Tuesday, January 8, 2019

Monthly Review of DivGro: December 2018

Welcome to this final monthly review of 2018 of my portfolio, DivGro! I write monthly reviews is to share updates to my portfolio and to provide a summary of dividends collected. I also look at how DivGro's projected annual dividend income (PADI) has changed.

December was a busy trading month for me, as I looked to take advantage of discounted prices on high-quality dividend growth stocks. I opened six new positions and added shares to twelve existing positions. Additionally, I closed three positions and reduced my holdings in five positions.

Along with eight DivGro stocks announcing dividend increases in December, the net result is that DivGro's PADI increased by about 3.0% in December. Year over year, PADI increased by 45.8%.

As for dividend income, December was another record-setting month! I received dividends totaling $2,730 from 41 stocks in my portfolio, a year over year increase of 21%. In 2018, I've collected $20,320 in dividends or about 113% of my 2018 goal of $18,000.



DivGro's PADI of $23,157, means I can expect to receive $1,930 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 41 different stocks, for a record-setting monthly total of $2,730 in dividend income:
Here is a listing of the dividends received in December:
  • Aflac (AFL)income of $26.00
  • Amgen (AMGN)income of $19.80
  • Boeing (BA)income of $17.10
  • Cummins (CMI)income of $57.00
  • Dominion Energy (D)income of $83.50
  • EPR Properties (EPR)income of $18.00
  • Eversource Energy (ES)income of $50.50
  • Extra Space Storage (EXR)income of $47.30
  • Ford Motor (F)income of $300.00
  • Gilead Sciences (GILD)income of $171.00
  • Home Depot (HD)income of $20.60
  • Honeywell International (HON)income of $16.40
  • International Business Machines (IBM)income of $47.10
  • Intel (INTC)income of $156.00
  • Johnson & Johnson (JNJ)income of $111.60
  • Coca-Cola (KO)income of $78.00
  • Lockheed Martin (LMT)income of $30.80
  • Main Street Capital (MAIN)income of $258.50
  • McDonald's (MCD)income of $31.32
  • 3M (MMM)income of $34.00
  • Microsoft (MSFT)income of $46.00
  • NextEra Energy (NEE)income of $27.75
  • Nvidia (NVDA)income of $4.80
  • Realty Income (O)income of $55.12
  • Pfizer (PFE)income of $68.00
  • Public Storage (PSA)income of $60.00
  • Qualcomm (QCOM)income of $186.00
  • 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 (TRV)income of $77.00
  • UnitedHealth (UNH)income of $36.00
  • Union Pacific (UNP)income of $12.80
  • United Parcel Service (UPS)income of $31.85
  • Visa (V)income of $4.25
  • Valero Energy (VLO)income of $148.00
  • Vanguard High Dividend Yield ETF (VYM)income of $73.88
  • Walgreens Boots Alliance (WBA)income of $88.00
  • Xilinx (XLNX)income of $18.00
  • 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):

Dividend Changes


In December, the following stocks announced dividend increases:
  • Amgen (AMGN)increase of 9.85%
  • Boeing (BA)increase of 20.18%
  • Quest Diagnostics (DGX)increase of 6.00%
  • Realty Income (O)increase of 0.23%
  • Pfizer (PFE)increase of 5.88%
  • AT&T (T)increase of 2.00%
  • Vanguard High Dividend Yield ETF (VYM)increase of 6.66%
  • WEC Energy (WEC)increase of 6.79%
These changes, will increase DivGro's PADI by $88.

I like seeing dividend increases above 7%, and only two of the eight increases top my expectations. However, the arithmetic average of this month's dividend increases is 7.2%, which is quite satisfactory and certainly inflation-beating!

Transactions


The markets tumbled in December, providing lots of opportunities to buy high-quality dividend growth stocks at discounted prices. Furthermore, I usually look for opportunities to do some tax-loss harvesting. So, December was a busy month for me, trading-wise.

New Positions
  • Air Products and Chemicals (APD)new position of 16 shares
  • Broadcom (AVGO)new position of 20 shares
  • Blackrock (BLK)new position of 25 shares
  • Chevron (CVX)new position of 24 shares
  • International Paper (IP)new position of 100 shares
  • JPMorgan Chase (JPM)new position of 100 shares
APD produces atmospheric gases, process gases, and specialty gases, as well as the equipment for the production and processing of gases. The stock is one of the top 10 Material sector stocks I covered in November's edition of my 10 Dividend Growth Stocks article series. A Dividend Champion with 36 consecutive years of dividend increases, APD yields 2.80% at $157 and has annualized dividend growth rate of 9% over the last five years. According to Simply Safe Dividends, APD's dividend is considered Very Safe with a dividend safety score of 95.

