Quarterly Review of DivGro, Q3-2017

This is the 19^th 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	(LMT)	9.89%	$8.00	4.42%
Stanley Black & Decker	(SWK)	8.62%	$2.52	1.98%
Altria Group	(MO)	8.20%	$2.64	7.48%
Microsoft	(MSFT)	7.69%	$1.68	5.59%
McDonald's	(MCD)	7.45%	$4.04	4.30%
Walgreens Boots Alliance	(WBA)	6.67%	$1.60	2.40%
Cummins	(CMI)	5.37%	$4.32	3.76%
Main Street Capital	(MAIN)	2.70%	$2.28	7.76%
Verizon Communications	(VZ)	2.16%	$2.36	5.02%
Omega Healthcare Investors	(OHI)	1.59%	$2.56	7.11%
Realty Income	(O)	0.24%	$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!