Annual Review, 2018

Welcome to the sixth annual review of DivGro, my portfolio of dividend growth stocks. I created DivGro in January 2013 to generate a reliable and growing dividend income stream.

In annual reviews, I look at DivGro's performance as measured by dividend income, dividend increases, annualized returns, and rate of return. I also look at some highlights of the past year and share my outlook for the coming year.

Keeping track of DivGro in a public forum has helped me to learn and grow as a dividend growth investor. Much of my learning has come from interacting with like-minded investors, so Thank You! to all my readers for your encouragement, questions, and comments. Please keep them coming!

Introduction

2018 kicked off with a spectacular January performance, but February handed us the first corrections of the year when the S&P 500 dropped about 10.6%. It took the index until August 24 to recover, and by the end of September, the S&P 500 had reached an all-time high of $2,940.91.

Source: Yahoo! Finance

Then October happened... and December! Over the 3-month period spanned by Q4-2018, the S&P 500 dropped 19.8%, technically avoiding the 20% threshold that would have introduced a bear market. But several sectors moved into bear market territory in December, and more than half of the S&P 500 stocks dropped at least 20% below their 52-week highs.

Source: Yahoo! Finance

In January, the markets have recovered some of December's losses, but we have a long way to go!

The outlook for 2019 seems cautious and market uncertainty remains high. The ongoing trade war with China, the federal government shutdown (now temporarily resolved), continued rate increases by the Federal Reserve, and worries about an approaching recession, all are factors that increase uncertainty and volatility.

In 2018, I reduced DivGro's risk profile by trimming or closing riskier positions and adding high-quality stocks with strong dividend safety ratings. With projected annual dividend income of more than $23,000, my portfolio has evolved into a proverbial dividend-generating machine.

Let's take a look at DivGro's performance in 2018.

Performance

Dividend Income

The main goal of DivGro is to generate a reliable and growing dividend income stream.

In 2018, DivGro generated dividends totaling $20,320, an increase of 23% over the 2017 total of $16,533. In 2017, I collected $14,826 in dividends and recognized an additional $1,707 of past dividend income.


Projected annual dividend income (PADI) increased by 46% to $23,157, meaning I can expect to earn monthly dividend income averaging at least $1,930 in perpetuity. (PADI one year ago was $15,885).

Of course, DivGro's PADI should increase over time because I invest in dividend growth stocks. Furthermore, I plan to reinvest dividends until retirement, so DivGro's PADI should continue to grow through dividend growth and through compounding.

Dividend Increases

In dividend growth investing, regular dividend increases are just as important as dividend income. I use selection criteria that favor stocks with a track record of paying higher dividends every year. In 2018, the following DivGro stocks paid or announced higher dividends:

