Wednesday, May 2, 2018

Quarterly Review, Q1-2018

This is the 21st quarterly review of DivGro, my portfolio of dividend growth stocks. I switched to dividend growth investing in January 2013 to generate a reliable and growing dividend income stream. DivGro now generates more than $4,000 of dividend income every quarter!

My quarterly reviews provide a summary of dividend income, dividend changes, and transactions executed in the past quarter. I also provide some graphs showing various portfolio statistics. While these reviews are mostly informational, they help me to track progress over time.

I have some challenging goals for 2018, including increasing projected annual dividend income to $18,500 and earning $18,000 in dividend income. I'm happy to report that I'm on track to achieve these goals.

Dividend Income


In Q4-2017, I reported dividend income totaling $4,026.

In Q1-2018, I collected dividend income totaling $4,578, up 13.7% from last quarter's total and up 27.7% from the dividends received in Q1-2017.

I received quarterly dividends from 45 different stocks this quarter:
  • Apple (AAPL) — income of $63.00
  • AbbVie (ABBV) — income of $142.00
  • Aflac (AFL) — income of $26.00
  • 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 $58.00
  • CVS Health (CVS) — income of $50.00
  • Dominion Energy (D) — income of $83.50
  • Walt Disney (DIS) — income of $168.00
  • Ford Motor (F) — income of $560.00
  • General Dynamics (GD) — income of $29.40
  • Gilead Sciences (GILD) — income of $114.00
  • Hannon Armstrong Sustainable Infrastructure Capital (HASI) — income of $66.00
  • Hormel Foods (HRL) — income of $18.75
  • International Business Machines (IBM) — income of $45.00
  • Intel (INTC) — income of $171.00
  • Johnson & Johnson (JNJ) — income of $45.36
  • Lockheed Martin (LMT) — income of $28.00
  • McDonald's (MCD) — income of $27.27
  • 3M (MMM) — income of $21.76
  • Altria (MO) — income of $49.50
  • Microsoft (MSFT) — income of $58.80
  • Nike (NKE) — income of $20.00
  • National Retail Properties (NNN) — income of $71.25
  • Northrop Grumman (NOC) — income of $17.60
  • Nvidia (NVDA) — income of $3.00
  • Omega Healthcare Investors (OHI) — income of $330.00
  • Procter & Gamble (PG) — income of $68.96
  • Qualcomm (QCOM— income of $228.00
  • Royal Dutch Shell (RDS.B) — income of $131.60
  • Raytheon (RTN) — income of $19.14
  • Starbucks (SBUX) — income of $30.00
  • Stanley Black & Decker (SWK) — income of $31.50
  • AT&T (T) — income of $84.50
  • T. Rowe Price (TROW) — income of $70.00
  • Texas Instruments (TXN) — income of $31.00
  • UnitedHealth (UNH) — income of $14.25
  • United Parcel Service (UPS) — income of $22.75
  • Valero Energy (VLO) — income of $144.00
  • Verizon Communications (VZ) — income of $59.00
  • Walgreens Boots Alliance (WBA) — income of $32.00
  • Walmart (WMT) — income of $39.78
  • Xcel Energy (XEL) — income of $18.00
  • Exxon Mobil (XOM) — income of $50.05
Absent from this list are holdings Eversource Energy (ES), Coca-Cola (KO),  and Travelers (TRV). KO paid two dividends in Q4-2017, whereas the payments from ES and TRV slipped into April.

I also invest in closed-end funds and exchange-traded funds to increase the diversity of DivGro's investments. Here are the distributions I received in Q1-2018:
  • AllianzGI Equity & Convertible Income Fund (NIE) — income of $209.00  $209.00
  • Schwab Strategic Trust (SCHD) — income of $26.15
  • Vanguard Real Estate ETF (VNQ) — income of $88.28
  • Vanguard High Dividend Yield ETF (VYM) — income of $91.26
NIE pushed its December payment into January, so I collected two quarterly payments in Q1-2018.

As for monthly dividends, I received the following payments this quarter:
  • Nuveen Floating Rate Income Fund (JFR) — income of $33.75  $33.75
  • Main Street Capital (MAIN) — income of $85.50  $85.50 • $85.50
  • Realty Income (O) — income of $10.63  $10.95  $16.43
JFR is a closed-end fund, MAIN is a business development company, and O is a real estate investment trust.

JFR doubled its dividend payment in December, so there was no payment in January.

The following chart shows DivGro's dividend income by quarter:


DivGro's average percentage payback is 13.9%, up from 11.3% at the end of Q4-2017. 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 $15,914 on investments totaling $354,259, for a projected annual yield of 4.49%.

This quarter, PADI increased to $18,083 while total investments increased to $358,670, so now the projected annual yield is 5.04%.

The following table shows the stocks in DivGro that announced dividend increases in Q1-2018. I'm including the new annual dividend and yield on cost (YoC).

Company
 Ticker
Increase Annual Div
 New YoC
Abbvie
ABBV
35.21%
6.23%
T. Rowe Price
TROW
22.81%
3.77%
3M
MMM
15.74%
 $5.44 
3.41%
Aflac
AFL
15.56%
4.15%
Valero Energy
VLO
14.29%
5.15%
Cisco Systems
CSCO
13.79%
4.17%
General Dynamics
GD
10.71%
5.50%
Intel
INTC
10.09%
4.28%
Northrop Grumman
10.00%
closed
United Parcel Service
UPS
9.64%
3.55%
Gilead Sciences
GILD
9.62%
2.84%
Raytheon
RTN
8.78%
3.23%
Qualcomm
QCOM
8.77%
4.10%
Dominion Energy
D
8.44%
4.58%
Eversource Energy
ES
6.32%
4.92%
Xcel Energy
XEL
5.56%
4.92%
Coca-Cola
KO
5.41%
3.78%
Realty Income
O
*3.29%
5.49%
Walmart
WMT
1.96%
2.90%
Omega Healthcare Investors
OHI
1.54%
7.71%
  *multiple increases in period

DivGro's average YoC is 4.16%, up from the 3.98% reported at the end of Q4-2017.

