Monday, October 21, 2019

Quarterly Review of DivGro: Q3-2019

This is the 27th quarterly review of DivGro, my portfolio of dividend growth stocks.

My quarterly reviews summarize the transactions executed in the past quarter and provide a summary of dividend income and dividend changes. Additionally, I include charts showing various portfolio statistics. The reviews are mostly informational and help me to track progress over time.

Now in its seventh year of existence, my portfolio generated more than $6,290 of dividend income this quarter and I'm projecting dividend income of at least $6,680 per quarter going forward.

Year-to-date I've collected dividend income of $19,594 or about 78% of my 2019 goal of $25,200. DivGro's all-time dividend income total is $85,039.


Dividend Income


In Q3-2019, I collected dividend income totaling $6,293, up -1% from the dividends received in Q2-2019 and up 17% from the dividends received in Q3-2018.

71 different stocks and funds paid me quarterly dividends:
  • Apple (AAPL) — income of $77.00
  • AbbVie (ABBV) — income of $214.00
  • Archer-Daniels-Midland (ADM) — income of $70.00
  • Automatic Data Processing (ADP) — income of $7.90
  • Aflac (AFL) — income of $27.00
  • Amgen (AMGN) — income of $87.00
  • Anthem (ANTM) — income of $8.00
  • Air Products and Chemicals (APD) — income of $18.56
  • Broadcom (AVGO) — income of $53.00
  • Boeing (BA) — income of $61.65
  • Blackrock (BLK) — income of $115.50
  • Chubb (CB) — income of $37.50
  • Comcast (CMCSA) — income of $42.00
  • Cummins (CMI) — income of $65.55
  • Costco Wholesale (COST) — income of $6.50
  • Cisco Systems (CSCO) — income of $35.00
  • CVS Health (CVS) — income of $150.00
  • Chevron (CVX) — income of $95.20
  • Dominion Energy (D) — income of $91.75
  • Quest Diagnostics (DGX) — income of $106.00
  • Ford Motor (F) — income of $300.00
  • FedEx (FDX) — income of $19.50
  • General Dynamics (GD) — income of $51.00
  • Gilead Sciences (GILD) — income of $126.00
  • Gap (GPS) — income of $72.75
  • 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
  • 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 $55.00
  • McDonald's (MCD) — income of $31.32
  • Medtronic (MDT) — income of $27.00
  • 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
  • AllianzGI Equity & Convertible Income Fund (NIE) — income of $380.00
  • National Retail Properties (NNN) — income of $83.43
  • Pfizer (PFE) — income of $72.00
  • Procter & Gamble (PG) — income of $74.59
  • Philip Morris International (PM) — income of $114.00
  • Public Storage (PSA) — income of $60.00
  • Qualcomm (QCOM) — income of $21.70
  • Raytheon (RTN) — income of $22.62
  • Starbucks (SBUX) — income of $36.00
  • Tanger Factory Outlet Centers (SKT) — income of $177.50
  • Snap-On (SNA) — income of $23.75
  • Simon Property (SPG) — income of $126.00
  • Stanley Black & Decker (SWK) — income of $34.50
  • AT&T (T) — income of $306.00
  • TJX (TJX) — income of $46.00
  • T Rowe Price (TROW) — income of $152.00
  • Texas Instruments (TXN) — income of $57.75
  • Unitedhealth (UNH) — income of $43.20
  • 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 $137.25
  • Wells Fargo (WFC) — income of $51.00
  • WP Carey (WPC) — income of $51.70
  • 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 $37.50
  • Main Street Capital (MAIN) — income of $153.75
  • Realty Income (O) — income of $33.98
One stock paid an annual dividend this quarter:
  • Taiwan Semiconductor Manufacturing (TSM) — income of $257.74
Finally, I received one semi-annual dividend payment:
  • Walt Disney (DIS) — income of $176.00
The following chart shows DivGro's dividend income by quarter:


Dividend Changes


Last quarter, I reported projected annual dividend income (PADI) of $24,310. This quarter, PADI increased to $25,789 and relative to the total capital invested, DivGro's projected annual yield is 4.66%.

The following table shows the stocks that announced dividend increases in Q3-2019. I'm including the new annual dividend and yield on cost (YoC).

