Quarterly Review of DivGro: Q1-2019

Welcome to another quarterly review of DivGro, my portfolio of dividend growth stocks.

My quarterly reviews provide a summary of dividend income, dividend changes, and transactions executed in the past quarter. I also provide some charts showing various portfolio statistics. While these reviews are mostly informational, they help me to track progress over time.

This quarter, DivGro generated about $6,724 in dividend income and I'm projecting dividend income of at least $6,580 per quarter going forward. The year-to-date dividend income total represents about 27% of my 2019 goal of $25,200. DivGro's all-time dividend income total is $72,170.

Dividend Income

In Q1-2019, I collected dividend income totaling $6,724, up 19% from the dividends received in Q4-2018 and up 47% from the dividends received in Q1-2018.

74 different stocks and funds paid me quarterly dividends:

• Apple (AAPL) — income of $73.00
• AbbVie (ABBV) — income of $214.00
• Aflac (AFL) — income of $27.00
• Amgen (AMGN) — income of $36.25
• Air Products and Chemicals (APD) — income of $17.60
• Broadcom (AVGO) — income of $53.00
• Boeing (BA) — income of $41.10
• BlackRock (BLK) — income of $115.50
• 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
• Chevron (CVX) — income of $28.56
• Dominion Energy (D) — income of $91.75
• Quest Diagnostics (DGX) — income of $106.00
• Digital Realty Trust (DLR) — income of $94.05
• Eversource Energy (ES) — income of $53.50
• Extra Space Storage (EXR) — income of $47.30
• Ford Motor (F) — income of $300.00
• Federal Realty Investment Trust (FRT) — income of $40.80
• General Dynamics (GD) — income of $46.50
• Gilead Sciences (GILD) — income of $126.00
• Home Depot (HD) — income of $81.60
• Honeywell International (HON) — income of $41.00
• Hormel Foods (HRL) — income of $21.00
• International Business Machines (IBM) — income of $47.10
• Intel (INTC) — income of $163.81
• International Paper (IP) — income of $50.00
• Iron Mountain (IRM) — income of $91.65
• Illinois Tool Works (ITW) — income of $38.00
• Johnson & Johnson (JNJ) — income of $111.60
• JPMorgan Chase (JPM) — income of $160.00
• Kite Realty Group (KRG) — income of $190.50
• 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 $36.00
• Altria (MO) — income of $160.00
• Microsoft (MSFT) — income of $46.00
• NextEra Energy (NEE) — income of $31.25
• AllianzGI Equity & Convertible Income Fund (NIE) — income of $589.00
• Nike (NKE) — income of $22.00
• National Retail Properties (NNN) — income of $81.00
• Omega Healthcare Investors (OHI) — income of $165.00
• PepsiCo (PEP) — income of $18.55
• Pfizer (PFE) — income of $72.00
• Procter & Gamble (PG) — income of $143.44
• Public Storage (PSA) — income of $60.00
• Ross Stores (ROST) — income of $25.50
• 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 $82.00
• Stanley Black & Decker (SWK) — income of $33.00
• AT&T (T) — income of $255.00
• TJX (TJX) — income of $39.00
• T Rowe Price (TROW) — income of $152.00
• Travelers (TRV) — income of $77.00
• Texas Instruments (TXN) — income of $57.75
• UnitedHealth (UNH) — income of $36.00
• Union Pacific (UNP) — income of $35.20
• United Parcel Service (UPS) — income of $33.60
• Visa (V) — income of $4.25
• Valero Energy (VLO) — income of $166.50
• Verizon Communications (VZ) — income of $60.25
• Walgreens Boots Alliance (WBA) — income of $88.00
• Walmart (WMT) — income of $43.68
• WP Carey (WPC) — income of $51.50
• Williams-Sonoma (WSM) — income of $43.00
• Xcel Energy (XEL) — income of $24.70
• Xilinx (XLNX) — income of $18.00
• Exxon Mobil (XOM) — income of $82.00

Additionally, I received monthly dividends from 3 different stocks:

• EPR Properties (EPR) — income of $55.50
• Main Street Capital (MAIN) — income of $438.76
• Realty Income (O) — income of $168.01

Finally, I received one semi-annual dividend payment:

• Walt Disney (DIS) — income of $176.00

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

Dividend Changes

Last quarter, I reported projected annual dividend income (PADI) of $23,039. This quarter, PADI increased to $25,258 and relative to the total capital invested, DivGro's projected annual yield is 4.71%.

