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Friday, January 20, 2017

Quarterly Review, Q4-2016

Welcome to my 16th quarterly review of DivGro, concluding four years of dividend growth investing and blogging! My quarterly reports summarize the actions I've taken during the preceding quarter. Quarterly reports include summaries of dividends received and changes that impact dividend income.

In the fourth quarter of 2016, I continued preparing DivGro for options trading. I reduced the number of stocks in my portfolio from a high of 66 stocks at the end of June 2016 to "only" 46 stocks at present. I used the cash from closing those positions to round out the number of shares of other positions to 100 shares or multiples thereof, ready for options trading.

Q4-2016 is my first quarter of serious options trading. I executed now fewer than 27 options trades (compared with 16 trades in Q3-2016 and 2 trades in Q2-2016). Option income totaled $4,485 in Q4-2016 (and $7,708 in 2016).

Dividend Income

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

Dividend income in Q4-2016 totaled $2,895, just $5 short of last quarter's total. Though I missed out on a new quarterly record, this quarter's total still topped Q4-2015's total by 68.2%! Now that DivGro's projected annual dividend income (PADI) is above $12,000, I should see quarterly totals top $3,000 going forward.

DivGro's average percentage payback is 9.85%, down slightly from 9.89% at the end of Q3-2016. Percentage payback relates total dividend income to the total amount of capital invested.


This quarter I deposited $5,000 in new capital, $1,103 in passive income, and $4,485 in options income.

Speaking of options, most of my actions this quarter were focused on preparing DivGro for options trading. In order to write covered calls, I need positions of 100 shares or multiples of 100 shares each. Consequently, in Q3-2015, I closed several positions and rounded out other positions accordingly.

Here is a summary of my buys this quarter, which mostly focused on rounding out positions to 100 shares or multiples of 100 shares each:

Pfizer Inc
 28 Oct
 added 200 shares at $34.00 per share 
Qualcomm Inc
 11 Nov
 added 200 shares at $67.88 per share
Valero Energy Corporation
 5 Dec
 added 100 shares at $63.26 per share 
The Walt Disney Company
 5 Dec
 added 100 shares at $99.97 per share 
AbbVie Inc
 5 Dec
 added 100 shares at $60.56 per share 
Nike Inc
 6 Dec
 added 53 shares at $50.80 per share 
The Procter & Gamble Company
  7 Dec
 added 68 shares at $82.75 per share 
The Coca-Cola Company
 9 Dec
 added 100 shares at $41.96 per share 
Cisco Systems, Inc
  9 Dec
 added 100 shares at $30.04 per share 
Target Corporation
 27 Dec
 added 100 shares at $73.86 per share 
Main Street Capital Corporation
 27 Dec
 added 100 shares at $37.40 per share 
Ford Motor Company
 27 Dec
 added 400 shares at $12.44 per share 

To fund these buys, I closed several positions or reduced the number of shares in other cases, either due to option assignment or by choice:

Cisco Systems, Inc
 3 Oct
 sold 100 shares for $31.00 per share 
Caterpillar Inc
 25 Oct
 sold 60 shares for $84.60 per share 
Helmerich & Payne Inc
 28 Nov
 sold 70 shares for $69.12 per share 
BHP Billiton plc
 28 Nov
 sold 100 shares for $33.78 per share 
Wells Fargo & Co
 9 Dec
 sold 54 shares at $54.48 per share
Union Pacific Corporation
 16 Dec
 sold 100 shares at $97.50 per share 
Qualcomm Inc
 23 Dec
 sold 100 shares at $66.61 per share 
The Gap, Inc
 23 Dec
 sold 165 shares at $22.68 per share 
The Walt Disney Company
 23 Dec
 sold 27 shares at $105.20 per share 
PennantPark Investment
 23 Dec
 sold 215 shares at $7.76 per share 

DivGro now contains 46 different positions, including 43 stocks and three closed-end funds (CEFs). These positions are distributed by sector as follows:

Dividend Adjustments

Last quarter, I reported projected annual dividend income (PADI) of $11,307 on investments totaling $280,764, for a projected annual yield of 4.04%. This quarter, PADI increased to $12,376 and total investments increased to $286,854, so now projected annual yield is 4.31%.

