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!