Quarterly Review, Q1-2016

The past quarter has been a busy one for DivGro, with several buys and a continuation of the portfolio consolidation process I initiated last year. I completed the transfer of my Scottrade holdings to DivGro and I'm proceeding to do the same with two IRA accounts, one traditional and one ROTH. The process is nearly complete and should be finalized later this month.

Starting with this quarterly report, I'll be including performance charts for DivGro positions that are at least one year old, on average. So far, I've created these charts only for annual reviews. The reason I want to do them quarterly is so I can more closely monitor the performance of longer term holdings. If stocks do not perform acceptably, they should be replaced.

Dividend Income

Dividend growth investing is all about dividend income and dividend growth. Dividend income in Q1-2016 totaled $2,163, an increase of 26% over last quarter's total of $1,721. This quarter's dividend income is 62% higher than the total received in the year-ago quarter (Q1-2015).


DivGro's average percentage payback is 8.33%, up from 7.98% at the end of Q4-2015. Percentage payback relates total dividend income to the total amount of capital invested.

Transactions

This quarter I deposited $7,000 in new capital and $700 of passive income. Additionally, I recognized past investment capital of $58,195 in Q1-2016 as part of the portfolio consolidation process mentioned earlier.

Here is a summary of my buys in Q1-2016:

Company	Ticker	Date	Transaction
Ford Motor Company	F	26 Jan  29 Jan	bought 280 shares at $12.24 per share   bought 150 shares at $11.77 per share
The Walt Disney Company	DIS	3 Feb	bought 27 shares at $95.43 per share
HCP Inc	HCP	17 Feb	bought 90 shares at $27.58 per share
Cummins Inc	CMI	17 Feb	bought 25 shares at $100.07 per share
STAG Industrial Inc	STAG	29 Feb	bought 100 shares at $17.70 per share
AbbVie Inc	ABBV	9 Mar	bought 44 shares at $56.16 per share
Macquarie Infrastructure Company	MIC	16 Mar	bought 40 shares at $65.15 per share
T. Rowe Price Group Inc	TROW	16 Mar	bought 35 shares at $71.39 per share
Starwood Property Trust, Inc	STWD	17 Mar	bought 140 shares at $18.73 per share
Gilead Sciences, Inc	GILD	18 Mar	bought 28 shares at $90.47 per share
Union Pacific Corporation	UNP	18 Mar	bought 30 shares at $85.09 per share

All of these transactions were additions to existing positions, not new positions.

I sold all my shares of COP after the company cut its quarterly dividend by 66%, taking a net loss of nearly $2,000 in the process. I trimmed my Energy sector exposure in December and this sell continues the trend. Right now, my only remaining Energy sector holdings are Exxon Mobil Corporation (XOM), Chevron Corporation (CVX) and Helmerich & Payne, Inc (HP).

At the end of the quarter, my DivGro portfolio contained 59 different holdings, 56 stocks and 3 closed-end funds (CEFs).

Dividend Adjustments

In Q4-2015, I reported projected annual dividend income (PADI) of $6,676 on investments totaling $182,935, for a projected annual yield of 3.65%. I'm happy to report a solid improvements this quarter. PADI increased by 52% to $10,163, total investments increased by 36% to $248,830 and projected annual yield improved to 4.08%.

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.

23 of DivGro's holdings (or 39%!) announced dividend increases in Q1-2016. The following table presents a summary of the dividend increases, and the new yield on cost (YoC) for each holding:

