Saturday, April 18, 2020

Quarterly Review of DivGro: Q1 2020

Welcome to the 29th quarterly review of DivGro, my portfolio of dividend growth stocks.

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

DivGro generated more than $6,550 of dividend income this quarter and I'm projecting dividend income of at least $7,610 per quarter going forward.

Year-to-date I've collected dividend income of $7,013 or about 26% of my 2020 goal of $27,000. DivGro's all-time dividend income total is $98,000.


Dividend Income


In Q1-2020, I collected dividend income totaling $6,559, up 10% from the dividends received in Q4-2019 and up -2% from the dividends received in Q1-2019.

I received quarterly dividends from 73 different stocks:
  • Apple (AAPL) — income of $77.00
  • AbbVie (ABBV) — income of $236.00
  • Accenture (ACN) — income of $8.00
  • Archer-Daniels-Midland (ADM) — income of $108.00
  • Automatic Data Processing (ADP) — income of $9.10
  • Aflac (AFL) — income of $28.00
  • Amgen (AMGN) — income of $80.00
  • Anthem (ANTM) — income of $9.50
  • Air Products and Chemicals (APD) — income of $18.56
  • Blackrock (BLK) — income of $127.05
  • Bank of Nova Scotia (BNS) — income of $68.13
  • 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 $70.00
  • CVS Health (CVS) — income of $150.00
  • Chevron (CVX) — income of $103.20
  • Dominion Energy (D) — income of $94.00
  • Quest Diagnostics (DGX) — income of $53.00
  • Digital Realty Trust (DLR) — income of $48.60
  • FedEx (FDX) — income of $48.75
  • General Dynamics (GD) — income of $51.00
  • Gilead Sciences (GILD) — income of $136.00
  • Home Depot (HD) — income of $90.00
  • Honeywell International (HON) — income of $54.00
  • Hormel Foods (HRL) — income of $23.25
  • International Business Machines (IBM) — income of $48.60
  • Intel (INTC) — income of $99.00
  • Illinois Tool Works (ITW) — income of $40.66
  • Johnson & Johnson (JNJ) — income of $22.80
  • JPMorgan Chase (JPM) — income of $36.00
  • Lockheed Martin (LMT) — income of $33.60
  • Lowe's (LOW) — income of $55.00
  • Mastercard (MA) — income of $12.00
  • McDonald's (MCD) — income of $33.75
  • Medtronic (MDT) — income of $27.00
  • 3M (MMM) — income of $147.00
  • Altria (MO) — income of $168.00
  • Merck (MRK) — income of $67.10
  • Microsoft (MSFT) — income of $51.00
  • NextEra Energy (NEE) — income of $35.00
  • Nike (NKE) — income of $3.68
  • National Retail Properties (NNN) — income of $83.43
  • Oracle (ORCL) — income of $33.60
  • PepsiCo (PEP) — income of $19.10
  • Pfizer (PFE) — income of $114.00
  • Procter & Gamble (PG) — income of $18.65
  • Philip Morris International (PM) — income of $140.40
  • Pinnacle West Capital (PNW) — income of $39.13
  • Qualcomm (QCOM) — income of $21.70
  • Raytheon (RTN) — income of $47.13
  • Royal Bank of Canada (RY) — income of $39.51
  • 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
  • Stryker (SYK) — income of $5.75
  • AT&T (T) — income of $312.00
  • Toronto-Dominion Bank (TD) — income of $111.80
  • TJX (TJX) — income of $46.00
  • T Rowe Price (TROW) — income of $180.00
  • Taiwan Semiconductor Manufacturing (TSM) — income of $125.06
  • Texas Instruments (TXN) — income of $67.50
  • Unitedhealth (UNH) — income of $43.20
  • United Parcel Service (UPS) — income of $101.00
  • Visa (V) — income of $15.00
  • Valero Energy (VLO) — income of $181.30
  • Verizon Communications (VZ) — income of $61.50
  • Walgreens Boots Alliance (WBA) — income of $137.25
  • Wells Fargo (WFC) — income of $102.00
  • WP Carey (WPC) — income of $51.90
  • Xcel Energy (XEL) — income of $26.33
  • Exxon Mobil (XOM) — income of $174.00
I also received two quarterly dividends from the following fund, one payment in January and one in March:
  • Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (NIE) — income of $760.00
Additionally, I collected monthly dividends from 2 different stocks:
  • Main Street Capital (MAIN) — income of $153.75
  • Realty Income (O) — income of $34.64
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 a projected annual dividend income (PADI) of $26,358. This quarter, PADI increased to $29,432 and relative to the total capital invested, DivGro's projected annual yield is 4.89%.

