Quarterly Review Of DivGro: Q4-2020

Welcome to the Q4-2020 review of my portfolio of dividend growth stocks! This is my 32^nd quarterly review, which concludes eight years of dividend growth investing and blogging!

In my quarterly reviews, I provide a summary of dividend income, dividend changes, and transactions executed in the past quarter. I also provide some charts showing various portfolio statistics. These reviews are mostly informational and help me to track progress over time.

This quarter, DivGro generated $8,362 in dividend income and I'm projecting dividend income of at least $8,500 per quarter going forward.

In 2020, I collected dividend income of $30,021, about 111% of my 2020 goal of $27,000. DivGro's all-time dividend income total stands at $121,008.

Dividend Income

In Q4-2020, I collected dividend income totaling $8,362, up 11% from the dividends received in Q3-2020 and up 41% from the dividends received in Q4-2019.

I collected quarterly dividends from 79 different stocks and funds:

• Apple Inc (AAPL) — income of $82.00
• AbbVie Inc (ABBV) — income of $236.00
• Accenture plc (ACN) — income of $8.80
• Archer-Daniels-Midland Company (ADM) — income of $108.00
• Automatic Data Processing, Inc (ADP) — income of $63.70
• Aflac Incorporated (AFL) — income of $28.00
• Amgen Inc (AMGN) — income of $80.00
• Anthem, Inc (ANTM) — income of $9.50
• Air Products and Chemicals, Inc (APD) — income of $21.44
• Broadcom Inc (AVGO) — income of $108.00
• BlackRock, Inc (BLK) — income of $127.05
• Bristol-Myers Squibb Company (BMY) — income of $45.00
• The Bank of Nova Scotia (BNS) — income of $152.12
• Chubb Limited (CB) — income of $18.72
• Comcast Corporation (CMCSA) — income of $46.00
• Cummins Inc (CMI) — income of $81.00
• Canadian National Railway Company (CNI) — income of $56.31
• Costco Wholesale Corporation (COST) — income of $107.00
• Cisco Systems, Inc (CSCO) — income of $108.00
• CVS Health Corporation (CVS) — income of $150.00
• Chevron Corporation (CVX) — income of $129.00
• FedEx Corporation (FDX) — income of $97.50
• General Dynamics Corporation (GD) — income of $71.50
• 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
• Hormel Foods Corporation (HRL) — income of $23.25
• International Business Machines Corporation (IBM) — income of $163.00
• Intercontinental Exchange, Inc (ICE) — income of $30.00
• Intel Corporation (INTC) — income of $99.00
• Illinois Tool Works Inc (ITW) — income of $68.40
• Johnson & Johnson (JNJ) — income of $24.24
• JPMorgan Chase & Co (JPM) — income of $90.00
• The Coca-Cola Company (KO) — income of $164.00
• Lockheed Martin Corporation (LMT) — income of $78.00
• Lowe's Companies, Inc (LOW) — income of $60.00
• Mastercard Incorporated (MA) — income of $12.00
• McDonald's Corporation (MCD) — income of $34.83
• Medtronic plc (MDT) — income of $58.00
• 3M Company (MMM) — income of $147.00
• Altria Group, Inc (MO) — income of $172.00
• Merck & Co., Inc (MRK) — income of $67.10
• Microsoft Corporation (MSFT) — income of $56.00
• NextEra Energy, Inc (NEE) — income of $35.00
• NIKE, Inc (NKE) — income of $7.81
• National Retail Properties, Inc (NNN) — income of $99.84
• Northrop Grumman Corporation (NOC) — income of $14.50
• Oracle Corporation (ORCL) — income of $42.00
• Public Service Enterprise Group Incorporated (PEG) — income of $49.00
• Pfizer Inc (PFE) — income of $691.59
• The Procter & Gamble Company (PG) — income of $19.77
• Philip Morris International Inc (PM) — income of $144.00
• 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
• Royal Bank of Canada (RY) — income of $124.33
• Starbucks Corporation (SBUX) — income of $63.00
• Snap-on Incorporated (SNA) — income of $73.80
• Simon Property Group, Inc (SPG) — income of $260.00
• Stryker Corporation (SYK) — income of $5.75
• AT&T Inc (T) — income of $312.00
• The Toronto-Dominion Bank (TD) — income of $119.30
• T Rowe PriceT. Rowe Price Group, Inc (TROW) — income of $180.00
• The Travelers Companies, Inc (TRV) — income of $85.00
• Taiwan Semiconductor Manufacturing Company Limited (TSM) — income of $130.51
• Texas Instruments Incorporated (TXN) — income of $76.50
• 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
• Visa Inc (V) — income of $16.00
• Valero Energy Corporation (VLO) — income of $181.30
• Verizon Communications Inc (VZ) — income of $62.75
• Walgreens Boots Alliance, Inc (WBA) — income of $187.00
• Wells Fargo & Company (WFC) — income of $40.00
• W. P. Carey Inc (WPC) — income of $104.40
• Xcel Energy Inc (XEL) — income of $27.95
• Exxon Mobil Corporation (XOM) — income of $174.00

Additionally, I received monthly dividends from 4 different stocks and funds:

• Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO) — income of $427.50
• Main Street Capital (MAIN) — income of $235.75
• Realty Income Corporation (O) — income of $70.20
• Cohen & Steers Infrastructure Fund, Inc (UTF) — income of $77.50

The following chart shows DivGro's dividend income by quarter:

Q4-2020 was a record-breaking month for dividend income!

Dividend Changes

Last quarter, I reported projected annual dividend income (PADI) of $31,473. This quarter, PADI increased to $32,768, and relative to the total capital invested, DivGro's projected annual yield is 4.98%.

The following table shows the stocks that announced dividend increases in Q4-2020. I'm including the new annual dividend and yield on cost (YoC).

