Wednesday, January 10, 2018

Quarterly Review of DivGro, Q4-2017

Welcome to the 20th quarterly review of DivGro, my portfolio of dividend growth stocks. This month I'm celebrating the fifth anniversary of DivGro!

I have some challenging goals for 2018, including increasing projected annual dividend income to $18,500, earning $18,000 in dividend income, and securing $12,000 in options income.

Before we focus on the future, though, let's look at what happened with DivGro in Q4-2017.

Dividend Income

In Q4-2017, I collected dividend income totaling $4,026, up 3.2% from the dividends received in Q3-2017 and up 39.1% from the dividend received in Q4-2016.

I received quarterly dividends from 49 different stocks this quarter:
  • Apple (AAPL) — income of $63.00
  • AbbVie (ABBV) — income of $128.00
  • Aflac (AFL) — income of $22.50
  • Blackstone Mortgage Trust (BXMT) — income of $186.00
  • Chubb (CB) — income of $17.04
  • Cummins (CMI) — income of $47.52
  • Cisco Systems (CSCO) — income of $145.00
  • CVS Health (CVS) — income of $25.00
  • Dominion Energy (D) — income of $77.00
  • 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 $155.33
  • Johnson & Johnson (JNJ) — income of $45.36
  • Coca-Cola (KO) — income of $74.00 • $74.00
  • Lockheed Martin (LMT) — income of $28.00
  • McDonald's (MCD) — income of $27.27
  • 3M (MMM) — income of $18.80
  • Altria (MO) — income of $49.50
  • Microsoft (MSFT) — income of $58.80
  • 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 $3.00
  • Omega Healthcare Investors (OHI) — income of $260.00
  • Procter & Gamble (PG) — income of $68.96
  • Qualcomm (QCOM) — income of $228.00
  • Raytheon (RTN) — income of $19.14
  • Starbucks (SBUX) — income of $30.00
  • Schwab US Dividend Equity ETF (SCHD) — income of $34.48
  • 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
  • Travelers Companies (TRV) — income of $20.88
  • Texas Instruments (TXN) — income of $31.00
  • UnitedHealth (UNH) — income of $14.25
  • United Parcel Service (UPS) — income of $20.75
  • Valero Energy (VLO) — income of $126.00
  • Vanguard High Dividend Yield ETF (VYM) — income of $96.46
  • Verizon Communications (VZ) — income of $59.00
  • Walgreens Boots Alliance (WBA) — income of $32.00
  • 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 • $67.50
  • Main Street Capital (MAIN) — income of $85.50 • $85.50 • $209.25 
  • Realty Income (O) — income of $10.60 • $10.60 • $10.60
The following chart shows DivGro's dividend income by quarter:
DivGro's average percentage payback is 11.3%, up from 9.6% at the end of Q3-2017. 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 $16,658 on investments totaling $350,008, for a projected annual yield of 4.76%. This quarter, PADI decreased to $15,914 while total investments increased to $354,259, so now the projected annual yield is 4.49%.

The following table shows the stocks in DivGro that announced dividend increases in Q4-2017. I'm including the new annual dividend and yield on cost (YoC).

Increase Annual Div
 New YoC
Hormel Foods
Walt Disney
Dominion Energy
Omega Healthcare Investors
Realty Income

DivGro's average YoC is 3.98%, up from the 3.9% reported at the end of Q3-2017.

I'd like to see dividend increases above 7%. Five of the nine increases topped 7%.

Some stocks announce dividend increases multiple times per year, so it's better to assess their increases by looking at year over year increases. In the case of D, OHI, and O, the year over year increases are 10.00%, 6.56%, and 4.95%, respectively.

So, the outlier is T with a disappointing increase of 2.04%.

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.


This quarter I deposited $4,251 in new capital, which included regular monthly deposits totaling $3,000 and passive income of $1,251. I call income received from Seeking Alpha publications and from blog advertising "passive" income, largely because the income is not guaranteed.

Additionally, I added $1,490 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 $20,264 to my DivGro account. Please see my latest options update for details.

I closed three positions in Q4-2017:

Company Ticker Date Transaction
Pfizer(PFE)8 Novsold 300 shares for $34.00 per share
General Electric(GE)30 Novsold 300 shares for $18.39 per share
Target(TGT)30 Novsold 300 shares for $60.88 per share

I closed my Pfizer (PFE) position due to an options assignment. I made a net gain of 17.5% on the original amount invested, which is a gain of 9.27% annualized. Closing my PFE position reduced DivGro's PADI by $384.

I closed my GE and TGT positions to harvest tax losses. Doing so allowed me to offset $6,468 in 2017 capital gains, but the trades cost me $888 in projected annual dividend income. I'm hoping to reopen a position in TGT sometime soon.

Following is a summary of buys in Q4-2017. New positions are highlighted:

CVS Health(CVS)27 Novadded 50 shares at $70.62 per share
Omega Healthcare Investors(OHI)27 Novadded 100 shares at $27.07 per share
Schwab US Dividend Equity ETF(SCHD)27 Novbought 100 shares at $49.41 per share

After closing my PFE position and anticipating some tax-harvesting sells, I wanted to boost DivGro's projected annual dividend income a bit. So, I added shares to my existing CVS and OHI positions.

Following my analysis of 32 Dividend ETFs, I opened a position in the Schwab US Dividend Equity ETF (SCHD) to increase DivGro's overall diversification. I like SCHD's yield, ratings, very low expense ratio, and recent performance.

DivGro now contains 57 different positions, including 53 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 Q4-2017, DivGro's market value of $533,136 represented a simple gain of 50.5% on $354,259 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 17.4%.

Portfolio Statistics

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

First, let's consider the weight of individual holdings in DivGro. I prefer to see equal weights, but this is 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, OHI, F, and MAIN dominate:
Next, let's look at the yield of stocks in my portfolio:
OHI is the top yielding position in DivGro, followed by BXMT, NIE, and JFR. DivGro's average yield is 2.94%.

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 nearly half of my DivGro stocks with a 1-year dividend growth rate exceeding 7%. The arithmetic average also is above 7%!

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 well above 20%. The arithmetic average payback percentage is 7.62%. However, on my portfolio spreadsheet, I calculate a weighted average payback percentage, which currently is 11.27%.

Goal For Q1-2018

This quarter I'd like to 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! 

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