Keep in mind that this portfolio was built by selecting 20 stocks out of thousands. The goal is not to pick the 20 best dividend stocks but rather to pick a diversified, high quality portfolio that will keep dividends increasing over time.

Here are the holdings as of last night to start off (please note that currently, dividends are not reinvested automatically through a DRIP strategy):

Ticker	Name	Shares	Sept 13 Prices	Sept 13 Values	May 15 Prices	May 15 Values
OMC	Omnicom Group Inc	25.7	38.91	$999.99	$50.45	$1,296.57
MSFT	Microsoft Corp	38.4	26.04	$999.94	$30.21	$1,160.06
JCI	Johnson Controls Inc	34.8	28.74	$1,000.15	$31.38	$1,092.02
PEP	PepsiCo Inc/NC	16.5	60.54	$998.91	$67.85	$1,119.53
ETN	Eaton Corp	25.4	39.31	$998.47	$44.09	$1,119.89
DOV	Dover Corp	19.5	51.2	$998.40	$57.25	$1,116.38
ITW	Illinois Tool Works Inc	23	43.41	$998.43	$55.37	$1,273.51
XLNX	Xilinx Inc	32.2	31.08	$1,000.78	$32.78	$1,055.52
SJM	JM Smucker Co/The	14	71.65	$1,003.10	$76.89	$1,076.46
BLK	BlackRock Inc	6.6	151.22	$998.05	$176.85	$1,167.21
TROW	T Rowe Price Group Inc	19.9	50.36	$1,002.16	$59.41	$1,182.26
OXY	Occidental Petroleum Corp	12.4	80.45	$997.58	$79.90	$990.76
COP	ConocoPhillips	19.8639	64.76	$997.30	$52.53	$1,043.45
MUR	Murphy Oil Corp	19.5	51.33	$1,000.94
XOM	Exxon Mobil Corp	14	71.65	$1,003.10	$81.79	$1,145.06
ADI	Analog Devices Inc	30	33.28	$998.40	$36.90	$1,107.00
LLTC	Linear Technology Corp	34.1	29.33	$1,000.15	$30.16	$1,028.46
HAS	Hasbro Inc	27.8	36.03	$1,001.63	$36.00	$1,000.80
MAT	Mattel Inc	37.9	26.375	$999.61	$31.98	$1,212.04
INTC	Intel Corp	48.2	20.76	$1,000.63	$26.88	$1,295.62
AFL		24.42			$42.57	$1,039.56
Cash				2.27		$414.30
USDP	USDP Total			$20,000.00		$22,936.43

Dividends Received

The Month of May will be the highest paid month for the Ultimate Sustainable Dividend Portfolio. Only $70 or so has been paid out so far this month but the other dividends have already been confirmed!

Ultimate Sustainable Dividend Portfolio News

More good news as 3 of the 20 names increased their dividend:) Also, COP had a spin-off go ex-dividend on May 1st. I did end up selling the spinned off unit that same day to buy more of COP.

Ticker	Name	News
INTC	Intel Corp	Dividend increase from $0.21 to $0.225, a 7.1% increase
PEP	PepsiCo Inc/NC	Dividend increase from $0.515 to $0.5375, a 4.4% increase
XOM	Exxon Mobil Corp	Dividend increase from $0.57 to $0.47, a 21.3% increase

Returns

Not much change, the USDP did outperform the S&P500 slightly over the last month but still trails by a few dollars…!

Trades

After adding Aflac (AFL) in March’s update, I do expect to keep more or less the same stocks for a while now. We’ll see how things go:)

Why Raising Taxes Is Not Always The Best Solution

I’ve discussed how companies such as Facebook ($FB), Google ($GOOG) and General Electric ($GE) have managed to pay a tax rate that is often below 5% through various strategies. The high US corporate tax rate is a big reason why these companies have been given enough of an incentive to be creative with their corporate structure. There is nothing illegal about it either. For some companies that ship physical products it is more difficult but even those have been able to pull it off. Apple has huge cash reserves but the vast majority of those are held overseas where they avoided the big tax payments. That also makes it more difficult to use the money for dividends or to reinvest in the US but in many cases, it’s a price that is deemed to be worth it.

