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I go full into Energy and high dividend stocks! November 20, 2013

Posted by shaferfinancial in Finance.
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I have now added another stock to my portfolio with funds from selling some of my HCN.
Before I go into this stock, I want to talk about my strategy.

Frederick Holverson is a Norwegion billionaire that has made his money off of oil drilling.
The companies he controls are all stockholder friendly, believing in returning profits, via dividends to its ownership. His companies are well managed and probably the best of the drillers out there. I believe that the worlds thirst for oil is not going to go down anytime soon. So this means that the non-traditional oil discoveries will have to be drilled and used. This nontraditional drilling is sand and deep sea drilling. As this is dangerous work, there is always the risk of spills and explosions that could severely hamper profits. So there is risk I am assuming. However, with the high dividend yield I am being paid well for this risk. Obviously, the larger the companies the least the risk for spills/explosions. So I have entered into this market with 3 different size companies, that engage in basically the same idea, drilling and transportation of oil.

Basically I have dramatically increased my dividends over the last few months.

The new company I took a small position in is AWLCF. It has two drilling rigs in the North Sea.
These rigs are hired out to major companies on contract for 2 and 4 years at current rates. Both rigs were recently refurbished. The company believes these rigs will last for 18 more years. It currently pays a 20%+ dividend. Note this is a risky play, but it is only a small position for me. I just received my first dividend from them of $1.10 per share!

Just so it is clear with all the changes I made here are my current positions:

Berkshire Hathaway 61% of portfolio
SFL 14% of portfolio
HCN 11% of portfolio
SDRL 10% of portfolio
AWLCF 4% of portfolio

My yield on cost of the 4 dividend producing stocks I own are 16%.
Current combined yield of my dividend producing positions is 9%.

And finally, I have a concentrated portfolio dominated by BRK. Owning 5 stocks enables you to diversify away systematic risk of .43. For comparisons sake owning 20 stocks allows you to diversify away .56 and the most you can diversify away at 400 stocks owned is .61. You should not copy my strategies unless you understand the risks you are taking. The tradeoff in diversification versus quality is one that is not given much thought by investors but is discussed by Warren Buffett. Is the extra systemic risk reduction from owning more stocks worth moving down to your 10th, 12th, 20h, or even 400th best picks? For me, it is not. Now I will probably end up with around 10 dividend producing stocks at retirement. At that point I have reduced systemic risk by .5 which is 82% of all that is possible.

Let me know what you think????

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Comments»

1. Joshua Andrews - November 20, 2013

Keep these coming, I really enjoy reading them and seeing how you pick stocks.

2. ben phillips - December 30, 2013

Hi Dave! I have a few questions:

1. AWLCF: It looks like this is a pink sheets stock. how did you buy it? can the average person buy it through their brokerage account? Where do you find enough info on it to run a full due diligence?

2. Do you ever use a covered call strategy to enhance these? I am learning about that strategy which is great for instances where you want to own the stock outright to reap the dividends, then boost your monthly gains also by selling a call. These may not be the ideal candidates for this strategy for one reason or another but I am looking into this.

3. What about mREITS??? I know their charts are ugly but man do some of them have huge yields! If you are willing to go higher on the risk curve for a bigger yield i’m surprised you aren’t venturing into any REITs, especially mortgage REITs.

-Ben

ben phillips - December 30, 2013

Well actually I was incorrect saying you dont have any REITs. HCN is a REIT. But what about mREITs?

shaferfinancial - January 1, 2014

Hey Ben,
AWLCF can be bought through most brokers. Because it is a pink sheet, most only let you buy at market. I belong to Value Forum which starts my due diligence. Then there is the company website for financials and other commentators. Just want to make sure you understand this is a high risk stock. I love it, but only have a small percentage of my portfolio invested in it.

I have used covered call and believe it is a great way to go. However, I haven’t of late. I guess I am trying to keep my investing as simple as possible.

I looked into the mREITs when I was investigating the energy stocks. Just don’t have that warm fuzzy feeling with them for the future. I decided that the energy stocks made more sense to me in the near future. As the world demand for oil products continues with Europe and Asia recovering, I don’t see a road block to continued profits for the well run companies I invested in.


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