Company
 Ticker
Increase Annual Div
 New YoC
Texas Instruments
TXN
16.88%
$3.08
3.90%
Cummins
CMI
15.00%
$5.24
4.43%
Lowe's
LOW
14.58%
$2.20
2.38%
Wells Fargo
WFC
13.33%
$2.04
4.44%
Microsoft
MSFT
 10.87%
$2.04
4.37%
Union Pacific
UNP
  10.23%
$3.88
2.73%
Honeywell
HON
  9.76%
$3.60
2.47%
Lockheed Martin
LMT
  9.09%
$9.60
5.31%
McDonald's
MCD
  7.76%
$5.00
5.32%
 Altria
MO
5.00%
$3.36
6.74%
Stanley Black & Decker
SWK
 4.55%
$2.76
2.17%
Walgreens Boots Alliance
WBA
 3.98%
$1.83
2.96%
National Retail Properties
NNN
 3.00%
$2.06
5.21%
Chubb
CB
 2.74%
$3.00
2.59%
Main Street Capital
MAIN
 2.50%
$2.46
10.71%
Realty Income
O
 0.22%
$2.72
5.75%
WP Carey
WPC
 0.19%
$4.14
6.37%

DivGro's average YoC is 3.70%, down from the 3.83% reported at the end of Q2-2019.

I'd like to see dividend increases of at least 7%. Nine dividend increases in the table topped 7% and the arithmetic average of all the increases in Q3-2019 is 7.63%.

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 September 2019:



At 9.9%, 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
WP Carey
WPC
4.45%
1.96% 
6.41%
AT&T
T
5.34%
2.09% 
7.43%
Chevron
CVX
4.08%
2.15%
6.23%
Verizon Communications
VZ
3.97%
2.26%
6.23%
Bank of Nova Scotia
BNS
4.53%
2.98%
7.51%
Procter & Gamble
PG
 2.51%
2.99%
5.50%
Philip Morris International
PM
 5.57%
3.19%
8.76%
Royal Bank of Canada
RY
 3.72%
3.41%
7.13%
Main Street Capital
MAIN
 5.79%
3.82%
9.61%
National Retail Properties
NNN
 3.57%
4.16%
7.73%
Realty Income
O
 3.41%
4.39%
7.80%
 Merck
MRK
2.60%
4.56%
7.16%
Exxon Mobil
XOM
 5.06%
4.75%
9.81%

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 the stocks with CDRs below 8%.

Transactions


This quarter I deployed new capital and options income to add new positions and to expand existing positions. I also trimmed and closed some positions.

New Positions
  • Anthem (ANTM) — new position of 10 shares
  • Bank of Nova Scotia (BNS) — new position of 50 shares
  • Canadian National Railway (CNI) — new position of 25 shares
  • Costco Wholesale (COST) — new position of 10 shares
  • Intercontinental Exchange (ICE) — new position of 25 shares
  • Mastercard (MA) — new position of 10 shares
  • Nike (NKE) — new position of 15 shares
  • Nestlé SA (NSRGY) — new position of 15 shares
  • Oracle (ORCL) — new position of 25 shares
  • Toronto-Dominion Bank (TD) — new position of 50 shares
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
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
  • Oracle (ORCL) — added 100 shares and increased position to 125 shares
  • Pfizer (PFE) — added 100 shares and increased position to 300 shares
  • Philip Morris International (PM) — added 20 shares and increased my position to 120 shares
  • Raytheon (RTN) — added 26 shares and increased position to 50 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
  • Exxon Mobil (XOM) — added 100 shares and increased position to 200 shares
Reduced Positions
  • Quest Diagnostics (DGX) — 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 94 different positions. Of these, 83 are dividend growth stocks, six 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 Q3-2019, DivGro's market value represented a simple gain of 53% 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%.



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.



At 3.05%, Intel (INTC) and Walt Disney (DIS) are my largest positions, followed by Apple (AAPL) at 2.81%, AT&T (T) at 2.68% and T. Rowe Price (TROW) at 2.59%. 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 4.75%:



Single positions that contribute more than 6% to DivGro's PADI make me nervous. While T's contribution is less than 5%, the stock's dividend safety score is 55 and deemed to be Borderline Safe. I'm not too concerned about T's dividend safety, but 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:



At 8.38%, Tanger Factory Outlet Centers (SKT) remains the top-yielding position in DivGro, followed Altria (MO) with 7.37%. The arithmetic average yield of my portfolio is 2.87%. Instead, if I weigh yields based on each position's contribution to PADI, then the average yield is 3.72%.

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.



Main Street Capital (MAIN) is my oldest position with a payback of 74%.

DivGro's position-weighted average payback percentage is 8.2%.

Concluding Remarks


I'm happy with DivGro's overall composition and performance. I'll continue to monitor the quality of my holdings and target the highest-quality stocks when deploying available capital, particularly when these stocks trade at or below fair value.

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