1-Year Increase	Company	Ticker	%Increase	Annual Dividend	New YoC
Outsized (above 20%)	AbbVie Illinois Tool Works Texas Instruments T. Rowe Price Altria Boeing	ABBV ITW TXN TROW MO BA	50.70% ✓   28.21%       24.19%       22.81%       21.21% ✓   20.18%	$4.28 $4.00 $3.08 $2.80 $3.20 $8.22	6.95% 2.82% 3.38% 3.77% 6.48% 2.47%
Large (above 10% and up to 20%)	Starbucks UnitedHealth Visa Lowe's Apple 3M Aflac McDonald's Valero Energy Taiwan Semiconductor Manufacturing Cisco Systems Hormel Foods General Dynamics Vanguard High Dividend Yield ETF Intel Honeywell International	SBUX UNH V LOW AAPL MMM AFL MCD VLO TSM CSCO HRL GD VYM INTC HON	20.00%    20.00%    19.05%    17.07%    15.87%    15.74%    15.56%    14.85%    14.29%    13.88%    13.79%    12.00%    10.71%    10.33% ✓   10.09%    10.07%	$1.44 $3.60 $1.00 $1.92 $2.92 $5.44 $2.08 $4.64 $3.20 $1.04 $1.32 $0.84 $3.72 $2.48 $1.20 $3.28	2.57% 2.07% 0.70% 2.08% 2.80% 3.41% 4.15% 4.94% 5.15% 2.90% 4.17% 2.42% 5.50% 3.15% 4.28% 2.03%
Medium (above 5% and up to 10%)	Lockheed Martin Nike Northrop Grumman Walgreens Boots Alliance Amgen United Parcel Service Gilead Sciences Microsoft Raytheon Qualcomm Medtronic Dominion Energy Johnson & Johnson Travelers Companies WEC Energy Nvidia Exxon Mobil Eversource Energy Quest Diagnostics Pfizer Schwab Strategic Trust Cummins Xcel Energy National Retail Properties	LMT NKE NOC WBA AMGN UPS GILD MSFT RTN QCOM MDT D JNJ TRV WEC NVDA XOM ES DGX PFE SCHD CMI XEL NNN	10.00%    10.00%    10.00%    10.00%      9.85%      9.64%      9.62%      9.52%      8.78%      8.77%      8.70%      8.44%      7.14%      6.94%      6.79%      6.67%      6.49%      6.32%      6.00%      5.88%      5.81%      5.56%      5.56%      5.26%	$8.80 $0.88 $4.40 $1.76 $5.80 $3.64 $2.28 $1.84 $3.47 $2.48 $2.00 $3.34 $3.60 $3.08 $2.36 $0.64 $3.28 $2.02 $2.12 $1.44 $1.36 $4.56 $1.52 $2.00	4.87% closed closed 2.70% 3.04% 3.55% 2.84% 3.95% 3.23% 4.10% 2.32% 4.58% 3.31% 2.66% 3.63% closed 3.96% 4.92% 2.39% 3.95% 2.74% 3.85% 4.92% 5.06%
Small (above 2.5% and up to 5%)	Disney Stanley Black & Decker International Business Machines Realty Income Procter & Gamble Coca-Cola Xilinx Chubb Main Street Capital Verizon Communications	DIS SWK IBM O PG KO XLNX CB MAIN VZ	4.76%     4.76%     4.67%     4.00%✓     4.00%     3.29%     2.86%     2.82%     2.63%     2.60%	$1.76 $2.64 $6.28 $2.63 $2.87 $1.56 $1.44 $2.92 $2.34 $2.41	1.77% 2.08% 3.70% 5.49% 3.68% 3.78% 2.03% 2.52% 7.97% 5.13%
Tiny (2.5% and lower)	AT&T Walmart Omega Healthcare Investors	T WMT OHI	2.00%     1.96%     1.54%	$2.04 $2.08 $2.65	6.27% 2.90% 7.71%

✓multiple increases

The table includes the new yield on cost (YoC) for positions still in my portfolio.

The arithmetic average of the 59 increases is 10.68%, up from last year's 7.74% from 43 increases. 

I like to see dividend increases of 7% or higher. In the following chart, DivGro stocks with year over year increases of at least 7% are shown in shades of green. I'm happy to see that more than half of the stocks in my portfolio have year over increases of at least 7%!

Annualized Returns

In 2018, the S&P 500 lost 6.2%, the Dow lost 5.6%, and the Nasdaq lost 3.9%. That makes 2018 the worst annual performance for the three indexes since 2008.

Given this context, it is unsurprising that DivGro's year over year performance is a mixed bag with more losers than winners. Of the 42 dividend-paying stocks I owned throughout the year, 16 traded up and 26 traded down. Overall, these positions are down 6.7% on average.


I also own a few stocks that do not pay dividends, as well as two funds that do. Adding these positions improves DivGro's year over year performance to an average loss of 5.6%. Essentially, the performances of Netflix (NFLX) and Amazon.com (AMZN) made up the difference.

By the way, these returns do not include dividends.

Looking at annualized returns and including dividends, make for more pleasant-looking chart:

While stocks like Ford Motor (F) and CVS Health (CVS) have negative returns, overall these stocks have returned 13.7% on an annualized basis.

Microsoft (MSFT) (+43%), UnitedHealth (UNH) (+36%), and Aflac (AFL) (+32%) are the top performing DivGro stocks. All three are Home Run stocks, a designation I give to stocks in my portfolio that achieve total returns of 100%.

