Monday, May 17, 2021

Monthly Review Of DivGro: April 2021

Once a month, I review my portfolio of dividend growth stocks, DivGro. The goal of these monthly reviews is to share updates I've made to the portfolio and to provide a summary of dividends collected. I also look at how DivGro's projected annual dividend income (PADI) has changed.

This is a special edition of my monthly review articles: the 100th review article since I embarked on this journey in January 2013!

It's been an incredible journey, and I feel fortunate when looking back over 100 months of dividend growth investing! The markets have cooperated nicely, allowing me to build a competent dividend income-generating machine that should deliver at least $2,825 every month, on average, in perpetuity. 

In April, I opened six new positions and closed two existing positions. Additionally, I executed some trades to rebalance my portfolio based on my newly adopted portfolio target weights. Twelve DivGro stocks announced dividend increases in April. The net result of these changes is that PADI decreased by about 2.3% in April. Year over year, PADI increased by 15.0%.

As for dividend income, in April, I received dividends totaling $2,317 from 27 stocks in my portfolio, a year-over-year increase of 48%. So far in 2021, I've collected $11,203 in dividends, or about 32% of my 2021 goal of $34,500.


Assuming the status quo and given DivGro's PADI of $33,903, I can expect to receive at least $2,825 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 27 different stocks, for a monthly total of $2,317 in dividend income:

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

  • Automatic Data Processing, Inc (ADP)income of $111.60
  • Franklin Resources, Inc (BEN)income of $28.00
  • The Bank of Nova Scotia (BNS)income of $163.75
  • Chubb Limited (CB)income of $78.00
  • Comcast Corporation (CMCSA)income of $100.00
  • Canadian National Railway Company (CNI)income of $61.11
  • Cisco Systems, Inc (CSCO)income of $37.00
  • Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO)income of $142.50
  • Eaton Vance Tax-Advantaged Dividend Income Fund (EVT)income of $145.00
  • FedEx Corporation (FDX)income of $48.75
  • Illinois Tool Works Inc (ITW)income of $68.40
  • JPMorgan Chase & Co (JPM)income of $90.00
  • The Coca-Cola Company (KO)income of $126.00
  • Main Street Capital (MAIN)income of $53.30
  • Medtronic plc (MDT)income of $58.00
  • Altria Group, Inc (MO)income of $197.80
  • Merck & Co., Inc (MRK)income of $130.00
  • NIKE, Inc (NKE)income of $4.13
  • Realty Income Corporation (O)income of $35.25
  • Oracle Corporation (ORCL)income of $56.00
  • Philip Morris International Inc (PM)income of $24.00
  • Stryker Corporation (SYK)income of $6.30
  • The Toronto-Dominion Bank (TD)income of $128.44
  • Taiwan Semiconductor Manufacturing Company Limited (TSM)income of $87.97
  • Cohen & Steers Infrastructure Fund, Inc (UTF)income of $155.00
  • W. P. Carey Inc (WPC)income of $104.80
  • Xcel Energy Inc (XEL)income of $75.49

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


Dividend Changes


In April, the following stocks announced dividend increases or paid a larger dividend than before due to exchange rate fluctuations:

  • Apple Inc (AAPL)increase of 7.32%
  • The Bank of Nova Scotia (BNS)increase of 3.40%
  • Canadian National Railway Company (CNI)increase of 8.52%
  • Costco Wholesale Corporation (COST)increase of 12.86%
  • Chevron Corporation (CVX)increase of 3.88%
  • International Business Machines Corporation (IBM)increase of 0.61%
  • Johnson & Johnson (JNJ)increase of 4.95%
  • The Procter & Gamble Company (PG)increase of 10.00%
  • QUALCOMM Incorporated (QCOM)increase of 4.62%
  • The Toronto-Dominion Bank (TD)increase of 4.38%
  • The Travelers Companies, Inc (TRV)increase of 3.53%
  • W. P. Carey Inc (WPC)increase of 0.19%

These changes will increase DivGro's PADI by $151.

I like seeing dividend increases above 7% and an average dividend increase that tops the current rate of inflation in the US, which jumped to 4.16% for the 12 months ending April 2021. 

Only four of the eleven increases top my expectations, but the arithmetic average of this month's dividend increases of 5.36% tops the current inflation rate of 4.16%.


Transactions


In April, I executed many more trades than I normally do in a month. The reason is I adopted a new approach to determining portfolio target weights. So, many of the trades are rebalancing trades, where I added to underweight positions and trimmed overweight positions. Additionally, I consolidated some positions that were spread over multiple accounts, mainly to simplify tracking those positions. 

Rather than share the trades I did for rebalancing and consolidation purposes, I'll focus on closing trades and new positions.

Closing Trades

  • Wells Fargo & Company (WFC) — sold 200 shares and closed position
WFC cut its dividend in 2020 to a token 10¢ per share. Normally, I would close out positions after such a drastic cut, but the COVID-19 pandemic created a challenging environment for many dividend companies, and I adopted a conciliatory approach to existing positions. 

When WFC did not recover sufficiently by years-end, I sold half of my shares to harvest tax losses and indicated that I'll hold onto the remaining shares until the stock recovers. Well, the time has come, and I closed my WFC position for net gains of 15.4% on my original investment or 10.7% annualized. As a result, DivGro's PADI decreased by $80. 

  • Cohen & Steers Infrastructure Fund, Inc (UTF) — sold 1,000 shares and closed position

I invested in UTF in late October 2020 when the closed-end fund [CEF] traded around net asset value [NAV]. One reason I invested in this CEF is in anticipation of infrastructure spending. But UTF's management fees are a bit high, and the CEF now trades at a premium of 5.54% to NAV:

Source: CEF Connect

I decided to capture some solid net gains of 21.6% (64% annualized) and closed my UTF position, reducing DivGro's PADI by a whopping $1,860!