Company	Ticker	Increase	Annual Div	New  YoC
Reynolds American, Inc	(RAI)	16.67%	$1.68	6.21%
Dr Pepper Snapple Group, Inc	(DPS)	10.42%	$2.12	3.10%
Qualcomm Inc	(QCOM)	10.42%	$2.12	4.17%
General Dynamics Corporation	(GD)	10.14%	$3.04	4.50%
Intel Corporation	(INTC)	8.33%	$1.04	4.46%
Meredith Corporation	(MDP)	8.20%	$1.98	4.38%
Dominion Resources, Inc	(D)	8.11%	$2.80	4.03%
Toronto-Dominion Bank	(TD)	7.84%	CA$2.20	3.49%
Eversource Energy	(ES)	6.59%	$1.78	4.34%
The Coca-Cola Company	(KO)	6.06%	$1.40	3.60%
Kimberly-Clark Corporation	(KMB)	4.55%	$4.06	4.68%
Realty Income Corporation	(O)	3.93% 0.25%	$2.38 $2.39	4.68% 4.87%
T. Rowe Price Group, Inc	(TROW)	3.85%	$2.16	2.81%
Avista Corporation	(AVA)	3.79%	$1.37	4.02%
Digital Realty Trust, Inc	(DLR)	3.53%	$3.52	6.68%
The Chubb Corporation	(CB)	2.99%	$2.76	2.69%
AT&T Inc	(T)	2.13%	$1.92	5.74%
Wal-Mart Stores, Inc	(WMT)	2.04%	$2.00	2.65%
Omega Healthcare Investors, Inc	(OHI)	1.79%	$2.28	6.11%
Macquarie Infrastructure Corp	(MIC)	1.77%	$4.60	6.21%
HCP, Inc	(HCP)	1.77%	$2.30	7.54%
W.P. Carey, Inc	(WPC)	1.00%	$3.90	5.83%
STAG Industrial, Inc	(STAG)	0.72%	$1.39	7.54%

Average yield on cost (YoC) is 4.44%, up from 4.10% at the end of Q4-2015.

Market Value

At the end of Q1-2016, DivGro's market value of $276,681 represented a simple gain of 11.12% on $248,830 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 8.48%.


The significant jump in market value is partly due to the stock market recovery in March. The other reason for the jump is recognizing past investments associated with stocks transferred to DivGro.

Longterm Positions

As mentioned earlier, I'll be including various performance charts for DivGro positions that are at least one year old, on average. The reason is that I want to closely monitor the performance of long term positions. In my view, if stocks do not perform acceptably they should be replaced.

While General Dynamics (GD) and Nippon Telegraph & Telephone Corporation (NTT) still lead the pack with total returns of more than 100% each, Reynolds American, Inc (RAI),  Altria Group, Inc (MO) and Digital Realty Trust, Inc (DLR) are outperforming them on an annualized basis:

The Gap, Inc (GPS) is by far the worst performer. The company has struggled to grow earnings and the stock price has been pummeled the last year or so. Unfortunately, things don't seem to get any better for GPS, as March sales have dropped and inventory levels remain high. In the next few weeks, I'll do a thorough analysis of GPS to see if I want to stay invested.

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.

Following is a chart showing 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 12 of these longterm positions have increased their dividends by more than 7% in the last year.

Deere & Company (DE), Helmerich & Payne, Inc (HP), and Chevron Corporation (CVX) have all paid the same dividend for more than a year. As a dividend growth investor, I'd like to see regular dividend increases, so I'll monitor these stocks carefully. PNNT froze its dividend several years ago.

Next up is payback percentage, which relates total dividends received to total capital invested. Stocks with high yields should dominate here, and, indeed, MAIN and PNNT have the largest payback percentages by far. Of course, stocks I bought first will have an advantage over stocks I bought more recently.

I prefer to buy stocks in amounts of $2,500 at a time. With a portfolio containing 56 stocks and 3 CEFs, I'll be adding to existing positions more frequently than opening new positions. In the following chart, which shows the relative weight of each position, an asterisk indicates stocks that I've doubled-up on. The chart illustrates the impact of capital gains (or losses) on relative weight.

It is evident that BBL is a very poor performer. Conversely, NTT, GD, and MO are excellent performers, even outperforming some stocks with a cost basis double their own!

Outlook For Q2-2016

In Q2-2016 I'll complete the process of consolidating my dividend growth stocks into DivGro. With a good amount of cash on hand, I'll be looking for opportunities to add to existing holdings or to open new positions. We're planning a little vacation break in June, so I'm looking forward to the break!

Thanks for reading and take care everybody!