Man, I just got back from an amazing concert and am full of energy.  The band was great and had the formula for success (in my opinion, as Lanny is shaking his head in disagreement).   There were plenty of guitar solos, drum solos, crowd surfing, a diverse music selection, great lyrics, and best of all, the lead singer of the band was from our hometown!  What wasn’t there to love.   Thank goodness my fiance introduced me to the band and I was able to go tonight.  Anyway, what was the purpose of this article.  Music…no….Oh wait, I remember.  This week I sold a few positions in my portfolio.  That’s right!  Here is a little information about the transaction.

If you recall, a few weeks ago I wrote an article about three mutual funds I owned and was assessing whether or not I should continue to hold the positions or sell the funds and re-invest the capital elsewhere.  By the end of the article, I had arrived at the conclusion that I was most likely going to sell the funds with high expense ratios and my conclusion was further solidified after reading the comments left by all of you in the community which all leaned towards selling the mutual funds.  So this week, I called my broker and sold my positions.  Boom, those positions are gone.  Just…like…that.    Now, I have some extra capital to play around with and invest.   $5,750 to be more precise.  In total, I received $361 in dividends and capital gains distributions from these funds, which equates to a yield of 6.2%.  However, the actual dividend yield is lower since the majority of that figure is attributed to capital gains distributions and these distributions can fluctuate annually based on the funds performance.

There is one annoying little hiccup that is causing my capital to sit idle for a few weeks.  Man do I wish I could just invest the money the next day.   Instead, these mutual funds were held at a different brokerage in an account that my family initially opened for me when I was younger.  As I began to take a larger role in my finances and became an active trader, this high fee brokerage account was no longer a fit and just to expensive.  These three mutual funds were the final three items at this brokerage and now my capital is being transferred over to Capital One Investing.  Now what really sucks is that the transfer of funds will take some time and I may not have the funds until 2016.  It still amazes me that it takes this long to transfer capital in 2015, but that is a story for a different day.   I just want my capital so I can put it to work immediately.   The timing differences is causing an annoying internal reporting issue since I measure my projected dividend income at the end of the month. Currently, my projected income figure is much lower since I no longer own these funds and will not receive the estimated forward income from the investments (obviously).  Due to the fact that I am going to invest my capital immediately upon receipt and will hopefully not miss out on any dividend income from my new investments, I am going to apply a 3% dividend yield to my idle cash for the purposes of reporting my final 12/31/15 dividend income figure.  This should ease the pain of this aggravating timing difference that I am forced to incur and represent the yield I should receive from the capital once invested (hopefully this is underselling it).

So now that I sold my shares in the mutual funds, what’s my plan?  Don’t worry, I didn’t make my move without considering the next step.  If you recall from my article discussing the plan, I was pretty set on investing a portion of the capital in Realty Income.  I haven’t strayed away from part of the plan and will definitely purchase some shares in the REIT.  After our stock analysis and reviews by others in the DGI community, I can’t wait to own a position in this rock solid, diversified REIT.  It will be a great fit in my portfolio and fill a void that has existed since I sold my stake in ARCP.   But as I said, that is only a portion of the capital.  What’s my plan for the other portion?  Well, that’s still up in the air and I have narrowed down my options.

1. Invest in a Dividend Aristocrat–  I am done messing around everyone, especially after the recent KMI episode.   If I am selling a diversified mutual fund, I want to invest in a buy and hold Divide Aristocrat that has demonstrated to me and everyone else in the community their ability to pay and grow their dividend over the long haul.  There are plenty of great companies to choose from.  My last watch list features two Aristocrats and our “Top 5” Stock listing page probably contains over a dozen of them.  Bottom line is that 2016 is a no-nonsense year and I am going to solidify my portfolio’s foundation with some amazing dividend paying stocks.  Plus, investing in an Aristocrat right out of the gate in January would give me a great head start in achieving one of my 2016 goals.
2. Invest in a Mid-Cap Dividend Focused ETF–  Just because I sold these mutual funds does not mean that I am not interested in owning a diversified pool of dividend paying stocks.  Owning mutual funds that focus on investing in large-cap funds was just redundant with the remainder of my portfolio and I no longer wanted the overlap.  I’m definitely open to investing in a low expense ETF if that means that it covers a sector that I do not own or research as heavily, such as mid-cap stocks.  One of the ETFs that I am targeting is the WisdomTree MidCap Dividend Fund (Ticker: DON).  The fund has a 5 star rating on Morningstar, a .38% expense ratio, and a 12 month yield of 2.4% per Morningstar.  The three highest sector allocations are consumer cyclical (20%), real estate (14%), and industrials (14%), indicating that the fund isn’t relying on any one high yielding sector to boost the dividend yield.  The stock holdings are pretty diversified.  This may not be my final choice and I still have some research to perform.  However, if I select this option, it will either be to invest in DON or another fund with a similar make-up.  Some of the other contending tickers are: JKI and DIM.  The one funny holding at DON is Mattel, one of Lanny’s more fun holdings over the last year or so.  It would be fun to indirectly be a fellow shareholder with Lanny while having a lot less exposure to the stock.
3.  Use the Cash to Buy a Guitar and Start a Band –  I mentioned I went to a concert tonight, right?  After seeing those talented musicians shred,  I became motivated to buy a guitar and teach myself how to play.  It is a risky investment that could potentially pay dividends one day down the road.  But right now, this investment would pay negative earnings and the prospect of earning money from becoming a famous musician are slim to none.  Okay, okay, so this investment would not pass our stock screener since I may never receive a dividend here.  If you haven’t figured it out yet, I am kidding about this option but man would it be a fun experience!  In all seriousness, I am toying with the idea of buying an electric guitar and an amp.  Just something I am kicking around.

What are your thoughts on my two options?  Would you select a mid-cap dividend stock focused ETFs or invest in an Aristocrat? What about investing in a small-cap dividend focused ETF vs. a mid-cap fund.  Do you think I should consider other dividend focused ETFs such as international ETFs?  Which Aristocrats would you recommend at the moment?  I can’t wait to receive the capital and begin the process of building a stronger portfolio!

-Bert