New Positions
  • Eaton Vance Tax-Advantaged Dividend Income Fund (EVT) — new position of 1,000 shares
To replace UTF, I decided to buy 1,000 shares of EVT, a CEF that provides after-tax total return consisting of tax-advantaged dividend income and capital appreciation. EVT offers an attractive 6.5% yield and is trading at a small discount to NAV. Another reason I like EVT is that its distributions have been fairly consistent over the years:

Source: CEF Connect

EVT's management fees are slightly lower than UTF's management fees.
  • The Allstate Corporation (ALL)new position of 50 shares
In a recent article ranking the top Dividend Contenders, I identified ALL as a high-quality dividend growth stock that would likely deliver annualized returns of at least 8% based on its favorable Chowder Number [CDN] of 17. The stock yields 2.33% at $139 per share and is trading at a discount of about 10% to my fair value estimate of $155.  

This buy adds $162 to DivGro's PADI.
  • American States Water Company (AWR)new position of 85 shares
I covered AWR in two articles recently, ranking the Dividend Kings and presenting the top-ranked Dividend Champions. AWR is a Utilities sector stock with a dividend increase streak of 67 years! I've had my eye on AWR for a long time, but the stock always seemed to be trading at a premium price. However, recent price weakness has finally moved the stock into a buy range:

Source: Portfolio-Insight.com

The stock yields 1.73% at $77.48 per share and offers a solid 5-year dividend growth rate [DGR] of 8.2%. 

This buy added  $113.90 to DivGro's PADI.
  • Sempra Energy (SRE) — new position of 50 shares
Another stock from the Utilities sector, Dividend Contender SRE is a well-regarded energy infrastructure company with a solid track record of shareholder returns. The stock yields 3.19% at $138.11 per share and has an attractive 5-year DGR of 8.2%. SRE is trading at the lower end of its fair value range:

Source: Portfolio-Insight.com

Notice also that its current yield is about 5% higher than its 5-year average yield of 3.03%. 

My new SRE position adds $220 to DivGro's PADI.
  • D.R. Horton, Inc (DHI)new position of 50 shares
Despite its low yield of only 0.84%, DHI interests me due to its spectacular 5-year DGR of 21.4%. Of course, a high DGR is not guaranteed to last, but DHI's earnings payout ratio is still meager at only 9%, while earnings per share are growing at an impressive rate:

Source: Simply Safe Dividends

There are other reasons to like DHI, including shareholder-friendly management aggressively buying back shares and continuing to pay ever-increasing dividends. In fact, when accounting for share repurchases, the company actually pays a 2.2% yield!

If DHI's performance over the past 5 years is any indication, the stock should perform well in the future. The company delivered total returns (including dividends) of 247% (28% annualized) versus the S&P 500's 124% (17% annualized) the past 5 years.

My new position in DHI adds $40 to DivGro's PADI.
  • Tyson Foods, Inc (TSN)new position of 50 shares

Dividend Contender TSN is another stock with a spectacularly high 5-year DGR (about 28%). The stock yields 2.21% at $80.61, well above its 5-year average dividend yield of 1.89%:

Source: Portfolio-Insight.com

TSN has not yet recovered from the pandemic-inspired market drop in February/March 2020, so I believe there is attractive upside potential should the economy improve. 

My new position adds $89 to DivGro PADI. 


Markets


In April, the markets continued to make new record highs:


 DOW
30
S&P
500
NASDAQ
Composite
10-YR
BOND
CBOE
VIX
Mar 31, 202132,981.553,972.8913,246.871.74619.40
Apr 30, 202133,874.854,181.1713,962.681.63118.61

The DOW 30 gained 2.7%, the S&P 500 gained 5.2%, and the NASDAQ gained 5.4%. The yield on the benchmark 10-year Treasury note fell to 1.631, while CBOE's measure of market volatility, the VIX, decreased slightly to 18.61.

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

In April, the S&P 500 outperformed DivGro.


Portfolio Statistics


Given DivGro's current market value and the total capital invested, the portfolio has returned about 97% since inception. But calculating the IRR (internal rate of return) gives a better measure of portfolio performance, as IRR considers the timing and size of deposits since inception. DivGro's IRR is 17.1%.

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 3.94% last month to 3.64% this month.

Percentage payback relates dividend income to the amount of capital invested. DivGro's average percentage payback is 19.5%, up from last month's 19.1%.

Finally, DivGro's projected annual yield is 4.99%, down from last month's value of 5.10%. I calculate the projected annual yield by dividing PADI ($33,903) by the total amount invested.

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:


Concluding Remarks

I'm happy with DivGro's performance, given the increased volatility in the markets. So far this year, eight stocks in my portfolio have achieved home run status (stocks with total returns exceeding 100%), and two more are on the verge of doing the same! My latest home run stock is Home Depot (HD).
Please see my Performance page for various visuals summarizing DivGro's performance.

Over the next few months, I'd like to continue rebalancing my portfolio based on my recently adopted factor-based target weights. This action should help to improve DivGro's super sector distribution, too, which still is significantly overweight in the Sensitive Sectors:


This month's rebalancing has improved DivGro's super sector distribution, increasing Defensive Sectors from 24.0% to 27.3% and reducing Sensitive Sectors from 46.5% to 43.5%. 

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2 comments :

  1. Once again Nice review, Dr Horton is selling homes like hot cakes in Texas market.Tyson foods i have seen this name in DGI community.

    ReplyDelete
    Replies
    1. Thanks for your comment! It's good to hear about the hot home market in Texas. And, yes, Tyson Foods seem to be popular among DGI's!

      Delete

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