The following table shows the stocks that announced dividend increases in Q1-2019. I'm including the new annual dividend and yield on cost (YoC).

Company	Ticker	Increase	Annual Div	New YoC
Home Depot	HD	32.04%	$5.44	2.99%
Ross Stores	ROST	13.33%	$1.02	1.18%
NextEra Energy	NEE	12.61%	$5.00	3.07%
Valero Energy	VLO	12.50%	$3.60	5.67%
Comcast	CMCSA	10.53%	$0.84	2.54%
Gilead Sciences	GILD	10.53%	$2.52	3.57%
Union Pacific	UNP	10.00%	$3.52	2.47%
Dominion Energy	D	9.88%	$3.67	5.04%
General Dynamics	GD	9.68%	$4.08	4.36%
Raytheon	RTN	8.65%	$3.77	3.51%
T Rowe Price	TROW	8.57%	$3.04	3.55%
Digital Realty Trust	DLR	6.93%	$4.32	3.88%
Xcel Energy	XEL	6.58%	$1.62	4.73%
Chevron	CVX	6.25%	$4.76	4.56%
Cisco Systems	CSCO	6.06%	$1.40	4.42%
Eversource Energy	ES	5.94%	$2.14	4.51%
3M	MMM	5.88%	$5.76	3.07%
United Parcel Service	UPS	5.49%	$3.84	3.74%
Air Products and Chemicals	APD	5.45%	$4.64	2.94%
BlackRock	BLK	5.43%	$13.20	3.34%
Intel	INTC	5.00%	$1.26	4.60%
EPR Properties	EPR	4.17%	$4.50	6.72%
Iron Mountain	IRM	4.00%	$2.44	7.48%
Aflac	AFL	3.85%	$1.08	4.31%
Coca-Cola	KO	2.56%	$1.60	3.88%
Main Street Capital	MAIN	2.56%	$2.40	7.60%
Simon Property Group	SPG	2.50%	$8.20	4.60%
Realty Income	O	2.04%	$2.712	4.96%
Tanger Factory Outlet Centers	SKT	1.43%	$1.42	6.62%
WP Carey	WPC	0.49%	$4.128	6.35%

DivGro's average YoC is 3.92%, up from the 3.77% reported at the end of Q4-2018.

I'd like to see dividend increases of at least 7%. Eleven dividend increases in the table topped 7% and the arithmetic average of all the increases in Q4-2018 is 7.36%.

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 one-year dividend growth rates of stocks in DivGro, as of 31 March, 2019:



At 10.6%, the (arithmetic) average year-over-year dividend growth rate of dividend growth stocks in my portfolio is well above 7%, which makes me a very happy dividend growth investor!

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

Scanning from the left, WPC yield 5.38%, FRT yields 3.09%, T yields 6.37%, VZ yields 4.15%, Coca-Cola (KO) yields 3.37%, and O yields 3.96%.

FRT's yield is barely above 3% and the stock's dividend growth rate has been slowing down:


          Source: Simply Safe Dividends

I'm considering closing my FRT position.

Transactions

This quarter I deployed new capital (bonus deposits, IRA contributions, and passive income) as well as options income to add new positions and to expand existing positions. I also trimmed and closed some positions.

