Monday, April 5, 2021

Monthly Review Of DivGro: March 2021

In my monthly DivGro reviews, I provide a summary of transactions and explain how those transactions affect projected annual dividend income.

In March, I added shares to one existing position and reduced my holdings in two positions. Additionally, I opened a new position in a growth stock that does not pay dividends. Four DivGro stocks announced dividend increases in March. The net result of these changes is that PADI decreased by about 1.4% in March. Year over year, PADI increased by 17.9%.

As for dividend income, in March I received dividends totaling $4,459 from 46 stocks in my portfolio, a year over year increase of 29%. This is a new record for monthly dividend income! So far in 2021, I've collected $8,887 in dividends, or about 26% of my 2021 goal of $34,500.

DivGro's PADI of $34,702 means I can expect to receive $2,892 in dividend income per month, on average, in perpetuity. This assumes the status quo is maintained. But PADI should increase over time because I invest in dividend growth stocks. 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 collected dividends totaling $4,459 from 46 different stocks in March, which is a new record for monthly income:

Here is a list of the dividends I received in March:

  • Archer-Daniels-Midland Company (ADM)income of $111.00
  • Aflac Incorporated (AFL)income of $33.00
  • Amgen Inc (AMGN)income of $88.00
  • Anthem, Inc (ANTM)income of $11.30
  • Atmos Energy Corporation (ATO)income of $62.50
  • Broadcom Inc (AVGO)income of $108.00
  • BlackRock, Inc (BLK)income of $144.55
  • Cummins Inc (CMI)income of $81.00
  • Chevron Corporation (CVX)income of $314.76
  • Digital Realty Trust, Inc (DLR)income of $52.20
  • Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO)income of $142.50
  • Gilead Sciences, Inc (GILD)income of $142.00
  • The Home Depot, Inc (HD)income of $99.00
  • Honeywell International Inc (HON)income of $65.10
  • International Business Machines Corporation (IBM)income of $163.00
  • Intercontinental Exchange, Inc (ICE)income of $33.00
  • Intel Corporation (INTC)income of $104.25
  • Johnson & Johnson (JNJ)income of $101.00
  • Lockheed Martin Corporation (LMT)income of $78.00
  • Main Street Capital (MAIN)income of $92.26
  • McDonald's Corporation (MCD)income of $64.50
  • 3M Company (MMM)income of $148.00
  • Microsoft Corporation (MSFT)income of $56.00
  • NextEra Energy, Inc (NEE)income of $38.50
  • AllianzGI Equity & Convertible Income Fund (NIE)income of $380.00
  • Northrop Grumman Corporation (NOC)income of $29.00
  • Realty Income Corporation (O)income of $70.35
  • Public Service Enterprise Group Incorporated (PEG)income of $51.00
  • PepsiCo, Inc (PEP)income of $102.25
  • Pfizer Inc (PFE)income of $117.00
  • Pinnacle West Capital Corporation (PNW)income of $145.25
  • Public Storage (PSA)income of $90.00
  • QUALCOMM Incorporated (QCOM)income of $22.75
  • Raytheon Technologies Corporation (RTX)income of $57.00
  • Starbucks Corporation (SBUX)income of $63.00
  • Snap-on Incorporated (SNA)income of $73.80
  • The TJX Companies, Inc (TJX)income of $52.00
  • T Rowe PriceT. Rowe Price Group, Inc (TROW)income of $216.00
  • 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 $102.00
  • Cohen & Steers Infrastructure Fund, Inc (UTF)income of $155.00
  • Visa Inc (V)income of $16.00
  • Valero Energy Corporation (VLO)income of $181.30
  • Wells Fargo & Company (WFC)income of $20.00

The following chart shows DivGro's monthly dividends plotted against PMDI. 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 nicer if dividends were distributed more evenly, it is not something that would drive my investment decisions.


Dividend Changes


In March, the following stocks announced dividend increases:

  • General Dynamics Corporation (GD)increase of 8.18%
  • 3M Company (MMM)increase of 0.68%
  • Realty Income Corporation (O)increase of 0.21%
  • Oracle Corporation (ORCL)increase of 33.33%

These changes will increase DivGro's PADI by $98.

I like seeing dividend increases above 7%, so I'm happy to see that two of these increases top my expectations. The arithmetic average of this month's dividend increases is 10.6%, which easily beats inflation.