An Extra “Creative” Step To Reduce The Tax Bills And Avoid Immigation Laws

As many of you know, I’m very interested in technology companies and many of these companies have been incredibly innovative in saving taxes. A big part of that is that they are very recent companies and I imagine that even non-tech international companies being set up these days put a lot of energy into creating an “optimal corporate structure” for tax purposes.

The other big issues that tech companies have these days is hiring top talent, especially when that talent is abroad. Many bright engineers go study in the US but are then unable to get a green card to work legally in the US…

A Brilliant Idea

The latest idea is a project that is being built right now. A huge ship will be stationned 12 miles off of the coast of California where tech companies will be able to rent space. The ship will be in international waters so no US work visa is required. In theory, foreign workers could either spend weeks on the ship, going back to California on weekends or maybe even do the transit every day. Companies that are stationned there would have no problem getting qualified employees that are struggling to get US cards, would not technically be operating in the US so would be able to avoid paying the big US tax rates…

Brilliant No?

Read more about it here

Let’s look at the numbers for these 2 stocks:

Ticker	Name	Price	EPS	PE Ratio	PE Next Year	Return YTD	Sales Growth	Analyst rating	Book Value
LNKD	LinkedIn Corp	107.23	0.15	903.66	87.84	76.16	114.81	3.92	6.37
P	Pandora Media Inc	9.26	-0.19	N/A	292.5	(2.70)	99.14	3.73	0.64

I’d like to invite you to see this chart of quarterly revenues for both companies, the same chart that I posted for the last trade, I had also written the following:

“If I told you that the fastest growing company (LNKD) was also profitable (while P isn’t), that it faces little competition, is expected to increase profits significantly this year (while P will lose money this year and even next)… would you believe me if I told you that LNKD was trading at a lower forward P/E????? Crazy, I know.”

Long LinkedIn (LNKD)

A company that I love, that I truly believe in and that I think will end up doing extremely well, perhaps even better than the soon to be public Facebook. That being said, it is trading at a very high P/E, one that makes it very difficult to trade. The only way I’ve seen so far is trading it against another very high P/E stock.

I am not a momentum trader but still look at Trend Analysis numbers and the numbers certainly look promising on this trade.

Short Pandora (P)

Not a big surprise to see me short Pandora, which was near the very bottom of my 2012 Tech Stock Power rankings this year at #29. It has been losing money for years, will be losing some again this year and is actually expected to lose over $0.15 per share in 2013. Seriously!? Sure, revenues have been increasing but not nearly quickly enough. The company continues to face tons of competition and is trading at a forward P/E that implies very strong growth and a profitability in the very near term. I doubt either will happen so it’s a fairly easy short.

Disclosure: No positions on LinkedIn (LNKD) or Pandora (P), this trade will be opened on Monday morning

“Google revenue – $40 billion; market capitalization $200 billion (plus $40 billion of cash). Facebook revenue $4 billion; market capitalization $100 billion” – ZeroHedge

It makes a great headline, but really? Microsoft ($MSFT) makes $70B in revenues per year, less than twice Google’s but is worth nearly 3 times more. Does that Microsoft a bargain? Or maybe Yahoo ($YHOO) with a market cap of nearly $20B with revenues of $5B.

Want an even better one? Research in Motion ($RIMM) has revenues about half of Google ($GOOG) but a market cap of $7B….3.5% of Google!! I understand if you need to stop reading for a few minutes while you go load up on $RIMM…. it trades at a tiny P/E too:)

Let’s Get Serious!!!

