Thursday, January 9, 2020

Quarterly Review of DivGro: Q4 2019

This is the 28th 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.

My portfolio generated $5,769 of dividend income this quarter and I'm projecting dividend income of at least $8,786 per quarter going forward.

Year-to-date I've collected dividend income of $25,542 or about 101% of my 2019 goal of $25,200. DivGro's all-time dividend income total is $90,987.


Dividend Income


In Q4 2019, I collected dividend income totaling $5,769, down 12% from the dividends received in Q3 2019 but up 2% from the dividends received in Q4 2018.

I received quarterly dividends from 78 different stocks and funds:
  • Apple (AAPL) — income of $77.00
  • AbbVie (ABBV) — income of $214.00
  • Accenture (ACN) — income of $8.00
  • Archer-Daniels-Midland (ADM) — income of $105.00
  • 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
  • Bank of Nova Scotia (BNS) — income of $34.37
  • Chubb (CB) — income of $37.50
  • Comcast (CMCSA) — income of $42.00
  • Cummins (CMI) — income of $65.55
  • Canadian National Railway (CNI) — income of $10.12
  • 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 $53.00
  • 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 $54.00
  • Hormel Foods (HRL) — income of $21.00
  • International Business Machines (IBM) — income of $48.60
  • Intel (INTC) — income of $94.50
  • Illinois Tool Works (ITW) — income of $40.66
  • Johnson & Johnson (JNJ) — income of $117.80
  • JPMorgan Chase (JPM) — income of $36.00
  • Coca-Cola (KO) — income of $160.00
  • Lockheed Martin (LMT) — income of $33.60
  • Lowe's (LOW) — income of $55.00
  • Mastercard (MA) — income of $3.30
  • McDonald's (MCD) — income of $33.75
  • Medtronic (MDT) — income of $27.00
  • 3M (MMM) — income of $144.00
  • Altria (MO) — income of $168.00
  • Merck (MRK) — income of $60.50
  • Microsoft (MSFT) — income of $51.00
  • NextEra Energy (NEE) — income of $31.25
  • National Retail Properties (NNN) — income of $83.43
  • Oracle (ORCL) — income of $30.00
  • Pfizer (PFE) — income of $108.00
  • Procter & Gamble (PG) — income of $74.59
  • Philip Morris International (PM) — income of $140.40
  • Public Storage (PSA) — income of $60.00
  • Qualcomm (QCOM) — income of $21.70
  • Raytheon (RTN) — income of $47.12
  • Royal Bank of Canada (RY) — income of $19.73
  • Starbucks (SBUX) — income of $41.00
  • Tanger Factory Outlet Centers (SKT) — income of $177.50
  • Snap-On (SNA) — income of $27.00
  • Simon Property (SPG) — income of $168.00
  • Stanley Black & Decker (SWK) — income of $34.50
  • Stryker (SYK) — income of $5.20
  • AT&T (T) — income of $306.00
  • Toronto-Dominion Bank (TD) — income of $28.10
  • TJX (TJX) — income of $46.00
  • T Rowe Price (TROW) — income of $152.00
  • Taiwan Semiconductor Manufacturing (TSM) — income of $97.27
  • Texas Instruments (TXN) — income of $67.50
  • Unitedhealth (UNH) — income of $43.20
  • Union Pacific (UNP) — income of $38.80
  • United Parcel Service (UPS) — income of $96.00
  • Visa (V) — income of $5.10
  • Valero Energy (VLO) — income of $166.50
  • Verizon Communications (VZ) — income of $61.50
  • Walgreens Boots Alliance (WBA) — income of $137.25
  • Wells Fargo (WFC) — income of $51.00
  • WP Carey (WPC) — income of $51.80
  • Xcel Energy (XEL) — income of $26.33
  • Exxon Mobil (XOM) — income of $174.00
Additionally, 2 different stocks paid me monthly dividends:
  • Main Street Capital (MAIN) — income of $213.75
  • Realty Income (O) — income of $34.05
      The following chart shows DivGro's dividend income by quarter:


      Dividend Changes


      Last quarter, I reported projected annual dividend income (PADI) of $25,789. This quarter, PADI increased to $26,358 and relative to the total capital invested, DivGro's projected annual yield is 4.75%.

      The following table shows the stocks that announced dividend increases in Q4 2019. I'm including the new annual dividend and yield on cost (YoC).

