Sunday, July 22, 2018

Quarterly Review, Q2 2018

Welcome to the 22nd quarterly review of DivGro, my portfolio of dividend growth stocks.

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

Now in its sixth year of existence, my portfolio generated more than $4,600 of dividend income this quarter and I'm projecting dividend income of at least $5,200 per quarter going forward.

Year-to-date I've collected dividend income of $9,250, so it looks like I'll easily achieve my goal of earning at least $18,000 in in 2018. In fact, I'll probably end up collecting about $20,000 this year!

Dividend Income


In Q2-2018, I collected dividend income totaling $4,672, up 2.1% from the dividends received in Q1-2018 and up 41% from the dividends received in Q2-2017.

I received quarterly dividends from 53 different stocks this quarter:
  • Apple (AAPL) — income of $73.00
  • AbbVie (ABBV) — income of $192.00
  • Aflac (AFL) — income of $26.00
  • Blackstone Mortgage Trust (BXMT) — income of $186.00
  • Chubb (CB) — income of $17.04
  • Comcast (CMCSA) — income of $28.50
  • Cisco Systems (CSCO) — income of $66.00
  • CVS Health (CVS) — income of $50.00
  • Dominion Resources (D) — income of $83.50
  • Quest Diagnostics (DGX) — income of $6.25
  • Eversource Energy (ES) — income of $30.30  $30.30
  • Ford Motor (F) — income of $300.00
  • General Dynamics (GD) — income of $32.55
  • Gilead Sciences (GILD) — income of $114.00
  • Hannon Armstrong Sustainable Infrastructure Capital (HASI) — income of $181.50
  • Hormel Foods (HRL) — income of $18.75
  • International Business Machines (IBM) — income of $47.10
  • Intel (INTC) — income of $171.00
  • Johnson & Johnson (JNJ) — income of $90.00
  • Coca-Cola (KO) — income of $78.00
  • Lockheed Martin (LMT) — income of $28.00
  • Lowe's Companies (LOW) — income of $41.00
  • McDonald's (MCD) — income of $27.27
  • 3M (MMM) — income of $21.76
  • Altria (MO) — income of $52.50
  • Microsoft (MSFT) — income of $25.20
  • Nike (NKE) — income of $20.00
  • National Retail Properties (NNN) — income of $71.25
  • NVIDIA (NVDA) — income of $4.50
  • Omega Healthcare Investors (OHI) — income of $330.00
  • Procter & Gamble Company (The) (PG) — income of $71.72
  • QUALCOMM (QCOM) — income of $248.00
  • Royal Dutch Shell plc (RDS.B) — income of $131.60
  • Raytheon (RTN) — income of $20.82
  • Starbucks (SBUX) — income of $30.00
  • Stanley Black & Decker (SWK) — income of $31.50
  • AT&T (T) — income of $100.00
  • T. Rowe Price (TROW) — income of $70.00
  • Travelers Companies (TRV) — income of $20.88 • $77.00
  • Texas Instruments (TXN) — income of $31.00
  • UnitedHealth (UNH) — income of $17.10
  • United Parcel Service (UPS) — income of $31.85
  • Valero Energy (VLO) — income of $144.00
  • Verizon Communications (VZ) — income of $59.00
    • Walgreens Boots Alliance (WBA) — income of $40.00
    • Wal-Mart Stores (WMT) — income of $40.56 • $22.88
    • Xcel Energy (XEL) — income of $19.00
    • Xilinx (XLNX) — income of $12.60
    • Exxon Mobil (XOM) — income of $53.30
    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 Q2-2018:
    • AllianzGI Equity & Convertible Income Fund (NIE) — income of $209.00
    • Schwab Strategic Trust (SCHD) — income of $40.56
    • Vanguard Real Estate ETF (VNQ) — income of $73.18
    • Vanguard High Dividend Yield ETF (VYM) — income of $63.02
    As for monthly dividends and distributions, I received the following payments this quarter:
    • Nuveen Floating Rate Income Fund (JFR) — income of $31.00 • $31.00 • $31.00
    • Main Street Capital (MAIN) — income of $85.50 • $85.50 • $209.25
    • Realty Income (O) — income of $16.46  $16.46  $16.46
    JFR is a closed-end fund, MAIN is a business development company, and O is a real estate investment trust.
    The following chart shows DivGro's dividend income by quarter:
    DivGro's average percentage payback is 12.2%, down from 13.9% at the end of Q1-2018. 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 $18,201 on investments totaling $358,670, for a projected annual yield of 5.07%. This quarter, PADI increased to $20,967 while total investments increased to $446,977, so now the projected annual yield is 4.69%.

