Thursday, October 4, 2018

Monthly Review: September 2018

Welcome to the September review of DivGro, my portfolio of dividend growth stocks. I present details of buys and sells, and I provide a summary of dividends collected. Additionally, I look at how the month's activities have impacted DivGro's projected annual dividend income (PADI).

In September, I opened five new positions and added shares to four existing positions. Additionally, I closed two positions. Seven DivGro stocks announced dividend increases in September.

The net result of all these changes is that PADI increased by about 1.2% in September. Year over year, PADI increased by 29.5%.

As for dividend income, September was another record-setting month! I received dividends totaling $2,713 from 33 stocks in my portfolio, for a year over year increase of 21%. So far in 2018, I've collected $14,660 in dividends or about 81% of my 2018 goal of $18,000.

DivGro's PADI of $21,574, means I can expect to receive $1,798 in dividend income per month, on average, in perpetuity, assuming the status quo is maintained. But DivGro's PADI should increase over time because I invest in dividend growth stocks. 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


I received dividends from 33 different stocks, for a monthly total of $2,713 in dividend income:
Following is a list of the dividends I collected in September:
  • Aflac (AFL)income of $26.00
  • Cummins (CMI)income of $50.16
  • Dominion Resources (D)income of $83.50
  • Eversource Energy (ES)income of $50.50
  • Ford Motor (F)income of $300.00
  • Gilead Sciences (GILD)income of $171.00
  • International Business Machines (IBM)income of $47.10
  • Intel (INTC)income of $156.00
  • Johnson & Johnson (JNJ)income of $111.60
  • Lockheed Martin (LMT)income of $28.00
  • Main Street Capital (MAIN)income of $85.50
  • McDonald's (MCD)income of $27.27
  • 3M (MMM)income of $34.00
  • Microsoft (MSFT)income of $42.00
  • NextEra Energy (NEE)income of $27.75
  • AllianzGI Equity & Convertible Income Fund (NIE)income of $209.00
  • NVIDIA (NVDA)income of $4.50
  • Realty Income (O)income of $55.00
  • Pfizer (PFE)income of $68.00
  • QUALCOMM (QCOM)income of $248.00
  • Royal Dutch Shell plc (RDS.B)income of $131.60
  • Ross Stores (ROST)income of $22.50
  • Stanley Black & Decker (SWK)income of $33.00
  • TJX (TJX)income of $39.00
  • T. Rowe Price (TROW)income of $70.00
  • Travelers Companies (TRV)income of $77.00
  • UnitedHealth (UNH)income of $36.00
  • United Parcel Service (UPS)income of $31.85
  • Valero Energy (VLO)income of $148.00
  • Vanguard Real Estate ETF (VNQ)income of $114.37
  • Walgreens Boots Alliance (WBA)income of $88.00
  • Wal-Mart Stores (WMT)income of $43.68
  • Exxon Mobil (XOM)income of $53.30
The chart below shows DivGro's monthly dividends plotted against PMDI. Clearly, 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 it would be great if dividends were distributed more evenly, I don't want to change my investment decisions based on the timing or frequency of dividend payments.

Dividend Changes


In September, the following stocks announced dividend increases:
  • Honeywell International (HON)increase of 10.07%
  • Lockheed Martin (LMT)increase of 10.00%
  • McDonald's (MCD)increase of 14.85%
  • Microsoft (MSFT)increase of 9.52%
  • Realty Income (O)increase of 0.23%
  • Texas Instruments (TXN)increase of 24.19%
  • Verizon Communications (VZ)increase of 2.12%
These changes, will increase DivGro's PADI by $90.

I like seeing dividend increases above 7%, so four of the seven increases top my expectations! The arithmetic average of this month's dividend increases is 10.1%, which easily beats inflation!