      Company
       Ticker
      Increase Annual Div
       New YoC
      Hormel Foods
      HRL
      10.71%
      0.93
      2.68%
      Stryker
      SYK
      10.58%
      2.30
      1.10%
      Amgen
      AMGN
      10.34%
      6.40
      3.44%
      AbbVie
      ABBV
      10.28%
      4.72
      7.66%
      Accenture
      ACN
      9.59%
      3.20
      1.82%
      Illinois Tool Works
      ITW
      7.00%
      4.28
      3.15%
      Pfizer
      PFE
      5.56%
      1.52
      4.10%
      Bank of Nova Scotia
      BNS
      5.34%
      2.75
      5.05%
      Toronto-Dominion Bank
      TD
      4.08%
      2.25
      3.98%
      Royal Bank of Canada
      RY
      3.16%
      3.06
      4.02%
      Philip Morris International
      PM
      2.63%
      4.68
      5.83%
      Simon Property
      SPG
      2.44%
      8.20
      5.03%
      Verizon Communications
      VZ
      2.07%
      2.46
      5.23%
      AT&T
      T
      1.96%
      2.08
      6.46%
      Taiwan Semiconductor Manufacturing
      TSM
      0.65%
      1.30
      3.06%
      Realty Income
      O
      0.22%
      2.73
      5.76%
      WP Carey
      WPC
      0.19%
      4.15
      6.38%

      DivGro's average YoC is 3.65%, down from the 3.70% reported at the end of Q3 2019.

      I'd like to see dividend increases of at least 7%. Only six dividend increases in the table topped 7%. Fortunately, the arithmetic average of the increases in Q4 2019 is 8.63%.

      Dividend Growth


      Some stocks announce dividend increases more than once per year, so when considering dividend growth, 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 31 December 2019:



      At 9.32%, 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
       Sector
      Yield 5-Yr DGR
       CDR
      WP Carey
      WPC
      Real Estate
      5.18% 
      1.79% 
        6.97%
      AT&T
      T
      Communication Services
      5.33% 
      2.04% 
        7.37%
      Chevron
      CVX
      Energy
      3.93% 
      2.15%
        6.08%
      Verizon Communications
      VZ
      Communication Services
      4.07% 
      2.26%
        6.33%
      Procter & Gamble
      PG
      Consumer Staples
       2.43% 
      2.99%
        5.42%
      Philip Morris International
      PM
      Consumer Staples
       5.50% 
      3.19%
       8.69%
      Main Street Capital
      MAIN
      Financials
       5.67% 
      3.82%
        9.49%
      National Retail Properties
      NNN
      Real Estate
       3.87% 
      4.16%
        8.03%
      Realty Income
      O
      Real Estate
       3.70% 
      4.40%
        8.10%
      Exxon Mobil
      XOM
      Energy
       4.95% 
      4.75%
        9.70%
      Digital Realty Trust
      DLR
      Real Estate
       3.60% 
      5.41%
        9.01%
      Coca-Cola
      KO
      Consumer Staples
       2.93% 
      5.57%
        8.50%
      Pinnacle West Capital
      PNW
      Utilities
       3.52% 
      5.63%
        9.15%
      Stanley Black & Decker
      SWK
      Industrials
       1.65% 
      5.82%
        7.47%
      Xcel Energy
      XEL
      Utilities
       2.58% 
      6.19%
        8.77%
      Merck
      MRK
      Health Care
       2.67% 
      6.27%
        8.94%
      Walgreens Boots Alliance
      WBA
      Consumer Staples
       3.10% 
      6.27%
        9.37%
      Johnson & Johnson
      JNJ
      Health Care
       2.63% 
      6.30%
        8.93%
      Pfizer
      PFE
      Health Care
       3.90% 
      6.30%
      10.20%
      Aflac
      AFL
      Financials
       2.04% 
      6.72%
        8.76%
      Intel
      INTC
      Information Technology
       2.10% 
      6.96%
        9.06%

      Proposed by Seeking Alpha author Chowder, the CDR measures the likelihood of stocks to produce annualized returns of 8%. Chowder used 8 as a minimum number for utilities yielding at least 4%, 12 for stocks yielding at least 3%, and 15 for stocks yielding less than 3%.

      I color-code the CDN column as follows:
      • green indicates suitable candidates (stocks likely to deliver annualized returns of 8%)
      • yellow indicates possible candidates (stocks less likely to deliver annualized returns of 8%)
      • red indicates unsuitable candidates (stocks unlikely to deliver annualized returns of 8%)
      I use 5 as the threshold number for utilities yielding at least 4%, 8 for stocks yielding at least 3%, and 10 for stocks yielding less than 3%.

      So, for example, for stocks yielding at least 3%:
      red < 8 ≤ yellow < 12 ≤ green
      If the CDR column is colored yellow,  then the position warrants closer monitoring. And if the CDR column is colored red, then due diligence and a consequential decision about the position is called for. There are several positions I'll need to look into to see if action is required.

