Friday, October 20, 2017

Quarterly Review, Q3-2017

This is the 19th quarterly review of DivGro, my portfolio of dividend growth stocks. Soon I'll complete my fifth year of dividend growth investing (DGI).

In my Q2-2013 quarterly review, I wrote about a high adventure hike in New Mexico with my youngest son. While hiking down into a valley with heavy backpacks, I can't help but think that I'll have to climb back up again. Riding with the bulls give me a similar feeling. I can't help but think that we'll be challenged with a bear market, sooner or later.

Somehow, I feel that my DGI strategy wouldn't be fully vetted until I've survived a bear market!

With that somewhat sobering thought, let's look at what happened with DivGro in Q3-2017.

Dividend Income


In Q3-2017, I collected dividend income totaling $3,900, up 3.4% from the dividends received in Q2-2017 and up 34.5% from the dividend received in Q3-2016.

I received quarterly dividends from 51 different stocks this quarter:
  • Apple (AAPL) – income of $63.00
  • AbbVie (ABBV) – income of $128.00
  • AFLAC (AFL) — income of $21.50
  • Chubb (CB) – income of $17.04
  • Cummins (CMI) — income of $47.52
  • Cisco Systems (CSCO) – income of $87.00
  • CVS Health (CVS) – income of $20.00
  • Dominion Resources (D) — income of $75.50
  • Walt Disney (DIS) – income of $156.00
  • Eversource Energy (ES) — income of $28.50
  • Ford Motor (F) — income of $300.00
  • General Dynamics (GD) – income of $29.40
  • General Electric (GE) – income of $72.00
  • Gilead Sciences (GILD) — income of $104.00
  • Hannon Armstrong Sustainable Infrastructure Capital (HASI) – income of $66.00
  • Hormel Foods (HRL) – income of $17.00
  • International Business Machines (IBM) — income of $45.00
  • Intel (INTC) — income of $147.15
  • Johnson & Johnson (JNJ) — income of $45.36
  • Coca-Cola (KO) – income of $74.0
  • Lockheed Martin (LMT) — income of $25.48
  • McDonald's (MCD) — income of $25.38
  • 3M (MMM) — income of $18.80
  • Altria Group (MO) – income of $45.75
  • Microsoft (MSFT) — income of $54.60
  • AllianzGI Equity & Convertible Income Fund (NIE) — income of $209.00
  • Nike (NKE) – income of $18.00
  • National Retail Properties (NNN) – income of $71.25
  • Northrop Grumman (NOC) — income of $16.00
  • NVIDIA (NVDA) — income of $1.40
  • Omega Healthcare Investors (OHI) – income of $192.00
  • Pfizer (PFE) — income of $96.00
  • Procter & Gamble (PG) – income of $68.96
  • Qualcomm (QCOM) — income of $228.00
  • Reynolds American (RAI) – income of $51.00
  • Raytheon (RTN) – income of $19.14
  • Starbucks (SBUX) – income of $25.00
  • Stanley Black & Decker (SWK) — income of $31.50
  • AT&T (T) – income of $82.81
  • 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
  • United Parcel Service (UPS) – income of $20.75
  • Valero Energy (VLO) — income of $120.40
  • Vanguard High Dividend Yield ETF (VYM) — income of $90.30
  • Verizon Communications (VZ) – income of $57.75
  • Walgreens Boots Alliance (WBA) — income of $17.60
  • Wal-Mart Stores (WMT) — income of $39.78
  • Xcel Energy (XEL) – income of $18.00
  • Exxon Mobil (XOM) — income of $50.05
Also, I received monthly dividends from 3 different stocks this quarter:
  • Nuveen Floating Rate Income Fund (JFR) – income of $33.75 • $33.75 • $33.75
  • Main Street Capital (MAIN) – income of $83.25 • $83.25 • $83.26
  • Realty Income (O) – income of $10.58 • $10.58 • $10.58
The following chart shows DivGro's dividend income by quarter:

DivGro's average percentage payback is 9.6%, up from 9.4% at the end of Q2-2017. Percentage payback is a feel-good metric relating total dividend income to the total amount of capital invested.

Dividend Changes


Last quarter, I reported projected annual dividend income (PADI) of $14,961 on investments totaling $333,709, for a projected annual yield of 4.5%. This quarter, PADI increased to $16,655 and total investments increased to $350,008, so now projected annual yield is 4.8%.

The following table shows the stocks in my DivGro portfolio that announced dividend increases in Q3-2017. I'm including the new annual dividend and yield on cost (YoC).