The following table shows the stocks in my DivGro portfolio that announced dividend increases in Q4-2016. I'm including the new annual dividend and yield on cost (YoC).

Increase Annual
Nike Inc
AbbVie Inc
Union Pacific Corporation
The Walt Disney Company
Pfizer Inc
Aflac Incorporated
Omega Healthcare Investors
Realty Income Corporation

DivGro's average YoC is 4.26%, down from the 4.35% reported at the end of Q3-2016.

Unfortunately, one of my holdings paid reduced dividends this quarter:

• Nuveen AMT-Free Quality Municipal Income Fund (NEA) – a reduction of 0.8% to 74.4¢ (YoC: 5.37%).

I received dividends from 49 different stocks this quarter, for a total of $2,895 in dividend income:
  1. Apple Inc (AAPL) – $57.00
  2. AbbVie Inc (ABBV) – $57.00
  3. AFLAC Incorporated (AFL) – $21.50
  4. Caterpillar Inc (CAT) – $46.20
  5. Chubb Limited (CB) – $16.56
  6. Cisco Systems, Inc (CSCO) – $52.00
  7. Cummins Inc (CMI) – $45.10
  8. Dominion Resources, Inc (D) – $70.00
  9. Eversource Energy (ES) – $26.70
  10. Eaton Vance Tax-Managed Global Diversified Equity Income Fund (EXG) – $176.58
  11. Ford Motor Company (F) – $90.00
  12. General Dynamics Corporation (GD) – $26.60
  13. Gilead Sciences, Inc (GILD) – $47.00
  14. The Gap, Inc (GPS) – $37.95
  15. Helmerich & Payne Inc. (HP) – $49.00
  16. International Business Machines Corporation (IBM) – $42.00
  17. Intel Corporation (INTC) – $57.20
  18. Johnson & Johnson (JNJ) – $43.20
  19. Kimberly-Clark Corporation (KMB) – $92.00
  20. The Coca-Cola Company (KO) – $70.00
  21. Lockheed Martin (LMT) – $25.48
  22. Main Street Capital Corp. (MAIN) – $190.90
  23. McDonald's Corp. (MCD) – $25.38
  24. 3M Company (MMM) – $17.76
  25. Altria Group Inc (MO) – $45.75
  26. Microsoft Corp. (MSFT) – $31.20
  27. Nuveen AMT-Free Quality Municipal Income Fund (NEA) – $87.59
  28. Nike Inc (NKE) – $7.52
  29. Northrop Grumman Corporation (NOC) – $14.40
  30. Nuveen Premium Income Muni Fund 2 Inc (NPM) – $9.45
  31. Realty Income Corp (O) – $30.30
  32. Omega Healthcare Investors, Inc (OHI) – $183.00
  33. Pfizer Inc (PFE) – $90.00
  34. The Procter & Gamble Company (PG) – $21.42
  35. PennantPark Investment (PNNT) – $280.00
  36. Qualcomm Inc (QCOM) – $159.00
  37. Reynolds American, Inc (RAI) – $92.00
  38. Raytheon Company (RTN) – $17.58
  39. STAG Industrial Inc (STAG) – $83.40
  40. AT&T Inc (T) – $72.00
  41. Target Corporation (TGT) – $24.00
  42. T. Rowe Price Group, Inc (TROW) – $35.10
  43. The Travelers Companies, Inc (TRV) – $19.43
  44. Union Pacific Corporation (UNP) – $60.50
  45. United Parcel Service, Inc (UPS) – $19.50
  46. Valero Energy Corporation (VLO) – $43.20
  47. Walgreens Boots Alliance, Inc (WBA) – $16.50
  48. Wells Fargo & Co (WFC) – $20.52
  49. ExxonMobil Corporation (XOM) – $48.75

Market Value

At the end of Q4-2016, DivGro's market value of $354,795 represented a simple gain of 23.7% on $286,854 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 11.93%.

