Monday, September 23, 2019

Monthly Review of DivGro: August 2019

Every month, I write a review of my portfolio of dividend growth stocks, DivGro. The goal of these monthly reviews is to share updates I've made to the portfolio and to 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 August, I opened ten new positions and added shares to six existing positions. Additionally, I closed three positions and reduced my holdings in one position. Two DivGro stocks announced dividend increases in August. The net result of these changes is that PADI increased by about 2.8% in August. Year over year, PADI increased by 20.1%.

As for dividend income, in August I received dividends totaling $1,612 from 19 stocks in my portfolio, a year over year increase of 12%. So far in 2019, I've collected $16,238 in dividends or about 64% of my 2019 goal of $25,200.

DivGro's PADI now stands at $25,593, which means I can expect to receive $2,133 in dividend income per month, on average, in perpetuity, assuming the status quo is maintained. Of course, I expect the companies I've invested in not only to continue to pay dividends but to increase them over time! Also, until I retire, I hope to continue to reinvesting dividends, 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 $1,612 in dividend income:
Here is a list of the dividends I collected in August:
  • 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 $150.00
  • 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 $55.00
  • Main Street Capital (MAIN)income of $51.25
  • National Retail Properties (NNN)income of $83.43
  • Realty Income (O)income of $11.32
  • Procter & Gamble (PG)income of $74.59
  • Raytheon (RTN)income of $22.62
  • Starbucks (SBUX)income of $36.00
  • Tanger Factory Outlet Centers (SKT)income of $177.50
  • Simon Property (SPG)income of $126.00
  • AT&T (T)income of $306.00
  • Texas Instruments (TXN)income of $57.75
  • Verizon Communications (VZ)income of $60.25
Here is a chart showing DivGro's monthly dividends plotted against projected monthly dividend income (PMDI). It is clear that quarter-ending months are huge outliers:
For this reason, 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 I would prefer to receive more evenly distributed dividends, I don't let that preference influence my investment decisions. Rather, I try to buy stocks when discounted regardless of which months dividends are paid.

Dividend Changes


In August, the following stocks announced dividend increases:
  • Lowe's (LOW)increase of 14.58%
  • Altria (MO)increase of 5.00%
These changes will increase DivGro's PADI by $60.

I like seeing dividend increases above 7%, so LOW's increase is great! The arithmetic average of this month's dividend increases is 9.8%, which easily beats inflation.

Transactions


Recently, I used a quality scoring system to assess and rank the quality of dividend growth [DG] stock. Additionally, I found high-quality dividend stocks by screening for stocks that score well in each of the five quality indicators of the quality scoring system.

Based on these exercises, I've closed three lower quality positions and added ten new positions with quality scores in the highest quality category (quality scores above 19 out of a possible 25 points).

Closed Positions
  • EPR Properties (EPR) — sold 50 shares and closed position
  • International Paper (IP) — sold 100 shares and closed position
  • Iron Mountain (IRM) — sold 200 shares and closed position
I wrote about these transactions here and here. EPR's quality score of 9 was the lowest of all my DivGro stocks, while IP and IRM scored 11 and 12 points, respectively.

New Positions
  • Nestlé SA (NSRGY) — new position of 15 shares
  • Nike (NKE) — new position of 15 shares
  • Oracle (ORCL) — new position of 25 shares
  • Mastercard (MA) — new position of 10 shares
  • Costco Wholesale (COST) — new position of 10 shares
  • Toronto-Dominion Bank (TD) — new position of 50 shares
Nestlé SA is the largest food company in the world, as measured by revenues and other metrics. The stock trades over-the-counter in the USA under the symbol NSRGY. It has a perfect quality score of 25 and I decided to open a small position at a premium price, in order to track the stock closely with a view to adding shares at a more favorable price.

NKE also has a perfect quality score of 25. I previously owned NKE and closed that position to capture gains of 37%. Now I'm revisiting the stock, though it's a much smaller position because NKE is trading at a premium to fair value. I'll wait for a more favorable price level to add more shares. 

When I opened my position, ORCL's quality score was 25, though now the stock has a quality score of 24 because its credit rating dropped to A+. According to Simply Safe Dividends, ORCL's current dividend yield of 1.80% is 16% above its 5-year average of 1.54%, so now could be a reasonable time to invest. 

