Quarterly Review of DivGro: Q4-2018

Welcome to the 24^th quarterly review of DivGro, my portfolio of dividend growth stocks.

I started DivGro in 2013 to focus on dividend growth investing, growing the portfolio into a powerful dividend-generating machine. DivGro now generates dividend income averaging $1,930 per month.

My quarterly reviews summarize the transactions executed in the past quarter and provide a summary of dividend income and dividend changes. Additionally, I include charts showing various portfolio statistics. The reviews are mostly informational and help me to track progress over time.

I collected dividend income of $5,486 this quarter and $20,320 in 2018, easily exceeding my goal of collecting $18,000 in 2018. DivGro's all-time dividend income now totals $65,445.

Dividend Income

In Q4-2018, I collected dividend income totaling $5,486, up 2% from the dividends received in Q3-2018 and up 36% from the dividends received in Q4-2017.

I received quarterly dividends from 64 different stocks and funds:

• Apple (AAPL) — income of $73.00
• AbbVie (ABBV) — income of $192.00
• Aflac (AFL) — income of $26.00
• Amgen (AMGN) — income of $19.80
• Boeing (BA) — income of $17.10
• Blackstone Mortgage Trust (BXMT) — income of $186.00
• Chubb (CB) — income of $36.50
• Comcast (CMCSA) — income of $38.00
• Cummins (CMI) — income of $57.00
• Cisco Systems (CSCO) — income of $66.00
• CVS Health (CVS) — income of $50.00
• Dominion Energy (D) — income of $83.50
• Quest Diagnostics (DGX) — income of $20.00
• Ford Motor (F) — income of $300.00
• General Dynamics (GD) — income of $32.55
• Gilead Sciences (GILD) — income of $171.00
• Hannon Armstrong Sustainable Infrastructure Capital (HASI) — income of $82.50
• Home Depot (HD) — income of $20.60
• Honeywell International (HON) — income of $96.44
• Hormel Foods (HRL) — income of $18.75
• International Business Machines (IBM) — income of $47.10
• Intel (INTC) — income of $156.00
• Illinois Tool Works (ITW) — income of $25.00
• Johnson & Johnson (JNJ) — income of $111.60
• KB Home (KBH) — income of $7.50
• Coca-Cola (KO) — income of $156.00
• Kite Realty Group Trust (KRG) — income of $142.88
• Lockheed Martin (LMT) — income of $30.80
• Lowe's (LOW) — income of $48.00
• McDonald's (MCD) — income of $31.32
• Medtronic (MDT) — income of $25.00
• 3M (MMM) — income of $34.00
• Altria (MO) — income of $140.00
• Microsoft (MSFT) — income of $46.00
• NextEra Energy (NEE) — income of $27.75
• Nike (NKE) — income of $20.00
• National Retail Properties (NNN) — income of $81.00
• Nvidia (NVDA) — income of $4.80
• Omega Healthcare Investors (OHI) — income of $330.00
• Pfizer (PFE) — income of $68.00
• Procter & Gamble (PG) — income of $143.44
• Public Storage (PSA) — income of $60.00
• Qualcomm (QCOM) — income of $186.00
• Ross Stores (ROST) — income of $22.50
• Raytheon (RTN) — income of $20.82
• Starbucks (SBUX) — income of $72.00
• Tanger Factory Outlet Centers (SKT) — income of $70.00
• Simon Property (SPG) — income of $80.00
• Stanley Black & Decker (SWK) — income of $33.00
• AT&T (T) — income of $250.00
• TJX (TJX) — income of $39.00
• T Rowe Price (TROW) — income of $70.00
• Texas Instruments (TXN) — income of $46.20
• 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 $141.06
• Verizon Communications (VZ) — income of $60.25
• Walgreens Boots Alliance (WBA) — income of $88.00
• Xcel Energy (XEL) — income of $24.70
• Xilinx (XLNX) — income of $18.00
• Exxon Mobil (XOM) — income of $53.30

Additionally, 3 different stocks and funds paid me monthly dividends:

• EPR Properties (EPR) — income of $36.00
• Main Street Capital (MAIN) — income of $453.50
• Realty Income (O) — income of $165.37

The following chart shows DivGro's dividend income by quarter:

Dividend Changes

Last quarter, I reported projected annual dividend income (PADI) of $21,574 on investments totaling $451,371, for a projected annual yield of 4.78%. This quarter, PADI increased to $23,157 while total investments increased to $499,825, so now the projected annual yield is 4.63%.

