Sunday, January 17, 2021

Monthly Review Of DivGro: December 2020

Every month, I write a review of my portfolio of dividend growth stocks, DivGro. I provide a summary of transactions and dividends received in the past month. Additionally, I look at how the month's activities have impacted DivGro's projected annual dividend income (PADI).

In December, I executed a tax-loss harvesting strategy, closing five positions, and reducing another three positions. I use some of those proceeds to increase my holdings in eleven existing positions. Additionally, twelve DivGro stocks announced dividend increases in December. The net result of these changes is that PADI decreased by about 0.1% in December. Year over year, PADI increased by 24.3%.

As for dividend income, in December I received dividends totaling $4,112 from 49 stocks in my portfolio, a year over year increase of 36%, and a new monthly record for DivGro! In 2020, I collected a total of $30,021 in dividends, or about 111% of my 2020 goal of $27,000.

DivGro's PADI now stands at $32,768, which means I can expect to receive $2,731 in dividend income per month, on average, in perpetuity, assuming the status quo is maintained. Of course, I expect the companies I've invested in not only to continue to pay dividends but to increase them over time! Also, until I retire, I hope to continue reinvesting dividends, so DivGro's PADI should continue to grow through dividend growth and through compounding.

Dividend Income


I collected dividends totaling $4,112 from 49 different stocks in December:

Here is a list of the dividends I collected in December:

  • Archer-Daniels-Midland Company (ADM)income of $108.00
  • Aflac Incorporated (AFL)income of $28.00
  • Amgen Inc (AMGN)income of $80.00
  • Anthem, Inc (ANTM)income of $9.50
  • Broadcom Inc (AVGO)income of $108.00
  • BlackRock, Inc (BLK)income of $127.05
  • Cummins Inc (CMI)income of $81.00
  • Canadian National Railway Company (CNI)income of $56.31
  • Costco Wholesale Corporation (COST)income of $100.00
  • Chevron Corporation (CVX)income of $129.00
  • Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO)income of $142.50
  • FedEx Corporation (FDX)income of $48.75
  • Gilead Sciences, Inc (GILD)income of $136.00
  • The Home Depot, Inc (HD)income of $90.00
  • Honeywell International Inc (HON)income of $65.10
  • International Business Machines Corporation (IBM)income of $163.00
  • Intercontinental Exchange, Inc (ICE)income of $30.00
  • Intel Corporation (INTC)income of $99.00
  • Johnson & Johnson (JNJ)income of $24.24
  • The Coca-Cola Company (KO)income of $82.00
  • Lockheed Martin Corporation (LMT)income of $78.00
  • Main Street Capital (MAIN)income of $92.25
  • McDonald's Corporation (MCD)income of $34.83
  • 3M Company (MMM)income of $147.00
  • Microsoft Corporation (MSFT)income of $56.00
  • NextEra Energy, Inc (NEE)income of $35.00
  • NIKE, Inc (NKE)income of $4.13
  • Northrop Grumman Corporation (NOC)income of $14.50
  • Realty Income Corporation (O)income of $23.40
  • Public Service Enterprise Group Incorporated (PEG)income of $49.00
  • Pfizer Inc (PFE)income of $114.00
  • Pinnacle West Capital Corporation (PNW)income of $103.75
  • Public Storage (PSA)income of $90.00
  • Phillips 66 (PSX)income of $180.00
  • QUALCOMM Incorporated (QCOM)income of $22.75
  • Raytheon Technologies Corporation (RTX)income of $57.00
  • Snap-on Incorporated (SNA)income of $73.80
  • Simon Property Group, Inc (SPG)income of $130.00
  • T Rowe PriceT. Rowe Price Group, Inc (TROW)income of $180.00
  • The Travelers Companies, Inc (TRV)income of $85.00
  • UnitedHealth Group Incorporated (UNH)income of $50.00
  • Union Pacific Corporation (UNP)income of $46.56
  • United Parcel Service, Inc (UPS)income of $101.00
  • Cohen & Steers Infrastructure Fund, Inc (UTF)income of $38.75
  • Visa Inc (V)income of $16.00
  • Valero Energy Corporation (VLO)income of $181.30
  • Walgreens Boots Alliance, Inc (WBA)income of $187.00
  • Wells Fargo & Company (WFC)income of $40.00
  • Exxon Mobil Corporation (XOM)income of $174.00

The following chart shows DivGro's monthly dividends plotted against PMDI. Quarter-ending months are huge outliers:

For this reason, I now 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 I would prefer receiving more evenly distributed dividends, I wouldn't let that influence my investment decisions.