Judging a stock with those 2 numbers is ridiculous. It might make a good headline but it’s a solid way to make investments. If you want to knock Facebook,there are plenty of good arguments to be made (recent revenues and profits decline, competition, lack of growth opportunities, questionable motives by Zuckerberg who has nearly complete control, buying shares with no actual voting power, etc). Looking at revenues misses 2 major points:

-Facebook has much higher margins than competitors
-No investor is buying Facebook at these prices based on what it has done

The second point is critical here. If Facebook is going to make revenues by selling small ads on the sidebars, generating growth by increasing its number of users and pageviews, then its valuation is insane. However, many such as myself think that Facebook will put more effort into a lot of different initiatives that will generate growth opportunities. Seeing half of Super Bowl ads point to a Facebook page has to tell you something about how much these companies believe in the value of their Facebook pages. How exactly those will be converted into dollars remains to be seen but that is why I am putting such a high value on Facebook. The company has barely tried to make profits so far. Instead, it has focused on building a strong user base, the best social network and strong relationships with corporations providing them with incredible value.

Do you agree or am I off base? Don’t get me wrong, I’m more than willing to accept criticism on my Facebook outlook but please don’t base your judgment on some meaningless stat.

Three Critical Truths:

-Debt/Credit Should only be used if you can control yourself

-Debt/Credit should be built in order to build assets

-Debt/Credit should never become a source of stress

While I often disagree with my partner Mike about using extra leverage, that is mostly because I currently stand at a level that I am comfortable with both personally and in my online company.

Ways I Currently Use Credit

-Credit Card: By far, the biggest use I make of credit is for almost all of my every day expenses. I buy bigger items like vacations but even the smaller things like milk and grocery with my credit card. Why? Credit card rewards and accountability. Buying through my credit card makes it very easy to see everything that I purchased in a month. The best advantage though is the 1.5% cash back that I get from my credit card. Over a year, it becomes very significant for me.

-Big Purchases at 0% or very low rates: When buying furniture or a car, I’m usually more than happy to pay cash, at the time of the purcahse. That being said, if I get offered to pay over 24 months or longer, at a 0% interest rate, I’m more than happy to take it. It’s not worth it for a small purchase but for a bigger one, I can simply create an account where I put the money, earn interest and pay every month out of that account. Over time, it adds up. Why not take the opportunity?

-Mortgage: Here I have no other excuse than the fact that I do not have enough funds to pay back my house right away. That being said, my house is one thing I do not wish to leverage further. I’ll be more than happy to pay it back over time rather than pay only the interest as some do.

Ways I Do Not Currently Use Credit

-Investing: I do not currently use credit to invest in the markets or elsewhere….I do understand that it can bring good returns, especially over time, and I have discussed using debt to enhance a dividend portfolio in the past.

Why Don’t I Use Debt For Investing?

It’s not because I don’t believe in it. It’s not because there isn’t cheap money available. Rather, it’s simply because I only believe in leveraging myself up to a certain degree. That ratio will certainly change over time but for now, let’s imagine that my ratio is 20%. So for every $100 that I have in the markets, I’m ready to borrow 20$. That would mean a decline in the markets would have a limited impact on the markets. Why?

If I have $100 and borrow $20, a decline a 30% in the markets could make my investment worth 70% of $120- 20$ (that I owe) so $54.

Let’s imagine someone that used a 50% borrowing ratio, they would be left with:

70% of $150 – $50 that I owe is $64.

Multiply that impact over a big portfolio and it becomes very significant. Of course the opposite is true in a rising market. A rise of 30% would bring:

$145 for the highly leveraged portfolio
$136 for the lesser leveraged one

Clearly, I think every single person has a different risk tolerance, but I would love to hear your thoughts. Do you use debt and credit in every day life and for investing? If so, in what ways and what challenges/risks do you encounter?

The much more important factor though is the continued weakness in Europe. I wrote about investing when your country is going bankrupt and while that is certainly a threat, I think a much closer one is the collapse of the European Union. It’s been very well documented that many small European countries such as Greece, Portugal, Ireland, etc. Then we found out about all of these Spanish banks that have worthless loans on their book, about other banks (French ones especially) that have not marked-to-market their European sovereign debt, overstating their true balance sheet.

Then Elections Come Up

The more recent story though is Europeans voting for new parties that are less favorable to austerity, to getting their finances under control, etc. Greece looks set to stop paying its debt holders, is considering leaving the EU. Even France, while still improbable, is considering drastic measures and renegotiating the financial stability pact that was signed months ago. Germany will not and should not accept to do so but it is still very worrying. If you had funds invested in the European markets or your own assets in a European bank, what would you do? I would probably take my money out and move it to a German or Swiss bank or overseas. The big problem is that millions are now in the process of doing just that creating a self-fulfilling failure.