The following table shows the stocks in DivGro that announced dividend increases in Q1 2020. I'm including the new annual dividend and yield on cost (YoC).

Company
 Ticker
Increase Annual Div
 New YoC
Taiwan Semiconductor Manufacturing
TSM
28.57%
1.67
3.93%
Anthem
AMGN
18.75%
3.80
1.32%
T Rowe Price
TROW
18.42%
3.60
4.21%
Air Products and Chemicals
APD
15.52%
5.36
3.39%
NextEra Energy
NEE
12.00%
5.60
3.44%
Ross Stores
ROST
11.76%
1.14
1.32%
Home Depot
HD
10.29%
6.00
3.29%
Blackrock
BLK
10.00%
14.52
3.67%
Comcast
CMCSA
9.52%
0.92
2.78%
International Exchange
ICE
9.09%
1.20
1.28%
Valero Energy
VLO
8.89%
3.92
6.17%
Chevron
CVX
8.40%
5.16
4.50%
Gilead Sciences
GILD
7.94%
2.72
3.85%
General Dynamics
GD
7.84%
4.40
4.70%
Xcel Energy
XEL
6.17%
1.72
5.03%
United Parcel Service
UPS
5.21%
4.04
3.54%
Intel
INTC
4.76%
1.32
5.82%
Aflac
AFL
3.70%
1.12
4.47%
Digital Realty Trust
DLR
3.70%
4.48
4.03%
Archer-Daniels-Midland
ADM
2.86%
1.44
3.33%
Cisco Systems
CSCO
2.86%
1.44
3.42%
Coca-Cola
KO
2.50%
1.64
3.97%
Dominion Energy
D
2.45%
3.76
5.16%
Realty Income
O
2.20%
2.79
5.90%
3M
MMM
2.08%
5.88
3.28%
WP Carey
WPC
0.19%
4.16
6.40%


DivGro's average YoC is 3.78%, up from the 3.65% reported at the end of Q4 2019.

I'd like to see dividend increases of at least 7% and I'm happy to see fourteen such dividend increases! The arithmetic average of the increases in Q1 2020 is 7.66%.

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 March 2020:



At 8.61%, 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 CDN
WP Carey
WPC Real Estate 6.61%2.4%9
AT&T
T Communication Services 6.66%2.1%9
Verizon Communications
VZ Communication Services 4.21%2.4%7
Procter & Gamble
PG Consumer Staples 2.39%3.3%6
Philip Morris International
PM Consumer Staples 6.00%3.6%10
Main Street Capital
MAIN Financials 10.22%4.0%14
Chevron
CVX Energy 5.92%2.5%8
National Retail Properties
NNN Real Estate 6.60%4.2%11
Realty Income
O Real Estate 5.35%4.4%10
Coca-Cola
KO Consumer Staples 3.41%5.6%9
Exxon Mobil
XOM Energy 8.05%4.9%13
Archer-Daniels-Midland
ADM Consumer Staples 3.87%7.8%12
Pinnacle West Capital
PNW Utilities 3.92%5.4%9
Chubb
CB Financials 2.53%2.9%5
Digital Realty Trust
DLR Real Estate 3.00%5.4%8
Xcel Energy
XEL Utilities 2.56%6.2%9
Merck
MRK Health Care 2.92%4.9%8
Walgreens Boots Alliance
WBA Consumer Staples 4.11%6.7%11
Johnson & Johnson
JNJ Health Care 2.50%6.3%9
Pfizer
PFE Health Care 4.12%6.7%11
Intel
INTC Information Technology 2.19%7.0%9
United Parcel Service
UPS Industrials 3.93%7.5%9

I color-code the CDN column to indicate a stock's likelihood of delivering annualized returns of at least 8%. Green means likely, yellow means less likely, and red means unlikely. I consider green CDN's favorable.

