Quarterly Review Of DivGro: Q4-2021

Welcome to the Q4-2021 review of DivGro, my portfolio of dividend growth stocks.

This is my 36^th quarterly review, which concludes nine years of dividend growth investing and blogging! 

In my quarterly reviews, I summarize dividend income, dividend changes, and transactions executed in the past quarter. 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 $9,950 of dividend income this quarter and I'm projecting dividend income of at least $10,230 per quarter going forward.

Year-to-date I've collected dividend income of $37,716 or about 109% of my 2021 goal of $34,500. DivGro's all-time dividend income total is $158,723.

Dividend Income

In Q4-2021, I collected dividend income totaling $9,953, up 6% from the dividends received in Q3-2021 and up 19% from the dividends received in Q4-2020.

I received quarterly dividends from 84 different stocks and funds:

• Apple Inc (AAPL) — income of $44.00
• AbbVie Inc (ABBV) — income of $260.00
• Accenture plc (ACN) — income of $9.70
• 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 $56.70
• 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 $136.00
• Broadcom Inc (AVGO) — income of $123.00
• American States Water Company (AWR) — income of $31.03
• Franklin Resources, Inc (BEN) — income of $140.00
• BlackRock, Inc (BLK) — income of $144.55
• Bristol-Myers Squibb Company (BMY) — income of $98.00
• The Bank of Nova Scotia (BNS) — income of $18.24
• 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 $60.12
• Costco Wholesale Corporation (COST) — income of $7.90
• Cisco Systems, Inc (CSCO) — income of $125.80
• Cintas Corporation (CTAS) — income of $9.50
• CVS Health Corporation (CVS) — income of $100.00
• Chevron Corporation (CVX) — income of $201.00
• D.R. Horton, Inc (DHI) — income of $22.50
• DTE Energy Company (DTE) — income of $41.25
• Enbridge Inc (ENB) — income of $65.09
• FedEx Corporation (FDX) — income of $75.00
• General Dynamics Corporation (GD) — income of $119.00
• Gilead Sciences, Inc (GILD) — income of $142.00
• The Home Depot, Inc (HD) — income of $115.50
• Honeywell International Inc (HON) — income of $68.60
• Hormel Foods Corporation (HRL) — income of $49.00
• International Business Machines Corporation (IBM) — income of $734.00
• Intercontinental Exchange, Inc (ICE) — income of $33.00
• Intel Corporation (INTC) — income of $69.50
• Illinois Tool Works Inc (ITW) — income of $73.20
• Johnson & Johnson (JNJ) — income of $133.56
• JPMorgan Chase & Co (JPM) — income of $110.00
• The Coca-Cola Company (KO) — income of $252.00
• Lockheed Martin Corporation (LMT) — income of $112.00
• Lowe's Companies, Inc (LOW) — income of $80.00
• Mastercard Incorporated (MA) — income of $22.00
• McDonald's Corporation (MCD) — income of $69.00
• Mondelez International, Inc. (MDLZ) — income of $35.00
• Medtronic plc (MDT) — income of $63.00
• 3M Company (MMM) — income of $111.00
• Altria Group, Inc (MO) — income of $207.00
• Merck & Co., Inc (MRK) — income of $188.50
• Microsoft Corporation (MSFT) — income of $62.00
• NextEra Energy, Inc (NEE) — income of $38.50
• NIKE, Inc (NKE) — income of $8.71
• National Retail Properties, Inc (NNN) — income of $119.25
• Northrop Grumman Corporation (NOC) — income of $62.80
• Oracle Corporation (ORCL) — income of $48.00
• Public Service Enterprise Group Incorporated (PEG) — income of $127.50
• Pfizer Inc (PFE) — income of $117.00
• The Procter & Gamble Company (PG) — income of $21.75
• Philip Morris International Inc (PM) — income of $25.00
• Pinnacle West Capital Corporation (PNW) — income of $212.50
• 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 $42.61
• Starbucks Corporation (SBUX) — income of $68.60
• Snap-on Incorporated (SNA) — income of $85.20
• Sempra Energy (SRE) — income of $55.00
• Stryker Corporation (SYK) — income of $6.30
• The Toronto-Dominion Bank (TD) — income of $191.75
• The TJX Companies, Inc (TJX) — income of $26.00
• T Rowe PriceT. Rowe Price Group, Inc (TROW) — income of $108.00
• The Travelers Companies, Inc (TRV) — income of $88.00
• Tyson Foods, Inc (TSN) — income of $69.00
• Texas Instruments Incorporated (TXN) — income of $86.25
• UnitedHealth Group Incorporated (UNH) — income of $87.00
• Union Pacific Corporation (UNP) — income of $56.64
• United Parcel Service, Inc (UPS) — income of $51.00
• Visa Inc (V) — income of $33.75
• Valero Energy Corporation (VLO) — income of $98.00
• Verizon Communications Inc (VZ) — income of $128.00
• W. P. Carey Inc (WPC) — income of $105.20
• Xcel Energy Inc (XEL) — income of $100.65

Additionally, I collected monthly dividends from 5 different stocks and funds:

• BlackRock Science and Technology Trust (BST) — income of $361.69
• Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO) — income of $672.00
• Eaton Vance Tax-Advantaged Dividend Income Fund (EVT) — income of $609.75
• Main Street Capital (MAIN) — income of $189.80
• Realty Income Corporation (O) — income of $389.55

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

Q4-2021 was another record-breaking quarter for dividend income!

