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Friday, May 3, 2019

Monthly Review of DivGro: April 2019

Welcome to the April review of DivGro, my portfolio of dividend growth stocks. The goal of these monthly reviews is to share updates I've made to the portfolio and to provide a summary of dividends collected. I also consider the impact on DivGro's projected annual dividend income (PADI).

In April, I added shares to four existing positions and I trimmed one of my positions. Additionally, I closed two positions. Five DivGro stocks announced dividend increases in April. The net result of these changes is that PADI decreased by about 0.2% in April. Year over year, PADI increased by 35.0%.

DivGro now contains 80 different positions, including 71 dividend growth stocks, four dividend-paying stocks, one closed-end fund, and four growth stocks that don't yet pay dividends.

In April I received dividends totaling $1,161 from 19 stocks in my portfolio, a year over year increase of 32%. So far in 2019, I've collected $7,885 in dividends or about 31% of my 2019 goal of $25,200.

Assuming the status quo and given DivGro's PADI of $25,214, I can expect to receive $2,101 in dividend income per month, on average, in perpetuity. Of course, most of the stocks I own are dividend growers, so I expect my dividend income to increase over time! 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 19 different stocks, for a monthly total of $1,161 in dividend income:

Following is a list of the dividends I collected in April:
  • Chubb (CB)income of $36.50
  • Comcast (CMCSA)income of $42.00
  • Cisco Systems (CSCO)income of $35.00
  • Quest Diagnostics (DGX)income of $106.00
  • EPR Properties (EPR)income of $18.75
  • FedEx (FDX)income of $9.75
  • Federal Realty Income Trust (FRT)income of $40.80
  • Iron Mountain (IRM)income of $122.20
  • Illinois Tool Works (ITW)income of $38.00
  • JPMorgan Chase (JPM)income of $32.00
  • Coca-Cola (KO)income of $80.00
  • Main Street Capital (MAIN)income of $150.00
  • Medtronic (MDT)income of $25.00
  • Altria (MO)income of $160.00
  • Merck (MRK)income of $16.50
  • Realty Income (O)income of $56.50
  • Philip Morris International (PM)income of $114.00
  • WP Carey (WPC)income of $51.60
  • Xcel Energy (XEL)income of $26.33
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):

While it would be great if dividends were distributed more evenly, I don't want to change my investment decisions based on the timing or frequency of dividend payments.

Dividend Changes

In April, the following stocks announced dividend increases:
  • Johnson & Johnson (JNJ)increase of 5.56%
  • Procter & Gamble (PG)increase of 4.00%
  • TJX (TJX)increase of 17.95%
  • Travelers (TRV)increase of 6.49%
  • Exxon Mobil (XOM)increase of 6.10%
As a result of these changes, DivGro's PADI will increase by $116.

I like seeing dividend increases above 7% and, unfortunately, only one of the increases top my expectations. On the other hand, the arithmetic average of this month's dividend increases is 8% and that easily beats inflation!


Here is a summary of my transactions in April:
  • Federal Realty Income Trust (FRT) — sold 40 shares and closed position
    • Extra Space Storage (EXR)sold 55 shares and closed position
    I decided to close my position in FRT as the REIT's yield in on the low side at about 3% and its dividend growth rate has slowed down in recent years. Another reason is that I held this position in a taxable account. When the time is right to reinvest, I'll do so in one of my IRAs. FRT is a Dividend Champion and it has a Very Safe dividend safety score of 84, according to Simply Safe Dividends. I recorded annualized total returns of about 10%. 

    EXR's dividend safety score is 66, which is deemed Safe. EXR's current dividend yield is 3.23%, which is nearly 10% below its 5-year average yield of 3.56%. Furthermore, EXR's forward P/AFFO of 22.4 is well above the Real Estate sector average of 16.7. Perhaps I'll revisit EXR in future, but, for now, I've parted ways. My investment provided annualized total returns of 30%. 
    • Procter & Gamble (PG) — sold 100 shares and reduced position to 100 shares
    PG's performance since April 2018 has been spectacular and the stock is up nearly six 50% from its 52-week low. As a result, PG's current dividend yield of 2.83% is about 11% below its 5-year average of 3.17%, and the stock's forward P/E ratio of 22 is well above its 5-year average of 20.5. This would indicate that PG's stock price most likely is overvalued. I decided to trim my position by 50%, recording annualized total returns of 54% in the process. 
    • CVS Health (CVS)added 100 shares and increased position to 300 shares
    • Walgreens Boots Alliance (WBA) — added 100 shares and increased position to 300 shares
    CVS and WBA are both trading well below fair value as investors have become very pessimistic about these stocks. Both stocks face challenges, but offer safe dividends and strong growth potential.

