up by accounting tricks like World Com and Enron. 5. The company should be listed on a Major exchange (NYSE) or NASDAQ, NO over the counter and pink sheets, NO venture capital. 6. The company business should be understood. Don’t invest in business models or products you don’t understand. Would you buy the whole company if you could is the question. If yes the company can be bought (Peter Lynch). As an example I don’t understand Google (NASDAQ: GOOG ) (NASDAQ: GOOGL ). If you can actually understand how Google will continue to grow then you can buy it, except that it violates guideline number 1. 7. Never invest in the following class of companies; – Airline operations business (poor business model). They should charge a price that they can make money on. – Banking small and large (can’t tell what assets are worth). – BDCs (too much debt and bad businesses). High dividends are not worth it. It’s better to have a real company like Harley Davidson (NYSE: HOG ), that has an iconic product. 8. S&P Capital IQ rating should be at least 3 or better. Consider selling when its rating drops to 2 or 1. 9. Remember you are not buying stock; you are buying shares in a company. Consider yourself an owner; you are. This idea may seem silly but it’s one of the best in this list, very important. As an owner do your home work, read about the company every few days and check prices at least once a week. Having a list on your favorite financial site like Seeking Alpha or web home page will help. 10. Compound annual growth rate for the next three years should be projected at least 6% per year. These are guidelines and not rules. They are meant to be used as filters to get to a few companies where further analysis can be done before adding the company to the portfolio. So it’s alright to break a guideline if the other guidelines indicate a Good Company Business. I’m sure this eliminates some really good companies but it gets me a short list to work on. There are too many companies to even look at 10% of them. Portfolio Performance The performance of the portfolio created by the guidelines have year in and year out beat the DOW average for over 22 years giving me a steady retirement income and growth. The table below shows the portfolio performance for 2012, 2013, 2014, and YTD of 2015. Year DOW Gain/Loss Good Business Beat Difference Portfolio 2,012 8.70% 16.92% 8.22% 2,013 27.00% 39.70% 12.70% 2,014 6.04% 8.67% 2.63% 2015 YTD -0.41% 3.21% 3.62% In a great year like 2013 the portfolio did fantastic. In a normal year like 2014 it beat the DOW by a fair amount. So far this year the portfolio is doing good at 3.62% total return gain above the Dow average loss of -0.41%. All 24 Companies In The Portfolio The 24 companies and their percentage in the portfolio and total return over a 30 month test (starting Jan 1 2013) period is shown in the table below. I chose this time frame since it included the great year of 2013 and the moderate year of 2014 and 2015 YTD. The DOW baseline for this period is 35.54% and each of the top five easily beat that baseline. The next 19 have five companies that did not beat the DOW baseline but still are great businesses. I limit the portfolio to 25 companies and let the winners grow until they reach 8% – 9% of the portfolio and then I trim the position. BA , DIS and HD are now in trim position. I start the companies at a base percentage of the portfolio of 1% and add to the position if they perform well during the next six months. At 4% of the portfolio I stop buying and let the company percentage of the portfolio grow until it hits 8% then it’s time to trim. In the portfolio only one company is actually losing money over the 30 month test period – Freeport McMoRan Inc. (NYSE: FCX ). This is my full list of 24 Good Businesses. I hope to write individual articles on some of these businesses as time permits. DOW Baseline 35.54% Company Total Return Difference Percentage of Portfolio Cumulative Total 30 Months From Baseline Percentage of Portfolio Boeing (NYSE: BA ) 92.08% 56.53% 8.77% 8.77% Home Depot (NYSE: HD ) 86.52% 50.98% 8.66% 17.43% Walt Disney (NYSE: DIS ) 127.27% 91.72% 8.05% 33.19% Johnson & Johnson (NYSE: JNJ ) 48.98% 13.44% 7.70% 25.14% L Brands Inc. (NYSE: LB ) 99.39% 63.85% 6.73% 39.92% Harley Davidson Inc. 20.06% -15.49% 6.24% 46.17% Cabela’s Inc. (NYSE: CAB ) 16.41% -19.13% 6.03% 52.20% Altria Group Inc. (NYSE: MO ) 72.57% 37.03% 6.16% 