Company
 Ticker
Increase Annual Div
 New YoC
Lockheed Martin
 $8.00 
4.42%
Stanley Black & Decker
$2.52
1.98%
Altria Group
 (MO)
$2.64
7.48%
Microsoft
$1.68
5.59%
McDonald's
$4.04
4.30%
Walgreens Boots Alliance
$1.60
2.40%
Cummins
$4.32
3.76%
Main Street Capital
$2.28
7.76%
Verizon Communications
 (VZ)
$2.36
5.02%
Omega Healthcare Investors
$2.56
7.11%
Realty Income
$2.54
5.37%

DivGro's average YoC is 3.9%, up from the 3.8% reported at the end of Q2-2017.

I'd like to see dividend increases above 7%. Five of the eleven increases topped 7%, while WBA is a rounding error below 7%.

MAIN, OHI, and O announce dividend increases multiple times per year, so it's better to assess their increases by looking at year-over-year increases: 5.56%, 6.67%, and 4.95%, respectively.

So, really, the outlier is VZ with a disappointing increase of 2.16%.

Here is a chart showing the growth of DivGro's projected monthly dividend income since 2014:
The curves are smooth because I'm using rolling 12-month averages.

Transactions


This quarter I deposited $16,299 in new capital, which included regular monthly deposits totaling $3,000; a bonus deposit of $12,000; and passive income of $1,299. I call income received from Seeking Alpha publications and from blog advertising "passive" income, largely because the income is not guaranteed.

Additionally, I added $3,868 from options trades. While I have obligations when selling covered calls or secured puts, the options income becomes available as soon as the trades are executed. So, I can immediately put that cash to use. Since starting with options trading, I've added a total of $18,774 to my DivGro account. Please see my latest options update for details.

Following is a summary of buys in Q3-2017. New positions are highlighted:

Company Ticker Date Transaction
National Retail Properties (NNN) 17 Jul bought 150 shares at $39.48 per share
Cisco Systems (CSCO) 18 Aug added 200 shares at $31.00 per share
Blackstone Mortgage Trust (BXMT) 22 Sep bought 300 shares at $31.32 per share
Texas Instruments (TXN) 26 Sep bought 50 shares at $87.71 per share
CVS Health (CVS) 26 Sep added 10 shares at $81.52 per share
Intel (INTC) 26 Sep added 30 shares at $37.22 per share
NVIDIA (NVDA) 26 Sep added 10 shares $173.56 per share
Omega Healthcare Investors (OHI) 26 Sep added 100 shares $31.90 per share
Valero Energy (VLO) 26 Sep added 8 shares $75.23 per share
Walgreens Boots Alliance (WBA) 26 Sep added 36 shares $79.00 per share

The CSCO trade was due to an options assignment. I don't have dedicated articles covering the NNN, BXMT, and TXN buys, but you can read about my reasons for opening these positions in my September review.

I closed one position in Q3-2017:

Company  Ticker  Date  Transaction
Reynolds American (RAI)19 Jul sold 100 shares for $65.45 per share

RAI was acquired by British American Tobacco plc (BATS) in a deal comprising of a cash payment and American Depositary Shares (BTI) equaling 0.526 × one ordinary BATS share. I didn't want to own ADR shares, so I sold RAI before the deal closed.

DivGro now contains 59 different positions, including 55 stocks, two closed-end funds (CEF), and two exchange-traded funds (ETF). Here is the distribution of DivGro's holdings by sector:

Market Value


At the end of Q3-2017, DivGro's market value of $494,006 represented a simple gain of 41.1% on $350,008 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 16.1%.

Portfolio Statistics


I monitor DivGro's performance in monthly Pulse articles, the latest of which you can read here. For quarterly reviews, I review general portfolio statistics.

First, let's look at the yield of stocks in my portfolio:

Two real estate investment trusts are the top yielding positions in DivGro, OHI and BXMT. The closed-end fund NIE is third. The average yield of stocks in DivGro is 3.03%.

Next up is the dividend growth rate. For quarterly reports, I look at the 1-year dividend growth rate, which will change throughout the year as stocks announce dividend increases. It is important to strike a good balance between high yielding stocks and high dividend growth stocks.

I like seeing dividend increases of about 7%, so I'm very happy to see about half of my DivGro stocks with a 1-year dividend growth rate exceeding 7%. The arithmetic average also is above 7%!

Let's look at the weight of individual holdings in DivGro. I prefer to see equal weights, but this difficult to achieve because I sell covered call options and to do so I need 100 shares (or multiples of 100 shares). Quite naturally, therefore, my portfolio will not be ideally weighted.

