Quarterly Review Of DivGro: Q3-2021

Welcome to the Q3-2021 review of DivGro, my portfolio of dividend growth stocks.

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

My portfolio generated more than $9,340 of dividend income this quarter and I'm projecting dividend income of at least $9,560 per quarter going forward.

Year-to-date I've collected dividend income of $27,762 or about 80% of my 2021 goal of $34,500. DivGro's all-time dividend income total is $148,770.

Dividend Income

In Q3-2021, I collected dividend income totaling $9,346, down 2% from the dividends received in Q2-2021 but up 24% from the dividends received in Q3-2020.

I received quarterly dividends from 86 different stocks and funds:

• Apple Inc (AAPL) — income of $44.00
• AbbVie Inc (ABBV) — income of $260.00
• Accenture plc (ACN) — income of $8.80
• Archer-Daniels-Midland Company (ADM) — income of $74.00
• Automatic Data Processing, Inc (ADP) — income of $93.00
• Aflac Incorporated (AFL) — income of $33.00
• The Allstate Corporation (ALL) — income of $40.50
• Amgen Inc (AMGN) — income of $158.40
• Anthem, Inc (ANTM) — income of $11.30
• Air Products and Chemicals, Inc (APD) — income of $24.00
• Atmos Energy Corporation (ATO) — income of $62.50
• Broadcom Inc (AVGO) — income of $108.00
• American States Water Company (AWR) — income of $31.03
• Franklin Resources, Inc (BEN) — income of $28.00
• BlackRock, Inc (BLK) — income of $144.55
• Bristol-Myers Squibb Company (BMY) — income of $98.00
• The Bank of Nova Scotia (BNS) — income of $17.89
• Chubb Limited (CB) — income of $80.00
• Comcast Corporation (CMCSA) — income of $100.00
• Cummins Inc (CMI) — income of $72.50
• Canadian National Railway Company (CNI) — income of $122.16
• Costco Wholesale Corporation (COST) — income of $7.90
• Cisco Systems, Inc (CSCO) — income of $51.80
• CVS Health Corporation (CVS) — income of $100.00
• Chevron Corporation (CVX) — income of $134.00
• D.R. Horton, Inc (DHI) — income of $10.00
• Digital Realty Trust, Inc (DLR) — income of $52.20
• Enbridge Inc (ENB) — income of $66.21
• FedEx Corporation (FDX) — income of $56.25
• General Dynamics Corporation (GD) — income of $119.00
• Gilead Sciences, Inc (GILD) — income of $213.00
• The Home Depot, Inc (HD) — income of $115.50
• Honeywell International Inc (HON) — income of $65.10
• Hormel Foods Corporation (HRL) — income of $49.00
• International Business Machines Corporation (IBM) — income of $164.00
• Intercontinental Exchange, Inc (ICE) — income of $33.00
• Intel Corporation (INTC) — income of $69.50
• Illinois Tool Works Inc (ITW) — income of $68.40
• Johnson & Johnson (JNJ) — income of $133.56
• JPMorgan Chase & Co (JPM) — income of $99.00
• The Coca-Cola Company (KO) — income of $126.00
• Lockheed Martin Corporation (LMT) — income of $104.00
• Lowe's Companies, Inc (LOW) — income of $80.00
• Mastercard Incorporated (MA) — income of $22.00
• McDonald's Corporation (MCD) — income of $64.50
• Medtronic plc (MDT) — income of $63.00
• 3M Company (MMM) — income of $111.00
• Altria Group, Inc (MO) — income of $197.80
• Merck & Co., Inc (MRK) — income of $188.50
• Microsoft Corporation (MSFT) — income of $56.00
• NextEra Energy, Inc (NEE) — income of $38.50
• AllianzGI Equity & Convertible Income Fund (NIE) — income of $475.00
• NIKE, Inc (NKE) — income of $4.13
• National Retail Properties, Inc (NNN) — income of $119.25
• Northrop Grumman Corporation (NOC) — income of $62.80
• Oracle Corporation (ORCL) — income of $64.00
• Public Service Enterprise Group Incorporated (PEG) — income of $51.00
• PepsiCo, Inc (PEP) — income of $150.50
• Pfizer Inc (PFE) — income of $117.00
• The Procter & Gamble Company (PG) — income of $21.75
• Philip Morris International Inc (PM) — income of $24.00
• Pinnacle West Capital Corporation (PNW) — income of $207.50
• Public Storage (PSA) — income of $120.00
• QUALCOMM Incorporated (QCOM) — income of $47.60
• Raytheon Technologies Corporation (RTX) — income of $30.60
• Royal Bank of Canada (RY) — income of $42.82
• Starbucks Corporation (SBUX) — income of $63.00
• Snap-on Incorporated (SNA) — income of $73.80
• Sempra Energy (SRE) — income of $55.00
• Stryker Corporation (SYK) — income of $6.30
• AT&T Inc (T) — income of $208.00
• The Toronto-Dominion Bank (TD) — income of $125.87
• The TJX Companies, Inc (TJX) — income of $26.00
• T Rowe PriceT. Rowe Price Group, Inc (TROW) — income of $708.00
• The Travelers Companies, Inc (TRV) — income of $88.00
• Taiwan Semiconductor Manufacturing Company Limited (TSM) — income of $89.12
• Tyson Foods, Inc (TSN) — income of $66.75
• Texas Instruments Incorporated (TXN) — income of $76.50
• UnitedHealth Group Incorporated (UNH) — income of $87.00
• Union Pacific Corporation (UNP) — income of $51.36
• United Parcel Service, Inc (UPS) — income of $51.00
• Visa Inc (V) — income of $28.80
• Valero Energy Corporation (VLO) — income of $98.00
• Verizon Communications Inc (VZ) — income of $106.68
• W. P. Carey Inc (WPC) — income of $105.00
• Xcel Energy Inc (XEL) — income of $100.65