I like to see dividend increases above 7%. Given that 14 out of 20 increases topping 7%, I'm very happy with last quarter's dividend increases!

WMT's sub-2% increase is disappointing, especially since the stock's yield on cost is relatively low.

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 $4,411 in new capital, which included regular monthly deposits totaling $3,000 and passive income of $1,411. I call income received from Seeking Alpha publications and from blog advertising "passive" income, largely because the income is not guaranteed.

Additionally, I added $10,029 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 $30,292 to my DivGro account. Please see my latest options update for details.

I closed one position and reduced another in Q1-2018:
The CSCO transaction happened due to an assignment of short call options, whereas I decided to close my NOC position because the stock was significantly overvalued. 

I added shares to the following positions in Q1-2018:
  • Hannon Armstrong Sustainable Infrastructure Capital (HASI) — added 350 shares and increased position to 550 shares
  • Realty Income (O) — added 25 shares and increased position to 75 shares
  • AT&T (T) — added 31 shares and increased position to 200 shares
  • United Parcel Service (UPS) — added 10 shares and increased position to 35 shares
  • Walgreens Boots Alliance (WBA) — added 20 shares and increased position to 100 shares
HASI offers an attractive yield and invests in sustainable infrastructure projects. O pays monthly dividends and yields more than 5%. T plunged on earnings and now yields 6%, but the stock was ranked #4 in the March edition of my 10 Dividend Growth Stocks series.

Despite an 11% revenue increase in the holiday quarter, UPS's share price dropped on reports that Amazon (AMZN) is preparing its own air delivery service for businesses. I still like the stock, which yields 3.36% at current levels.

WBA has its own struggles, but the stock ranked #3 in my top 10 ranked dividend growth stocks for March. WBA yields 2.46% and offers a 5-year dividend growth rate of 9.2%.

Here is a list of the new positions I opened in Q1-2018:
  • Comcast (CMCSA) — new position of 150 shares
  • Quest Diagnostics (DGX) — new position of 25 shares
  • Royal Dutch Shell plc (RDS.B) — new position of 140 shares
  • Vanguard Financials ETF (VFH) — new position of 75 shares
  • Vanguard Real Estate ETF (VNQ) — new position of 125 shares
  • Xilinx (XLNX) — new position of 35 shares
CMCSA faces cord-cutting challenges, but I think those challenges are overstated. The stock yields more than 2.2% and has a 5-year dividend growth rate of about 15%.

DGX has a respectable balance sheet, a reasonable and growing dividend, and excellent long-term prospects.

According to the CEO of Royal Dutch Shell, the company comfortably can cover its cash dividend with crude oil at $50 a barrel. But crude is trading over $67 a barrel, so the company has great growth prospects. RDS.B yields 5.38%.

As part of a diversification effort, I've been adding closed-end funds and exchange-traded funds to DivGro. My latest acquisitions are VNQ and VFH, which focus on the Real Estate and Financials sectors, respectively. I decided to invest in these ETFs rather than to buy individual stocks in these sectors.

XLNX could be the next target of Broadcom (AVGO). But the company's ACAP (adaptive compute acceleration platform) could be a computing game-changer, which provides another reason for a speculative but longer-term investment.

DivGro now contains 62 different positions, including 56 stocks, two closed-end funds (CEF), and four exchange-traded funds (ETF).

Here is the distribution of DivGro's holdings by sector:


Market Value


At the end of Q1-2018, DivGro's market value of $523,570 represented a simple gain of 46% on $358,670 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 14.8%.


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.

INTC now is my largest position after the stock's stellar performance over the last eight months.

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, MAIN, and QCOM 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, JFR, and HASI. The arithmetic average of DivGro's yield is 3.28%.

I also like to chart the dividend growth rates of positions. 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.


Here, ABBV's year over year dividend increase dominates and I'm happy to see an arithmetic average of nearly 10%.

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 25%, while the arithmetic average payback percentage is 7.58%. However, on my portfolio spreadsheet, I calculate a weighted average payback percentage, which currently is 13.86%.

Goal For Q2-2018


I've taken the first steps to transfer stocks from our joint account at FolioInvesting to our trust account at Interactive Brokers. This has taken longer than I'd hoped because the transfer must be between similar account types. So first I had to create a trust account at FolioInvesting before I can complete the transfer. 

Since I trade options at Interactive Brokers, transferring the stocks from FolioInvesting would provide more opportunities for options trading.

I'm hoping to finally complete the transfer this quarter. 

Thanks for reading and take care, everybody! 

2 comments :

  1. I get that you strive for diversification, but some quick math with your 1.5 M portfolio, per previous article, shows you could be doing 22k quarterly dividends with all your money in CLM! Take a 1 year risk, and that's 88k before compoundind.

    ReplyDelete
    Replies
    1. My 1.5 M portfolio? I so wish my portfolio was worth 1.5 M -- alas, it is stands at "only" 534 K.

      If with CLM you mean "Cornerstone Strategic Value Fund, Inc. (CLM)", the fund has a forward yield of 2.6%. (0.237 x 12 = 2.84 annual dividend @ 10.91 per share = 2.6%).

      5.34 K x 2.6% = $13,884.

      I'd rather have my $18,560 in projected annual dividend income.

      BTW, I'm not sure how you get to 22k quarterly dividends with a 1.5 M portfolio.

      Delete

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