Dividend Changes


In December, the following stocks announced dividend increases:

  • Amgen Inc (AMGN)increase of 10.00%
  • Broadcom Inc (AVGO)increase of 10.77%
  • Franklin Resources, Inc (BEN)increase of 3.70%
  • Bristol-Myers Squibb Company (BMY)increase of 8.89%
  • Canadian National Railway Company (CNI)increase of 4.40%
  • Mastercard Incorporated (MA)increase of 10.00%
  • Realty Income Corporation (O)increase of 0.21%
  • Pfizer Inc (PFE)increase of 2.63%
  • Stryker Corporation (SYK)increase of 9.57%
  • The TJX Companies, Inc (TJX)increase of 13.04%
  • Visa Inc (V)increase of 6.67%
  • W. P. Carey Inc (WPC)increase of 0.19%

These changes will increase DivGro's PADI by $336.

I like seeing dividend increases above 7%, and six of the twelve increases top my expectations. The arithmetic average of this month's dividend increases is 6.7%, which easily beats inflation.


Transactions


Here is a summary of my transactions in December:

Tax-loss Harvesting Trades

In previous years, I've sold stocks in late November and December to offset capital gains and to limit my tax liability. Given the stock market crash in late February and early March, it is remarkable that I'm facing a similar challenge in 2020. 

In December, I executed eight trades to harvest tax losses, five closing trades, and three in which I trimmed existing positions:

  • Gilead Sciences, Inc (GILD) — sold -200 shares and closed position
  • Phillips 66 (PSX) — sold 200 shares and closed position
  • Simon Property Group, Inc (SPG) — sold 100 shares and closed position
  • Walgreens Boots Alliance, Inc (WBA) — sold 400 shares and closed position
  • Exxon Mobil Corporation (XOM) — sold 200 shares and closed position
  • Chevron Corporation (CVX) — sold 56 shares and reduced position to 44 shares
  • Taiwan Semiconductor Manufacturing Company Limited (TSM) — sold 200 shares and reduced position to 100 shares
  • Wells Fargo & Company (WFC) — sold 200 shares and reduced position to 200 shares

I discussed these trades in blog articles (2020 Tax-Loss Harvesting Part 1, Part 2, and Part 3) and won't rehash details here, except to say that I'm offsetting a substantial amount of capital gains and that it feels good to clean house, so to speak!

It is unlikely that I'll reopen positions in PSX, XOM, SPG, and WBA, and I'm not looking to increase my WFC position either. On the other hand, I am hoping to reopen a position in GILD and to increase my CVX position once the wash-sale restriction period ends. 

Replacement Trades

I used the proceeds of my tax-loss harvesting trades to increase my holdings in nine stocks and one closed-end fund. For these trades, I looked to invest in high-quality stocks (as determined by DVK Quality Snapshots), stocks that were underweight in my portfolio, and stocks offering higher yields. I was less concerned about valuation with these trades, looking only to buy at a reasonable valuation. 

  • General Dynamics Corporation (GD)added 35 shares and increased position to 100 shares
GD has a quality score of 24 and yielded 2.95% at $149.35 per share when I bought these shares. This addition increased GD to a full position in DivGro. GD is trading at a favorable valuation, as shown in the following yield channel chart

The stock price (green line) is below the undervalue yield line of 2.78%. GD has yielded more than 2.78% less than 25% of the time in the last 10 years. 
  • Hormel Foods Corporation (HRL) — added 100 shares and increased position to 200 shares
HRL has a quality score of 22 and yielded 2.10% at $46.58 per share when I bought these shares. Despite adding 100 shares, my HRL position is still underweight. I would need to add another 124 shares to turn HRL into a full position (which I consider to be about 1% of the total value of my portfolio).





Source: Portfolio Insight

Based on the Dividend Yield History chart above, HRL is trading about 15% above the 5-year average yield, indicating that it is a good time to buy.
  • Johnson & Johnson (JNJ) — added 76 shares and increased position to 100 shares
JNJ has a quality score of 25 and yielded 2.60% at $155.33 per share when I bought these shares. This is just below my fair value estimate of $156. Since then, JNJ's stock price has increased by about 3.2% and now trades above $160 per share.
  • The Coca-Cola Company (KO)added 100 shares and increased position to 300 shares
KO has a quality score of 23 and yielded 3.11% at $52.75 per share when I bought these shares. I paid a bit of a premium price, especially considering that KO now trades below $49 per share! 

Source: Portfolio Insight

KO's stock price dropped to below the undervalue yield line of 3.27%, which means it is a great time to buy the stock! KO's yield of 3.37% looks very attractive!
    • McDonald's Corporation (MCD)added 23 shares and increased position to 50 shares
    MCD has a quality score of 22 and yielded 2.42% at $212.80 per share. This is a bit of a premium price, as my fair value estimate is $199. Nevertheless, I'm happy to have increased my MCD position, one of my so-called home run stocks with total returns of more than 100%. My MCD is not quite a full position yet and I would need to add another 19 shares to turn it into a full position. Certainly, I'll wait for a more favorable entry point!
    • Merck & Co., Inc (MRK) — added 90 shares and increased position to 200 shares
    MRK has a quality score of 25 and yielded 3.19% at $81.62 per share when I bought these shares. This is well below my fair value estimate of $95.