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

• Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO) — income of $545.70
• Eaton Vance Tax-Advantaged Dividend Income Fund (EVT) — income of $510.85
• Main Street Capital (MAIN) — income of $159.90
• Realty Income Corporation (O) — income of $105.98

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

Q3-2021 did not quite deliver a record-breaking quarter for dividend income, but it was a great quarter nevertheless!

Dividend Changes

Last quarter, I reported projected annual dividend income (PADI) of $33,899. This quarter, PADI increased to $36,760. I'm still hoping to increase DivGro's PADI to $37,500 by year's end.

Relative to the total capital invested, DivGro's projected annual yield is 6.28%.

The following table shows the stocks that announced dividend increases in Q3-2021. I've included the new annual dividend and yield on cost (YoC):

Company	Ticker	Increase	Annual Div	New YoC
Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund	ETO	25.75%	2.15	9.74%
Texas Instruments Incorporated	TXN	12.75%	4.60	4.98%
Eaton Vance Tax-Advantaged Dividend Income Fund	EVT	12.14%	1.95	7.14%
JPMorgan Chase & Co	JPM	11.11%	4.00	2.87%
Microsoft Corporation	MSFT	10.71%	2.48	5.32%
Accenture plc	ACN	10.23%	3.88	2.21%
American States Water Company	AWR	8.96%	1.46	1.91%
Starbucks Corporation	SBUX	8.89%	1.96	3.09%
Lockheed Martin Corporation	LMT	7.69%	11.20	3.61%
Cummins Inc	CMI	7.41%	5.80	4.90%
Illinois Tool Works Inc	ITW	7.02%	4.88	3.25%
McDonald's Corporation	MCD	6.98%	5.52	3.71%
Altria Group, Inc	MO	4.65%	3.60	7.15%
Philip Morris International Inc	PM	4.17%	5.00	6.15%
Main Street Capital	MAIN	2.44%	2.52	13.21%
Verizon Communications Inc	VZ	1.99%	2.56	4.94%
National Retail Properties, Inc	NNN	1.92%	2.12	5.30%
Canadian National Railway Company	CNI	1.31%	1.93	2.42%
Realty Income Corporation	O	0.21%	2.83	5.22%
W. P. Carey Inc	WPC	0.19%	4.21	6.24%

DivGro's average YoC is 3.91%, up from the 3.68% reported at the end of Q2-2021. 

I'd like to see dividend increases of at least 7%. Eleven of the dividend increases in the table topped 7%, and the arithmetic average of all the increases is 7.04%, which easily tops the current inflation rate. I'm happy to see six double-digit percentage increases and a spectacular increase from ETO, one of my closed-end funds. 

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:

The arithmetic average year-over-year dividend growth rate of dividend-paying stocks in my portfolio is 10.74%, though the position-weighted average is somewhat lower at 8.87%.

Below is a chart of the 5-year dividend growth rates:

The arithmetic average year-over-year dividend growth rate of dividend-paying stocks in my portfolio is 10.82% and the position-weighted average is 11.16%. The majority of DivGro's stocks have 5-year DGRs exceeding my target dividend growth rate of 7.00%!

