Sunday, June 2, 2019

Monthly Review Of DivGro: May 2019

Welcome to another monthly review of DivGro, my portfolio of dividend growth stocks. I present details of any buys or sells, and provide a summary of dividends collected. Additionally, I look at how the month's activities have impacted DivGro's projected annual dividend income (PADI).

In May, I opened four new positions and added shares to four existing positions. Additionally, I closed one position due to an options assignment and three DivGro stocks announced dividend increases.

The net result is that PADI increased by about 2.0% in May. Year over year, PADI increased by 25.9%.

As for dividend income, in May I received dividends totaling $1,656 from 19 stocks in my portfolio, a year over year increase of 32%. So far in 2019, I've collected $9,541 in dividends or about 38% of my 2019 goal of $25,200.


DivGro's PADI of $25,708, means I can expect to receive $2,142 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 19 different stocks, for a monthly total of $1,656 in dividend income:


Following is a list of the dividends collected in May:
  • Apple (AAPL)income of $77.00
  • AbbVie (ABBV)income of $214.00
  • Air Products and Chemicals (APD)income of $18.56
  • CVS Health (CVS)income of $100.00
  • EPR Properties (EPR)income of $18.75
  • General Dynamics (GD)income of $51.00
  • Hormel Foods (HRL)income of $21.00
  • Lowe's (LOW)income of $48.00
  • Main Street Capital (MAIN)income of $150.00
  • National Retail Properties (NNN)income of $81.00
  • Realty Income (O)income of $56.50
  • Procter & Gamble (PG)income of $149.18
  • Raytheon (RTN)income of $22.62
  • Starbucks (SBUX)income of $36.00
  • Tanger Factory Outlet Centers (SKT)income of $106.50
  • Simon Property (SPG)income of $82.00
  • AT&T (T)income of $306.00
  • Texas Instruments (TXN)income of $57.75
  • Verizon Communications (VZ)income of $60.25
The following chart shows DivGro's monthly dividends plotted against PMDI. Quarter-ending months are huge outliers:


To smooth things out a bit, I 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 certainly don't want to change my investment decisions based on the timing or frequency of dividend payments.

Dividend Changes


In May, the following stocks announced dividend increases:
  • Apple (AAPL)an increase of 5.48%
  • International Business Machines (IBM)increase of 3.18%
  • PepsiCo (PEP)an increase of 2.96%
These changes will increase DivGro's PADI by $24.

I like seeing dividend increases above 7%, so this month's dividend increases are disappointing. At least the arithmetic average of these dividend increases beats inflation!

Transactions


Here is a summary of my transactions in May:

New Positions
  • Accenture (ACN)new position of 10 shares
  • Automatic Data Processing (ADP)new position of 10 shares
Sometimes I open small positions in high-quality stocks trading above fair value, just so I can track them more closely and increase my positions at more favorable entry points. 

ACN is one such stock.

Founded in 1989 and based in Dublin, Ireland, ACN provides management and technology consulting services to clients in various industries and geographic regions, including North America, Europe, and Growth Markets. ACN’s operating segments are Communications, Media & Technology; Financial Services; Health and Public Service; Products; and Resources. 

Below is a table of key metrics and ratings from various sources, including a quality score as devised in this article by David Van Knapp:
 Ticker Buy
Price
Yield
on
Cost
Divi.
 Streak 
5-yr
DGR
VL
 Safety
Rank
VL
 Fin.
 Stren. 
M*
 Econ. 

Moat
S&P
Credit
 Rating 
SSD
 Divi.

 Safety 
 Qual. 
Score
SSD
 Payout 
Ratio
AIP
Earn.

 Qual. 
Dcom
DARS
 Rating 
RS
 DIVCON
 Rating 
 ACN 175.81 1.66%
 14 yrs
 9.2% 1A++Wide A+92 24 41%224.65

Additionally, ACN has an impressive F.A.S.T. Graphs chart:



Since the share price (black line) is well above the calculated P/E multiple at which the market has tended to value the stock over time (blue line), the stock is trading at a premium to fair value.

I also opened a small position in ADP, another high-quality stock.