Based in San Jose, California, AVGO designs, develops, and supplies a range of semiconductor devices for use in a variety of applications. AVGO is a Dividend Challenger with 8 consecutive years of dividend increases. The stock yields 4.49% at $236 per share and has an annualized dividend growth rate of 55% over the last five years. According to Simply Safe Dividends, AVGO's dividend is considered Very Safe with a dividend safety score of 87.

BLK is an investment management company that provides a range of investment and risk management services to institutional and retail clients across the world. A Dividend Challenger with 9 consecutive years of dividend increases, the stock yields 3.15% at $397 per share and has an annualized dividend growth rate of 12% over the last five years. According to Simply Safe Dividends, BLK's dividend is considered Very Safe with a dividend safety score of 97.

I've been looking to increase DivGro's exposure to Energy stocks, so I'm revisiting CVX, the first stock I ever purchased for DivGro. CVX is a multinational energy corporation involved in all aspects of the oil and gas industries. A Dividend Champion with 32 consecutive years of dividend increases, the stock yields 3.96% at $113 per share and has an annualized dividend growth rate of 3% over the last five years. CVX's dividend is considered Very Safe by Simply Safe Dividends a dividend safety score of 86.

The second Materials sector stock I added to DivGro recently is IP, a packaging and paper company operating primarily in North America, Europe, Latin America, North Africa, India, and Russia. IP is a Dividend Challenger with 8 consecutive years of dividend increases. The stock yields 4.65% at $43 per share and has an annualized dividend growth rate of 11% over the last five years. According to Simply Safe Dividends, IP's dividend is considered Safe with a dividend safety score 68.

JPM is one of the top 50 dividend growth stocks held in Dividend ETFs. With assets of about $2.6 trillion, the company provides investment banking and financial services to many prominent corporate, institutional, and government clients around the world. JPM is a Dividend Challenger with 8 consecutive years of dividend increases. The stock yields 3.20% at $100 per share and has an annualized dividend growth rate of 14% over the last five years. According to Simply Safe Dividends, JPM's dividend is considered Safe with a dividend safety score of 75.

Increased Positions
  • Amgen (AMGN) — added 10 shares and increased position to 25 shares
  • Boeing (BA) — added 10 shares and increased position to 20 shares
  • Quest Diagnostics (DGX) — added 160 shares and increased position to 200 shares
  • General Dynamics (GD) — added 15 shares and increased position to 50 shares
  • Home Depot (HD) — added 10 shares and increased position to 30 shares
  • Honeywell International (HON) — added 19 shares and increased position to 39 shares
  • JPMorgan Chase (JPM) — added 100 shares and increased position to 200 shares
  • Kite Realty Group Trust (KRG) — added 150 shares and increased position to 600 shares
  • Main Street Capital (MAIN) — added 200 shares and increased position to 750 shares
  • Altria (MO) — added 25 shares and increased position to 200 shares
  • Union Pacific (UNP) — added 24 shares and increased position to 40 shares
  • Exxon Mobil (XOM) — added 35 shares and increased position to 100 shares
December was a torrid month for the stock market. With the major indices dropping nearly10%, I looked to take advantage of discounted prices on high-quality dividend growth stocks. I increased my holdings in twelve positions, in most cases lowering my average cost basis.

Adding 10 shares to AMGN lowered my average cost basis to $190.81. AMGN currently yields 2.89% at $201 per share and has a dividend safety score of 88 (Very Safe).

Doubling my BA holding lowered my average cost basis to $332.80. BA yields 2.41% at $341 per share and has a Very Safe dividend safety score of 97.

I significantly increased my DGX position, lowering my average cost basis to $88.76. The stock yields 2.52% at $84 per share. According to Simply Safe Dividends, DGX has a Very Safe dividend score of 82.

I've waited for a long time to increase my GD position, and now that the stock has dropped about 30% from its 52-week high, it is trading at a discount to fair value. Adding 15 shares increased my average cost basis to $93.60. GD yields 2.34% at $159 per share. Its dividend safety score is 97 (Very Safe)

The timing of my HD trades has been poor, so adding 10 more shares lowers my average cost basis to $185.86 per share. HD yields 2.31% at $178 per share. HD's dividend is Very Safe (93) according to Simply Safe Dividends.