    After acquiring Aetna, CVS froze its dividend and the company won't be raising its dividend again until debt is deleveraged from 4.6× down to 3×. The stock is trading 32% below its 52-week high of $82.15 and its current dividend yield of 3.53% is 74% above its 5-year average of 2.03%. With the stock trading well below fair value, I decided to increase my position. After the buy, my average cost basis dropped to $60.92.

    According to Simply Safe Dividends, WBA's current dividend yield of 3.27% is 76% above its 5-year average of 1.86% and the stock's forward P/E ratio of 9.1 is well below its 5-year average of 16.5. With WBA trading well below fair value, I decided to increase my position and lower my average cost basis, which now is $61.79.
    • 3M (MMM)added 10 shares and increased position to 50 shares
    • United Parcel Service (UPS)added 15 shares and increased position to 50 shares
    Finally, I took the opportunity to add a few shares to my MMM and UPS positions. Both these stocks are trading below fair value and they are solid dividend growth stocks. The average cost basis of my MMM position is $193.86, while the average cost basis of my UPS position is $105.94. After disappointing earnings, MMM's share price dropped 8% and now trades below my average cost basis. I'm thinking about adding even more shares to my position.

    These transactions decreased DivGro's PADI by about $160.


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

    Mar 31, 201925,928.682,834.407,729.322.414%13.71
    Apr 30, 201926,592.912,945.838,095.392.509%13.12

    In April, the DOW 30 added 2.6%, the S&P 500 added 3.9%, and the NASDAQ added 4.7%. The yield on the benchmark 10-year Treasury note increased to 2.509%, while CBOE's measure of market volatility, the VIX, decreased by about 4%.

    Portfolio Statistics

    Based on the total capital invested and the portfolio's current market value, DivGro has delivered a simple return of about 50% since inception. In comparison, DivGro's IRR (internal rate of return) is 14.9%. (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) of individual stocks, as well as an average YoC for my portfolio. DivGro's average YoC increased from 3.92% last month to 3.93% this month.

    Another interesting statistic is percentage payback, which relates dividend income to the amount of capital invested. DivGro's average percentage payback is 13.7%, up from last month's 13.5%.

    Finally, I calculate the projected annual yield of my portfolio by dividing PADI ($25,214) by the total amount invested. DivGro's projected annual yield is at 4.70%, down from last month's value of 4.71%.

    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:

    Goals Review

    Here's a recap of my goals for 2019:
    1. PADI: Increase projected annual dividend income to $27,000
    2. Dividends: Earn $25,200 in dividend income
    3. Options: Collect $21,000 in options income
    4. Seeking: Earn income of $5,200 writing premium articles.
    5. Analyses: Write 12 stock analysis articles.
    The gauges below represent the progress I've made towards achieving my goals. Each gauge has a gray pointer indicating where the other gauges should be after 120 of 365 days:

    PADI is well ahead of pace, Dividends and Seeking are about on pace, but Options is lagging quite a bit now. Analysis remains stuck at 0%, as I have yet to write a stock analysis article this year. I'm hoping to write a few stock analysis articles in the coming months.

    Looking Ahead

    I'm happy with DivGro's performance and composition at this time, but I'll continue to look for opportunities to diversify and improve my portfolio's overall risk profile.

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

    Thanks for reading and take care, everybody!


    1. Nice. Adding on 3M too following your wisdom !

      1. Thanks for your note -- 3M is facing some challenges, but I think the company will be fine in the long run.

    2. Great month Ferdi! The dividend income and dividend increases are just awesome! I love the fact that you have increased your positions in CVS and WBA significantly. You're correct, the company has undervalued these companies significantly. We just got a preview of the potential power of a combined CVS/Aetna this month with excellent earnings. I may add to CVS once again and continue lowering my cost basis.

      Bert, One of the Dividend Diplomats.

      1. Thanks for your comment, Bert!

        With these stocks trading so much lower, it takes some resolve to add lots of shares. These companies are facing some risks, but I think they'll overcome them in the long run. It is nice to be able to lower my cost basis this way. Hopefully, these stocks will continue to pay and raise their dividends for many years to come. (CVS's dividend is frozen right now, but I'm hoping increases will resume in a few years).

    3. Fantastic, your dividend income is very impressive. Great work.

      1. Thanks, Buy, Hold Long! The dividend machine is purring nicely!


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