Transactions


One of my goals this year is to slowly transition my portfolio to one with about equal representation in each of the super sectors. This process will be slow and methodical and will probably take several years.

In October 2020, I determined DivGro's super sector distribution for the first time. At 48.1%, DivGro was heavily overweight in the Sensitive sectors, which include both the best-performing sector in 2020, Information Technology, and the worst-performing sector in 2020, Energy. In contrast, DivGro's representation was somewhat underweight in the Cyclical sectors at 29.1% and significantly underweight in the Defensive sectors at 22.8%. 

Since October, I've somewhat improved DivGro's super sector distribution:

As mentioned, this balancing process will be slow and methodical. 

Here is a summary of my buy transactions in March:

  • Dropbox, Inc (TSM) — opened a new position of 100 shares
  • Taiwan Semiconductor Manufacturing Company Limited (TSM)added 100 shares and increased position to 200 shares
I opened a small position in DBX, a company that provides a platform to allow individuals, teams, and organizations to collaborate online for free or through a paid subscription plan for premium features. DBX was incorporated in 2007 and is headquartered in San Francisco, California.

At the time of its IPO in March 2018, Dropbox had annual sales of about $1.4 billion, but the company was still losing about $490 million per year. Over the past 12 months, Dropbox had sales of $1.9 billion and it earned $491 million in free cash flow! 

Many stocks struggle after their IPO, going into what is termed a post-IPO slump. This slump could last months or even years, but it appears DBX may be exiting its slump. Since March 2020, DBX shares have made higher highs and higher lows and the stock price appears to be in the early stages of an uptrend. 

While I'm mainly a DG investor, sometimes a compelling story sways me to speculate... and this is one of those times. So far, so good... DBX is up 8% since my buy!

TSM is a high-quality stock and one of DivGro's home run stocks. I doubled my TSM position because I'm short a deep-in-the-money covered call option and I'm anticipating an assignment soon. By doubling my shares, I'm preparing for that eventuality. Should the covered call option be assigned, I'll be able to deliver these shares and protect the long-term capital gains and lower cost basis of my original lot.

TSM has done well for me since I first opened my position in March 2018:


During this period of ownership, the S&P 500 returned 54%, while TSM returned 209%. That's a significant outperformance!

Speaking of in-the-money covered calls, I had two assignments in March resulting in sell transactions:
  • Cisco Systems, Inc (CSCO) — sold 200 shares and reduced position to 100 shares
  • Philip Morris International Inc (PM) — sold 100 shares and reduced position to 20 shares
CSCO closed at $48.98 per share on options expiration day, about 8% above the $45 covered calls I'd sold. As a result, the two covered call options I'd sold were assigned and 200 of my CSCO shares were called away. In the process, I secured about $269 in options income for a trade that lasted about 3.5 months. While CSCO's yield was 3.02% at assignment, the annualized yield of this options trade was 9.22%! So, not a bad outcome, considering!

CSCO is a high-quality stock with a quality score of 24 (out of 25) based on DVK Quality Snapshots. At $52 per share, it is trading at about fair value. I'm looking to sell puts at a $45 strike price to see if I secure a lower entry point. 

PM closed at $90.56 per share on 18 March, one day before the options expiration day. As it turns out, 18 March was also the day before PM's ex-dividend date. The option holder decided to exercise the $90 put option I'd sold, so my shares were called away, along with $120 in dividends I would have received as the owner. Too bad, but that's the risk I take for selling covered calls on dividend growth stocks. 

I'm not too unhappy, though. I secured about $192 in options income for a trade that lasted about three months (or one quarter). That's 60% higher than PM's quarterly dividend! While PM yielded 5.37% at assignment, the options trade returned 8.48% on an annualized basis! Not bad!

PM has a quality score of 18, so it's a lower-quality stock than CSCO (according to DVK Quality Snapshots), but PM offers a higher yield of 5.45% at $88 per share. My fair value estimate is $97, so PM is discounted by about 9%. I'll see if selling a put at an $80 strike price would replace the dividend income I surrendered as a result of the assignment. 

My March transactions decreased DivGro's PADI by about $597. 


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
Feb 28, 202130,932.373,811.1513,192.351.4627.95
Mar 31, 202132,898.003,967.5013,089.751.74619.40

In March, the DOW 30 gained 6.4%, the S&P 500 gained 4.1%, and the NASDAQ dropped 0.8%. The yield on the benchmark 10-year Treasury note rose to 1.76, while CBOE's measure of market volatility, the VIX decreased by 30.6% to 19.4.

