Saturday, April 22, 2017

Home Run Number 8

I use the term home run to describe any position in my portfolio that has crossed the 100% mark in total return. In my days as a trader, I sold half of my shares when a position became a home run position. I justified the action by saying that now I'm playing with "house" money. I no longer think that way. In fact, I'm more than happy to hang on to home run stocks and to continue collecting their growing dividends.

I announced DivGro's seventh home run on 27 October 2016, nearly two years after announcing the first. Today, I'm happy to announce that I've scored another home run with DivGro!

Here is a list of my previous home run stocks:
  • Home run #1: General Dynamics Corporation (GD) – up 195% (47% annualized)
  • Home run #2: Nippon Telegraph & Telephone Corp (NTT) – closed for 125% gain (37% annualized)
  • Home run #3: Digital Realty Trust, Inc (DLR) – closed for 102% gain (44% annualized)
  • Home run #4: Altria Group, Inc (MO) – up 121% (38% annualized)
  • Home run #5: Reynolds American, Inc (RAI) – up 169% (53% annualized)
  • Home run #6: Main Street Capital Corporation (MAIN) – up 53% (32% annualized)
  • Home run #7: Microsoft Corporation (MSFT) – up 137% (35% annualized)
Once a position reaches home run status, it retains that status, even if I buy more shares and the total return falls below 100% on the adjusted cost basis. That's the reason why MAIN is on the list even though it shows total return of "only" 53%. 

Home Run #8


My eighth home run stock is UnitedHealth Group (UNH), a stock I recently transferred to DivGro. The stock is one of the stocks my wife owns in her traditional IRA, which we decided to manage as part of DivGro.

We bought a total of 19 shares of UNH in 2014 and 2015 at an average cost basis of $86.14. UNH now trades at $171.16 per share, not yet double the average cost basis. However, we've collected  $59.75 in dividends from UNH, which pushes the total return to 105% (37% annualized).

UNH is a Dividend Challenger with a streak of 7 years of dividend increases. The stock has an impressive 5-year DGR (dividend growth rate) of 31%.


Home run stocks present some interesting challenges. As a dividend growth investor, your need to figure out if these stocks are overvalued or if they are suitable for further investment. Is it OK to increase your average cost basis by buying more shares at much higher prices? What's the implications of reducing your average yield on cost (YoC) when you buy more shares at lower yields?

Personally, I don't really care if I increase my average cost basis or reduce my average YoC. I focus on buying great dividend growth stocks at or below fair value. And, in some cases, I even buy at a small premium to fair value!

A Seeking Alpha contributor, Chowder, advocates buying shares of a great dividend growth stock that continue to experience higher earnings expectations, even as the share price rises to meet fair value. He calls the strategy dollar-cost averaging up. He argues that fair value estimates will increase with higher earnings expectations and that the stock price will follow. The strong often gets stronger.

Do you have home run stocks in your portfolio? Do you dollar-cost average up? Please let me know in the comments section...

14 comments :

  1. I have a couple of course appl is one and goog and Brkb I've had 2 I've knocked out Uve and MO but Mo is still at 69 percent UVE at about 55 percent
    Then I have STS which is a 5 bagger at about 525 percent they give a real small dividend raise each year but every Jan so far have given a huge special dividend. I probably won't add to them unless it falls below 10.00 or they announce a bigger raise

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    1. I'm close to getting a "2 bagger" but very far from having a "5 bagger" -- congratulations!

      It is fun to count home runs, but for me it is more about dividends, and growing that dividend income stream. I'm hoping to reach a point where my dividend income can cover most of our expenses. We're still a long way off, but every bit helps!

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  2. Very nice outcome for you. Some really solid choices.

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    1. Thanks, Buy, Hold Long -- I appreciate your support. Happy investing to you!

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  3. Always nice to see those home runs stack up. Stick with solid companies for the long haul and you should see many more. Of course, there's nothing wrong with hitting singles over and over again as that's another great way to build long term wealth and increasing passive income. Thanks for bringing UNH to mind. I have to take a look there.

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    1. Hi, Keith -- good to hear from you. Years ago I thought UNH looked interesting and it seemed appropriate to buy a Health Care stock for my wife, as she is a nurse. I'm quite happy with the performance, even though UNH is not a big dividend payer. That growth makes up for it for sure!

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  4. great, these homeruns! The anaual returns you make on these is great! I hope you have soon another one

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    1. I'm looking forward to the next home run. At this point, INTC is closest with total returns of 70%, follwed by NOC with 66% and AFL and ES, both with 60%. Wel'll see who wins!

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  5. Fantastic. You're career home run record is impressive. Congrats sir.

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    1. Thanks, Investment Hunting -- I'm hoping to hit many more! How about you... how's your hitting record?

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  6. I'm an options guy and prefer to "bunt." Small wins, often. It's working out for me so far...

    Gratz on putting #8 over the fence!

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    1. I like the analogy! As you probably know, I also trade options. I see it as a way to boost dividend income using the leverage I have in my portfolio of dividend growth stocks.

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  7. That is an interesting concept. I haven't even considered that or given a name to it. Seems like you have a nice track record with many more on the way hopefully. I can't say I have any currently. Closest I come is a spin-off that I didn't pay a dime for which would have unlimited growth at that cost basis. But if you are factoring in dividends collected to the equation, then everyone will hit home runs eventually if holding for long term.

    ReplyDelete
    Replies
    1. Hi, Dividend Daze -- I can't claim ownership of the term, as a newsletter I'm subscribed to is called Home Run Investor. And, you're right, dividend growth investors that hold for the long-term will eventually hit home runs!

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