The following table shows the stocks that announced dividend increases in Q4-2018. I'm including the new annual dividend and yield on cost (YoC).

Company	Ticker	Increase	Annual Div	New YoC
Boeing	BA	20.18%	$8.22	2.47%
Visa	V	19.05%	$1.00	0.70%
Hormel Foods	HRL	12.00%	$0.84	2.42%
AbbVie	ABBV	11.46%	$4.28	6.95%
Nike	NKE	10.00%	$0.88	✝
Amgen	AMGN	9.85%	$5.80	3.04%
WEC Energy	WEC	6.79%	$2.36	3.63%
NVidia	NVDA	6.67%	$0.64	✝
Vanguard High Dividend Yield ETF	VYM	6.66%	$2.65	3.35%
Quest Diagnostics	DGX	6.00%	$2.12	2.39%
Pfizer	PFE	5.88%	$1.44	3.95%
Disney	DIS	4.76%	$1.76	1.77%
AT&T	T	2.00%	$2.04	6.27%
Realty Income	O	0.23%	$2.65	4.85%

                                  ✝ closed positions

DivGro's average YoC is 3.77%, down from the 3.79% reported at the end of Q3-2018.

I'd like to see dividend increases above 7%. Six dividend increases in the table topped 7% and the arithmetic average of all the increases in Q4-2018 is 8.68%.

Some stocks announce dividend increases more than once per year, so it is better to look at year over year increases. Here is a chart of the 1-year dividend growth rates of stocks in DivGro, as of 31 December 2018:


At 12.58%, the (arithmetic) average year over year dividend growth rate is well above 7%, which makes me a very happy dividend growth investor!

Note that Kite Realty Group (KRG) is paying the same dividend as it did last year. I invested in KRG for its high yield of 8.12% at $15.65 per share, and not so much for its ability (or not) to increase dividends.

Generally, I would expect stocks with smaller dividend growth rates to offer higher yields.

Scanning from the left, Omega Healthcare Investors (OHI) yields 7.24%, Walmart (WMT) yields 2.86%, Verizon (VZ) yields 5.13%, AT&T (T) yields 6.27%, Tanger Factory Outlet Centers (SKT) yields 6.52%, Federal Realty Investment Trust (FRT) yields 3.28%, and Main Street Capital (MAIN) yields 7.14%.

The clear outliers are WMT and FRT:

Source: Simply Safe Dividends

While WMT and FRT have great track records of dividend payments and increases, perhaps it is time to find replacements!

Transactions

This quarter I added new capital totaling $48,455 to DivGro, including regular monthly deposits of $2,000, passive income of $1,455, and bonus deposits of $45,000. I call income received from Seeking Alpha publications and from blog advertising "passive" income, largely because the income is not guaranteed.

Additionally, I added $6,508 from options trades. While I have obligations when selling covered calls or secured puts, the options income becomes available as soon as the trades are executed. So, I can immediately put that cash to use. Since starting with options trading, I've added options income totaling $42,793 to my DivGro account.

New Positions:

• Amgen (AMGN) — new position of 25 shares
• Air Products and Chemicals (APD) — new position of 16 shares
• Broadcom (AVGO) — new position of 20 shares
• Boeing (BA) — new position of 20 shares
• Blackrock (BLK) — new position of 25 shares
• Chevron (CVX) — new position of 24 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
• International Paper (IP) — new position of 100 shares
• Iron Mountain (IRM) — new position of 150 shares
• JPMorgan Chase (JPM) — new position of 200 shares
• Public Storage (PSA) — new position of 30 shares
• Tanger Factory Outlet Centers (SKT) — new position of 200 shares
• WEC Energy (WEC) — new position of 50 shares
• Williams-Sonoma (WSM) — new position of 100 shares

Expanded Positions

• 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 18 shares and increased position to 30 shares
• Honeywell International (HON) — added 24 shares and increased position to 39 shares
• Illinois Tool Works (ITW) — added 13 shares and increased position to 38 shares
• Kite Realty Group Trust (KRG) — added 150 shares and increased position to 600 shares
• Main Street Capital (MAIN) — added 300 shares and increased position to 750 shares
• Altria (MO) — added 25 shares and increased position to 200 shares
• Public Storage (PSA) — added 5 shares and increased position to 30 shares
• Taiwan Semiconductor Manufacturing (TSM) — added 100 shares and increased position to 200 shares
• Texas Instruments (TXN) — added 15 shares and increased position to 75 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