This year I'm focusing on increasing DivGro's growth prospects, and I'm doing so by targeting stocks with favorable CDNs. I avoid increasing my holdings of stocks with yellow CDNs, and stocks with red CDNs are candidates for reduction or elimination.

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
  • Phillips 66 (PSX) — new position of 100 shares
  • Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO)new position of 600 shares
Closed Positions
  • Boeing (BA)sold 30 shares and closed position
  • Quest Diagnostics (DGX)sold 100 shares and closed position
  • Nestlé SA (NSRGY)sold 15 shares and closed position
  • Tanger Factory Outlet Centers (SKT)sold 500 shares and closed position
  • Stanley Black & Decker (SWK)sold 50 shares and closed position
Increased Positions
  • Automatic Data Processing (ADP)added 50 shares and increased position to 60 shares
  • Broadcom (AVGO)added 10 shares and increased position to 30 shares
  • Bank of Nova Scotia (BNS)added 125 shares and increased position to 225 shares
  • Cummins (CMI)added 10 shares and increased position to 60 shares
  • Canadian National Railway (CNI)added 100 shares and increased position to 125 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
  • Illinois Tool Works (ITW)added 22 shares and increased position to 60 shares
  • JPMorgan Chase (JPM)added 30 shares and increased position to 70 shares
  • Mastercard (MA)added 20 shares and increased position to 30 shares
  • Main Street Capital (MAIN)added 100 shares and increased position to 350 shares
  • Medtronic (MDT)added 50 shares and increased position to 100 shares
  • Oracle (ORCL)added 35 shares and increased position to 175 shares
  • Public Storage (PSA)added 15 shares and increased position to 45 shares
  • Phillips 66 (PSX)added 100 shares and increased position to 200 shares
  • Royal Bank of Canada (RY)added 100 shares and increased position to 150 shares
  • (SBUX)added 40 shares and increased position to 140 shares
  • (SNA)added 35 shares and increased position to 60 shares
  • (V)added 33 shares and increased position to 50 shares
Reduced Positions
  • Amgen (AMGN)sold 10 shares and reduced position to 50 shares
  • Chubb (CB)sold 26 shares and reduced position to 24 shares
  • Johnson & Johnson (JNJ)sold 100 shares and reduced position to 24 shares
  • Procter & Gamble (PG)sold 75 shares and reduced position to 25 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 UnsafeBorderline SafeSafe, and Very Safe dividend safety scores. (I no longer own Very Unsafe).

DivGro now contains 90 different positions. Of these, 77 are dividend growth stocks, six are dividend-paying stocks, and two are CEFs (closed-end funds). I also own five stocks that do not pay dividends.

Here is the distribution of DivGro's holdings by sector:



Market Value


At the end of Q1 2020, DivGro's market value represented a simple gain of 28% 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 7.6%.



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 3.35%, AAPL is my largest position by far. 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 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 4.27%:



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 14.97%, SPG is the top-yielding position in DivGro. I'm getting nervous about SPG if the coronavirus pandemic causes a protracted recession. We'll have to see how it goes.

The arithmetic average yield of my portfolio is 3.54%, way up from last quarter's 2.82%. If I weigh yields based on each position's contribution to PADI, then the average yield is 4.80% (versus 3.69% last quarter).

The downturn experience in Q1 2020 certainly impacted my portfolio, as the higher average yields indicate!

About half of the stocks in my portfolio fall in the lower half of the 52-week trading range, as shown in the following chart:


I find this chart particularly informative as it highlights positions that have stayed relatively strong despite the market's poor performance. Notice that JNJ is the best performer!

Concluding Remarks


Q1 2020 was a tough quarter, and DivGro's performance suffered along with that of the market.

These are tricky times, but such times create lots of opportunities! Many high-quality dividend growth stocks that traded at premium valuations just two months ago are available at discounts now!

And I'm getting my buy lists ready!

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