Jane's July 2024 Retirement Income Update: Lamb Weston Smackdown

seekingalpha09-04

We bought Lamb Weston too soon but layering into positions gives us the opportunity to recover value faster.There are several examples of similar situations that took months and even years to fully ...

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KenWiedemann My goal in writing these articles is to discuss everything, including mistakes or bad investments because the investing world has been so utterly disconnected from reality with TikTok stars selling get-rich-quick schemes telling you to follow this simple plan, but it will only cost you $1,000 to make hundreds of thousands. The investment of humility I will be discussing today is Lamb Weston (LW). Let's start by stating the obvious, which is that LW is still a great company that, we believe, will offer a compelling investment opportunity over the long term. Secondly, we don't regret adding shares to Jane's portfolio, and if anything, this scenario underscores why it's so important to layer into positions instead of buying the entire position all at once. The important part is that we can use this situation to demonstrate why a strategy of layering works. The key is to make sure you are investing in companies that are reasonable (avoid sucker yields) and will likely continue to grow. This is what allows time for a share price to correct and, in the case of LW, continue to collect dividends during that time. As you can see, LW has experienced quite a bit of volatility in its stock price over the last five years. In many ways, it's incredible to think that a stock at the beginning of 2024 was worth double what the share price is today. Data by YCharts For a company that strives to build consistency around the production, distribution, and marketing of frozen potato products, the stock price has been anything but consistent. The trade history below shows that over the course of three months, the stock price moved higher only to plummet after the most recent earnings disappointment.   LW - Trade History - All (Charles Schwab) I am showing these trades to emphasize that the process of building a position is imperfect at its worst and lucky at its best. I could pull nearly any other stock in Jane's portfolio and show you how great the cost-basis is, but the truth is that any position held long enough has had the capital reallocated so that we shave the edges as time goes on. The hope is that when we establish a position that we have done enough research and have a strong enough comprehension of the stock being purchased, we don't run into the kind of issue that occurred with LW. Another good example of a stock trade that has gone full circle is CME Group (CME), which has been sitting at a loss for the last few months.   CME - Transaction History (2024-8) (Charles Schwab) Here you can see that the spread of when shares were added ranges from the initial purchase of $213.60/share down to $195.74/share, which works out to be about an -8.4% swing. Just recently, the stock price has recovered, and we made the decision to sell out of the high-cost shares, leaving Jane with a current unrealized gain of 6.5%.   CME - Lot Details (2024-8) (Charles Schwab) Looking at the date shown on the transaction history, this took just over five months to completely play out. For other holdings, it can take even longer and may be influenced by changes in interest rates, positive/negative news, etc. So although we wish we would have held off on buying LW stock until after the most recent drop, it isn't going to stop us from continuing to follow the strategy that has produced positive outcomes time and time again. In the case of LW, we will continue establishing enough of a low-cost position that by the time the stock price recovers, we will be able to trim back the high-cost shares and keep the shares that maximize the return for Jane. July Dividend Increases July had three companies increase their dividend payout or provide a special dividend.  Main Street Capital (MAIN) - Increased dividend by 2.1% Realty Income (O) - Increased dividend by .2% W. P. Carey (WPC) - Increased dividend by .6%  Traditional IRA - July Trades There is as much activity in Jane's Traditional IRA during the month of July as we have seen in previous months.   Traditional IRA - 2024-7 - Trades (Charles Schwab) Unfortunately, we saw the redemption of Oxford Lane Preferred (OXLCM), which has been a great monthly paying preferred share. In addition to this, we took the opportunity to trim the high-cost shares in Unilever (UL) and Healthpeak (DOC). We have been seeing an increase in cash on hand due to CDs expiring, and it's been more difficult to find adequate returns (CD rates are now in the low-4% range) meanwhile the price of preferred shares has seen a substantial recovery, and yields continue to slide. The only purchase made during the month was more shares of British American Tobacco (BTI). Even though BTI's stock price has reached 52-week highs, we have seen a major resurgence in tobacco company share prices over the last three months. John and Jane have exposure to BTI, Philip Morris (PM), and Altria (MO). Data by YCharts Although we recently trimmed some MO shares, we plan to hold all remaining tobacco stocks as the sector builds on the momentum. Roth IRA - July Trades Jane's Roth IRA saw a lot of activity during the month of July.   