Tuesday, July 5, 2016

Quarterly Review, Q2-2016

In the second quarter of 2016, I finalized the portfolio consolidation process initiated last year. DivGro now contains all my dividend growth stocks, regardless of the brokerage account that hold them. The stocks are spread over 5 different accounts: one trust account at Scottrade, another trust account at FolioInvesting, and 3 IRA accounts, also at FolioInvesting.

Each quarterly report summarizes the actions I've taken during the preceding quarter. I also provide a summary of dividend income, dividend adjustments, and portfolio performance. In order to evaluate the performance of individual stocks, I create charts for stocks I've owned for longer than a year. If stocks do not perform acceptably, they should be replaced.

Dividend Income


The following chart illustrates DivGro's dividend income by quarter:


Dividend income in Q2-2016 totaled $2,741, an increase of 26.7% over last quarter's dividends of $2,163. This quarter's dividend total is 53.9% higher than the dividends received in the year-ago quarter (Q2-2015).

DivGro's average percentage payback is 8.54%, up from 8.33% at the end of Q1-2016. Percentage payback relates total dividend income to the total amount of capital invested.

Transactions


This quarter I deposited $6,000 in new capital, $1,397 in passive income, and $677 in option income. Additionally, I recognized past investment capital of $17,476 in Q2-2016 due to portfolio consolidation.

Here is a summary of my buys in Q2-2016:

Company
 Ticker
 Date 
Transaction
Gap Inc
 GPS
 25 Apr 
 added 105 shares at $23.40 per share 
Apple Inc
 AAPL
  3 May
12 May
 added 26 shares at $94.07 per share
 added 30 shares at $90.20 per share 
United Parcel Service, Inc
 UPS
 12 May 
 bought 25 shares at $101.84 per share 
Valero Energy Corporation
 VLO
 20 May 
 added 32 shares at $55.84 per share 
Wal-Mart Stores, Inc
 WMT
 24 Jun 
 added 35 shares at $72.15 per share 
Wells Fargo & Co
 WFC
  24 Jun 
 bought 54 shares at $46.51 per share 
Nike Inc
 NKE
 24 Jun 
 bought 47 shares at $52.84 per share 

New positions are highlighted. The other transactions are additions to existing positions. At the end of the quarter, DivGro now contains 66 different holdings, 63 stocks and 3 closed-end funds (CEFs).



Dividend Adjustments


Last quarter, I reported projected annual dividend income (PADI) of $10,613 on investments totaling $248,830, for a projected annual yield of 4.27%. This quarter, PADI increased by 13.9% to $11,576 and total investments increased by 10.3% to $274,380. Projected annual yield is a little lower now at 4.22%.

A large portion of the PADI increase is due to the consolidation process mentioned earlier. Similarly, the large increase in total investments is really due to recognizing earlier investments.

15 stocks in my DivGro portfolio announced dividend increases in Q2-2016, as presented in the following table. The new annual dividend and yield on cost (YoC) are included. 


Company
 Ticker
Increase Annual
Div
 New 
YoC
Toronto-Dominion Bank
 TD
21.26%
$1.75
4.23%
Northrop Grumman Corporation
 NOC
12.50%
$3.60
2.36%
Travelers Companies Inc
 TRV
9.84%
$2.68
3.10%
Apple Inc
 AAPL
9.62%
$2.28
2.18%
Gilead Sciences, Inc
 GILD
9.30%
$1.88
1.84%
International Business Machines Corp
 IBM
7.69%
$5.60
3.30%
Target Corporation
 TGT
7.14%
$2.40
3.82%
Johnson & Johnson
 JNJ
6.67%
 $3.20 
3.50%
Macquarie Infrastructure Corp
 MIC
4.35%
$4.80
6.48%
Exxon Mobil Corporation
 XOM
2.74%
$3.00
3.81%
Helmerich & Payne, Inc
 HP
1.82%
$2.80
3.89%
Omega Healthcare Investors, Inc
 OHI
1.75%
$2.32
6.21%
Procter & Gamble Co
 PG
1.00%
$2.68
3.37%
W.P. Carey, Inc
 WPC
0.60%
$3.92
5.87%
Realty Income Corporation
 O
0.25%
$2.39
4.48%

Average YoC is 4.34%, down a little from the 4.44% reported at the end of Q1-2016.

Market Value


At the end of Q2-2016, DivGro's market value of $320,201 represented a simple gain of 16.7% on $274,380 invested. Of course, this does not take into account the timing and size of cash deposits. DivGro's internal rate of return since inception is 11.27%.