As with HD, my timing with HON has been poor. Adding more shares lowers my average cost basis to $145.07. HON is trading even lower at $135 per share, so the yield is a respectable 2.43%. The dividend is Very Safe (98).

I doubled my JPM position less than a month after opening it, so lowering my average cost basis to $100.54. The stock yields $3.18 at $100.57 and has a dividend safety score of 75, which is deemed Safe

KRG is a riskier buy with an Unsafe dividend safety score of 27. However, the stock yields 8.47% at $15 per share, so I'm willing to accept the risk. The buy lowers my average cost basis to $15.93. 

MAIN is one of my longest holdings. The stock yields 6.5% at $36, though it pays a special dividend every quarter that boosts the yield even higher. MAIN's dividend is rated Safe by Simply Safe Dividends with a dividend safety score of 69. My average cost basis is $31.56.

MO is trading down about 32% from its 52-week high, and now yields 6.53% at $49 per share. In comparison, my average cost basis is $49.82. MO's dividend is Safe with a dividend safety score of 65. 

Adding to my UNP position lowered my cost basis to $142.23, which was opportune as UNP now trades at about $151 per share, yielding 2.12%. UNP's dividend is Very Safe (90) according to Simply Safe Dividends. 

Finally, XOM currently yields 4.56% at $72 per share. Adding shares lowered my cost basis to $78.22, some 8.6% above the current share price. XOM's dividend is considered Very Safe (86) by Simply Safe Dividends.

Closed Positions
  • KB Home (KBH)sold 300 shares and closed position
  • Nike (NKE)sold 100 shares and closed position
  • Nvidia (NVDA)sold 30 shares and closed position
My position in KBH resulted from an options assignment, which handed me an unrealized loss of about $1,207. Originally, I thought I would just hang on and sell covered calls to chip away at the unrealized loss. However, I decided to close the position to offset capital gains.

NKE's current yield is 1.14% at $77 per share, which is nothing to get too excited about. I decided to close my position and capture 37% in total returns (16% annualized). Even though NKE is down about 10% from its 52-week high $86.04 per share, the stock is still trading well above fair value.

Buying NVDA (multiple times) seemed to be a good idea, and if I had my finger on the pulse like this author, I would have dumped my shares much earlier. Alas, I didn't! After NVDA made an all-time high of $292.76 in October, the stock fell more than 56%! NVDA yields only 0.46% at $140 per share, so I decided to close the position at offset capital gains.

Reduced Positions
  • Ford Motor (F)sold 1,900 shares and reduced position to 100 shares
  • Gilead Sciences (GILD)sold 200 shares and reduced position to 100 shares
  • International Business Machines (IBM)sold 20 shares and reduced position to 10 shares
  • Qualcomm (QCOM)sold 200 shares and reduced position to 100 shares
  • Williams-Sonoma (WSM)sold 100 shares and reduced position to 100 shares
In year's past, I've sold stocks in late November and into December to offset capital gains, so limiting my tax liability. With at least $15,000 in capital gains in 2018, I decided to realize some offsetting losses by trimming several losing positions. I'm planning to reinstate these positions in time to earn the next dividend payments.

I first invested in F in 2014, but not as part of my DivGro portfolio. Rather, I transferred the position to DivGro as part of a consolidation process initiated in 2016. Over time, I added to my position, arguing that F is a great stock for options trading. Unfortunately, the stock has performed poorly and I'm taking the opportunity to do a reset.

I transferred GILD to DivGro from a portfolio of growth-oriented stocks after deciding to focus on dividend growth investment exclusively. GILD faces several challenges, but I'm hopeful that the new leadership will help to change things around.

I first invested in IBM in 2014, citing the company's ability to generate free cash flow and its impressive foundation of intellectual property. Unfortunately, IBM has been struggling for years, and its latest earnings report again showed declining revenue.

I first bought shares of QCOM in April 2015, adding to and trimming my position several times since. Before selling 200 shares my average cost basis was $62.94, which means my position was down about 8%. I'm hoping to reinstate my position at a lower cost basis before the next ex-dividend date.

I acquired my position in WSM due to an options assignment after the stock slumped following disappointing Q3 earnings. Closing part of my position will allow me to reinstate it at a lower cost basis, which I'm planning to do before the next ex-dividend date.

The net result of all these transactions is that DivGro's PADI increased by about $585.

