Friday, November 9, 2018

Monthly Review of DivGro: October 2018

The stock market had a spooky month in October, with volatility as measured by the CBOE VIX increasing by about 75%, from 12 to 21. The DOW 30 dropped 5.1%, the S&P 500 dropped 6.9%, and the NASDAQ dropped 9.2%.

When stock prices fall like that, dividend growth investors get a chance to buy stocks at lower prices and higher yields. I took the opportunity to add several positions and simultaneously to improve my portfolio's risk profile.

In this article, I'll present details of these buys (and a few sells) and the resulting impact on DivGro's projected annual dividend income (PADI). Also, I'll present details of dividends received and dividend increases announced in October.


To summarize, DivGro's PADI increased by about 2.9% in October and by about 33% from October 2017. I received dividends totaling $1,120 from 17 different stocks, a year over year increase of 44%. So far in 2018, I've collected $15,780 in dividends or about 88% of my 2018 goal of $18,000.


DivGro's PADI of $22,197 means I can expect to receive $1,850 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'll continue to invest fresh capital in dividend growth stocks and I plan to reinvest all dividends received until retirement.

Dividend Income


In October, I received a total of $1,120 in dividend income from 17 different stocks:
Following is a list of the dividends I collected in October:
  • 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 $20.00
  • Hannon Armstrong Sustnbl Infrstr Cap (HASI)income of $82.50
  • Honeywell International (HON)income of $25.04
  • Illinois Tool Works (ITW)income of $25.00
  • Coca-Cola (KO)income of $78.00
  • Kite Realty Group Trust (KRG)income of $142.88
  • Main Street Capital (MAIN)income of $87.75
  • Medtronic plc (MDT)income of $25.00
  • Altria (MO)income of $140.00
  • Nike (NKE)income of $20.00
  • Realty Income (O)income of $55.12
  • Vanguard High Dividend Yield ETF (VYM)income of $67.18
  • Xcel Energy (XEL)income of $24.70
The following chart shows DivGro's monthly dividends plotted against PMDI. Quarter-ending months are huge outliers:
To smooth things out a bit, I 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 October, the following stocks announced dividend increases:
  • Visa (V)increase of 19.05%
  • Vanguard High Dividend Yield ETF (VYM)increase of 2.81%
As a result of these changes, DivGro's PADI will increase by $10.

I like seeing dividend increases above 7%, so Visa's increase certainly makes me happy! The arithmetic average of this month's dividend increases is 10.9%, which easily beats inflation.

Transactions


Here is a summary of new buy transactions in October:
  • Amgen (AMGN)new position of 15 shares
  • Boeing (BA)new position of 10 shares
  • Digital Realty Trust (DLR)new position of 45 shares
  • EPR Properties (EPR)new position of 50 shares
  • Extra Space Storage (EXR)new position of 55 shares
  • Federal Realty Investment Trust (FRT)new position of 40 shares
  • KB Home (KBH)new position of 300 shares
  • Public Storage (PSA)new position of 25 shares
  • Tanger Factory Outlet Centers (SKT)new position of 200 shares
  • WEC Energy (WEC)new position of 50 shares
I covered most of these buys in my latest Pulse article, so I won't rehash the details here.

The exception is KBH, the result of an early options assignment. I haven't had an assignment in a while, and this one hurts a bit! The stock tanked on concerns about declining building permits, trading just below $21 on 11 October when the $30 put options I'd got assigned. The bottom line is that I now have an unrealized loss of about $2,700 on this position. Compensating somewhat is the $1,493 I secured in options income on the trade.

This is by no means a disaster, as I believe KBH will recover in the long run. Meanwhile, I'll try to sell covered calls on these shares to start chipping away at that unrealized loss...

I added shares to the following positions:
  • Illinois Tool Works (ITW) — added 13 shares and increased position to 38 shares
  • Main Street Capital (MAIN) — added 100 shares and increased position to 550 shares
  • Taiwan Semiconductor Manufacturing (TSM) — added 100 shares and increased position to 200 shares
These stocks recently experienced some price declines, giving me an opportunity to add shares at better entry points. 

To further strengthen DivGro's risk profile, I closed the following positions deemed to have Very Unsafe dividends according to Simply Safe Dividends
  • Blackstone Mortgage Trust (BXMT)sold 300 shares and closed position
  • Hannon Armstrong Sustnbl Infrstr Cap (HASI)sold 250 shares and closed position
Furthermore, I reduced one position that has grown to a somewhat uncomfortable 4.3% of total portfolio value:
  • QUALCOMM (QCOM)sold 100 shares and reduced position to 300 shares
I don't want individual positions to get much larger than about 3% of total portfolio value.

These transactions increased DivGro's PADI by about $613.

Markets


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

DOW
30
S&P
500
NASDAQ
Composite
10-YR
BOND
CBOE
VIX
Sep 30, 201826,458.312,913.988,046.353.056%12.12
Oct 31, 201825,115.762,711.747,305.903.159%21.23

In October, the DOW 30 dropped 5.1%, the S&P 500 dropped 6.9%, and the NASDAQ dropped 9.2%. The yield on the benchmark 10-year Treasury note rose to 3.159%, while CBOE's measure of market volatility, the VIX, increased by 75.2%.

Portfolio Statistics


Based on the total capital invested and the portfolio's current market value, DivGro has delivered a simple return of about 47% since inception. In comparison, DivGro's IRR (internal rate of return) is 15.2%. (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 3.79% last month to 3.67% this month.

Another interesting statistic is percentage payback, which relates dividend income to the amount of capital invested. DivGro's average percentage payback is 12.9%, down from last month's 13.2%.

Finally, DivGro's projected annual yield is at 4.69%, down from last month's value of 4.78%. I calculate projected annual yield by dividing PADI ($22,197) by the total amount invested.

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

Looking Ahead


Given the increased volatility in the markets, I'll be looking for opportunities to add extra income through options trading. So far this year, I've collected just shy of $19,000 from options trades.

I'm happy with the progress I've made improving DivGro's risk profile. The majority of my positions have Very Safe or Safe dividend safety scores:

As always, please see my Performance page for various visuals summarizing DivGro's performance or visit my Portfolio page for full details of my holdings.

Thanks for reading and take care, everybody! 
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6 comments :

  1. how does one keep equal weight of individual stocks

    ReplyDelete
    Replies
    1. Well, you can't really maintain an equal weight unless you regularly rebalance your portfolio. I'm not interested in doing that, because the buying and selling to rebalance would make managing my portfolio hard.

      Delete
  2. Wow, you were really able to take advantage of the volitility last month and execute a lot of buys! I have been following you for a while, and I have always been impressed by all of the charts and spreadsheet screenshots that you have. Any plans on doing a tutorial as to how you developed it all?

    ReplyDelete
    Replies
    1. Thanks, yes -- the market provided some great opportunities to buy stocks at or below fair value! About the charts and spreadsheets, it is a good suggestion to consider a tutorial of some sorts. I'll see what I can conjure up. Right now, though, I'm quite busy trying to rework my ranking system, so the tutorial will have to wait!

      Delete
  3. Replies
    1. Thanks, Eric -- really appreciate your comment!

      Delete

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