Roth IRA - 2024-7 - Trades (Charles Schwab) Agree Realty (ADC) has seen the share price recover nicely over the last few months, and we used this opportunity to trim back the highest-cost shares. It could be argued that we should have waited longer, but again, this is where I emphasize that the strategy we operate with isn't intended to be perfect. In fact, perfection can often be what prevents you from taking any action at all. Data by YCharts Lastly, we have seen significant volatility in PPG Industries (PPG), and we have used this to continue working the average cost basis lower. The transaction history going back four years shows how we have worked the highest cost shares of $142.15 down to an average cost of $120.69/share.   PPG - Transaction History - 2024-8 (Charles Schwab) Even when we look at the sales, it's important to know we weren't just selling and taking huge losses; in fact, Jane actually managed to make a total of $21.47 in realized gains.   PPG - Realized Gain Loss - 2024-8 (Charles Schwab) Portfolio Composition The images below are focused on what is happening now and moving forward. The first image shows what has happened year-over-year with the portfolio in terms of which holdings are generating income.   Traditional IRA - 2023 V 2024 - July Dividends (CDI)  Roth IRA - 2023 V 2024 - July Dividends (CDI) Here is an updated table of the extremely conservative forecast that suggests income will be down -6.2% (previously -8.6%) in the Traditional IRA and up 6.8% (previously 5.6%) in the Roth IRA for FY-2024. Remember, these numbers look bleak (at least the Traditional IRA does) because it assumes that we see no dividend growth, and we do not capitalize on the additional income from CDs and Money Markets (which is something the Traditional IRA is extremely dependent on). I have added an additional table to show the combined numbers and created a new column to give a better perspective on the monthly growth or reduction of year-over-year income.   2024-7 Jane's Retirement Income (CDI) The next two images have been updated from my forecasting articles to look at how much the income has grown on a monthly basis and separate out what income is from dividends and what comes from CDs/Money Markets, etc. This offers more insight/context as to where Jane's income is being derived (equities, fixed income, etc.). These are also more realistic numbers of what we expect to see for income growth, and also give us the ability to better track which months have the largest impact. Here is a basic understanding of what each of the columns/fields means:  2023 - Income results for 2023 2024 (Ex CDs) - Estimated income 2024 (yellow) and actual income 2024 (green) but excludes all income earned from money markets, CDs, etc. 2024 (W CDs) - Estimated CD & money market income 2024 (yellow) and actual income 2024 (green). Separated because we want to differentiate between dividend income and growth compared to CDs/money markets that are not subject to increases. Total Income - Combined total income from dividends, CDs, Money market, etc. 3%/5%/7% Increase - These columns serve as a marker so you can see how much income would need to be hit that month to achieve a specific increase. I will likely change these numbers to be more account-specific in the future (some accounts are growing more rapidly than others).    2024-7 - Traditional IRA Income & Forecast (CDI)  2024-7 - Roth IRA Income & Forecast (CDI) From the numbers above, we are expecting to see income growth of 3.1% in the Traditional IRA (previously 2.6%) and 13.2% in the Roth IRA (previously 13.3%) in FY-2024. Conclusion Every time I write one of these updates, my goal is to be as honest as possible with the changes that take place. Lately, there hasn't been much other than \"good news\" and while we are thankful for the positive results, there is something humanizing about being able to talk about the real consequences of mistakes (in this article, the error was buying LW too soon) but that we have a plan to not only recover from it but also thrive and ultimately build a position with a positive cost-basis. Too many times we see articles on the internet from experts without the humility that comes from learning and being a human (this is why I began writing for Seeking Alpha in the first place) because I was getting tired of too many experts on the internet talking about how they own 5000 shares of Apple (AAPL) stock with a cost basis of $1. The glaringly obvious attempts to brag and embellish have no place in the investing world and have led to some of the most egregious cases of abuse where TikTok stars scam people who cannot afford to be scammed. Unfortunately, there are still plenty of influencers who will \"provide the three secrets you need to know to get rich\" and if you pay, they will help you achieve nearly impossible returns. This is why my goal in these articles is to provide as much digestible information with enough real-life examples while charging nothing to access them. I plan to begin making educational videos for YouTube again in addition to writing for Seeking Alpha because I have the tools to make a difference! What stocks are you seeing that aren't in Jane's Retirement portfolio? Are there any compelling investments I should be looking at? I would love to hear any ideas/suggestions in the comment section. John and Jane are long all holdings mentioned in this article.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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