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Sunday, March 15, 2020

Monthly Review Of DivGro: February 2020

Once a month, I review my portfolio of dividend growth stocks, DivGro. The goal of these reviews is to provide a summary of dividends received and to detail buy and sell transactions. I also look at how DivGro's projected annual dividend income (PADI) has changed.

In January, I closed three positions and added shares to four existing positions. Twelve DivGro stocks announced dividend increases in January. The net result of these changes is that PADI increased by about 0.8% in January. Year over year, PADI increased by 5.7%.

As for dividend income, in January I received dividends totaling $1,899 from 27 stocks in my portfolio, a year over year increase of 8%. So far in 2020, I've collected $1,899 in dividends or about 7% of my 2020 goal of $27,000.

Assuming the status quo and given DivGro's PADI of $26,457, I can expect to receive $2,205 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 received dividends from 21 different stocks, for a monthly total of $1,669 in dividend income:

Following is a list of the dividends I collected in February:
  • Apple (AAPL)income of $77.00
  • AbbVie (ABBV)income of $236.00
  • Accenture (ACN)income of $8.00
  • Air Products and Chemicals (APD)income of $18.56
  • Costco Wholesale (COST)income of $6.50
  • CVS Health (CVS)income of $150.00
  • General Dynamics (GD)income of $51.00
  • Hormel Foods (HRL)income of $23.25
  • Lowe's (LOW)income of $55.00
  • Mastercard (MA)income of $12.00
  • Main Street Capital (MAIN)income of $51.25
  • National Retail Properties (NNN)income of $83.43
  • Realty Income (O)income of $11.63
  • Procter & Gamble (PG)income of $18.65
  • Royal Bank of Canada (RY)income of $39.51
  • Starbucks (SBUX)income of $41.00
  • Tanger Factory Outlet Centers (SKT)income of $177.50
  • Simon Property (SPG)income of $168.00
  • AT&T (T)income of $312.00
  • Texas Instruments (TXN)income of $67.50
  • Verizon Communications (VZ)income of $61.50
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 February, the following stocks announced dividend increases:
  • Aflac (AFL)increase of 3.70%
  • Cisco Systems (CSCO)increase of 2.86%
  • Gilead Sciences (GILD)increase of 7.94%
  • Intercontinental Exchange (ICE)increase of 9.09%
  • Coca-Cola (KO)increase of 2.50%
  • 3M (MMM)increase of 2.08%
  • NextEra Energy (NEE)increase of 12.00%
  • Royal Bank of Canada (RY)increase of 0.13%
  • T Rowe Price (TROW)increase of 18.42%
  • United Parcel Service (UPS)increase of 5.21%
  • Xcel Energy (XEL)increase of 6.17%
These changes will increase DivGro's PADI by $228.

I like seeing dividend increases above 7%, so only four of the eleven increases top my expectations. The arithmetic average of this month's dividend increases is 6.4%, which easily beats inflation.


Here is a summary of my transactions in February:

  • Quest Diagnostics (DGX)sold 100 shares and closed position
  • Tanger Factory Outlet Centers (SKT)sold 500 shares and closed position
Last year I sold a $100 covered call option on DGX with an expiration date of 21 February 2020 for $675. Due to another assignment (which caused me to buy shares), I decided to let this covered call expire rather than attempting to roll it forward, as I normally do. Closing my DGX position delivered total annualized returns (including dividends) of about 21%. 

I also decided to close my SKT position for a loss. With a quality score of only 8 (out of 25), SKT is a speculative position with an Inferior rating. I'm happy that I got out at $12.71 per share, as SKT is trading below $9 per share now (after reaching a new 52-low of $8.01 per share!). My speculation turned out badly, with a total annualized loss of about 27%.
  • Johnson & Johnson (JNJ) — sold 100 shares and reduced position to 24 shares
I trimmed my JNJ position due to another options assignment, selling 100 shares for $140 per share. With JNJ now trading just above $134 per share, the assignment somewhat worked in my favor! If I wanted, I could replace my shares at a lower cost basis! The trade resulted in a total annualized return of about 13%. 
  • Chubb (CB) — sold 26 shares and reduced position to 24 shares
  • Procter & Gamble (PG) — sold 75 shares and reduced position to 25 shares
As mentioned in last month's review, in 2020 I'm looking to favor high-quality dividend growth stocks that are likely to deliver annualized returns of 8%. To find such candidates, I'm paying attention to the Chowder Number [CDNs] of each dividend growth stock in my portfolio.

