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Tuesday, August 21, 2018

Monthly Review of DivGro: July 2018

Once a month, I review my portfolio of dividend growth stocks, DivGro. The goal of these reviews is to provide a summary of dividends received and to detail buy and sell transactions. I also consider the impact on DivGro's projected annual dividend income (PADI).

In July, I added shares to four existing positions. Additionally, I closed one position and reduced my holdings in one position. Five DivGro stocks announced dividend increases in July. The net result of these changes is that PADI increased by about 0.7% in July. Year over year, PADI increased by 40.2%.

As for dividend income, in July I received dividends totaling $1,231 from 18 stocks in my portfolio, a year over year increase of 68%. So far in 2018, I've collected $10,514 in dividends or about 58% of my 2018 goal of $18,000.

Assuming the status quo and given DivGro's PADI of $21,121, I can expect to receive $1,760 in dividend income per month, on average, in perpetuity. Of course, most of the stocks I own are dividend growers, so I expect my dividend income to increase over time! Furthermore, I plan to reinvest dividends until I retire, so DivGro's PADI should continue to grow through dividend growth and through compounding.

Dividend Income


In July, I received a total of $1,231 in dividend income from 18 different stocks:
Here is a list of the dividends I received in July:
  • Blackstone Mortgage Trust (BXMT)income of $186.00
  • Chubb (CB)income of $36.50
  • Comcast (CMCSA)income of $38.00
  • Cisco Systems (CSCO)income of $66.00
  • Quest Diagnostics (DGX)income of $12.50
  • Walt Disney Company (The) (DIS)income of $168.00
  • Hannon Armstrong Sustainable Infrastructure Capital (HASI)income of $115.50
  • Illinois Tool Works (ITW)income of $19.50
  • Nuveen Floating Rate Income Fund (JFR)income of $28.75
  • Coca-Cola Company (The) (KO)income of $78.00
  • Kite Realty Group Trust (KRG)income of $63.50
  • Main Street Capital (MAIN)income of $85.50
  • Medtronic plc (MDT)income of $12.50
  • Altria (MO)income of $122.50
  • Nike (NKE)income of $20.00
  • Realty Income (O)income of $22.00
  • Taiwan Semiconductor Manufacturing (TSM)income of $131.11
  • Xcel Energy (XEL)income of $24.70
Here is a chart showing DivGro's monthly dividends plotted against PMDI. It is clear that quarter-ending months are huge outliers:
This is one reason that I now create a rolling 12-month average of dividends received (the orange bars) plotted against a rolling 12-month average of PMDI (the blue, staggered line):
While I would prefer receiving more evenly distributed dividends, I wouldn't let that influence my investment decisions.

Dividend Changes


In July, the following stocks announced dividend increases:
  • Cummins (CMI)increase of 5.56%
  • National Retail Properties (NNN)increase of 5.26%
  • Provident Financial Services (PFS)increase of 5.00%
  • Stanley Black & Decker (SWK)increase of 4.76%
  • Taiwan Semiconductor Manufacturing (TSM)increase of 13.88%
These changes will increase DivGro's PADI by $53.

I like seeing dividend increases above 7%, so July's increases are a little disappointing. Only TSM's increase tops 7%. However, the arithmetic average of these increases is 6.9%, which is close enough to the 7% I prefer to see.

Transactions


Here is a summary of my transactions in July:
  • Schwab Strategic Trust (SCHD)sold 100 shares and closed position
  • 3M (MMM)added 9 shares and increased position to 25 shares
  • AT&T (T)added 120 shares and increased position to 400 shares
  • Valero Energy (VLO)added 5 shares and increased position to 185 shares
  • Microsoft (MSFT)sold 60 shares and reduced position to 80 shares
  • Microsoft (MSFT) — added 20 shares and increased position to 100 shares
These transactions increased DivGro's PADI by about $102.

In last month's Pulse article, the yield channel chart of MSFT clearly showed that the stock is trading at an overvalued yield based on historical yield patterns. I decided to sell only a portion of my shares and ride the upward trend in the stock price as long as it lasts. The two trades above consolidate the remaining shares in a single portfolio so I can sell a covered call.

I decided to close my SCHD position for a gain of 5.6%, including dividends. I'm disappointed with SCHD's performance and the yield is nothing to get excited about. In fact, moving the capital to a stock like T should boost DivGro's yield significantly! And that's exactly what I did!

I added 120 shares and so increased my position in T to 400 shares. With a yield of about 6%, this buy adds $240 to DivGro's PADI. Compare that to SCHD's contribution of $136, and swopping SCHD for T makes a lot of sense.

The SCHD-for-T swop was not a straight one, however. I netted $1,290 in cash, which afforded the opportunity to increase two more positions. I added 9 shares to MMM and 5 shares to VLO. My position in MMM remains quite small, and I'll be adding more shares over time.

Markets


I no longer compare DivGro's performance to those of the markets, but it is worth looking at the markets to understand the environment we're investing in:

DOW
30
S&P
500
NASDAQ
Composite
10-YR
BOND
CBOE
VIX
Jun 30, 201824,271.412,718.377,510.302.849%16.09
Jul 31, 201825,415.192,816.297,671.792.964%12.83

In July, the DOW 30 gained 4.7%, the S&P 500 gained 3.6%, and the NASDAQ gained 2.2%. The yield on the benchmark 10-year Treasury note rose to 2.964%, while CBOE's measure of market volatility, the VIX decreased by 20.3%.

Portfolio Statistics


Based on the total capital invested and the portfolio's current market value, DivGro has delivered a simple return of about 55% since inception. In comparison, DivGro's IRR (internal rate of return) is 18.2%. (IRR takes into account the timing and size of deposits since inception, so it is a better measure of portfolio performance).

I track the yield on cost (YoC) for individual stocks, as well as an average YoC for my portfolio. DivGro's average YoC decreased from 3.85% last month to 3.80% this month.

Another interesting statistic is percentage payback, which relates dividend income to the amount of capital invested. DivGro's average percentage payback is 12.4%, up from last month's 12.2%.

Finally, projected annual yield is calculated by dividing PADI ($21,121) by the total amount invested. DivGro's projected annual yield is at 4.71%, up from last month's value of 4.69%.

Here's a chart showing DivGro's market value breakdown. Dividends are plotted at the base of the chart so we can see them grow over time:


Looking Ahead


In the next few months, I'll be focusing on strengthening DivGro's risk profile. I'll be using various tools to identify riskier stocks and either trim or close those positions.

Please see my Performance page for various visuals summarizing DivGro's performance.

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