Next, let's look at the contribution of each position to DivGro's projected annual dividend income, which depends not only on the stock's yield but also on the size of the investment. Here, F and MAIN and OHI dominate:

Finally, let's look at the payback percentage, or how much of my original investment I've received back in the form of dividends. Generally, stocks I've owned for a long time will have larger paybacks, but dividend yield also plays a role: payback will grow faster for stocks with larger yields.

The payback percentages of MAIN and MO are above 20%. The arithmetic average payback percentage is 6.70%. However, on my portfolio spreadsheet, I calculate a weighted average payback percentage, which currently is 9.58%.

Goal For Q4-2017


In Q3-2017 I started accepting guest posts at DivGro. Unfortunately, I haven't received any submissions for a while and I'm hoping to keep this going, as it gives me a little breathing room to spend more time doing some research. Please consider submitting a guest post!

Towards the end of the year, I want to set new goals for 2018. With DivGro's 5-year anniversary coming up in January, I also want to set some medium-term and long-term goals.

Finally, I should really complete the transfer of stocks from our joint account at FolioInvesting to our trust account at Interactive Brokers. Doing so will provide more opportunities for options trading.

Thanks for reading and take care, everybody! 

14 comments :

  1. Hi. I really like your blog, and I am starting to create a portfolio, using the same methods as you. I have a few questions.
    1: Do you sell a stock if the dividend is freezed og cut?
    2: Do you drip invest in the same stocks, so the dividend in altria goes to buy more altria stocks?
    3: I would really like to see you write an article, where you go through the whole thought proces, when you trade options. Why you initiate the trade, why you roll over etc.
    Thanks.

    ReplyDelete
    Replies
    1. Hi Jonas -- congratulations on starting your own portfolio!
      1: Not necessarily with a freeze, but most probably with a cut. For example, I held onto INTC with its dividend freeze some years ago, and I'm glad I did!
      2: I don't drip. Rather, I wait until I have collected enough cash from dividends to invest in the best opportunity at the time.
      3: I'll see what I can do.
      Cheers!

      Delete
  2. I am just starting to read your blog, and it's great. I love the detail you provide in your reporting. I too would love to see some article or post about your buy/sell analysis, and if you have some defined minimum criteria for buying a stock. Maybe this could be a tab or section on your blog so every new reader (like me) doesn't ask the same question. Wishing you all the best!

    ReplyDelete
    Replies
    1. Hi Tall -- thanks for your kind words. I cover strategy in monthly Pulse articles, so look out for them. If your'e curious, just filter by label "Strategy" and you'll see past pulse articles.

      Delete
  3. Also, what tools for you use to stay on top of all your stocks?

    ReplyDelete
    Replies
    1. I use a variety of tools. Tracking is done mostly with Google Sheets, but I often use Excel's charting features if Google's fall short. Other resources I use are listed in the "Resources" panel on the right side of my blog, towards the bottom.

      Delete
  4. FerdiS, Regarding your comment on the surviving the next bear market...I started my dividend stock portfolio in 2004. My portfolio was badly wounded in the 2007 to 2009 meltdown, but it and I survived. You are doing all the right things, but a couple points I learned during that time:
    1)Vet your portfolio now and sell any weak companies. Avoid high dividend yields. They will be vulnerable in a downturn. This is where I had my biggest failure.
    2)Hold on and resist the temptation to sell your quality holdings as the market falls
    3)Have some cash ready to dollar cost average into new and existing high quality positions. This is where I made up ground, having the courage to buy when the blood was running think on Wall Street.
    Nice analysis, Tom

    ReplyDelete
    Replies
    1. Thanks, Tom, for sharing your insights. I have a few high dividend yield stocks, so I'll look at those carefully in a downturn. You don't want to own something that would suffer a dividend cut when the bears arrive! As for not selling, that would be the biggest test. But I'm resolved to look for quality and to dollar cost average existing high quality positions. Of course, you need cash to do so, and I don't have a lot of cash handy right now. My plan is to start building up cash reserves. Hopefully the bears would give me some time to do so!

      Thanks again, and happy investing!

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  5. Replies
    1. Thanks, Capturando! Really appreciate your support!

      Delete
  6. Congrats on a great quarter. Loved the post thanks for sharing :)

    ReplyDelete
    Replies
    1. Hi, Freezeman24 -- thanks for commenting and all the best!

      Delete
  7. Congrats on the 34.5% YoY dividend income growth for Q3! That's incredibly impressive!

    ReplyDelete
    Replies
    1. Thanks, Collecting Dividends! It is gratifying to see that kind of YoY dividend growth. That's just one benefit of adding new capital AND reinvesting dividend income every month. The proverbial snowball gets bigger faster!

      Delete

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