58.36% Philip Morris INTL INC. (NYSE: PM ) 6.63% -28.92% 5.49% 63.85% McDonald’s Corp. (NYSE: MCD ) 17.78% -17.76% 5.49% 69.34% Eaton Vance Enhanced Equity Income Fund II (NYSE: EOS ) 53.55% 18.01% 5.49% 74.83% General Electric 34.39% -1.15% 4.83% 79.66% Automatic Data Processing (NASDAQ: ADP ) 46.03% 10.49% 4.12% 83.78% Ingersoll-Rand plc (NYSE: IR ) 73.55% 38.01% 2.83% 86.61% Hewlett Packard 113.11% 77.57% 2.44% 89.05% Novartis AG (NYSE: NVS ) 71.37% 35.83% 1.65% 90.70% Omega Health Inv. (NYSE: OHI ) 64.02% 28.48% 1.53% 97.35% Mondelez (NASDAQ: MDLZ ) 60.52% 24.98% 1.48% 94.64% Texas Instrument (NASDAQ: TXN ) 54.02% 18.48% 1.30% 93.16% Amerisource Bergen (NYSE: ABC ) 155.97% 120.42% 1.17% 95.82% Freeport McMoran -43.95% -79.49% 1.16% 91.86% Kraft Heinz Corp. (NASDAQ: KHC ) 82.08% 46.54% 0.82% 98.17% Alcoa (NYSE: AA ) 18.06% -17.48% 0.68% 98.85% Hanes brands Inc (NYSE: HBI ) 263.04% 227.50% 0.18% 99.03% Average 32.52% Recent (last month) Portfolio Changes and Comments Added a starter position of HBI to the portfolio. If the next earnings are good I will add to this position as the above 8% positions get trimmed to balance the portfolio. I have to see if they can continue this great performance going forward. Continued selling covered calls against part of the MCD position. I am selling out of the money calls with short duration of two weeks. MCD is a great business but is being hurt by the strong dollar and its ability to compete against new startups. I have made a little extra money while we wait for MCD to turn around. Added to EOS position now 5.5% of the portfolio. I needed some extra income so I bought a little more of EOS to increase my income. I have also started selling covered calls against FCX and CAB. I am selling out of the money calls with short duration of two weeks to three weeks. One comment: I have never bought commodity companies before and both (AA and FCX) have disappointed me. A new guideline is in the making to avoid commodity companies , it just seems too much risk and uncontrolled world events to predict what the price of a commodity will be in the future. Earnings Season Has Just Started. Alcoa had a mixed report with earnings missing the expected earnings of 0.24 compared to the actual earnings at 0.19, but the revenue beat by 110 Million. The transformation of Alcoa is starting to take effect and I will wait at least two more quarters to see if it’s a turnaround or sell. I always like earnings season since most of my Good Business companies have increasing earnings. Looking forward I expect Boeing to beat the expected earnings of $2.06 this quarter but will not trim it until it reaches 10.0% of the portfolio. Last year Boeing got above 10% and I trimmed it a little to get it below 10% of the portfolio. Conclusion The 10 guidelines in the article give me a balanced portfolio of good companies that are large cap and can grow their revenues, earnings, and dividends for years. They have the staying power to fix what ever goes wrong. In each case the company has the size and good management to fix the problem. The portfolio has growth companies, defensive companies, income companies and companies with international exposure giving it what I call balance. Of the 24 companies presently in the portfolio five are underperforming the DOW average. All five companies are being hurt by the strong dollar since they are multi-national and have a large portion of their income coming from foreign operations. it is my intention to write separate comparison articles on individual companies. If you would like me to do a review of one of my Good Business Companies please comment and I will try to do it. Of course this is not a recommendation to buy or sell and you should always do your own research and talk to your financial advisor before any purchase or sale. This is how I manage my IRA retirement account and the opinions on the companies are my own. Disclosure: I am/we are long BA, HD, DIS, JNJ, LB, HOG, CAB, MO, PM, MCD, EOS, GE, ADP, IR, HPQ, NVS, OHI, MDLZ, TXN, ABC, FCX, KHC, AA, HBI. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Adding ONEOK To My Dividend Pipeline

