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.

Transactions

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:

Company	Ticker	Date	Transaction
Pfizer Inc	PFE	28 Oct	added 200 shares at $34.00 per share
Qualcomm Inc	QCOM	11 Nov	added 200 shares at $67.88 per share
Valero Energy Corporation	VLO	5 Dec	added 100 shares at $63.26 per share
The Walt Disney Company	DIS	5 Dec	added 100 shares at $99.97 per share
AbbVie Inc	ABBV	5 Dec	added 100 shares at $60.56 per share
Nike Inc	NKE	6 Dec	added 53 shares at $50.80 per share
The Procter & Gamble Company	PG	7 Dec	added 68 shares at $82.75 per share
The Coca-Cola Company	KO	9 Dec	added 100 shares at $41.96 per share
Cisco Systems, Inc	CSCO	9 Dec	added 100 shares at $30.04 per share
Target Corporation	TGT	27 Dec	added 100 shares at $73.86 per share
Main Street Capital Corporation	MAIN	27 Dec	added 100 shares at $37.40 per share
Ford Motor Company	F	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:

Company	Ticker	Date	Transaction
Cisco Systems, Inc	CSCO	3 Oct	sold 100 shares for $31.00 per share
Caterpillar Inc	CAT	25 Oct	sold 60 shares for $84.60 per share
Helmerich & Payne Inc	HP	28 Nov	sold 70 shares for $69.12 per share
BHP Billiton plc	BBL	28 Nov	sold 100 shares for $33.78 per share
Wells Fargo & Co	WFC	9 Dec	sold 54 shares at $54.48 per share
Union Pacific Corporation	UNP	16 Dec	sold 100 shares at $97.50 per share
Qualcomm Inc	QCOM	23 Dec	sold 100 shares at $66.61 per share
The Gap, Inc	GPS	23 Dec	sold 165 shares at $22.68 per share
The Walt Disney Company	DIS	23 Dec	sold 27 shares at $105.20 per share
PennantPark Investment	PNNT	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).

Company	Ticker	Increase	Annual Div	New  YoC
Nike Inc	NKE	12.50%	$0.72	1.39%
AbbVie Inc	ABBV	12.28%	$2.56	4.15%
Union Pacific Corporation	UNP	10.00%	$2.42	2.72%
The Walt Disney Company	DIS	9.86%	$1.56	1.57%
Pfizer Inc	PFE	6.67%	$1.28	4.17%
Aflac Incorporated	AFL	4.88%	$1.72	3.44%
Omega Healthcare Investors	OHI	1.67%	$2.44	6.52%
Realty Income Corporation	O	0.25%	$2.43	5.13%

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 Value, Future, Past, Health 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!