    Source: Portfolio Insight

    The Dividend Yield History chart shown above indicates that MRK is trading about 4% above its 5-year average yield of 3.00%. Therefore, the stock still presents a good buy opportunity.
    • Pinnacle West Capital Corporation (PNW)added 50 shares and increased position to 175 shares
    PNW has a quality score of 22 and yielded 4.19% at $79.17 per share when I bought these shares. This addition increased PNW to ten shares short of a full position in DivGro. PNW is trading at a favorable valuation, as shown below: 

    Source: Portfolio Insight

    PNW's stock price is below the undervalue yield line of 4.15%, which means PNW has yielded more than 4.15% less than 25% of the time in the last 10 years. 
      • Xcel Energy Inc (XEL) — added 100 shares and increased position to 165 shares
      XEL has a quality score of 21 and yielded 2.61% at $65.79 per share when I bought these shares. Despite adding 100 shares, my XEL position is still underweight. I would need to add another 59 shares to turn XEL into a full position. My fair value estimate is $60 per share, so, certainly, I paid a premium price to increase my position. But XEL is a quality stock and I don't mind paying a bit of a premium!
      • Realty Income Corporation (O) — added 200 shares and increased position to 300 shares
      My purchase of 200 shares of O is due to an options assignment. I paid $60 per share and received an initial yield on cost of 4.69%. O is now a full-sized position in my portfolio. The stock is yielding about 12% more than its 5-year average yield of 4.29%, indicating it is a good time to buy O. 
      • Cohen & Steers Infrastructure Fund, Inc (UTF)added 750 shares and increased position to 1,000 shares
      Finally, I significantly increased my UTF position, adding 750 shares in two lots, one of 250 at $25.86 (initial yield on cost of 7.19%) and one of 500 at $25.45 (initial yield on cost of 7.31%).

      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
      Nov 30, 202029,638.643,621.6312,198.740.84420.57
      Dec 31, 202030,606.483,756.0712,888.280.91722.75

      In December, the DOW 30 gained 3.3%, the S&P 500 gained 3.7%, and the NASDAQ gained 5.7%. The yield on the benchmark 10-year Treasury note increased to 0.917, while CBOE's measure of market volatility, the VIX, increased by 10.6% to 22.75.


      Portfolio Statistics


      Given DivGro's current market value and the total capital invested, the portfolio has returned about 84% 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 16.2%.)

      I track the yield on cost (YoC) for individual stocks, as well as an average YoC for my portfolio. DivGro's average YoC was unchanged from last month's 3.70%.

      Percentage payback relates dividend income to the amount of capital invested. DivGro's average percentage payback is 18.4%, up from last month's 17.8%.

      Finally, projected annual yield is calculated by dividing PADI ($32,768) by the total amount invested. DivGro's projected annual yield is at 4.98%, down from last month's value of 4.99%.

      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


      I've set some challenging goals for 2021, including increasing DivGro's PADI to $37,500 and collecting $33,000 in dividend income. Those goals represent increases of 25% and 32% over my 2020 goals, respectively. 

      In the next few weeks, I'll post quarterly and annual reviews of DivGro. Overall, I'm happy with DivGro's performance in 2020, and I look forward to seeing what 2021 brings!

      This month, I'm celebrating DivGro's eighth anniversary! It has been quite a journey since my first blog article and first stock buy! I'm happy to continue this journey and share my experiences with you, my readers, and my followers. Thanks for commenting, and especially for challenging my thinking... I've learned as much from comments on my articles as I have done preparing and writing them!

      I wish all my readers a Happy New Year and the best of success in your investment journey in 2021!

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


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      6 comments :

      1. Hi,

        you certainly wrote it somewhere in your blog and I tried the search function but could you post a link to the article where you first opened a position in "UTF". And could you point out where in your performance section this CEF ist documented.

        Thanks for the great blog!

        Wish you the best,
        Petar

        ReplyDelete
        Replies
        1. I did not write extensively about UTF. Here's the first mention, though:

          https://divgro.blogspot.com/2020/11/monthly-review-of-divgro-october-2020.html

          Delete
        2. What are your thoughts about the rather high expense ratio of UTF= SA says 2.5%. Is this acceptable for you because of the rich yield you locked in?

          Delete
        3. Yes. All the CEFs I own have somewhat high expense ratios. The reason is these funds use leverage. That requires active management. They sell options to generate additional income. Note the yield is net of expenses.

          Delete
      2. I've followed you on SA for a long time; gotten good value from your writings. With the new SA policy change, you will do well to continue to publish full articles like this here, rather than a portion and then point people to SA. Many, including me, are leaving SA.
        Ken

        ReplyDelete
        Replies
        1. I'm sorry to hear that you're leaving. Some of my articles (like these monthly reviews) will always be published here in full. However, there are articles I spend a lot of time researching and writing, which I would not continue to do without the compensation from SA.

          Delete

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