Wednesday, October 11, 2017

Monthly Review: September 2017

Welcome to the September review of DivGro, my portfolio of dividend growth stocks! With these monthly reviews, I share updates to my portfolio and provide a summary of dividends collected.

DivGro's projected annual dividend income (PADI) increased to $16,655, well above my 2017 goal of $14,400! One reason that I exceeded my PADI goal so early in the year is the success of my options trades, which allowed me to invest an additional $11,000 in funds into dividend growth stocks.

I just love quarter-ending months! September was another record-setting month for DivGro with dividend income totaling $2,245. This amount exceeded the previous record (June 2017) by about 8% and represents a year over year increase of about 80%!


Projected monthly dividend income (PMDI) now stands at $1,388, up 8.5% since my August monthly review. If nothing changes, I can expect to receive $1,388 in dividend income every month, on average, in perpetuity.

Of course, as a dividend growth investor, I expect the companies I've invested in to increase their dividends regularly, so DivGro's PMDI should continue to increase over time. Also, until I retire, I hope to add new capital, invest options income, and reinvest dividend income. So, PMDI should continue to grow through dividend growth and through compounding.

Dividend Income


In September, I received dividends from 31 different stocks, for a record monthly total of $2,245 in dividend income:
Here is a list of these dividends:
  • AFLAC (AFL) — income of $21.50
  • Cummins (CMI) — income of $47.52
  • Dominion Resources (D) — income of $75.50
  • Eversource Energy (ES) — income of $28.50
  • Ford Motor (F) — income of $300.00
  • Gilead Sciences (GILD) — income of $104.00
  • International Business Machines (IBM) — income of $45.00
  • Intel (INTC) — income of $147.15
  • Nuveen Floating Rate Income Fund (JFR) — income of $33.75
  • Johnson & Johnson (JNJ) — income of $45.36
  • Lockheed Martin (LMT) — income of $25.48
  • Main Street Capital (MAIN) — income of $83.26
  • McDonald's (MCD) — income of $25.38
  • 3M (MMM) — income of $18.80
  • Microsoft (MSFT) — income of $54.60
  • AllianzGI Equity & Convertible Income Fund (NIE) — income of $209.00
  • Northrop Grumman (NOC) — income of $16.00
  • NVIDIA (NVDA) — income of $1.40
  • Realty Income (O) — income of $10.58
  • Pfizer (PFE) — income of $96.00
  • Qualcomm (QCOM) — income of $228.00
  • Stanley Black & Decker (SWK) — income of $31.50
  • Target (TGT) — income of $186.00
  • T. Rowe Price (TROW) — income of $57.00
  • The Travelers Companies (TRV) — income of $20.88
  • UnitedHealth (UNH) — income of $14.25
  • Valero Energy (VLO) — income of $120.40
  • Vanguard High Dividend Yield ETF (VYM) — income of $90.30
  • Walgreens Boots Alliance (WBA) — income of $17.60
  • Wal-Mart Stores (WMT) — income of $39.78
  • Exxon Mobil (XOM) — income of $50.05
Following is a chart showing DivGro's monthly dividends plotted against PMDI. It is clear that quarter-ending months are huge outliers:
This is one reason that I now create a rolling 12-month average of dividends received (the orange bars) plotted against a rolling 12-month average of PMDI (the blue, staggered line):
While it would be nicer to receive dividends that are distributed more evenly over the months, it is not something that concerns me too much. Certainly, I wouldn't make investment decisions purely based on the months dividends are paid. 

Dividend Changes


In September, five DivGro stocks announced dividend increases:
These increases translate to $40 in extra dividends every year.

I'm very happy with the increases from LMT, MCD, and MSFT. These stocks are excellent performers for DivGro, with annualized total returns of 29%, 27%, and 40%, respectively.

Realty Income's increase seems really small, but the REIT increases its dividend every quarter. The year over year increase is 4.95%, which is quite respectable given the stock's 4.47% yield.

I'm disappointed with VZ's increase, which is below the stock's 10-year DGR (dividend growth rate) of 3.44%. In fact, dividing the stock's 5-year DGR by its 10-year DGR confirms that VZ's dividend growth is slowing down: 2.98%/3.44% = 0.87. David Fish, who compiles the CCC list, calls this indicator the stock's dividend acceleration/deceleration factor.