Another stock with a quality score of 24 is MA, which yields only 0.48% at $271 per share. Because of MA's puny yield, many DG investors wouldn't even have the stock on their radar. But the stock is an exceptional growth stock with an impressive 10-year performance. I added a small position and will only add shares at more favorable price levels.

COST has a quality score of 23 and is another low-yielding, high-growth stock. While trading at a premium, I added a small position because of COST's impressive 5-year dividend growth rate of 13% and total annualized returns of about 20% over the past decade. 

One of North America's biggest banks, Canada-based TD also has a quality score of 23. It boasts an impressive dividend track record, with uninterrupted dividend payments since 1857. Although TD has increased its dividend every year for eight straight years, it is not included in the CCC spreadsheet. Due to exchange rate fluctuations, TD's dividend has not increased in US Dollar terms.

New Positions (Continued)
  • Bank of Nova Scotia (BNS) — new position of 50 shares
  • Canadian National Railway (CNI) — new position of 25 shares
  • Intercontinental Exchange (ICE) — new position of 25 shares
  • Anthem (ANTM) — new position of 10 shares
BNS has a quality score of 21. As a Canadian bank, BNS pays its dividend in Canadian Dollars. This means its dividend suffers from currency risk in that a stronger U.S. Dollar will tend to decrease the effective dividend amount for American shareholders. Nevertheless, I like the stock's strong dividend yield of 4.83% at $56.20 per share. 

CNI also has a quality score of 21. The railway company has an impressive track record of dividend payments and a streak of 24 years of higher calendar year dividend payments, despite paying its dividend in Canadian Dollars. The 5-year dividend growth rate is 10.9% is attractive and somewhat compensates for the lowish yield of 1.83% at $89.22 per share. 

With a quality score of 21, ICE boasts a spectacular 5-year dividend growth rate of 49%! Of course, that rate is not sustainable, but even the 1-year and 3-year dividend growth rates are impressive (20% and 18%, respectively). I opened an average-sized position and will be looking for more favorable price levels before adding shares. 

Finally, ANTM is a Health Care sector stock with a quality score of 20. It has a 5-year dividend growth rate of 15%, but a modest yield of 1.28% at $250 per share. ANTM is currently engaged in a court battle with Cigna (CI) over a failed takeover bid. Concerns over the outcome have driven down ANTM's price, but I think the stock will be fine in the long run. 

Increased Positions
  • Boeing (BA)added 10 shares and increased position to 30 shares
  • Chevron (CVX)added 56 shares and increased position to 80 shares
  • Merck (MRK)added 80 shares and increased position to 110 shares
  • Pfizer (PFE)added 100 shares and increased position to 300 shares
  • Raytheon (RTN)added 26 shares and increased position to 50 shares
  • Exxon Mobil (XOM)added 100 shares and increased position to 200 shares
I increased my holdings in several positions, in most cases due to recent lower available entry points. These are all high-quality dividend growth stocks and I'm happy to increase my share counts.

Reduced Positions
  • Quest Diagnostics (DGX)sold 100 shares and reduced position to 100 shares
I reduced my DGX position due to the assignment of a covered call option. Including the options premium, the trade produced an annualized return of 5%. 

All the abovementioned transactions contributed to an increase of DivGro's PADI by about $633.

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
Jul 31, 201926,864.272,980.388,175.422.021%16.12
Aug 31, 201926,403.282,926.467,962.881.506%18.98

In August, the DOW 30 dropped 1.7%, the S&P 500 dropped 1.8%, and the NASDAQ dropped 2.6%. The yield on the benchmark 10-year Treasury note declined to 1.506%, while CBOE's measure of market volatility, the VIX increased by 17.7%.

Portfolio Statistics


Based on the total capital invested and the portfolio's current market value, DivGro has delivered a simple return of about 49% since inception. In comparison, DivGro's IRR (internal rate of return) is 13.5%. (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 3.82% last month to 3.70% this month.

Percentage payback relates dividend income to the amount of capital invested. DivGro's average percentage payback is 14.8%, up from last month's 14.5%.

Finally, projected annual yield is calculated by dividing PADI ($25,593) by the total amount invested. DivGro's projected annual yield is at 4.63%, up from last month's value of 4.51%.

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'm looking forward to seeing if September can produce another record-breaking dividend income total for DivGro.

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

Thanks for reading and take care, everybody!

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