Friday, July 19, 2019

Quarterly Review of DivGro: Q2-2019

Welcome to the Q2-2019 review of my portfolio of dividend growth stocks, DivGro! 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.

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 $2,026 per month.

My portfolio generated dividend income totaling $6,340 this quarter and I'm projecting dividend income of at least $6,078 per quarter going forward.

Year-to-date I've collected dividend income of $13,070 or about 52% of my 2019 goal of $25,200. DivGro's all-time dividend income total is $78,515.


Dividend Income


In Q2-2019, I collected dividend income totaling $6,346,  down 6% from the dividends received in Q1-2019 but up 35% from the dividends received in Q2-2018.

I received quarterly dividends from 71 different stocks and funds:
  • Apple (AAPL)income of $77.00
  • AbbVie (ABBV)income of $214.00
  • Archer-Daniels-Midland (ADM)income of $70.00
  • Aflac (AFL)income of $27.00
  • Amgen (AMGN)income of $72.50
  • Air Products and Chemicals (APD)income of $18.56
  • Boeing (BA)income of $41.10
  • Blackrock (BLK)income of $115.50
  • Chubb (CB)income of $36.50
  • Comcast (CMCSA)income of $42.00
  • Cummins (CMI)income of $57.00
  • Cisco Systems (CSCO)income of $35.00
  • CVS Health (CVS)income of $100.00
  • 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 $48.60
  • Ford Motor (F)income of $300.00
  • FedEx (FDX)income of $9.75
  • Federal Realty Income Trust (FRT)income of $40.80
  • General Dynamics (GD)income of $51.00
  • Gilead Sciences (GILD)income of $126.00
  • Home Depot (HD)income of $81.60
  • Honeywell International (HON)income of $49.20
  • Hormel Foods (HRL)income of $21.00
  • International Business Machines (IBM)income of $48.60
  • Intel (INTC)income of $157.50
  • International Paper (IP)income of $50.00
  • Iron Mountain (IRM)income of $122.20
  • Illinois Tool Works (ITW)income of $38.00
  • Johnson & Johnson (JNJ)income of $117.80
  • JPMorgan Chase (JPM)income of $32.00
  • Coca-Cola (KO)income of $80.00
  • 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 $86.40
  • Altria (MO)income of $160.00
  • Merck (MRK)income of $16.50
  • Microsoft (MSFT)income of $46.00
  • NextEra Energy (NEE)income of $31.25
  • NIE-name (NIE)income of $380.00
  • National Retail Properties (NNN)income of $81.00
  • PepsiCo (PEP)income of $19.10
  • Pfizer (PFE)income of $72.00
  • Procter & Gamble (PG)income of $149.18
  • Philip Morris International (PM)income of $114.00
  • Public Storage (PSA)income of $60.00
  • Qualcomm (QCOM)income of $21.70
  • Ross Stores (ROST)income of $25.50
  • 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
  • Stanley Black & Decker (SWK)income of $33.00
  • AT&T (T)income of $306.00
  • TJX (TJX)income of $46.00
  • T Rowe Price (TROW)income of $152.00
  • Travelers (TRV)income of $82.00
  • Texas Instruments (TXN)income of $57.75
  • Unitedhealth (UNH)income of $43.20
  • Union Pacific (UNP)income of $35.20
  • United Parcel Service (UPS)income of $48.00
  • 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 $132.00
  • WP Carey (WPC)income of $51.60
  • Xcel Energy (XEL)income of $26.33
  • Exxon Mobil (XOM)income of $87.00
Additionally, I collected monthly dividends from 3 different stocks and funds:
  • EPR Properties (EPR)income of $56.25
  • Main Street Capital (MAIN)income of $637.50
  • Realty Income (O)income of $169.50
      The following chart shows DivGro's dividend income by quarter:


      Dividend Changes


      Last quarter, I reported projected annual dividend income (PADI) of $25,258. This quarter, PADI decreased to $24,310 and relative to the total capital invested, DivGro's projected annual yield is 4.41%.

      The following table shows the stocks that announced dividend increases in Q2-2019. I'm including the new annual dividend and yield on cost (YoC).

      Company
       Ticker
      Increase Annual Div
       New YoC
      UnitedHealth
      UNH
      20.00%
       $4.32 
      2.49%
      TJX
      TJX
      17.95%
      $0.92
      2.08%
      JPMorgan Chase
      JPM
      12.50%
      $3.60
      3.44%
      Medtronic
      MDT
      8.00%
      $2.16
      2.37%
      Travelers
      TRV
       6.49%
      $3.28
      2.83%
      Exxon Mobil
      XOM
       6.10%
      $3.48
      4.45%
      Johnson & Johnson
      JNJ
       5.56%
      $3.80
      3.49%
      Apple
      AAPL
       5.48%
      $3.08
      2.95%
      Procter & Gamble
      PG
       4.00%
      $2.9836
      3.65%
       International Business Machines
      IBM
      3.18%
      $6.48
      4.56%
      PepsiCo
      PEP
       2.96%
      $3.82
      3.28%
      Realty Income
      O
       0.22%
      $2.718
      5.74%
      WP Carey
      WPC
       0.19%
      $4.136
      6.36%

      DivGro's average YoC is 3.83%, down from the 3.92% reported at the end of Q1-2019.

      I'd like to see dividend increases of at least 7%. Only four dividend increases in the table topped 7%, which is disappointing, but the arithmetic average of all the increases in Q4-2018 is 7.13%.