Company	Ticker	Increase	Annual Div	New YoC
Aflac Incorporated	AFL	17.86%	1.32	5.27%
Snap-on Incorporated	SNA	13.89%	4.92	3.17%
The TJX Companies, Inc	TJX	13.04%	1.04	2.35%
NIKE, Inc	NKE	12.24%	1.10	1.34%
Broadcom Inc	AVGO	10.77%	14.40	5.31%
AbbVie Inc	ABBV	10.17%	5.20	8.44%
Amgen Inc	AMGN	10.00%	7.04	3.77%
Mastercard Incorporated	MA	10.00%	1.76	0.57%
Starbucks Corporation	SBUX	9.76%	1.80	2.84%
Stryker Corporation	SYK	9.57%	2.52	1.20%
Bristol-Myers Squibb Company	BMY	8.89%	1.96	3.27%
Visa Inc	V	6.67%	1.28	0.70%
Merck & Co., Inc	MRK	6.56%	2.60	3.15%
Pinnacle West Capital Corporation	PNW	6.07%	3.32	4.27%
Hormel Foods Corporation	HRL	5.38%	0.98	2.41%
Taiwan Semiconductor Manufacturing Company Limited	TSM	4.64%	1.74	3.85%
Canadian National Railway Company	CNI	4.40%	1.80	2.26%
Franklin Resources, Inc	BEN	3.70%	1.12	4.98%
McDonald's Corporation	MCD	3.20%	5.16	3.47%
Cummins Inc	CMI	2.97%	5.40	4.28%
Pfizer Inc	PFE	2.63%	1.56	4.21%
Automatic Data Processing, Inc	ADP	2.20%	3.72	2.38%
Royal Bank of Canada	RY	1.50%	3.32	4.60%
The Toronto-Dominion Bank	TD	1.29%	2.39	4.22%
The Bank of Nova Scotia	BNS	0.39%	2.70	5.62%
Realty Income Corporation	O	0.21%	2.81	4.93%
W. P. Carey Inc	WPC	0.19%	4.18	6.20%

DivGro's average YoC is 3.77%, up from the 3.66% reported at the end of Q3-2020. 

I'd like to see dividend increases of at least 7%. Only eight of the dividend increases in the table topped 7%, and the arithmetic average of those increases is 6.36%, which easily tops the rate of inflation. 

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 22 January 2021:

At 9.04%, 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:

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

• Franklin Resources, Inc (BEN) — new position of 100 shares
• Cohen & Steers Infrastructure Fund, Inc (UTF) — new position of 250 shares

Increased Positions

• Bristol-Myers Squibb Company (BMY) — added 100 shares and increased position to 200 shares
• Chubb Limited (CB) — added 76 shares and increased position to 100 shares
• Comcast Corporation (CMCSA) — added 200 shares and increased position to 400 shares
• General Dynamics Corporation (GD) — added 35 shares and increased position to 100 shares
• Hormel Foods Corporation (HRL) — added 100 shares and increased position to 200 shares
• Johnson & Johnson (JNJ) — added 76 shares and increased position to 100 shares
• The Coca-Cola Company (KO) — added 100 shares and increased position to 300 shares
• Main Street Capital (MAIN) — added 100 shares and increased position to 450 shares
• McDonald's Corporation (MCD) — added 23 shares and increased position to 50 shares
• Merck & Co., Inc (MRK) — added 90 shares and increased position to 200 shares
• Realty Income Corporation (O) — added 200 shares and increased position to 300 shares
• Pinnacle West Capital Corporation (PNW) — added 50 shares and increased position to 175 shares
• Cohen & Steers Infrastructure Fund, Inc (UTF) — added 750 shares and increased position to 1,000 shares
• Walgreens Boots Alliance, Inc (WBA) — added 100 shares and increased position to 400 shares
• Xcel Energy Inc (XEL) — added 100 shares and increased position to 165 shares

Closed Positions

• Dominion Energy, Inc (D) — sold 100 shares and closed position
• 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

Reduced Positions

• 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 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. I also closed and reduced positions to harvest tax-losses.

To assess risk, I utilize Dividend Safety Scores provided by Simply Safe Dividends (SSD):

From left to right, the colors represent Unsafe, Borderline Safe, Safe, and Very Safe dividend safety scores. DivGro now contains 90 different positions. Of these, 72 are dividend growth stocks, eight are dividend-paying stocks, and three are CEFs (closed-end funds). I also own seven stocks that do not pay dividends. 

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

 

I now also look at the distribution of my dividend growth stocks by supersector:

My goal is to slowly move towards an equal super sector distribution, thereby increasing my defensive exposure significantly. Since last quarter, I've reduced my Sensitive Sector stocks by 1.3%. 

Market Value

At the end of Q4-2020, DivGro's market value represented a simple gain of 84% 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 16.2%.

Portfolio Statistics

In quarterly reviews, I like to present general portfolio statistics. 

First, 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 4.57%, Apple (AAPL) is by far my largest position. I don't like having positions much larger than about 3.5% of portfolio value, but AAPL has just exploded higher and I'm going to enjoy the ride!

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 is the leading contributor with 3.81%:

   

 

Single positions that contribute more than 6% to DivGro's PADI would 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 8.22%, MO is the top-yielding position in DivGro, followed MAIN at 7.45%. The arithmetic average yield of dividend growth stocks in my portfolio is 2.85%. 

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 with a payback of 47.8%, by far the largest payback in my portfolio.

Concluding Remarks

I'm hoping to shift DivGro to a more defensive composition. When deploying new capital, I'll focus on buying high-quality stocks in the defensive super sector, and trading at or below fair value. Additionally, in 2021, I want to favor higher-yielding stocks.  

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