    The following table shows the stocks that announced dividend increases in Q2-2018. I'm including the new annual dividend and yield on cost (YoC).

    Company
     Ticker
    Increase Annual Div
     New YoC
    Starbucks
    20.00%
    $1.44
    2.57%
    UnitedHealth
    20.00%
    $3.60
    2.07%
    Lowe's
    17.07%
     $1.92 
    2.08%
    Apple
    15.87%
    $2.92
    2.80%
    Walgreens Boots Alliance
    10.00%
    $1.76
    2.70%
    Medtronic
    8.70%
    $2.00
    2.32%
    Johnson & Johnson
    7.14%
    $3.60
    3.31%
    Travelers Companies
    6.94%
    $3.08
    2.66%
    Exxon Mobil
    6.49%
    $3.28
    3.96%
    Altria
    6.06%
    $2.80
    5.67%
    Schwab Strategic Trust
    5.81%
    $1.36
    2.74%
    International Business Machines
    4.67%
    $6.28
    3.70%
    Procter & Gamble
    4.00%
    $2.87
    3.68%
    Xilinx
    2.86%
    $1.44
    2.03%
    Chubb
    2.82%
    $2.92
    2.52%
    Vanguard High Dividend Yield ETF
    1.40%
    $2.48
    3.15%
    Realty Income
    0.23%
    $2.64
    5.35%

    DivGro's average YoC is 3.85%, down from the 3.98% reported at the end of Q1-2018.

    Some stocks announce dividend increases multiple times per year, so it is more appropriate to look at their year over year increases. For example, SBUX announced dividend increases twice in the past year, for a year over year increase of 44.11%. Similarly, WBA, MO, and O have year over year increases of 17.24%, 14.74%, and 4.06% respectively.

    I'd like to see dividend increases above 7%. Seven dividend increases in the table topped 7%, while MO's year over year increase also topped 7%.

    The dividend increases of CB and XLNX are particularly disappointing.

    Here is a chart of the 1-year dividend growth rates of stocks in DivGro, as of 30 June 2018:


    About half of my DivGro stocks have 1-year dividend growth rates exceeding 7% and the arithmetic average is well above 7%!

    Transactions


    This quarter I deposited $88,307 in new capital, including bonus deposits of $84,000, regular monthly deposits of $3,000, and passive income of $1,307. I call income received from Seeking Alpha publications and from blog advertising "passive" income, largely because the income is not guaranteed.

    Additionally, I added $2,378 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 $32,670 to my DivGro account.

    New Positions:
    • Anheuser-Busch InBev (BUD) — new position of 100 shares
    • Illinois Tool Works (ITW) — new position of 25 shares
    • Kite Realty Group (KRG) — new position of 200 shares
    • Lowe's Companies (LOW) — new position of 100 shares
    • Medtronic plc (MDT) — new position of 25 shares
    • NextEra Energy (NEE) — new position of 25 shares
    • Pfizer (PFE) — new position of 200 shares
    • Provident Financial Services (PFS) — new position of 100 shares
    • Ross Stores (ROST) — new position of 100 shares
    • TJX (TJX) — new position of 100 shares
    I bought BUD due to an options assignment. According to Dividend.com, BUD has paid higher dividends for seven consecutive years and has an impressive 5-year dividend growth rate of about 21%.