I've started using the analysis and visualization tools available at Simply Wall St, a Sydney-based startup that gives investors access to institutional quality data and analysis reports presented visually.

The snowflake infographic represents ValueFuturePastHealth and Dividend scores calculated from the weighted average scores of stocks in my portfolio. It gives an immediate sense of the quality of the underlying portfolio or stock:

When sorted by total snowflake score, JNJ, GD, TGT, ABBV, and PG top the list. I'll be using these infographics in more of my articles in future.

Portfolio Statistics

I now monitor DivGro's performance monthly in Pulse articles. It is important to monitor the performance of long-term stocks because changes that could affect the stock's performance can easily "hide" behind solid long-term results. I'd rather not be surprised by such changes. You can read the latest pulse article here.

For my quarterly reviews, I review general portfolio statistics. First, let's look at the yield of stocks in my portfolio:

PNNT has the largest yield, by far. OHI, MAIN, and STAG are not far behind. Not surprisingly, these are all either (BDFs) business development companies or (REITs) real estate investment trusts.

The average yield of stocks in DivGro is 3.67% and the majority of stocks fall below the average. I think it is fine to milk a few outliers and, indeed, MAIN and STAG have been excellent performers for DivGro. I'm planning to close my PNNT position soon. The company cut its quarterly dividend from 28¢ per share to 18¢ per share, so I'm happy to move on!

Next up is the dividend growth rate. It is important to strike a good balance between high yielding stocks and high dividend growth stocks. Here is a chart of DivGro's stocks sorted by 3-year compound annual (dividend) growth rate. VLO dominates, while GILD does not yet have a track record of at least 3 years of dividend increases:

I'm very happy with consistent dividend increases above 7%, so more that half of my DivGro stocks boast a 3-year dividend growth rate of more than 7%.

Let's look at the weight of individual holdings in DivGro. Typically, I would want to strike a good balance between individual holdings and not overweight some positions. Certainly, DivGro is not terribly balanced and one holding, DIS, is significantly overweight at more than 6%.

One reason for the imbalance is that I want to boost DivGro's dividend income with options. And with options, you need 100 shares (or multiples of 100 shares) to sell covered calls, for example. Quite naturally, therefore, my portfolio would not be ideally weighted.

Lastly, let's look at the contribution of each position to DivGro's projected annual dividend income. Here, PNNT, MAIN, and OHI again dominate. Note that the contribution depends not only on the stock's yield but also on the size of my investment.

In my annual review, I'll present several additional charts to visualize different statistics of my DivGro portfolio.

Outlook For Q1-2017

In Q1-2017, I want to transfer my Scottrade account and one of my FolioInvesting accounts to Interactive Brokers. While I've been trading options in my Scottrade account, I'm looking for a more flexible trading platform and one offering lower commissions. Also, I'm taking some additional consolidation steps, the goal of which is to have all our stock investments (including IRAs) within the DivGro fold. I have some aggressive goals for 2017 and I look forward to the challenge of achieving these goals!

Thanks for reading and take care, everybody! 


  1. Congrats on the increasing dividends quarter after quarter for years now.
    Dividend income sure is fun,

    1. Generating a reliable and growing dividend stream is what it's all about! Thanks for reading and commenting, DM. All the best with your investments in 2017!

  2. Excellent update and seeing increasing dividends is always fun, specially looking back a year ago where the portfolio was.

    1. Thanks, D4F -- I really like to see those dividend charts point the way to the future! And the past helps tell that tale for sure! Take care and happy investing!

