Bernanke's Gift to Patient Investors

Last week, Federal Reserve Chairman Ben Bernanke acknowledged that as economic conditions improved, he'd start tapering his bond-buying stimulus program. Markets tumbled on the news, but it was a wonderful gift from the Fed Chairman to patient investors looking to pick up companies at reasonable prices.

For the real-money Inflation-Protected Income Growth portfolio, it meant that the long-standing limit order to buy energy pipeline giant Kinder Morgan (NYSE: KMI  ) below $36 finally triggered on Friday. That purchase means that the original $30,000 invested in the iPIG portfolio has now been completely allocated to stocks. With all that cash allocated, the next test is whether the companies in the portfolio will continue their strings of paying and raising their dividends.

Speaking of dividends
Of the previously existing holdings in the portfolio, two paid their dividends last week: fast-food giant McDonald's (NYSE: MCD  ) and electricity generator NV Energy (NYSE: NVE  ) . McDonald's $0.77 per share added $12.32 to the iPIG portfolio's coffers and was the company's third consecutive quarterly dividend at that rate. NV Energy's $0.19 per share handed $15.96 to the iPIG portfolio and was the second quarterly payout at that level.

As great as those dividends have been, NV Energy is in the process of being bought out by Warren Buffett's company, insurance giant Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) . Berkshire Hathaway is adding NV Energy to its MidAmercian Energy subsidiary, increasing that company's energy-generating capabilities. That buyout is for cash, and because Berkshire Hathaway doesn't pay dividends, the iPIG portfolio will be parting with NV Energy at or before the completion of that transaction.

As the buyout is expected to close in the first quarter of 2014, there's still some time to figure out what company will replace those NV Energy shares. If a particularly compelling one comes along at a bargain price that fits the iPIG portfolio's dividend growth, valuation, and diversification-oriented strategy, NV Energy will be sold to replace it with that other pick. If not, then the iPIG portfolio will collect any remaining NV Energy dividends until bidding the company farewell.

As for the rest of the portfolio...
Of course, the news wasn't all positive for the iPIG portfolio, as the same Fed-induced market sell-off that let it buy Kinder Morgan stock also knocked down many of its other holdings, too. All told, the iPIG portfolio lost around $527 since the prior week's update, to end last week at $33,963.68. Still, that's a better than 13% return in just over six months since the portfolio's launch, which is nothing to sneeze at. A snapshot of the portfolio's state as of last Friday appears below:

Company

Purchase Date

No. of Shares

Total Investment (including commissions)

Value as of June 21, 2013

United Technologies

12/10/2012

18

$1,464.82

$1,659.24

Teva Pharmaceutical

12/12/2012

38

$1,519.40

$1,472.12

J.M. Smucker

12/13/2012

17

$1,483.45

$1,712.07

Genuine Parts

12/21/2012

23

$1,476.47

$1,755.13

Mine Safety Appliances

12/21/2012

36

$1,504.96

$1,620.00

Microsoft

12/26/2012

55

$1,499.15

$1,829.30

Hasbro

12/28/2012

43

$1,520.60

$1,906.62

NV Energy

12/31/2012

84

$1,504.72

$1,970.64

United Parcel Service

1/2/2013

20

$1,524.00

$1,708.20

Walgreen

1/4/2013

40

$1,501.80

$1,948.40

Texas Instruments

1/7/2013

47

$1,515.70

$1,642.65

Union Pacific

1/22/2013

6

$805.42

$916.14

CSX

1/22/2013

34

$712.50

$797.98

McDonald's

1/24/2013

16

$1,499.64

$1,555.68

Becton, Dickinson

1/31/2013

18

$1,518.64

$1,728.54

AFLAC

2/5/2013

27

$1,466.35

$1,529.82

Air Products & Chemicals

2/11/2013

17

$1,510.99

$1,608.03

Raytheon

2/22/2013

27

$1,473.91

$1,784.97

Emerson Electric

4/3/2013

28

$1,548.12

$1,533.28

Wells Fargo & Co

5/30/2013

37

$1,525.48

$1,515.52

Kinder Morgan

6/21/2013

42

$1,518.37

$1,523.76

Cash

     

$245.59

Total Portfolio

     

$33,963.68

Data from the iPIG portfolio brokerage account, as of June 21, 2013.

To follow the IPIG portfolio as buy and sell decisions are made, watch portfolio manager Chuck Saletta's article feed by clicking here. To join The Motley Fool's free discussion board dedicated to the IPIG portfolio, simply click here.

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If you're an investor who prefers returns to rhetoric, you'll want to read The Motley Fool's new free report "5 Dividend Myths... Busted!" In it, you'll learn which stocks provide premium growth and whether bigger dividends are better. Click here to keep reading.


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  • Report this Comment On June 26, 2013, at 12:19 PM, grahamsway wrote:

    Patience is the key word here. One probably shouldn't be complacent about the damage that can be caused by rising LT rates.

    I looked at the 10yr paper of WalMart & BofA, if I remember right, about a month or so ago and figured if the 10yr yield went to around 2.7% those issues would take something like a 15%-17% hit.

    There are a lot of folk out there holding a lot of paper issued over the last couple of years, the Fed included, that aren't going to feel so good if rates even stabilize, forget about ticking up. The potential for a serious dislocation in fixed income spilling over into stocks is significant.

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