Wednesday, November 6, 2019

Monthly Review Of DivGro: October 2019

Once a month, I review my portfolio of dividend growth stocks, DivGro. I present details of any buys or sells, and I provide a summary of dividends collected. I also consider the impact on DivGro's projected annual dividend income (PADI).

In October, I closed two positions and added shares to five existing positions. Five DivGro stocks announced dividend increases in October. The net result of these changes is that PADI decreased by about 2.8% in October. Year over year, PADI increased by 13.5%.

As for dividend income, in October I received dividends totaling $1,209 from 24 stocks in my portfolio, a year over year increase of 8%. So far in 2019, I've collected $20,803 in dividends or about 83% of my 2019 goal of $25,200.


Assuming the status quo and given DivGro's PADI of $25,078, I can expect to receive $2,090 in dividend income per month, on average, in perpetuity. Of course, most of the stocks I own are dividend growers, so I expect my dividend income to increase over time! 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 collected dividends totaling $1,209 from 24 different stocks in October:
Following is a list of the dividends I collected in October:
  • Automatic Data Processing (ADP)income of $7.90
  • Broadcom (AVGO)income of $53.00
  • Bank of Nova Scotia (BNS)income of $34.37
  • Chubb (CB)income of $37.50
  • Comcast (CMCSA)income of $42.00
  • Cisco Systems (CSCO)income of $35.00
  • Quest Diagnostics (DGX)income of $53.00
  • FedEx (FDX)income of $19.50
  • Gap (GPS)income of $72.75
  • Illinois Tool Works (ITW)income of $40.66
  • JPMorgan Chase (JPM)income of $36.00
  • 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 $168.00
  • Merck (MRK)income of $60.50
  • Realty Income (O)income of $11.35
  • Oracle (ORCL)income of $30.00
  • Philip Morris International (PM)income of $140.40
  • Stryker (SYK)income of $5.20
  • Toronto-Dominion Bank (TD)income of $28.10
  • Taiwan Semiconductor Manufacturing (TSM)income of $97.27
  • WP Carey (WPC)income of $51.80
  • Xcel Energy (XEL)income of $26.33
Here is a chart showing DivGro's monthly dividends plotted against PMDI. It is clear that 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 don't want to change my investment decisions based on the timing or frequency of dividend payments.

Dividend Changes


In October, the following stocks announced dividend increases:
  • Illinois Tool Works (ITW) — increase of 7.00%
  • Philip Morris International (PM) — increase of 2.63%
  • Starbucks (SBUX) — increase of 13.89%
Two stocks paying dividends in CA$ increased their payments in US$ terms:
  • Bank of Nova Scotia (BNS)increase of 5.34%
  • Toronto-Dominion Bank (TD)increase of 4.08%
Another stock paying dividends in NT$ decreased its payment in US$ terms:
  • Taiwan Semiconductor Manufacturing (TSM) — decrease of 0.64%
These changes will increase DivGro's PADI by $54.

I like seeing dividend increases above 7%, so two of these increases top my expectations! The arithmetic average of this month's dividend increases is 5.4%, which easily beats inflation.

Transactions


I've been using a quality scoring system to assess and rank the quality of dividend growth stocks in my portfolio. After applying the same system to dividend-paying stocks in my portfolio, I found two lower-quality stocks that I decided to remove from my portfolio.

Closed Positions


  • Ford Motor (F) — sold 2,000 shares and closed position
  • Gap (GPS) — sold 300 shares and closed position
I wrote about these transactions here and here.

Essentially, I decided to close these positions because they have relatively poor quality scores:



Clearly, F and GPS are outliers with Medium-Quality and Low-Quality scores, respectively.

The impact of closing these positions is that DivGro's PADI decreased by $1,491, which is a rather large cut! To somewhat compensate, I redeployed capital by adding to several higher-quality positions trading at favorable valuations (based on a valuation analysis by Simply Safe Dividends).

Increased Positions
  • Archer-Daniels-Midland (ADM)added 100 shares and increased position to 300 shares
  • Cisco Systems (CSCO)added 100 shares and increased position to 200 shares
  • FedEx (FDX)added 20 shares and increased position to 50 shares
  • 3M (MMM)added 40 shares and increased position to 100 shares
  • Simon Property (SPG)added 20 shares and increased position to 80 shares
These buys added $726 to DivGro's PADI.

ADM has a High-Quality score of 17 and its current dividend yield of 3.26% is 11% above its 5-year average of 2.95%, indicating that ADM could be trading below fair value. The average cost basis of my ADM position is $43.30 and my average yield on cost is 3.23%.

Due to an options assignment, I added 100 shares to double my CSCO position. CSCO's quality score is 24, making it one of my Highest Quality stocks. The average cost basis of my CSCO position is $42.09 and my average yield on cost is 3.33%.

FDX has a quality score of 21 (Highest Quality) and FDX's current dividend yield of 1.59% is 87% above its 5-year average of 0.85%, indicating that FDX is trading below fair value. The average cost basis of my FDX position is $163.05 and my average yield on cost is 1.59%.

Like CSCO, MMM's quality score is 24. MMM's current dividend yield of 3.33% is 28% above its 5-year average of 2.60%, indicating that MMM probably is trading below fair value. The average cost basis of my MMM position is $179.36 and my average yield on cost is 3.21%.

Finally, SPG has a High-Quality score of 19 and its current dividend yield of 5.35% is 26% above its 5-year average of 4.24%, indicating that SPG probably is trading at a discount to fair value. The average cost basis of my SPG position is $167.11 and my average yield on cost is 4.91%.

Markets


Here is a summary of various market indicators, showing the changes over the last month:

DOW
30
S&P
500
NASDAQ
Composite
10-YR
BOND
CBOE
VIX
Sep 30, 201926,916.832,976.747,999.341.644%16.24
Oct 31, 201927,046.233,037.568,292.361.728%13.22

In October, the DOW 30 gained 0.5%, the S&P 500 gained 2.0%, and the NASDAQ gained 3.7%. The yield on the benchmark 10-year Treasury note rose to 1.728%, while CBOE's measure of market volatility, the VIX decreased by about 18.6%.

Portfolio Statistics


Given DivGro's current market value and the total capital invested, the portfolio has returned about 59% since inception. But calculating the IRR (internal rate of return) gives a better measure of portfolio performance, as IRR takes into account the timing and size of deposits since inception. DivGro's IRR is 14.8%.

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 3.70% last month to 3.61% this month.

Another interesting statistic is percentage payback, which relates dividend income to the amount of capital invested. DivGro's average percentage payback is 15.6%, up from last month's 15.4%.

Finally, the projected annual yield is calculated by dividing PADI ($25,078) by the total amount invested. DivGro's projected annual yield is at 4.53%, down from last month's value of 4.66%.

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:

Concluding Remarks


As mentioned earlier, the net result of October's transactions is that DivGro's PADI decreased by about 2.8% (or $711). Unfortunately, this puts me well behind pace with regards to my goal of increasing PADI to $27,000 by year-end. In fact, it is unlikely that I'll achieve it.

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.

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

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