Trimmed 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
• Omega Healthcare Investors (OHI) — sold 250 shares and reduced position to 250 shares
• Qualcomm (QCOM) — sold 200 shares and reduced position to 100 shares
• Williams-Sonoma (WSM) — sold 100 shares and reduced position to 100 shares

Closed Positions

• Blackstone Mortgage Trust (BXMT) — sold 300 shares and closed position
• Hannon Armstrong Sustnbl Infrstr Cap (HASI) — sold 250 shares and closed position
• KB Home (KBH) —  bought, and later sold 300 shares and closed position
• Nike (NKE) — sold 100 shares and closed position
• Nvidia (NVDA) — sold 30 shares and closed position

I covered these transactions in monthly reviews and other articles on my blog, so I won't rehash details here.

In Q4-2018, I worked hard at strengthening DivGro's risk profile, identifying riskier positions to trim or close and adding high-quality, lower risk stocks with stronger fundamentals. Riskier stocks tend to offer higher yields and reducing overall risk necessarily impacted PADI. To compensate, I added and deployed more capital in the fourth quarter than normal.

Some transactions I executed are for tax-loss harvesting, a strategy to offset capital gains by realizing some offsetting losses. In most cases, I'm hoping to reinstate these positions in time to earn the next dividend payments. The positions I'm hoping to reinstate are listed above in Trimmed Positions.

The closed positions are riskier or low-yielding positions that I'm no longer interested in owning.

To assess risk, I utilize Dividend Safety Scores provided by Simply Safe Dividends (SSD). In my view, SSD is one of the premier resources for dividend growth investors. The dividend safety scores are based on several factors, including payout ratio, debt levels, payment history, earnings trends, recession performance, and size and scope of operations.

Here is a chart showing the latest dividend safety scores of my portfolio:


From left to right, the colors represent Unsafe, Borderline Safe, Safe, and Very Safe dividend safety scores. (I no longer have Very Unsafe positions). DivGro's average safety score is 82.9, which is deemed Very Safe by SSD.

DivGro now contains 84 different positions. Of these, 72 are dividend growth stocks, six are dividend-paying stocks, and two are funds, one CEF (closed-end fund) and one ETF (exchange-traded fund). I also own four stocks that do not pay dividends.

Here is the distribution of DivGro's positions by sectors and funds:

Market Value

At the end of Q4-2018, DivGro's market value of $692,542 represented a simple gain of 38.6% on $499,825 invested. Of course, this does not take into account the timing and size of cash deposits. DivGro's internal rate of return since inception is 12.7%.

Portfolio Statistics

In quarterly reviews, I consider general portfolio statistics.

First, let's consider the weight of individual holdings in DivGro. I prefer to see equal weights, but this is difficult to achieve because I sell covered call options and to do so I need 100 shares (or multiples of 100 shares). Quite naturally, therefore, my portfolio will not be ideally weighted.


MAIN is my largest position at about 3.86% of portfolio value, followed by Disney (DIS) at about 3.23%. I don't like having positions much larger than about 3.5% of portfolio value, so MAIN probably should be trimmed a bit. On the other hand, I do like that yield and those end-of-quarter special dividends!

Next, let's look at the contribution of each position to DivGro's PADI, which depends not only on the stock's yield but also on the size of the investment. Here, MAIN dominates with more than 8.5%:


Single positions above 6% make me a bit nervous, though MAIN's dividend is relatively safe. Simply Safe Dividends give MAIN a dividend safety score of 69, which, although on the low side, is considered Safe. I'll monitor MAIN carefully and trim the position should conditions change.


KRG is the top yielding position in DivGro, followed by OHI, IBM, and T. The average yield of my portfolio is 3.40%, while DivGro's yield on cost averages 3.77%.

Finally, let's look at the payback percentage, or how much of my original investment I've received back in the form of dividends. Generally, stocks I've owned for a long time will have larger paybacks, but dividend yield also plays a role: payback will grow faster for stocks with larger yields.

Goals For 2019

In 2019, I'm aiming to increase DivGro's PADI to $27,000 and to collect $25,200 in dividend income. These are stretching goals and represent increases of 17% and 24%, respectively.

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