ONEOK (NYSE: ONE ) is a distributor of Natural Gas. Owning ONEOK allows me to get into the natural gas space without owning stock on the exploration side. I think of ONEOK as the FedEx (NYSE: FDX ) or UPS (NYSE: UPS ) of natural gas as it is the pipeline delivering product from point A to point B. I have wanted to get into natural gas pipeline stock, but honestly ONEOK has been overpriced until recently. Market downturns and an ongoing energy sector dip has created a good buying opportunity for this high dividend yielding stock. I purchased 40 shares of ONEOK, Inc. at $38.53 totaling $1,941.56. My Dividend Dreams Portfolio is getting heavy on energy stocks. To date, about 16% of my portfolio is in oil and gas. I prefer to only have 10% of my portfolio targeted in one area, so I will likely unload some oil stock on the next market gain. I own 100 shares of ConocoPhillips (NYSE: COP ), so this stock is the likely candidate for a reduction in shares. This purchase adds $96.80 to my annual dividend income . ONEOK Overview ONEOK, Inc. is the sole general partner of ONEOK Partners, L.P. (ONEOK Partners), a master limited partnership engaged in the gathering, processing, storage and transportation of natural gas in the United States. The company operates through three segments: Natural Gas Gathering and Processing, Natural Gas Liquids, and Natural Gas Pipelines. The Natural Gas Gathering and Processing segment provides nondiscretionary services to producers, including gathering and processing of natural gas produced from crude oil and natural gas wells. The Natural Gas Liquids segment owns and operates facilities that gather, fractionate, treat and distribute natural gas liquids (NGLs), and store NGL products, primarily in Oklahoma, Kansas, Texas, New Mexico and the Rocky Mountain region. The Natural Gas Pipelines segment owns and operates regulated natural gas transmission pipelines and natural gas storage facilities. Source: www.schwab.com. To learn more about ONEOK, Inc. visit the About Us section of the company website. ONEOK Dividends Annual Dividend Yield of 6.38% 5-Year Dividend Per Share Average of $1.37 5-Year Dividend Yield Average of 2.96% 3-Year Dividend Growth Rate of 25.3% 5-Year Dividend Growth Rate of 21% 10-Year Dividend Growth Rate of 17.1% Payout Ratio of 59.38% Dividend Coverage Ratio (NYSE: TTM ) of 168.42% The chart below shows the past eight years of annual dividends for ONEOK. This chart visually represents how impressive dividend raises have been for ONEOK. OKE has an impressive a 5-year dividend growth rate average of 21%. (click to enlarge) Source: www.schwab.com ONEOK Valuation S&P Capital IQ ranks OKE as a hold and 3-stars with a 12-month target price of $48. Morningstar ranks OKE as a buy, 4 stars with a fair value of $52. Using my dividend toolkit I used the dividend discount model analysis with the following metrics: 9% Discount Rate and an 5% Dividend Growth Rate. I get a fair value of $63.53. Conclusion I like owning distribution stocks because they own the pipeline for delivery. This is sort of a monopoly; if a seller wants to move goods, they need a distributor. There is safety in OKE because of this, however, this stock is still subject to natural gas pricing. I don’t see gas usage declining in the near future, so I am comfortable with my purchase. Also, natural gas prices are low, which means there is a lot of upside if prices recover. Full Disclosure: Long OKE

4 Worst Performing U.S. Equity ETFs So Far In 2015

The U.S. stock market is caught in a bull-bear tug of war this year. On the one hand, the domestic economy has been on a moderate growth path as reflected in increased consumer confidence, higher spending power, renewed optimism in housing recovery and an improving job market. Additionally, a wave of mergers and acquisitions are brightening up the stock world. On the other hand, Fed uncertainty, an aging bull market, lofty stock valuations, strong dollar, lower oil prices, and global growth concerns including Greece crisis and China slowdown are awakening the bear. As a result, both major indices – the S&P 500 and Dow Jones – are in the red territory from a year-to-date look, declining 0.4% and 1.5%, respectively. In fact, a number of products have been crushed by this tug of war, piling up huge losses for many ETFs. Below, we have highlighted four ETFs that have been hit badly in the volatile environment and might continue their rough trading in the months ahead if the same trends persist. C-Tracks ETN on CVOL (NYSEARCA: CVOL ) – Down 41.3% Volatility products have been the biggest laggard this year despite the bouts of volatility seen in the market. This is because