Transactions


September was a rather busy month for trading activity. I opened two new positions and added shares to six existing positions:
  • Blackstone Mortgage Trust (BXMT) — new position of 300 shares
  • Texas Instruments (TXN) — new position of 50 shares
  • CVS Health (CVS) — added 10 shares; increased position to 50 shares
  • Intel (INTC) — added 30 shares; increased position to 570 shares
  • NVIDIA (NVDA) — added 10 shares; increased position 20 shares
  • Omega Healthcare Investors (OHI) — added 100 shares; increased position 400 shares
  • Valero Energy (VLO) — added 8 shares; increased position 180 shares
  • Walgreens Boots Alliance (WBA) — added 36 shares; increased position 80 shares
These transactions added about $1,262 to DivGro's PADI, which translates to a projected annual yield of 5.24% on the total amount invested.

BXMT is a real estate finance company that operates as a mortgage real estate investment trust (mREIT) for US federal income tax purposes. The company originates and purchases senior loans collateralized by properties in North America and Europe. BXMT was founded in 1966 and is based in New York, New York.

BXMT pays a hefty dividend yielding about 8%. Because 92% of BXMT's portfolio consists of floating-rate loans tied to a benchmark rate, the company is mostly protected from the risk of rising interest rates. REIT guru Brad Thomas gives BXMT a sleep well at night rating.

I wrote about TXN in September's DivGro Pulse article.

The stock is a regular in my monthly list of top 10 ranked dividend growth stocks. In September's list, TXN ranked sixth:
While TXN is trading at a premium of about 9% to my fair value estimate, I believe the stock has more room to run. Recently, the company announced an impressive dividend increase of 24% and increased authorization to repurchase up to $6 billion of its own stock over time. This amount is in addition to about $4.6 billion of previously authorized repurchases that remained at the end of June 2017. I think the company will continue to do well in the foreseeable future.

I discussed adding shares to CVS and WBA earlier. These stocks are trading well below my fair value estimates, yet both have good growth prospects and offer extremely safe dividends.

Sentiment remains negative on CVS despite decent Q2 earnings. However, I think the stock has good upside potential and share the bullish outlook of one Seeking Alpha author who thinks CVS is going back to $100 per share. CVS has a Dividend Safety Score of 99 from Simply Safe Dividends, suggesting that the company's dividend is extremely safe.

I like WBA as a solid dividend growth stock, especially now that the company's acquisition of more than 1,900 Rite Aid stores has received final approval. The stock is a Dividend Champion with a streak of 42 years of higher dividend payments. WBA also is one of only 51 Dividend Aristocrats. The stock has a Dividend Safety Score of 100, indicating that WBA's dividend is extremely safe.

I also discussed adding shares to VLO and OHI, an Energy sector stock and a REIT offering attractive dividend yields.

VLO briefly cut its dividend in 2010. Normally, that is a no-no for dividend growth investors, but VLO quickly turned things around. The stock now looks like a solid dividend growth stock, yielding 3.6% and boasting a very high dividend growth rate of over 30%. Of course, maintaining that dividend growth rate is highly unlikely, but I'd be happy with increases in line with VLO's earnings growth rate, especially given the attractive dividend yield. With the economy improving and energy refiners experiencing some tailwinds, VLO could soon reach $90 per share.

I like OHI for its yield (obviously!) and consistent dividend growth rate of about 8-9% for 10-years running. The REIT is a Dividend Contender with a streak of 15 years of higher dividend payments. Furthermore, OHI has increased its dividend every quarter for 20 straight quarters. On the flip side, investing in OHI comes with some risks, including rising interest rates and heavy reliance on the continuation of Medicaid and Medicare to fund skilled nursing facilities (OHI's primary tenants).

Finally, I added shares to two Information Technology sector stocks with great growth prospects, INTC and NVDA.

INTC is one of the larger positions in my DivGro portfolio. The stock is experiencing a significant breakout and trading at levels not seen since November 2000. After freezing its dividend in 2014, INTC promptly resumed its dividend increases. The stock yields 2.77% at current levels. But I'm not only interested in INTC as a dividend growth stock. I see tremendous growth potential as the company diversifies into the autonomous vehicle market and solidifies its presence in the data center and IoT ("Internet of Things") markets.