Here's a chart showing how the stocks and funds in DivGro performed over the past month:

In March, DivGro outperformed the S&P 500. 


Portfolio Statistics


Given DivGro's current market value and the total capital invested, the portfolio has returned about 89% 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 16.3%.)

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 3.94%.

Another interesting statistic is percentage payback, which relates dividend income to the amount of capital invested. DivGro's average percentage payback is 19.1%, up from last month's 18.5%.

Finally, DivGro's projected annual yield is at 5.10%, down from last month's value of 5.19%. I calculate the projected annual yield by dividing PADI ($34,702) by the total amount invested.

The following chart shows 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 was fortunate to get the Johnson & Johnson Janssen COVID-19 Vaccine last week and I'm looking forward to the increased flexibility that my vaccination will afford after the fourteen-day period of building immunity is over. Of course, we have a long way to go before reaching herd immunity (both in the USA and worldwide), so it remains a race against time before the virus mutates into something potentially more contagious or deadly, or one that negates the current vaccines. 

We've started planting some vegetables, and I'm looking forward to the warmer weather in April, May, and June. Beyond June, it sometimes gets too hot for my liking, so I really enjoy the weather this time of the year!

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


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8 comments :

  1. Hi!
    My question is why you are happy with an assignment where (PM), in the future you won't receive any dividend and you couldn't sell a covered call? It is an one time profit, versus a circulating profit option. If you bought back the option and sell higher strike, you can receive dividend again and sell a a covered call again. I don't agree with this move is a good one.
    Good luck for the future trades ;)

    ReplyDelete
    Replies
    1. Perhaps you're not a native English speaker, but a few things you write is wrong.

      (1) "If you bought back the option and sell higher strike"

      This means I should have known beforehand the option would have been assigned. I did not and I did not choose to get assigned. It happened.

      (2) "why you are happy with an assignment"

      In the article, I said "I'm not too unhappy". That means I'm a little unhappy, not "happy".

      (3) "you couldn't sell a covered call?"

      Of course I can if I so choose. I'm choosing to sell a put instead, which would replace the dividend. I can repeatedly sell a put and generate the same or even more than the dividend payout, until I get assigned again, at my preferred re-entry price!

      (4) "I don't agree with this move is a good one."

      Again, I didn't choose to be assigned. If I could turn back time, I would have rolled forward the option before the assignment. But I can't, and I think I did the best I could under the circumstances.

      Delete
    2. Hi!

      Sorry about my English.

      My opinion is if the stock price is significantly goes up, you can choose: you buy back the call with sell another one at higher strike or waiting and hoping the stock price won't be higher than your selled strike pirce.

      If i want to own PM stock, i choose the first option.If i don't want a i will choose the second option.

      I think this was a bad move if you want to own the PM's stocks.

      It isn't offense, it's simple my opinion.

      I am also an option trader and dividend growth investor.

      Delete
    3. No need to apologize about your English, I just wanted to make it clear that perhaps you did not intend to say some of the things in your first email.

      My viewpoint is this: I sold a covered call on PM at a price I would have been happy to sell the stock. So, I'm not too unhappy that it got assigned. If I were on top of things a little better, I could have rolled forward the option, as you suggest. But I was not... usually, my brokerage alerts me of the possibility of assignment when ex-dates approach. Either it did not this time, or I missed the alert.

      To me, saying "it was a bad move" suggests intent. Therefore, I continue to disagree with you. But I still respect your opinion even if I disagree.

      Delete
    4. Thank you for your view. I am just want to understand what about you thought.
      My opinion is just another one, your's is just an another one :)My opinion it was a bad move IF you didn't want to sell the stocks, just in this situation bacause the end was an assignment.

      I will follow you, i like your page, especially the option section, keept that work!
      I have an another option strategy but everybody has an another one ;)

      Delete
  2. Nice Payout for month of March.Even i am adding some none dividend payers in my account. Recent one i added is PLTR.

    ReplyDelete
    Replies
    1. Thanks for commenting! I'm not familiar with $PLTR, so can't really comment on the specifics. My reason for investing in non-dividend payers is to share in the growth prospects. I'm assuming that's your reason, too.

      Delete

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