ADP provides technology-enabled human capital management solutions and business process outsourcing solutions. These offerings include payroll services, benefits administration, talent management, HR management, time and attendance management, insurance services, retirement services, and tax and compliance services. ADP was founded in 1949 and is headquartered in Roseland, New Jersey.

 Ticker Buy
Price
Yield
on
Cost
Divi.
 Streak 
5-yr
DGR
VL
 Safety
Rank
VL
 Fin.
 Stren. 
M*
 Econ. 

Moat
S&P
Credit
 Rating 
SSD
 Divi.

 Safety 
 Qual. 
Score
SSD
 Payout 
Ratio
AIP
Earn.

 Qual. 
Dcom
DARS
 Rating 
RS
 DIVCON
 Rating 
 ADP  159.48 1.98%
 44 yrs
 11.7% 1A++Wide AA 96 25 57%94.24

ADP also has an impressive F.A.S.T. Graphs chart:



And, just like ACN, ADP is trading at a premium to fair value.

New Positions (Continued)
  • Qualcomm (QCOM)new position of 35 shares
  • Wells Fargo (WFC)new position of 54 shares
Both QCOM and WFC are stocks I owned before. I reopened positions partly because they are the only stocks in the top 25 ranked stocks in my recent compilation of the top 50 holdings of Dividend ETFs that I didn't own. 

Shortly after closing my QCOM position in February, Apple and Qualcomm settled their patent royalty dispute and ended all ongoing litigation. In settling even before the ruling in the FTC antitrust case, Apple signaled that it sees Qualcomm as the only viable partner in 5G and mobile technology development. 

Of course, Qualcomm's legal woes are not over and now it's being swept up in the trade war with China and the Huawei ban. As such, Simply Safe Dividends assigned QCOM a Borderline Safe dividend safety score of 48. 

Nevertheless, a strong case can be made for QCOM to reach the one-year consensus target of $96 per share. With a dividend yield of 3.7% and a 5-year DGR (dividend growth rate) of 15%, I'm happy to be a QCOM shareholder again.

I closed my prior position in WFC in December 2016 shortly after the accounts scandal surfaced. In March, Tim Sloan, the embattled CEO of Wells Fargo abruptly resigned. The next CEO will have to lead a major internal reform effort to restore the bank's reputation.

According to Simply Safe Dividends, WFC is trading well below fair value and its dividend is Safe (with a dividend safety score of 69):


WFC's current dividend yield of 3.94% is 39% above its 5-year average of 2.85%, so the stock could be significantly undervalued. Morningstar's fair value estimate is $60 per share, about 31% above its current share price.

In April, WFC reported strong earnings with an earnings surprise of about 10%. Top-line revenue of $21.61 billion was nearly $600 million higher than expected. And the bank took advantage of its depressed share price, buying back about $4 billion worth of its shares. This could add significant shareholder value in the long term.

My yield on cost is 3.9%, which, provides ample compensation for the near-term risk I'm taking on. We'll see how this one goes!

Closed Positions
  • Eversource Energy (ES)sold 100 shares and closed position
My ES shares were called away due to an early assignment of the July $70 covered call I'd sold in December 2018 for $240. The option holder exercised the option on 21 May, one day before ES would have trade ex-dividend. On 21 May, ES shares closed at $73.21 per share.

From the new owner's perspective, the trade was favorable. The option cost $2.40 per share, while the trade created an unrealized gain of $3.21 per share and it secured the upcoming dividend of $0.535 per share. The new owner's net (unrealized) gain is $134.50.

From my perspective, my investment in ES was quite successful! Total gains including dividend and options income are $3,150 or 66% on my original investment (20% annualized). 

ES is trading at a premium to fair value and I'm happy to wait until I can re-open a position at a more favorable level:

Source: Simply Safe Dividends

When selling covered calls, you have to be prepared to "let go" of shares at any time. In my view, that risk is worth it! Since June 2016, I've collected about $50,000 in options income.

Additions
  • Amgen (AMGN)added 10 shares and increased my position to 60 shares
  • FedEx (FDX)added 15 shares and increased my position to 30 shares
  • 3M (MMM)added 10 shares and increased my position to 60 shares
AMGN, FDX, and MMM all are trading near 52-week lows. 