Transactions


Here is a summary of my transactions in September:
  • Home Depot (HD)new position of 12 shares
  • Honeywell International (HON)new position of 15 shares
  • Simon Property (SPG)new position of 40 shares
  • Union Pacific (UNP)new position of 16 shares
  • Visa (V)new position of 17 shares
  • Anheuser-Busch InBev SA/NV (BUD)sold 100 shares and closed position
  • Vanguard Real Estate ETF (VNQ)sold 100 shares and closed position
  • Cummins (CMI)added 6 shares and increased position to 50 shares
  • Gilead Sciences (GILD)added 100 shares and increased position to 300 shares
  • AT&T (T)added 100 shares and increased position to 500 shares
  • Texas Instruments (TXN)added 10 shares and increased position to 60 shares
These transactions increased DivGro's PADI by about $171.

HD ranked fourth in last month's top-ranked dividend growth stocks, and the stock featured in my list of 7 quality dividend growth stocks I don't yet own. Well, now I own the stock! Given that HD is trading at a slight premium to fair value, I opened a relatively small position (about 0.35% of portfolio value).

Two other stocks featured in the abovementioned list of 7 quality dividend growth stocks. Like HD, HON and UNP impressed with exceptional fundamentals and 10-year performances. Also like HD, both HON and UNP are trading at a slight premium to fair value, so I opened relatively small positions (0.35% and 0.37% of portfolio value, respectively).

Additionally, I opened a small position in V. The stock yields only 0.56%, but it boasts an impressive 5-year dividend growth rate of 23%. With a payout ratio below 20%, V has ample room to continue double-digit dividend increases for years to come! I'm particularly impressed with V's performance over the last ten years. With dividend included, V has returned about 26% on an annualized basis since October 2009.

To pay for these investments, I closed my somewhat larger position in BUD for a loss of about 14%. The stock's performance has been rather disappointing, so I'm happy to exchange it for the four high-quality dividend growth stocks mentioned above.

I've been looking to open a position in SPG for a while and the recent pullback provided an opportunity. In exchange, I closed my VNQ position for a small gain of 3%. SPG is a high-quality retail REIT with an A-rated balance sheet and great growth prospects.

Rounding out the trades for September, I added to four existing DivGro positions. Given that CMI, GILD, and T are trading below fair value, I reckoned it is a good time to increase my holdings. As for TXN, the stock pulled back a little and I wanted to add to my position before the stock takes off again.

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
Aug 31, 201825,964.822,901.528,109.542.853%12.86
Sep 30, 201826,458.312,913.988,046.353.056%12.12

In September, the DOW 30 gained 1.9%, the S&P 500 gained 0.4%, while the NASDAQ dropped 0.8%. The yield on the benchmark 10-year Treasury note rose to 3.056%, while CBOE's measure of market volatility, the VIX decreased by 5.8%.

Portfolio Statistics


Based on the total capital invested and the portfolio's current market value, DivGro has delivered a simple return of about 56% since inception. In comparison, DivGro's IRR (internal rate of return) is 17.5%. (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 3.82% last month to 3.79% this month.

Another interesting statistic is percentage payback, which relates dividend income to the amount of capital invested. DivGro's average percentage payback is 13.2%, up from last month's 12.7%.

Finally, projected annual yield is calculated by dividing PADI ($21,574) by the total amount invested. DivGro's projected annual yield is at 4.78%, up from last month's value of 4.74%.

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


I'm continuing to focus on strengthening DivGro's risk profile. I'm also reworking my ranking system and I'm looking forward to start using it in the upcoming months.

I'm looking forward to reporting DivGro's third quarter results. Q3-2018 was a record-breaking quarter!

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

Thanks for reading! Please subscribe to receive an e-mail whenever I post new articles.
Feel free to leave a comment on this article and I'll do my best to respond to each comment as soon as possible.

2 comments :

  1. With rising interest rates and inflation, have you thought about raising cash or investing in CD's, MMF's, or short duration bonds/ETF's? I'd love your feedback on what you are doing here.

    ReplyDelete
    Replies
    1. In my experience, none of the alternatives you mention offer anything that comes close to the inflation-beating power of dividend growth investing. My portfolio's projected annual yield is 4.78% and last quarter, dividend increases averaged 10%.

      See: https://divgro.blogspot.com/2018/10/quarterly-review-q3-2018.html

      Delete

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