Rate of Return

DivGro's IRR (internal rate of return) provides the best measure of overall portfolio performance, as IRR takes into account the timing and size of deposits since inception. On 31 December 2018, DivGro's IRR was 13.5%, down from the 17.4% reported for 2017. 

Other Statistics

At the end of 2018, DivGro's average YoC was 3.8%, down slightly from 2017's average YoC of 4.0%. Over time, as stocks I own pay higher dividends, DivGro's average YoC should increase. My long-term goal is to achieve and maintain an average YoC of 12%.


DivGro's payback increased from 11.3% at the end of 2017 to 13.1% at the end of 2018. Payback is the proportion of capital returned as dividends. I consider it to be a reasonable measure of portfolio maturity.


AllianzGI Equity & Convertible Income Fund (NIE) tops the chart, mainly because of the fund's high yield (currently 7.63%).  The runner-up, Main Street Capital (MAIN), also has a high yield (currently 6.4%), and it is one of my longest-term holdings.

2018 Highlights

The 2018 stock market will be remembered more for its volatility than for its performance. But the S&P 500 reached an all-time high on 20 September and the Dow set a new record on 3 October, so it wasn't all that bad.

In 2018, DivGro's market value briefly topped $700,000 before promptly dropping again! Dividend income topped $20,000 and options income topped $22,000. This is the first year that options income exceeded dividend income! The extra income generated by trading options allows me to buy more dividend growth stocks, so boosting DivGro's dividend-generating capability.

In my annual reviews, I also like to share some personal highlights.

Last year, Pixar's Incredibles 2 smashed box office records with the biggest opening ever for an animated feature film. And I'm happy to say that both Incredibles 2 and the short film that played before it, Bao, were nominated for Academy Awards!

Other highlights are that our two youngest sons got engaged in 2018, so we'll be celebrating two weddings in 2019! We're hoping to have both sets of grandparents at both weddings, just like for my oldest son's wedding in 2017!

Page Views

DivGro's page views (pv's) reached the one million mark on 16 December 2017. Since then, I've added nearly 350,000 additional pv's.

16 December 2017  average since inception: 552 pv's

12 January 2019  average since inception: 612 pv's

Over the time range covered by the table above, I averaged about 888 pv's per day, or about 27,022 pv's per month in 2018. In comparison, 2017's average was about 30,842 pv's per month.

Popular Posts

In 2018, I wrote 155 articles, including 93 premium articles published at Seeking Alpha. Here are some of the most successful articles in 2018, based on pv's:

Top 2018 DivGro Articles:

   • 25 Oct: 10 Dividend Growth Stocks For October 2018 (906 pv's)

   • 13 Sep: Top-Ranked Dividend Growth Stocks By Sector (894 pv's)

   • 08 Oct: Quarterly Review: Q3-2018 (888 pv's)

All-Time Most Popular DivGro Articles:

   • 20 Jun'14: Tracking your DGI Portfolio (13,604 pv's)

   • 24 Feb'14: Popular Dividend Growth Stocks (4,492 pv's)

   • 22 Nov'17: Recent Sell: Pfizer (2,778 pv's)

Top 2018 Seeking Alpha Articles:

   • 08 Sep: 10 Dividend Growth Stocks For September 2018 (15,557 pv's)
   • 12 Sep: Top Dividend Growth Stocks By Sector (13,822 pv's)

   • 01 Sep: 7 Quality Dividend Growth Stocks I Don't (Yet) Own (12,933 pv's)

All-Time Most Popular Seeking Alpha Articles:

   • 19 Dec'16: Top Holdings Of Dividend ETFs (30,020 pv's)
   • 08 Sep'18: 10 Dividend Growth Stocks For September 2018 (15,557 pv's)

   • 08 Jan'17: Top Holdings Of Dividend Growth Bloggers, 2017 Edition (13,977 pv's)

2019 Outlook

I've set some challenging goals for 2019, including a very aggressive goal of collecting $21,000 in options income. Adding $25,200 in dividend income and $5,200 from publishing gives a total of $51,400 to put to work in DivGro in 2019.

A special word of thanks to all my readers, especially to those that comment regularly and continue to encourage me! This community is amazing and I really love being part of it!

Thanks for reading and all the best with your investing in 2019!