Annual Review, 2013

I created DivGro in January of 2013 to generate a reliable and growing dividend income stream. By keeping track of the portfolio in this blog and by interacting with like-minded investors, I've become a better dividend growth investor. I've learned a tremendous amount about dividend growth investing, how to value dividend stocks and, frankly, the benefits of blogging!

The purpose of this post is to review DivGro's performance in 2013. I'd like to do this by measuring DivGro's performance against the goals I've set for 2013 and by looking at the portfolio's overall performance (rate of return, dividend income, dividend growth, and yield on cost).

Review of Goals

I've set four goals for 2013 and reported on achieving three of them in a post on October 23:

1. Own 10 dividend growth stocks, aiming for diversity.
   • Goal achieved on June 4 with purchase of BHP Billiton (BBL)
2. Earn at least $750 in dividend income with DivGro stocks.
   • Goal achieved on September 30 with TRV's dividend payment of $14.50
3. Average one blog post per week (52 posts).
   • Goal achieved on October 6 with 3rd quarter review post
4. Exceed the performance of the S&P 500 index in total returns.
   • Goal not achieved – see below

2013 Goal	Strategy	Outcome	Result
Own 10 stocks and aim for diversity	Initial deposit: $12,000  Monthly deposits: $12,000  Funds to invest: $24,000   Reinvest dividends of $750  Invest $2,500 per stock	Initial deposit: $12,000   Monthly deposits: $12,000  Bonus deposits: $40,000  Funds invested: $64,000   Own 24 stocks in 10 sectors
Earn at least $750 in dividends	Assuming 3.5% interest rate and stable market, periodic investments as above should deliver future value of $24,657 (stretch $657 to goal of $750)	Earned $1,346.85 in dividends
Average one blog post per week (52 posts)	10 Recent Buy posts  12 Monthly and 4 Quarterly Review posts  1 Annual Review post; 25 other posts	77 posts!
Beat the S&P 500 in total returns	Secondary goal! Invest in high quality, low risk stocks that pay growing dividends	DivGro's PRR: 26.5%  S&P 500's total return: 32.4%

Having achieved 3 of 4 goals by October 6^th, it may appear that my goals were not quite challenging enough. However, in April I made my first bonus deposit after realizing that I wouldn't have enough funds to purchase 10 different dividend growth stocks if I continued buying them in $2,500 chunks. Of course, I easily could have bought 10 stocks by investing less money in each stock and accepting the resulting unbalanced portfolio. Instead, I felt inspired to commit more funds through bonus deposits, launching DivGro into a new and exciting orbit!

Performance

Below is a spreadsheet showing the state of DivGro on December 31, 2013. 

Only two stocks ended with a slight loss at the end of the year. General Dynamics Corporation (GD) led the pack with a profit of 41%, while AFLAC Incorporated (AFL) came in second at 33%. 

Rate of Return

Having invested $66,500 in 2013, the ending market value of DivGro of $75,145 represents a simple return of 13%. Of course, the simple return does not take into account the timing and size of cash deposits. By using an irr-function, one can determine the personal rate of return (PRR) for cash flows that are not necessarily periodic. DivGro ended 2013 with a PRR of 26.5%, which is an excellent return and one I'm very pleased with! 

In 2013, the S&P 500 had a total return of 32.4%. The following graph, produced by FolioInvesting where I have my DivGro account, illustrates DivGro's performance compared with the S&P 500's total return. (Notice that this graph shows a time-weighted return, which is not quite the same as the calculated PRR).

As a dividend growth investor, one should not be overly concerned about beating the market. It is more important to focus on dividend growth. A fellow dividend growth investor, Dividend Mantra, wrote an excellent post about this issue. Nevertheless, one of my stated goals for 2013 was to exceed the performance of the S&P 500 in total returns and, clearly, I did not achieve that goal.

Dividend Income 

The main goal of DivGro is to generate a reliable and growing dividend income stream. In 2013, DivGro generated $1,347 in dividend income. Without any further investments and assuming no dividend decreases, I can expect to earn dividend income of at least $2,865 in 2014. I call the expected dividend income over the next 12 months the projected annual dividend income.

Another way of thinking about projected dividend income is to express it as a monthly average, called the projected monthly dividend income. That is, what can I expect to earn from DivGro every month, on average, for the next 12 months? The adjacent chart plots DivGro's monthly dividend income and the projected monthly dividend income for 2013.

Dividend Growth

The other important aspect of the main goal of DivGro is dividend growth. I use selection criteria that favor stocks with a history of paying increasing dividends every year. A long streak of dividend increases is a great indicator of financial security and continued dividend growth. If a company has a long track record of paying increasing dividends, chances are it has the ability to continue doing so. And if a company has a long track record of increasing dividend payments, it would have a strong aversion to decreasing or eliminating dividend payments.

Nine of DivGro's holdings announced dividend increases after I acquired them, while the effective dividend of one holding (NTT) decreased. As explained in an earlier post, NTT didn't actually announce a dividend decrease – it pays dividends in yen and the decrease is due to an unfavorable dollar-yen exchange rate.

Dividend Growth	Tickers (Increase)
High (above 8%)	GD (9.8%) • CVX(11.1%) • MSFT (21.7%)
Medium (4% to 8%)	COP (4.5%) • AFL (5.7%)
Low (below 4%)	ETP (1.3%) • TGH (2.2%) • BBL (3.5%) • CHL (3.9%)

Yield on Cost

Another way to look at dividend growth is to see its effect on Yield on Cost (YoC). The portfolio's initial YoC is 4.35%, whereas the current YoC is 4.42%. YoC should slowly increase over time, as companies increase their dividends.

Outlook for 2014

I've set some fairly challenging goals for 2014. I plan to increase my monthly deposits to $2,500 and increase DivGro's number of holdings to 36 by year's end. Also, I'd like to earn $3,600 in dividend income in 2014, and boost DivGro's projected annual dividend income to $4,800 by December 31, 2014. I plan to make minor adjustments to my stock selection criteria, which I'll report on soon. My plan is to continue to add new holdings to DivGro throughout 2014, rather than to add to existing holdings. Although DivGro is now diversified across all 10 sectors in my watch list, I do want to add additional stocks to each of the Consumer Staples, Materials, and Health Care sectors for better balance. 

Thanks for reading!