    ITW and ROST made my top 10 list in June, while ROST also appeared in a list of high-quality dividend growth stocks with consistent earnings growth. Both stocks have solid 5-year dividend growth rates: ITW's is 13% and ROST's is 18%.

    KRG is a REIT that invests in retail properties, parking garages, and dining and entertainment properties in the United States. KRG yields 7.41% at $16.88 per share.

    LOW has made repeat appearances in my top 10 lists since December 2017 and finally traded below my fair value estimate of in April. The stock now yields 2.00% at $101.39.

    To increase my exposure to the Health Care sector, I opened new positions in MDT and PFE. I previously owned PFE and I'm happy to return to the stock. MDT yields 2.26% at $88.42 and PFE yields 3.66% at $37.36.

    Both NEE and PFS have exhibited consistent earnings growth over the last decade. NEE yields 2.72% at $163.00 and has a 5-year DGR of 10%, while PFS yields 2.85% at $28.29 and has a 5-year DGR of 9%.

    Finally, TJX was ranked #4 in May's top 10 list. The stock's F.A.S.T. Graphs chart is one of the most impressive I've ever seen! The stock boasts an impressive 5-year DGR of 22%.

    Expanded Positions:
    • Chubb (CB) — added 26 shares and increased position to 50 shares
    • Comcast (CMCSA) — added 50 shares and increased position to 200 shares
    • Eversource Energy (ES) — added 40 shares and increased position to 100 shares
    • Johnson & Johnson (JNJ) — added 70 shares and increased position to 124 shares
    • Altria (MO) — added 100 shares and increased position to 175 shares
    • National Retail Properties (NNN) — added 12 shares and increased position to 162 shares
    • NVIDIA (NVDA) — added 10 shares and increased position to 30 shares
    • Realty Income (O) — added 25 shares and increased position to 100 shares
    • Procter & Gamble (PG) — added 100 shares and increased position to 200 shares
    • Starbucks (SBUX) — added 100 shares and increased position to 200 shares
    • AT&T (T) — added 80 shares and increased position to 280 shares
    • Travelers (TRV) — added 71 shares and increased position to 100 shares
    • UnitedHealth (UNH) — added 21 shares and increased position to 40 shares
    • Walgreens Boots Alliance (WBA) — added 100 shares and increased position to 200 shares
    • Walmart (WMT) — added 6 shares and increased position to 84 shares
    • Xcel Energy (XEL) — added 15 shares and increased position to 65 shares
    I added shares to 16 different positions in Q2-2018.

    CB and JNJ were both trading at about fair value. JNJ is one of only two AAA-rated stocks, while CB was one of my smaller holdings before this buy.

    After opening a position in CMCSA in March at $33.60 per share, the stock price declined to below $31, so I took the opportunity to lower my average cost basis.

    I decided to increase my holdings in two Utilities sector stocks, ES and XEL. Both stocks have A-rated S&P 500 Credit Ratings and were trading near their 52-week lows. ES now yields 3.46% at $59.16 per share, while XEL yields 3.24% at $45.91 per share.

    JNJ is one of only two stocks with an AAA-rated S&P 500 Credit Rating. When JNJ trades near fair value, I take the opportunity to add shares! The stock now yields 2.86% at $125.94 per share.

    I added 100 shares to my existing position in MO due to an options assignment. My cost basis is $59.29 per share, but MO has continued to decline and now trades at $56.94 per share.

    I've added shares to two REITs in my portfolio, NNN and O. NNN owns property that it leases to retail tenants under long-term net leases. O invests in commercial real estate markets in the US. Both stocks yield more than 4%.

    NVDA yields only 0.24% but I like the stock's growth prospects. NVDA has increased 50% in the past year about 3,500% since the company started paying dividends.

    PG and WBA have paid higher dividends for 62 and 42 consecutive years, respectively. I decided to double my holdings in each of these stocks. PG now yields 3.62%, while WBA yields 2.78%.

    SBUX's stock price took a beating in recent times, but I believe the stock remains a good long-term investment. At $51.34, the stock yields 2.89% and its 5-year dividend growth rate is quite impressive at 24%.

