Sunday, August 4, 2019

Monthly Review of DivGro: July 2019

Welcome to another monthly review of DivGro, my portfolio of dividend growth stocks. My goal with these reviews is to share updates of my portfolio and to detail the dividends I received during the month. Additionally, I look at how the month's activities have impacted DivGro's projected annual dividend income (PADI).

In July, I added shares to four existing positions. Eight DivGro stocks announced dividend increases in July. The net result of these changes is that PADI increased by about 2.4% in July. Year over year, PADI increased by 17.9%.

As for dividend income, in July I received dividends totaling $1,556 from 23 stocks in my portfolio, a year over year increase of about 26%. So far in 2019, I've collected $14,626 in dividends or about 58% of my 2019 goal of $25,200.


DivGro's PADI of $24,901, means I can expect to receive $2,075 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 23 different stocks, for a monthly total of $1,556 in dividend income:
Here is a list of the dividends I received in July:
  • Automatic Data Processing (ADP)income of $7.90
  • Broadcom (AVGO)income of $53.00
  • Chubb (CB)income of $37.50
  • Comcast (CMCSA)income of $42.00
  • Cisco Systems (CSCO)income of $35.00
  • Quest Diagnostics (DGX)income of $106.00
  • Walt Disney (DIS)income of $176.00
  • EPR Properties (EPR)income of $18.75
  • FedEx (FDX)income of $19.50
  • Gap (GPS)income of $72.75
  • 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 $51.25
  • Medtronic (MDT)income of $27.00
  • Altria (MO)income of $160.00
  • Merck (MRK)income of $16.50
  • Realty Income (O)income of $11.33
  • Philip Morris International (PM)income of $114.00
  • Taiwan Semiconductor Manufacturing (TSM)income of $257.74
  • WP Carey (WPC)income of $51.70
  • Xcel Energy (XEL)income of $26.33
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 I would prefer receiving more evenly distributed dividends, I wouldn't let that influence my investment decisions.

Dividend Changes


In July, the following stocks announced dividend increases:
  • Chubb (CB)an increase of 2.74%
  • Cummins (CMI) — an increase of 15.00%
  • Main Street Capital (MAIN) — an increase of 2.50%
  • National Retail Properties (NNN) — an increase of 3.00%
  • Stanley Black & Decker (SWK) — an increase of 4.55%
  • Union Pacific (UNP) — an increase of 10.23%
  • Walgreens Boots Alliance (WBA) — an increase of 3.98%
  • Wells Fargo (WFC) — an increase of 13.33%
These changes will increase DivGro's PADI by $124.

I like seeing dividend increases above 7%, so only three of the eight increases top my expectations. The arithmetic average of this month's dividend increases is 6.9%, which easily beats inflation.

Transactions


Here is a summary of my transactions in July:
  • Philip Morris International (PM)added 20 shares and increased my position to 120 shares
  • Simon Property (SPG)added 20 shares and increased my position to 60 shares
  • Taiwan Semiconductor Manufacturing (TSM)added 100 shares and increased my position to 300 shares
  • Wells Fargo (WFC)added 46 shares and increased my position to 100 shares
These transactions increased DivGro's PADI by about $467.

PM's core business is not exposed to the tricky U.S. market, while PM's next-generation product IQOS seems to be doing quite well. PM's dividend is deemed Safe by Simply Safe Dividends, and the stock yields an attractive 5.53%. Before this buy, my PM position represented about 0.98% of the total value of my DivGro portfolio, leaving some room to add more shares. Since PM is discounted by more than 10%, I decided to increase my PM position.

SPG is another high-quality, high yield stock trading at a discount of at least 10%. SPG is one of only two REITs with an A credit rating from S&P and the stock is a high-quality, blue-chip REIT. I decided to add 20 shares and to lower my average cost basis. I'll probably add more shares in the coming months, as the stock seems to be heavily discounted:


Source: Simply Safe Dividends

TSM has been trading in a range of $35-$45 per share for the last two years. While this is somewhat frustrating, I've been able to more than triple the stock's dividend through covered call trades. Effectively, my TSM position is yielding about 9% when accounting for dividend and options income. So I decided to increase my TSM position with another covered call trade.

Finally, I sold my original WFC position in December 2016 when the account fraud scandal surfaced. Over the last 16 months or so, many investors have placed the stock in a penalty box. Then, earlier this year CEO Tim Sloan announced his retirement and I decided to reinvest in WFC. My initial position was relatively small, so this month I decided to increase my position at it appears to be a good time to do so now.

Markets


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:

DOW
30
S&P
500
NASDAQ
Composite
10-YR
BOND
CBOE
VIX
Jun 30, 201926,599.962,941.768,006.242.0000%15.08
Jul 31, 201926,864.272,980.388,175.422.0210%16.12

In July, the DOW 30 gained 1.0%, the S&P 500 gained 1.3%, and the NASDAQ gained 2.1%. The yield on the benchmark 10-year Treasury note increased to 2.021%, while CBOE's measure of market volatility, the VIX increased by 6.9% to 16.12.

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 14.0%. (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 3.83% last month to 3.82% this month.

Percentage payback relates dividend income to the amount of capital invested. DivGro's average percentage payback is 14.5%, up from last month's 14.2%.

Finally, DivGro's projected annual yield is calculated by dividing PADI ($24,901) by the total amount invested. DivGro's projected annual yield is at 4.51%, up from last month's value of 4.41%.

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:

Looking Ahead


I've been using a quality scoring system to rank dividend growth stocks, including the Dividend Aristocrats and the Dividend Kings. In last month's Pulse article, I ranked the dividend growth stocks in my portfolio as well.

In the next few months, I'd like to use these rankings to improve the overall quality (and risk profile) of my portfolio. I'll focus on increasing high-quality positions and reducing or eliminating positions with low-quality scores.

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

Thanks for reading and take care, everybody!

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