New Positions

• Archer-Daniels-Midland (ADM) — new position of 200 shares
• FedEx (FDX) — new position of 15 shares
• JPMorgan Chase (JPM) — new position of 40 shares
• Merck (MRK) — new position of 30 shares
• PepsiCo (PEP) — new position of 20 shares
• Philip Morris International (PM) — new position of 100 shares
• WP Carey (WPC) — new position of 50 shares

Expanded Positions

• Amgen (AMGN) — added 25 shares and increased position to 50 shares
• Blackrock (BLK) — added 10 shares and increased position to 35 shares
• CVS Health (CVS) — added 100 shares and increased position to 200 shares
• Ford Motor (F) — added 1,900 shares and increased position to 2,000 shares
• Gilead Sciences (GILD) — added 100 shares and increased position to 200 shares
• Home Depot (HD) — added 30 shares and increased position to 60 shares
• Honeywell International (HON) — added 21 shares and increased position to 60 shares
• International Business Machines (IBM) — added 20 shares and increased position to 30 shares
• Iron Mountain (IRM) — added 50 shares and increased position to 200 shares
• 3M (MMM) — added 15 shares and increased position to 40 shares
• NIE-name (NIE) — added 450 shares and increased position to 1,000 shares
• Tanger Factory Outlet Centers (SKT) — added 100 shares and increased position to 300 shares
• AT&T (T) — added 100 shares and increased position to 600 shares
• T Rowe Price (TROW) — added 100 shares and increased position to 200 shares

Closed Positions

• Kite Realty Group (KRG) — sold 600 shares and closed position
• Omega Healthcare Investors (OHI) — sold 250 shares and closed position
• Qualcomm (QCOM) — sold 100 shares and closed position
• Vanguard High Dividend Yield ETF (VYM) — sold 100 shares and closed position
• Walmart (WMT) — sold 84 shares and closed position
• Williams-Sonoma (WSM) — sold 200 shares and closed position
• Xilinx (XLNX) — sold 50 shares and closed position

Trimmed Positions

• Cisco Systems (CSCO) — sold 100 shares and reduced position to 100 shares
• Intel (INTC) — sold 20 shares and reduced position to 500 shares
• Starbucks (SBUX) — sold 100 shares and reduced position to 100 shares

I covered these transactions in monthly reviews and other articles on my blog, so I won't rehash details here. In Q4-2018 and Q1-2019, I worked hard at strengthening DivGro's risk profile, trimming or closing riskier positions and adding high-quality, lower-risk stocks with stronger fundamentals.

Some transactions I executed concluded a tax-loss harvesting effort, initiated in December 2018 to offset capital gains by realizing some offsetting losses. I reinstated some of the positions in time to earn the next dividend payments (F, GILD, and IBM).

Several of the closed positions are riskier stocks or stocks that I'm no longer interested in owning.

To assess risk, I utilize Dividend Safety Scores provided by Simply Safe Dividends (SSD):


From left to right, the colors represent Borderline Safe, Safe, and Very Safe dividend safety scores. (I no longer own Very Unsafe or Unsafe positions).

DivGro now contains 82 different positions. Of these, 73 are dividend growth stocks, four are dividend-paying stocks, and one is an CEF (closed-end fund). I also own four stocks that do not pay dividends.

Here is the distribution of DivGro's holdings by sector:

Market Value

At the end of Q1-2019, DivGro's market value represented a simple gain of 46.8% on the total amount 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 14.5%.

After my portfolio suffered some losses in Q4-2018, things have turned around nicely this quarter:

Portfolio Statistics

In quarterly reviews, I like to monitor 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.



INTC (3.67%) is now my largest position, followed by MAIN (3.60%) and DIS (3.33%). I don't like having positions much larger than about 3.5% of portfolio value, so INTC and MAIN probably should be trimmed a bit.

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 7.1%:



Single positions that contribute more than 6% to DivGro's PADI make me nervous. I'm considering trimming my position in MAIN to bring its contribution to PADI down to below 6%. With a dividend safety score of 68, MAIN's dividend is seen to be Safe.



SKT is the top yielding position in DivGro, followed by IRM, T, and MAIN. The arithmetic average yield of my portfolio is 3.2%. If, instead, I weigh yields based on each position's contribution to PADI, then the average yield is 3.9%.

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.



DivGro's position-weighted average payback percentage is 13.5%.

Goal For Q2-2019

Recently, I revisited how I use yield channel charts as a tool to manage my portfolio. I identified ten stocks that are trading at undervalued yield levels and ten stocks that are trading at overvalued yield levels. This quarter I want to focus on adding shares to these undervalued positions, and possibly trim stocks that are trading at overvalued yield levels.

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