After reviewing the CDNs of the stocks in my portfolio, I decided to trim CB and PG. Each stock has a CDN of only 5 and delivering annualized returns in excess of 8% seems unlikely.

Trimming CB resulted in total annualized returns of about 20%. My timing was opportune, as CB dropped some 26% since the trade and is now trading for $121.86 per share. Similarly, PG dropped since my trade and is about 9% below my sell price. In all, I made about 19% on an annualized basis with my PG trade.
  • Amgen (AMGN) — sold 10 shares and reduced position to 50 shares
I also decided to trim AMGN but not because I think the stock won't deliver the annualized returns I'm looking for. The reason I targeted AMGN is that my position was larger than a full position and was split over two accounts. I decided to sell the AMGN shares in one account to free up cash and to reduce my overall AMGN holding to more closely match what I consider to be a full position. The trade delivered total annualized returns of 24%. 


Whereas the abovementioned sell transactions before the precipitous market drop may look smart, there was no intentional market timing involved. Similarly, the buy transactions below may look dumb, upon reflection. (If only I had waited until the market tanked!)
  • Automatic Data Processing (ADP) — added 50 shares and increased position to 60 shares
  • Cummins (CMI) — added 10 shares and increased position to 60 shares
  • International Business Machines (IBM) — added 40 shares and increased position to 70 shares
  • Intercontinental Exchange (ICE) — added 75 shares and increased position to 100 shares
  • JPMorgan Chase (JPM) — added 30 shares and increased position to 70 shares
  • Mastercard (MA) — added 20 shares and increased position to 30 shares
  • Public Storage (PSA) — added 15 shares and increased position to 45 shares
  • Snap-On (SNA) — added 35 shares and increased position to 60 shares
For the most part, I focused on adding shares to high-quality positions (rated Exceptional and Excellent) and those with favorable CDNs, in order to bring these positions to full positions:

All of these positions are now full positions. With the exception of PSA, all these stocks are trading below fair value and are suitable for additional investment, in my view.

Phillips 66 (PSX) — new position of 100 shares

Finally, I opened a new position in PSX due to an options assignment. After the market's downward spiral due to concerns about the impact of COVIT-19, including a global recession that top economists say already is here, my position is down by about 50%. That really hurts, but PSX is a solid dividend growth stock, which I believe it will be fine in the long run. I'll have to be patient, though, while enjoying the $360 in annual dividends my investment will generate.
    In all, this month's transactions decreased DivGro's PADI by about $330.


    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:

    Jan 31, 202028,256.033,225.529,150.941.5218.84
    Feb 29, 202025,409.362,954.228,567.371.12740.11

    In February, the DOW 30 dropped 10.1%, the S&P 500 dropped 8.4%, and the NASDAQ dropped 6.4%. The yield on the benchmark 10-year Treasury note dropped to 1.127%, while CBOE's measure of market volatility, the VIX, more than doubled to 40.11.

    Portfolio Statistics

    Given DivGro's current market value and the total capital invested, the portfolio has returned about 48% 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 11.7%.

    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 3.69% 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 16.5%, down from last month's 16.7%.

    Finally, projected annual yield is calculated by dividing PADI ($26,457) by the total amount invested. DivGro's projected annual yield is at 4.61%, down from last month's value of 4.76%.

    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

    The 11-year bull run is done and the bears have taken over! My portfolio is taking quite a hit, as is evident in the above chart where the green bar representing capital gain is appreciably shorter. But I'm a dividend growth investor and the pink-colored bar representing dividends continues to rise.

    As long as the companies I've invested in avoid dividend cuts, I should be fine in the long run. And the good news is buying more shares and increasing my dividend income will be much cheaper than just a month ago!

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

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    1. Hi, Very Good Article. I really appreciate it. Well researched article. Now you got one regular visitor to your website for new topics. Thanks for always sharing.

      1. Thanks, Victoria -- I appreciate your comment and support~ I hope you continue to find value in my articles. Take care and happy investing~!


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