AMGN yields 3.32% and has a 5-year DGR of 19%. And according to Simply Safe Dividends, the stock's dividend is Very Safe with a dividend safety score of 84 and is trading below fair value:



FedEx is another company swept up in the China trade-war but concerns are overblownFDX yields 1.66% and the company is growing its dividend rapidly (the 5-year DGR is 30%). The dividend is considered Safe with a dividend safety score of 64.


Source: Simply Safe Dividends

MMM's dividend is considered Very Safe with a dividend safety score of 86. The stock is one of the highest quality dividend growth stocks, with uninterrupted dividend payments for more than 100 years and dividend increases for more than 60 consecutive years. While above-average total return would be challenging, I like MMM's current dividend yield of 3.5% and its 5-year DGR of 11%.


Source: Simply Safe Dividends

Additions (Continued)
  • Tanger Factory Outlet Centers (SKT)added 200 shares and increased my position to 500 shares
The addition to my SKT position probably is the riskiest of my buys.

Reading the opinions on Seeking Alpha, there are widely different opinions about SKT. One bearish author has a $15 price target, another shorted the stock, and one questions the outlet model and the "apparent stagnancy" SKT's management team in addressing the changing retail environment. On the other hand, several authors are bullish, including a strong buy conviction, a recent buy, and a perspective on recreational shopping that makes SKT atypical of the outlet model.

In nearly doubling my position, I reduced my cost basis to $20.01 with an average yield on cost of 7.10%. This allowed me to sell covered calls at a strike price of $20 and to boost the effective yield of my SKT investment to about 11%.

Impact on PADI

The net result of May's transactions is that DivGro's PADI increased by $469 to $25,708.

Markets


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

DOW
30
S&P
500
NASDAQ
Composite
10-YR
BOND
CBOE
VIX
Apr 30, 201926,592.912,945.838,095.392.509%13.12
May 31, 201924,815.042,752.067,453.152.142%18.71

In May, the DOW 30 dropped 6.7%, the S&P 500 dropped 6.6%, and the NASDAQ dropped 7.9%. The yield on the benchmark 10-year Treasury note fell to 2.142%, while CBOE's measure of market volatility, the VIX, increased by 43% to 18.71.

Portfolio Statistics


Based on the total capital invested and the portfolio's current market value, DivGro has delivered a simple return of about 40% since inception. In comparison, DivGro's IRR (internal rate of return) is 12.4%. (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) for individual stocks, as well as an average YoC for my portfolio. DivGro's average YoC decreased from 3.93% last month to 3.92% this month.

Percentage payback relates dividend income to the amount of capital invested. DivGro's average percentage payback is 13.6%, down from last month's 13.7%.

Finally, DivGro's projected annual yield is at 4.67%, down from last month's value of 4.70%. I calculate the projected annual yield by dividing PADI ($25,708) by the total amount invested.

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:


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. The shadow indicates where each goal should be at this point in the year – after 151 of 365 days:


I'm behind on Dividends and Options, on pace with Seeking, and well in front on my PADI goal. And I have yet to move Analyses as I'm having a hard time finding time to write an Analysis article...

Looking Ahead


May was a tough month for the markets with growing trade war concerns, and DivGro suffered along. The good thing about dividend growth investing is that dividends continue to flow into my portfolio, whether the market goes, up or down!

I'm looking forward to June's dividends, as quarter-ending months are great for DivGro. In fact, I usually set a new record for dividend income in quarter-ending months.

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

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Feel free to comment on this article — I'll do my best to respond
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4 comments :

  1. FerdiS - Would you be so kind as to share the spreadsheet that you use to plot the rolling 12 month average of dividends received? Thank you - Mike

    ReplyDelete
    Replies
    1. Hi Mikegavone -- I'll see what I can do. My spreadsheets are a labyrinth of interconnected sheets, so it is not possible to share it in a straightforward way. Perhaps I can somehow separate the relevant parts.

      Delete
  2. Interesting new/add on WFC, FDX and SKT. Could you comment on your decision to add those please?

    ReplyDelete
    Replies
    1. Hi -- I've elaborated on my transactions in the article. Please check it out.

      Delete

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