      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 30 June 2019:



      At 9.3%, 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!

      And here is a chart of the 5-year dividend growth rates of my dividend growth stocks:



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

      Here is a summary of the dividend yields offered by stocks with the lowest 5-year dividend growth rates, and a column showing the so-called CDR number, which sums the dividend yield and the 5-year dividend growth rate [DGR]:

      Company
       Ticker
      Yield 5-Yr DGR
       CDR
      AT&T
      T
      6.16%
      2.09% 
      8.25%
      Chevron
      CVX
      3.81%
      2.15%
      5.96%
      Verizon Communications
      VZ
      4.23%
      2.60%
      6.83%
      WP Carey
      WPC
      4.86%
      2.81%
      7.67%
      Procter & Gamble
      PG
       2.58%
      2.99%
      5.57%
      Philip Morris International
      XOM
       4.64%
      3.93%
      8.57%
      National Retail Properties
      NNN
       3.80%
      4.30%
      8.19%
      Realty Income
      O
       3.88%
      4.38%
      8.26%
      Main Street Capital
      MAIN
       5.71%
      4.44%
      10.15%
       Merck
      MRK
      2.69%
      4.56%
      7.25%
      Exxon Mobil
      XOM
       4.64%
      4.75%
      9.39%

      Proposed by Seeking Alpha author Chowder, a CDR above 12% is considered "healthy" for dividend growth stocks. If the CDR falls between 8% and 12%, then the position warrants closer monitoring, and if the CDR is below 8%, due diligence and a consequential decision about the position is called for. (For Utility sector stocks, Chowder used levels of 8% and 5% instead).

      So, I'll need to monitor these stocks and carefully consider if I want to continue holding my positions in CVX, MRK, PG, VZ, and WPC.

      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
      • Accenture (ACN)new position of 10 shares
      • Automatic Data Processing (ADP)new position of 10 shares
      • Gap (GPS)new position of 300 shares
      • Qualcomm (QCOM)new position of 35 shares
      • Wells Fargo (WFC)new position of 54 shares
      Expanded Positions
      • Amgen (AMGN)added 10 shares and increased position to 60 shares
      • CVS Health (CVS)added 100 shares and increased position to 300 shares
      • FedEx (FDX)added 15 shares and increased position to 30 shares
      • 3M (MMM)added 20 shares and increased position to 60 shares
      • Tanger Factory Outlet Centers (SKT)added 200 shares and increased position to 500 shares
      • United Parcel Service (UPS)added 15 shares and increased position to 50 shares
      • Walgreens Boots Alliance (WBA)added 100 shares and increased position to 300 shares
      Closed Positions
      • Eversource Energy (ES)sold 100 shares and closed position
      • Extra Space Storage (EXR)sold 55 shares and closed position
      • Federal Realty Income Trust (FRT)sold 40 shares and closed position
      Trimmed Positions
      • Main Street Capital (MAIN)sold 500 shares and reduced position to 250 shares
      • Realty Income (O)sold 200 shares and reduced position to 50 shares
      • Procter & Gamble (PG)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. Some transactions resulted from options assignments, while others continued my effort to strengthen DivGro's risk profile.

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



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

      DivGro now contains 84 different positions. Of these, 74 are dividend growth stocks, five are dividend-paying stocks, and one is a 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 Q2-2019, DivGro's market value represented a simple gain of 48.3% 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 14.0%.

      After some losses in May, my portfolio recovered in June and things are looking good at the end of Q2-2019:



      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.



      Walt Disney (DIS) (3.41%) is now my largest position, followed by INTC (3.03%) and TROW (2.65%). I don't like having positions much larger than about 3.5% of portfolio value, and I'm happy to see that all my positions are now less than 3.5% of portfolio value.

      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, T dominates with about 5%:



      Single positions that contribute more than 6% to DivGro's PADI make me nervous. While T's contribution is about 5%, the stock's dividend safety score is 55 and deemed to be Borderline Safe. While I'm not too concerned about T's dividend safety, I wouldn't want to see the stock's contribution to PADI to grow much beyond the current level.

      Here is a chart showing the distribution of dividend yields of stocks in my portfolio:



      SKT remains the top-yielding position in DivGro, followed by IRM, MO, and ABBV. The arithmetic average yield of my portfolio is 3.15%. Instead, if I weigh yields based on each position's contribution to PADI, then the average yield is 3.91%.

      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.



      After selling a significant portion of my MAIN position, the payback of the remaining shares is 71%.

      DivGro's position-weighted average payback percentage is 7.9%.

      Goal For Q3-2019


      Recently, I published several articles in which I ranked dividend growth stocks using a quality scoring system. First I ranked Dividend Aristocrats, which are select S&P 500 stocks that have increased their dividend payouts for 25 consecutive years or more. In a companion article, I ranked the Dividend Kings, an elite stocks group of stocks with 50 or more consecutive years of dividend increases. And last week, I ranked high-quality, high-yielding dividend growth stocks.

      In Q3-2019, I'd like to do a similar ranking of the dividend growth stocks in my portfolio. Any positions with low-quality scores should be fair game for deletion!

      Thanks for reading! Please subscribe to receive an e-mail whenever I post new articles.
      Feel free to leave comments on this article either here or at Seeking Alpha.
      I'll do my best to respond to each comment as quickly as possible.

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