Then yesterday, Spain decided to nationalize one of its bank and it will likely not be the last one…

The Big Problem Here

Both you, I and the markets in general do not like uncertainty. The problem is that no one knows how this will play out, there will likely be many more ups and downs in the next few years and I’m not sure where the economies and stock markets of all of these countries will end up. This creates major issues for those of us that invest in the markets.

What To Do?

-Inflation Protection: I think it’s very possible that many countries will continue running deficits and end up printing money which could create inflation issues around the world. Owning part of your portfolio in gold, TIPS and other good inflation hedges seems like a smart thing to do

-Avoid Timing The Market: In what will clearly be a very volatile world, there will be many ups and downs and many will tempted to time their investments and trades. That will prove to be incredibly challenging and if you are investing in a long term retirement account, I would try to by systematic rather than trying to buy at the lows and sell on the highs.

-Control Your Risk: Only invest what you feel like you can risk losing. It will never go down by 50% in a few days but it could take a 10-20% hit within days. That is fine if you are investing with a long term horizon and do not mind big fluctuations but if you do not fill those criteria, I’d go for a safer portfolio.

-No free lunch: If you see something that looks too good to be true, it usually is. High yield investments are very trendy these days but the added yield comes with a potential downside if things do go wrong. It’s important to remember that.

The Problem: Shares are so darn expensive, the stock is up like 50% this year alone…

How could someone in such a position be able to buy more $AAPL at a decent price?

How about planting a rumor in a few places that the $AAPL earnings are going to be a big disappointment?

Then hope those rumors will be talked about in the mainstream media, republished in a few places:

WAIT: Now It’s Getting Even Worse For Apple

Then this happens:

Gravitation Returns As Apple Falls, Drags Everything With It
Was This The Report That Caused Apple’s Stock To Dive?
These Are The Two Hot Theories Behind Apple’s Sell-Off

That gives person “X” the opportunity to buy a lot more share of $AAPL before the earnings actually are reported

Apple Demolishes Expectations, Delivers Another Monster Quarter (AAPL)

And the stock goes right back to where it was:

So please tell me, do you think this is actually happening? I’m 100% convinced… Maybe not in this specific case (such things are VERY difficult to prove). But some funds have enough power, influence and incentives to try such a tactic….

Any thoughts?

Ticker	Name	Price	EPS	PE Ratio	PE Next Year	Return YTD	Sales Growth	Analyst rating	Book Value	Beta
EBAY	eBay Inc	39.44	2.5	21.58	14.59	30.20	27.25	4.35	14.49	1.17
IACI	IAC/InterActiveCorp	49.5	2.05	23.69	15.35	17.64	25.82	4.13	22.84	0.97

Long eBay (EBAY)

I wrote a detailed post recently about $EBAY and why I do believe there is a lot of medium to long term upside for eBay, I simply believe that Paypal will be able to keep up its strong momentum and growth going forward. I do think that online advertising growth will continue to be a bit difficult in these tough economic times which will certainly make life easier for a company like eBay compared to IACI.  The basic idea behind this trade is the fact that both of these companies have been trading at comparable P/E ratios and have achieved comparable revenues growth. Which of these two is most likely to keep up the growth going forward? I’d say eBay, without much of a doubt.

Short IAC Interactive (IACI)

There is no doubt, I’ve had a difficult time getting a good feel on IACI. The company has been a much stronger player than I had anticipated in my annual Tech Stock Power Rankings. The returns has not been overwhelming but remains stronger than I had expected. Part of the issue for me is that IACI continues to be focused on so many different activities that it’s difficult to get a great feel for it. I still consider IACI to be very dependent on the advertising market which has remained fairly weak.  In the end, I simply think that the match between these two is very solid and makes for a promising trade.

Disclosure: No positions on eBay ($EBAY) or IAC Interactive ($IACI), this trade will be opened on Monday morning