Markets


Here is a summary of various market indicators, showing the changes from the end of November to the end of December:

DOW
30
S&P
500
NASDAQ
Composite
10-YR
BOND
CBOE
VIX
Nov 30, 201825,538.462,760.177,330.543.013%18.07
Dec 31, 201823,327.462,506.856,635.282.686%25.42

In December, the DOW 30 dropped 8.7%, the S&P 500 dropped 9.2%, and the NASDAQ dropped 9.5%. The yield on the benchmark 10-year Treasury note fell to 2.686%, while CBOE's measure of market volatility, the VIX, increased by 40.7%.

Portfolio Statistics


Given DivGro's current market value and the total capital invested, the portfolio has returned about 43% since inception. But calculating the IRR (internal rate of return) gives a better measure of portfolio performance, as IRR takes into account the timing and size of deposits since inception. DivGro's IRR is 13.5%.

I track the yield on cost (YoC) for individual stocks, as well as an average YoC for my portfolio. DivGro's average YoC increased from 3.64% last month to 3.77% this month.

Another interesting statistic is percentage payback, which relates dividend income to the amount of capital invested. DivGro's average percentage payback is 13.5%, up from last month's 13.0%.

Finally, projected annual yield is calculated by dividing PADI ($23,157) by the total amount invested. DivGro's projected annual yield is at 4.63%, down from last month's value of 4.64%.

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


According to most analysts, as of August 22, 2018, the current bull market has been the longest since World War 2. I'm working on the assumption that the bears will soon take over, though we could see some continued upside for many months to come. ("Soon" for me means in a year or so).

In fact, some strategists say that 2019 could be a very good year for stocks if the market's biggest concerns were to be resolved. These are the trade wars (particularly with China) and the Federal Reserve's rate hikes and shrinking of its balance sheet. But volatility is expected to remain high.

So I'm looking forward to navigating DivGro through this volatile period and continuing to generate a reliable and growing dividend income stream.

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

Thanks for reading and take care, everybody!

8 comments :

  1. Wow, it won't be long at all and you will crack the 2k a month on average. In fact, this year you will absolutely smash it. Now is the time where you really see your money doing some serious work for you. Keep up the great work mate. Cheers

    ReplyDelete
    Replies
    1. Hi, Buy, Hold Long! Good to hear from you again. I'm hoping to hit the $2k mark sometime this year, for sure! If I achieve my 2017 goal, I'll end at $2,250 -- which would be really nice! Hard work ahead, though!

      Take care and happy investing!

      Delete
  2. Hi Ferdis, congrats to your achievements! Both your total dividends and growth rate for last year are insane. I love reading your very detailed reports and reasoning. You really take your time doing these very carefully.

    Interesting to read, you've sold NVDA because I've opened a small position in December. My reasoning is, that they provide an opportunity for participating on the oncoming autonomous driving/deep learning trend and pay a (small) dividend. I'm in my thirties and I'll hope to see some growth to the dividend after maybe two decades.
    Are there any other reasoning for your sell other than the minimal yield and recent price action?

    All the best in 2019!

    ReplyDelete
    Replies
    1. Hi, DiviRider -- thank you for your kind words. I enjoy writing about and sharing my results. Doing so helps me to clarify my thoughts and also helps me to identify possible actions to take. I'm happy that readers find these reports useful, too.

      If I were 10 years younger, I would have *added* to my NVDA position rather than close it out. But I need to start moving my portfolio more towards one that generates income and safely does so. Having too many (very) low-yielding stocks in my portfolio is not something I can accommodate anymore. So I decided to close out NVDA (and also NIKE) for that reason.

      I still own V and ROST that yield less than 1%, and 9 more stocks yielding less than 2%. These are stocks with strong growth prospects and strong DGRs -- and I'll probably hang on as long as these stocks continue to increase their dividends at double-digit percentage increases.

      NVDA sold off because the cryptocurrency bubble burst. It will take some time to recover, but I think NVDA eventually will. The stock price was inflated because of lofty expectations, and those expectations now have been "truthed-up" a bit. And the P/E ratio is more realistic now, for sure. So I think your buy is a good long-term investment.

      Delete
  3. If your income growth continues like this, you can finance your own motion picture very soon :)

    ReplyDelete
    Replies
    1. If only, Torsten, if only! Thanks for your comment and I'm looking forward to seeing what you come up with next! I really enjoy your analyses!

      Delete
  4. Great job this month! Especially during all the turbulence that happened in December.

    ReplyDelete
    Replies
    1. Thanks, Eric Swanson -- yes, December was tricky and I'm happy to have "survived" the volatility!

      Delete

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