these products tend to outperform when markets are falling or fear levels over the future are high, but neither of this has happened lately. While global headwinds tried to dominate the market, upbeat economic data and the Fed continued to fuel a rally at regular intervals. Given this, CVOL – linked to the Citi Volatility Index Total Return – was the hardest hit, having lost over 41% in value so far in the year. The note provides investors direct exposure to the implied volatility of large-cap U.S. stocks. The benchmark combines a daily rolling long exposure to the third and fourth month futures contracts on the CBOE Volatility Index with short exposure to the S&P 500 Total Return Index. The ETN is unpopular and illiquid in the volatility space with AUM of $4.5 million and average daily volume of less than 102,000 shares. It charges a slightly higher 1.15% in annual fees from investors. Market Vectors Coal ETF (NYSEARCA: KOL ) – Down 29.9% Coal has been out of investors’ favor over the past few years on the thriving alternative energy space and weak global industry fundamentals. The depletion of fossil fuel reserves, global warming and high fuel emission issues, new and advanced technologies as well as more efficient applications is making clean power more feasible, reducing the demand for the black diamond. These are making it difficult for the coal miners to sustain their profitability and margins. As a result, the ETF targeting the global coal industry has seen a wild ride and was off nearly 30% so far this year. It tracks the Market Vectors Global Coal Index. Holding 32 securities in the basket, the fund is concentrated on the top 10 holdings at 60.8% of total assets. It definitely has a U.S. focus as roughly 35% of the fund goes to the American stocks. Beyond that, the Asia and Asia-Pacific region combined to make up for 58% share. The fund has amassed $70 million in its asset base and trades in average daily volume of 77,000 shares. Expense ratio came in at 0.59%. KOL has a Zacks ETF Rank of 5 or ‘Strong Sell’ rating, suggesting their continued underperformance in the coming months. SPDR S&P Metals and Mining ETF (NYSEARCA: XME ) – Down 26.6% The other major losers in the equity world year-to-date are the metal & mining stocks and ETFs thanks to plunging metal prices and weak global trends. Acting as leveraged plays on underlying metal prices, metal miners tend to experience huge losses than their bullion cousins in the slumping metal market. In particular, a strong U.S. currency is making dollar-denominated assets more expensive for foreign investors, thereby dulling the appeal for these commodities. The ETF offers broad exposure to the U.S. metal and mining industry by tracking the S&P Metals & Mining Select Industry Index. Holding 34 stocks in its basket, it uses an equal weight methodology and does not put more than 4.53% of assets in a single security. In terms of industrial exposure, steel makes up for large chunk at 42.7%, while diversified metals and mining, aluminum, and coal & consumable fuels round out the next three spots with double-digit allocation each. The product has $263.3 million in AUM and trades in solid trading volumes of nearly 1.9 million shares per day on average. It charges 35 bps in fees and expenses and has lost about 26.6% so far in the year. First Trust ISE-Revere Natural Gas Index ETF (NYSEARCA: FCG ) – Down 22.7% Natural gas has been following the similar path that of the crude oil. After showing some stabilization at the start of the second quarter, the commodity again lost its charm in recent weeks due to a combination of factors. The shale oil boom in the U.S., increased production, supply glut and reduced demand are pushing natural gas prices and the related ETFs lower. FCG, which offers exposure to the U.S. stocks that derive a substantial portion of their revenues from the exploration and production of natural gas, is down nearly 23% in the year-to-date time frame. It follows the ISE-REVERE Natural Gas Index and holds 29 stocks in its basket, which are well spread out across components with none holding more than 4.89% share. The fund has amassed $197.3 million in its asset base while charging 60 bps in annual fees. Volume is good with more than 843,000 shares exchanged per day on average. The ETF has a Zacks ETF Rank of 4 or ‘Sell’ rating with a High risk outlook. Link to the original article on Zacks.com