Longterm Positions


I own 5 stocks with total returns of more than 100% each:
  • Digital Realty Trust, Inc (DLR) with 121%
  • Nippon Telegraph & Telephone Corporation (NTT) with 120%
  • General Dynamics (GD) with 118%
  • Reynolds American, Inc (RAI) with 114%
  • Altria Group, Inc (MO) with 109%
Because I've owned stocks for different periods of time, it is useful to consider annualized total returns. DLR is the clear winner, followed by RAI and MO. However, notice that two stocks are outperforming NTT and GD on an annualized basis:
  • Northrop Grumman Corporation (NOC)
  • Realty Income Corporation (O)
BHP Billiton plc (BBL) is by far my worst performer. The company's share price has plummeted from about $70 in July 2014 to below $20 in January 2016, before recovering to about $25 per share. In February, the struggling mining company cut its dividend by 75%. I'm holding onto my shares and waiting for a suitable exit point.


Two business development companies top the YoC chart: Main Street Capital Corporation (MAIN) and PennantPark Investment Corporation (PNNT). Whereas MAIN is an excellent performer, PNNT is not. Shortly after I bought my shares of PNNT, the company froze its dividend. At the time, I decided to hold onto my shares and to continue collecting the high dividend yield. So far, it has not been a profitable decision and I'm still underwater with PNNT despite the high yield.


Here is a chart showing the year-over-year dividend increases of my longterm positions. I prefer to see increases of at least 7%, so I'm happy to see that 20 of these longterm positions have increased their dividends by more than 7% in the last year.


Four companies have not increased their dividend payments in more than a year:
  • Reliance Steel & Aluminum Co (RS
  • Deere & Company (DE)
  • Chevron Corporation (CVX
  • PennantPark Investment Corporation (PNNT)
As a dividend growth investor, I like to see regular dividend increases – therefore, I'll need to monitor these stocks carefully and take action if the dividends are cut.

Outlook For Q3-2016


In Q3-2016, I'm planning to review my portfolio and potentially eliminate some positions, redeploying the cash so generated to increase the size of other positions. I've started boosting my dividend income using options. To fully utilize a covered-call strategy on a position, I need to own at least 100 shares.

Thanks for reading and take care everybody! 


8 comments :

  1. Your portfolio is quite expansive and it is well diversified. That is great that 5 of your stocks have a total return of over 100%.... is that due to capital appreciation or just the amount of time that you have held them? Hopefully them companies who haven't increased their dividends lately will be able to increase them soon.

    I like how well you have your portfolio charted and graphed. This was a good article. Thanks for sharing!

    ReplyDelete
    Replies
    1. Yes, personally I feel there are too many stocks in my portfolio presently. It is very well diversified, though. I think 24-30 stocks are plenty for good diversification.

      With the exception of one "home run" stock (RAI), I've owned these stocks for less than 3.5 years. I would argue that is not a long holding period. (Unless you're a trader, of course!)

      Thanks so much for visiting and commenting. I appreciate your thoughts!

      Delete
    2. I was reading an article the other day that said 20 stocks is near optimal diversification. If you add any more than that you are not even gaining 1% worth of diversification. So I think right around 20 is where I am looking to be but I'm in no rush to fill up the lineup just yet!

      Delete
    3. I've seen that number, too. While it may be true that adding more stocks have diminishing returns as far as "diversification" is concerned, 1 in 20 stocks still represents 5% of a portfolio, on average. For me, 5% is pretty large.

      Thanks for the conversation!

      Delete
    4. I can completely understand that but wouldn't you want to allocate more than average to your core holdings?

      As my portfolio grows I am just worried about spreading my capital too thin. Maybe as I grow my portfolio my thoughts on it will change. I guess only time will tell.

      Your welcome. A thank you for the conversation as well!

      Delete
    5. I haven't really identified "core holdings", but, yes, if I had core holdings, then I'd allocate more than average to them. I was referring more to the risk aspect. I something catastrophic happens to one of 20 holdings, that'll hurt more than if it were one of 30 or one of 50 holdings.

      I agree, though, that you don't want to spread capital too thin. I'm entering a consolidation phase now, and you'll see some posts on that soon. One reason is I'd like to boost income through options, and for those you need multiples of 100 shares.

      Delete
  2. Yes, I agree with you about something catastrophic happening to one of the 20 being worse than if it were 30 or 50 holdings.

    I look forward to reading your upcoming post that pertains to your consolidation phase.

    I have seen a lot of talk lately in the blogging community about writings options to create some passive income. I am not well versed on the subject despite reading a couple of articles on it. As you mentioned it requires having a block of 100 shares so I will still have plenty of time to study on it!

    ReplyDelete
    Replies
    1. It has taken me a while to learn about options and I still have a lot to learn. Covered calls provide a nice way to boost dividend income and is quite safe. Cash-secured puts are another strategy I'll use, but that's slightly riskier. Anyway, take care and happy investing!

      Delete

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