Valuations of NVDA have a wide spread, from undervalued by 8% to overvalued by as much as 80%. Furthermore, while NVDA only recently joined the CCC list as a Dividend Challenger, the stock's yield is almost negligible at 0.31%. So why invest in NVDA? Well, as with INTC, I'm interested in NVDA for its growth prospects. And, in my view, NVDA has tremendous growth prospects with its focus on four multi-billion dollar GPU computing growth drivers — gaming, virtual reality, artificial intelligence, and autonomous vehicles.

Markets


It is worth looking at the markets to understand the environment we're investing in, even though I no longer compare DivGro's performance to those of the markets:

Aug 31, 2017
DOW: 21,948.10S&P 500: 2,471.65NASDAQ: 6,428.6610-YR BOND: 2.12%
Sep 30, 2017 
DOW: 22,405.09S&P 500: 2,519.36NASDAQ: 6,495.9610-YR BOND: 2.33%

In September, the DOW gained 2.08%, the S&P 500 gained 1.93%, and the NASDAQ gained 1.05%. The yield on the benchmark 10-year Treasury note increased to 2.33%.

The charts above show the activity of the main market indices in September, courtesy of Google Finance. The CBOE volatility index also is included. Each chart shows a 20-period exponential moving average (in red).

Portfolio Statistics


Based on the total capital invested and the portfolio's current market value, DivGro has delivered a simple return of about 41% since inception. In comparison, DivGro's IRR (internal rate of return) is 16.1%. (IRR takes into account the timing and size of deposits since inception, so it is a better measure of portfolio performance).

I track the yield on cost (YoC) for individual stocks, as well as an average YoC for my portfolio. DivGro's average YoC increased from 3.8% last month to 3.9% this month.

Another interesting statistic is percentage payback, which relates dividend income to the amount of capital invested. DivGro's average percentage payback is 9.6%, unchanged from last month.

Finally, DivGro's projected annual yield is at 4.76%, up from last month's value of 4.57%. I calculate projected annual yield by dividing PADI ($16,655) by the total amount invested.

Here's a chart showing DivGro's market value breakdown. Dividends are plotted at the base of the chart so we can see them grow over time.

Goals Review


Here is a recap of my goals for 2017:
  1. PADI: Increase projected annual dividend income to $14,400
  2. Dividends: Earn $12,960 in dividend income
  3. Dividends: Earn $8,400 in options income
  4. Seeking: Write 64 premium articles for Seeking Alpha
  5. DivNet: Write 6 articles for The DIVNet
The gauges below represent the progress I've made towards achieving my goals. The last gauge is a reference – it indicates where the other gauges should be after 273 out of 365 days:
I'm ahead of schedule with all my goals except for DivNet. It is unlikely that I'll achieve this goal in 2017.

Looking Ahead


I have very little cash left over after my September buying spree, so October will be a quiet month, trading-wise. It's a good thing, too, 'cause my oldest son is getting married and we'll be hosting family from afar, so I won't have too much time to think about buying stocks, anyway.

Soon, I'll publish my 19th quarterly review. My quarterly reviews summarize the actions I've taken during the preceding quarter and include several charts depicting various aspects of my DivGro portfolio.

Please see my Performance page for various visuals summarizing DivGro's performance.

Thanks for reading and take care, everybody!

6 comments :

  1. That's fantastic, look at those graphs continue upwards. That is definitely what we love to see. Great write up. Do you think your rolling average will reach $1200 by the end of the year?

    ReplyDelete
    Replies
    1. Agreed! Upwards we go! I suspect that I'll hit $1,200 by year's end, especially with the buys this month. It would be really nice to hit that level...

      Delete
  2. Good job. Over 14,000 in future income is awesome.
    Glad you have the name/url link some don’t have it and since I downloaded an upgrade it’s hard to comment on blogspot and blogger posts

    ReplyDelete
    Replies
    1. Thanks, Doug -- it's amazing to see dividend income rolling in at this pace.

      I'm not sure what you mean... what upgrade causes you not to be able to comment?

      Delete
  3. Competition is fierce in the VZ world. They are diversifying their income streams but like IBM it will take time. Congrats on the marriage of your son.
    Cheers,
    DFG

    ReplyDelete
    Replies
    1. You're right, Dividend Family Guy -- I'm hanging in there with VZ, despite the challenges the company is experiencing. With IBM, the same.

      Thanks for your well wishes.

      Take care and happy investing!

      Delete

Contact Form

Name

Email *

Message *

Follow by Email