    T trades at a discount to my fair value estimate. The stock price has not done much since March 2012, but the stock now yields 6.13% at $31.27 per share.

    Insurer TRV now yields 2.43% at $125.18 per share. The stock has an A-rated S&P 500 Credit Rating and a 5-year dividend growth rate just below 10%.

    UNH is a solid performer and one of DivGro's home run stocks, a designation I give to any position in my portfolio that crosses the 100% mark in total returns.

    Finally, I added a few shares to increase my WMT position to 84 shares. The stock is down significantly since hitting an all-time high price of $109.98 in January 2018. It now yields 2.26% at $82.65 per share.

    Closed Positions:



  • Nuveen Floating Rate Income Fund (JFR) — sold 500 shares and closed position
  • Vanguard Financials ETF (VFH) — sold 88 shares and closed position


  • I'm disappointed with JFR's performance since opening a position in May 2018. With so many buys this quarter, I decided to close my JFR position for a 5% loss to fund some of the buys.

    As for VFH, I considered this position a placeholder until I identified an individual Financials sector stock to invest in. With my buy of PFS, I closed my VFH position at a small loss of 2%.

    Trimmed Positions:
    • Hannon Armstrong Sustainable Infrastructure Capital (HASI) — sold 200 shares and reduced position to 350 shares
    • Intel (INTC) — sold 50 shares and reduced position to 520 shares
    • Vanguard REIT Index Fund (VNQ) — sold 25 shares and reduced position to 100 shares
    • Vanguard High Dividend Yield ETF (VYM) — sold 50 shares and reduced position to 100 shares
    While I still like HASI, the sustainable infrastructure REIT seems to be entering a consolidation phase with a likely dividend freeze. I wanted to reduce my exposure some, so I sold 200 shares at a loss of about 12%.

    I trimmed my INTC position to buy shares of NVDA. In the past year, INTC's stock price has increased by about 50%. INTC now yields 2.18% compared to my yield on cost of 4.32%.

    I decided to trim two of my ETF positions, VNQ and VYM. These ETFs yield about 4.52% and 2.85%, respectively. I'll continue to trim these positions if I find suitable opportunities to own high-quality individual dividend growth stocks. 

    DivGro now contains 72 different positions, including 68 stocks, one closed-end fund (CEF), and three exchange-traded funds (ETF).

    Here is the distribution of DivGro's dividend growth stocks by sector:


    Currently, I don't own any stocks in the Materials sector.

    I own 5 stocks that do not pay dividends:
    I call these stocks my future dividend growth stocks!

    Market Value


    At the end of Q2-2018, DivGro's market value of $637,674 represented a simple gain of 42.7% on $446,977 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 15.2%.


    Portfolio Statistics


    I monitor DivGro's performance in regular 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 remains my largest position at about 4.05% of portfolio value.

    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, KRG, and HASI. The average yield of my dividend growth stocks is 3.31%.

    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 percentage for MAIN is above 30%. Soon, more than a third of my original investment in MAIN will have been returned in the form of dividends!

    Goal For Q3-2018


    I've finally completed the transfer of stocks from a trust account at FolioInvesting to a trust account at Interactive Brokers. I trade options at Interactive Brokers, so having consolidated my dividend growth stocks in a single account will provide more opportunities for options trading!

    In the third quarter, I'd like to focus on strengthening DivGro's risk profile. I'll be using various tools to identify riskier stocks and either trim or close those positions.

    Thanks for reading! Please let me know what you think of this review in the comments below!

    3 comments :

    1. Wow DivGro.. your progress is astonishing! I LOVE all the effort you put in all of those charts. Real cool information not a lot of bloggers share!
      Keep it up!

      DI

      ReplyDelete
      Replies
      1. Hi DutchIndependence -- thanks for your kind words. I hope that readers will find value in these updates. Certainly, it helps me in managing my portfolio. Take care and happy investing!

        Delete

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