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

• Cintas Corporation (CTAS) — new position of 10 shares
• DTE Energy Company (DTE) — new position of 50 shares
• Enbridge Inc (ENB) — new position of 100 shares
• Mondelez International, Inc. (MDLZ) — new position of 100 shares

Closed Positions

• AT&T Inc (T) — sold 400 shares and closed position
• Taiwan Semiconductor Manufacturing Company Limited (TSM) — sold 200 shares and closed position

Increased Positions

• The Allstate Corporation (ALL) — added 20 shares and increased position to 70 shares
• Atmos Energy Corporation (ATO) — added 30 shares and increased position to 130 shares
• Franklin Resources, Inc (BEN) — added 400 shares and increased position to 500 shares
• Cisco Systems, Inc (CSCO) — added 200 shares and increased position to 340 shares
• Chevron Corporation (CVX) — added 50 shares and increased position to 150 shares
• Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO) — added 250 shares and increased position to 1,250 shares
• Eaton Vance Tax-Advantaged Dividend Income Fund (EVT) — added 250 shares and increased position to 1,250 shares
• Gilead Sciences, Inc (GILD) — added 100 shares and increased position to 300 shares
• The Home Depot, Inc (HD) — added 10 shares and increased position to 70 shares
• Altria Group, Inc (MO) — added 100 shares and increased position to 330 shares
• AllianzGI Equity & Convertible Income Fund (NIE) — added 250 shares and increased position to 1,250 shares
• Pinnacle West Capital Corporation (PNW) — added 50 shares and increased position to 250 shares
• The Toronto-Dominion Bank (TD) — added 100 shares and increased position to 300 shares
• Verizon Communications Inc (VZ) — added 30 shares and increased position to 200 shares

Reduced Positions

• The Bank of Nova Scotia (BNS) — sold 200 shares and reduced position to 25 shares
• The Walt Disney Company (DIS) — sold 100 shares and reduced position to shares
• FedEx Corporation (FDX) — sold 25 shares and reduced position to 50 shares
• Oracle Corporation (ORCL) — sold 50 shares and reduced position to 150 shares
• Royal Bank of Canada (RY) — sold 100 shares and reduced position to 50 shares
• The TJX Companies, Inc (TJX) — sold 100 shares and reduced position to 100 shares
• T Rowe PriceT. Rowe Price Group, Inc (TROW) — sold 100 shares and reduced position to 100 shares

I covered these transactions in monthly reviews and other articles on my blog, so I won't rehash details here. 

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

From left to right, the colors represent Borderline Safe, Safe, and Very Safe dividend safety scores. I no longer own Very Unsafe or Unsafe dividend growth stocks.

DivGro now contains 95 different positions. Of these, 81 are dividend growth stocks, seven are dividend-paying stocks, and three are CEFs (closed-end funds). I also own four 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 DG stocks by super sector:

This quarter I further reduced my exposure to Sensitive and Cyclical Sectors in favor of Defensive Sectors. My goal is to slowly move towards an equal super sector distribution.

Market Value

At the end of Q3-2021, DivGro's market value represented a simple gain of 123% on the total amount invested. Of course, this does not take into account the timing and size of cash deposits and withdrawals. DivGro's internal rate of return since inception is 16.11%.

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 2.49%, BlackRock is my largest position, followed by Microsoft and Apple at 2.46% and 2.20%, respectively. I like keeping positions below 3%.

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.

        

If a position has an outsized contribution to PADI, a dividend cut will have an outsized impact on dividend income. While I invest in relatively safe dividend growth stocks, I want to limit the potential damage of unexpected dividend cuts. 

I'm happy to note that my largest position by contribution to PADI, Altria, contributes only 3.23%.

Here is a chart showing the distribution of dividend yields of stocks in my portfolio:

At 8.01%, Altria is the top-yielding position in DivGro, followed by Enbridge at 6.55%. 

The arithmetic average yield of dividend-paying stocks in my portfolio is 2.60%, while the position-weighted average yield is 2.49%. Both these are on the low side. I'm not too concerned, though, as DivGro's average dividend growth rate is quite high and stocks often appreciate nicely with dividend increases.

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 is my oldest position, with a payback of 90.97%, by far the largest payback in my portfolio! 

I'm happy with DivGro's performance, even though there are a few stocks that have negative returns:

Microsoft and Apple are the best performers, by far! It sure pays to own dividend growth stocks in the Information Technology sector!

One way to identify potentially undervalued positions is to compare the current forward yield to the 5-year average yield. Discounted stocks (relative to historical yields) are colored green:

All State, Pinnacle West Capital, and Lockheed Martin appear to offer the best opportunities for additional investment. My All State position is smaller than a full-sized position, so I'll considering adding shares in the next few weeks. Adding 30 shares should bring my position to a full-sized position according to my dynamic and flexible system for determining target weights. 

Concluding Remarks

I'm continuing to slowly shift DivGro to a more defensive composition. When deploying new capital, I'm focusing on buying the highest quality DG stocks trading at reasonable valuations. Additionally, I'm still favoring higher-yielding stocks.  

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