  3. Great job! Very interesting to seeing so many people transition to options. Dividends aren't fast enough?? ;)

    1. Thanks for reading and commenting, Passive Income Dude -- I'm quite happy to see DG investors add a little options income to the mix! I'm hoping we'll get to learn together. Options allows you to leverage your stock ownership in another way. That's why I do it!

  4. I am in a free trial of Simply Wall St. So far, I'm liking it a lot. There are some quirks, or perhaps I have yet to learn how to interpret the data. I'm glad to learn her that the author is also using Simply Wall St.

    1. I'm liking Simply Wall St so far. There's a really cool feature that will search for stocks with a similar snowflake than one you present. Nice way to discover new dividend growth candidates. Thanks for commenting!

  5. Looks like an awesome quarter Ferdi. Nearly $3k in dividends and almost $4.5k in options income is fantastic. That's especially impressive when you compare that to you only adding $5k of your own cash to the portfolio. Hopefully Q1 is getting off to a great start for you.

    1. Hi there, Passive IncomePursuit -- thanks for reading and commenting. It was a solid quarter for me and the options income is taking off! I'm enjoying the learning (and I've got lots to learn still!) and we'll see how it goes. I've set a pretty hefty options income target for 2017. Take care and happy investing!

  6. IB is really the broker of choice if you are going to trade options. You are making the right move.

    1. I'm still getting used to the platform, but so far I like IB. I'm assuming you're a customer, too. Thanks for sharing your endorsement!

  7. well done Ferdi , what is your plan in case we have correction or prolonged bear market ?

    1. In short, my plan would be to buy more shares of the stocks I own. Lower prices = more shares for dollars spent. What's your plan?

    2. Well this is what I am trying to figure out ,markets are not cheap , correction/bear market will come that is for sure , recession will also come , question is will companies be able to maintain dividend payout ?

    3. Yes, you're right -- the markets are not cheap and a bear will come visit in the future. Whether companies will maintain their dividends is the million dollar question. All I can do as an investor is to choose stocks with long track records, excellent fundamentals, and trading at or below fair value. Doing so increases the likelihood that I'll continue to collect dividends, but there's no guarantee that I will!

  8. For me it has been interesting to watch you transition your portfolio. It seems to be working out for you nicely and I look forward to reading about your journey in the future. You have some interesting ways of analyzing your portfolio that I may look into applying to my own portfolio in the future. Thanks for sharing.

    1. Hi, More Dividends -- thanks for reading and commenting. It's been a fun journey so far and I'm looking forward to the next few years to see where this all leads. Many of the ideas I've shared are borrowed from other DG bloggers, so I'll be happy to see you use some of mine!

      Take care and happy investing!

  9. Great results! One of my short-term goals is to finally break the psychological $1,000/month on average dividend income mark, which I hope to accomplish in the next 18-24 months!

    Wondering your thoughts are on using Yield-on-Cost vs Yield-on-Price? I performed my own analysis (http://wp.me/p7MHEL-7o), and unless you are in a tax-free situation, I found that if yos on Yield-on-Cost you may be foregoing some great opportunities.

    In any case, amazing results; you've definitely passed one of my own medium term goals!


    1. Thanks for reading and commenting, tendim!

      It is really good to get beyond the $1,000/month point. It took me four years of focused effort, and I'm glad to get to this point. It is hard to imagine where I'll be after four more years -- we'll see. Hopefully well beyond $2,000/month (taking compounding into account) if all goes well.

      Mmm... the old YoC vs Yield conundrum. You'll note that I have both listed in my portfolio page. I see them as equally important, but not as a main consideration for making investment decisions.

      Thanks for sharing your analysis. I read it and all of it makes sense, especially the tax issue.

      Here's an additional factor, though, and one I consider to be much more important: buying at a discount to fair value. A stock yielding 4% could be trading at a premium, whereas one yielding 3% could be trading at a discount. All else being equal the 3% yielder has more upside potential.



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