      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 Position
      • Pinnacle West Capital (PNW) — new position of 50 shares
      Closed Positions
      • Ford Computer (F) — sold 2000 shares and closed position
      • Gap (GPS) — sold 300 shares and closed position
      Increased Positions
      • Archer-Daniels-Midland (ADM) — added 100 shares and increased position to 300 shares
      • Bank of Nova Scotia (BNS) — added 50 shares and increased position to 100 shares
      • Cisco Systems (CSCO) — added 100 shares and increased position to 200 shares
      • FedEx (FDX) — added 45 shares and increased position to 75 shares
      • 3M (MMM) — added 40 shares and increased position to 100 shares
      • Oracle (ORCL) — added 15 shares and increased position to 140 shares
      • Royal Bank of Canada (RY) — added 25 shares and increased my position to 50 shares
      • Simon Property (SPG) — added 20 shares and increased my position to 80 shares
      • Toronto-Dominion Bank (TD) — added 150 shares and increased my position to 200 shares
      • Union Pacific (UNP) — added 8 shares and increased position to 48 shares
      • United Parcel Service (UPS) — added 50 shares and increased position to 100 shares
      • Wells Fargo (WFC) — added 100 shares and increased my position to 200 shares
      Reduced Positions
      • Intel (INTC) — sold 200 shares and reduced position to 300 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 93 different positions. Of these, 81 are dividend growth stocks, seven 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 Q4 2019, DivGro's market value represented a simple gain of 66% 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 15.5%.



      Portfolio Statistics


      In quarterly reviews, I like to present 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 3.23% and 3.18%, respectively, Apple (AAPL) and Walt Disney (DIS) are my largest positions, followed by T. Rowe Price (TROW) at 2.71% and AT&T (T) at 2.54%. 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 4.73%:



      Single positions that contribute more than 6% to DivGro's PADI make me nervous. Fortunately, I have none at this time.

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



      At 9.96%, Tanger Factory Outlet Centers (SKT) is the top-yielding position in DivGro, followed Altria (MO) with 6.77%. The arithmetic average yield of my portfolio is 2.82%. If instead, I weigh yields based on each position's contribution to PADI, then the average yield is 3.69%.

      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 and has, by far, the largest payback in my portfolio.

      DivGro's position-weighted average payback percentage is 8.84%.

      Concluding Remarks


      I'm happy with DivGro's overall composition and performance. When deploying available capital, I'll focus on buying high-quality stocks trading at or below fair value.

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      8 comments :

      1. Absolutely wonderful, DivGro. I love all the charts you put up and looks like a solid year for you. Best wishes in 2020 and beyond.

        R2R

        ReplyDelete
        Replies
        1. Thanks, R2R -- I appreciate your comment. Thankfully, 2019 was a much better year than 2018! Let's hope 2020 brings us more dividend growth! Take care and all the best in the new year!

          Delete
      2. You absolutely killed it in 2019. You have built quite a nice portfolio of good companies who keep growing their dividends. The fact that you sell options just helps you increase the value of your portfolio. Keep up the good work. I look forward to seeing how you do in 2020!

        -Jason

        ReplyDelete
        Replies
        1. Thanks, Jason! Really appreciate your comment and kind words! We'll see what 2020 brings, but I think my portfolio is well-positioned for either a continuation of the bull market or for the increased volatility when the bear takes over. We'll see how it goes!

          Delete
      3. oh wow great results.
        Question. With all this Div income, isn't your tax bill a little high? Do you shelter it in a 401k or IRA or a sort or is it all held in a taxable account?

        ReplyDelete
        Replies
        1. Thanks for commenting, Anonymous -- my portfolio is spread across taxable and IRA accounts.

          Do you think there's a better alternative than investing in dividend-paying stocks?

          Delete
      4. Hello there DivGro!
        First of all, love your blogg, been reading daily for a few years.

        I have a question about sector allocation, what are your thoughts about that?
        Do you have a "distributions by sector" goal? Are there any sectors that you consider more/less important? And ideal spread among the sectors? :)

        Im asking becouse i have recently been taking a closer look at by sectors and discovering that some are a bit to large (i think) and some almost none existing..

        Regards
        from Sweden

        ReplyDelete
        Replies
        1. Hi, Dividendius -- thanks for your comment and kind words.

          I don't have sector allocation targets or sectors I consider more or less important. Mostly, my sector allocation results from buying high-quality stocks available at favorable valuations. The exception is that I looked hard to find a Materials sector stock, since I had no representation in that sector for quite a while. Finally, I settled on $APD.

          I'm heaviest in Information Technology, probably due to the growth prospects but also because I'm in the field and therefore more familiar with companies in this sector. Some sectors are deemed defensive and others cyclical. I know some DGI's use those designations to direct their sector allocations (and avoid being too heavy in Information Technology) -- I don't.

          Take care and happy investing!

          Delete

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