Dividend Increases

Last quarter, I reported projected annual dividend income (PADI) of $36,760. This quarter PADI increased to $39,327, easily topping my 2021 goal of reaching $37,500!

DivGro's average YOC is 3.97%, up from the 3.91% reported at the end of Q3-2021. 

Relative to the total capital invested, DivGro's projected annual yield is 6.54%, up from 6.28% at the end of Q3-2021.

The following table shows the stocks that announced dividend increases in Q4-2021 or have paid a higher dividend than before. I've included the new annual dividend and yield on cost [YOC]:

Company	Ticker	Increase	Annual Div	New YoC
Aflac Incorporated	AFL	21.21%	1.60	4.01%
Visa Inc	V	17.19%	1.50	0.73%
Snap-on Incorporated	SNA	15.45%	5.68	3.66%
Broadcom Inc	AVGO	13.89%	16.40	6.05%
D.R. Horton, Inc	DHI	12.50%	0.90	0.94%
Automatic Data Processing, Inc	ADP	11.83%	4.16	2.70%
Mastercard Incorporated	MA	11.36%	1.96	0.60%
NIKE, Inc	NKE	10.91%	1.22	1.49%
Stryker Corporation	SYK	10.32%	2.78	1.33%
Union Pacific Corporation	UNP	10.28%	4.72	3.18%
Amgen Inc	AMGN	10.23%	7.76	3.58%
Bristol-Myers Squibb Company	BMY	10.20%	2.16	3.73%
Atmos Energy Corporation	ATO	8.80%	2.72	3.04%
AbbVie Inc	ABBV	8.46%	5.64	9.31%
DTE Energy Company	DTE	7.27%	3.54	3.14%
Merck & Co., Inc	MRK	6.15%	2.76	3.59%
Hormel Foods Corporation	HRL	6.12%	1.04	2.52%
American Tower Corporation	AMT	6.11%	5.56	2.09%
Honeywell International Inc	HON	5.38%	3.92	2.71%
Realty Income Corporation	O	4.24%	2.958	5.45%
Franklin Resources, Inc	BEN	3.57%	1.16	3.87%
Tyson Foods, Inc	TSN	3.37%	1.84	2.34%
Pfizer Inc	PFE	2.56%	1.60	4.38%
Pinnacle West Capital Corporation	PNW	2.41%	3.40	4.32%
The Bank of Nova Scotia	BNS	1.96%	2.9184	4.92%
The Toronto-Dominion Bank	TD	1.56%	2.5566	4.52%
W. P. Carey Inc	WPC	0.29%	4.22	6.25%

I like seeing dividend increases of at least 7%. This quarter, fifteen of the dividend increases topped 7%, while the arithmetic average of all the increases is 8.28%. That's a rate that easily outpaces the current 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:

The arithmetic average year-over-year dividend growth rate of dividend-paying stocks in my portfolio is 12.03%, though the position-weighted average is somewhat lower at 10.34%.

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 10.36% and the position-weighted average is 10.66%. 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 several positions. 

New Positions

• Virtus AllianzGI Artificial Intelligence & Technology Opportunities Fund (AIO) — 
• new position of 200 shares
• American Tower Corporation (AMT) — 
• new position of 10 shares
• BlackRock Science and Technology Trust (BST) — 
• new position of 200 shares

Increased Positions

• Aflac Incorporated (AFL) — 
• added 100 shares and increased position to 200 shares
• Virtus AllianzGI Artificial Intelligence & Technology Opportunities Fund (AIO) — 
• added 200 shares and increased position to 400 shares
• The Allstate Corporation (ALL) — 
• added 30 shares and increased position to 100 shares
• Atmos Energy Corporation (ATO) — 
• added 70 shares and increased position to 200 shares
• Bristol-Myers Squibb Company (BMY) — 
• added 100 shares and increased position to 300 shares
• The Bank of Nova Scotia (BNS) — 
• added 125 shares and increased position to 150 shares
• D.R. Horton, Inc (DHI) — 
• added 50 shares and increased position to 100 shares
• DTE Energy Company (DTE) — 
• added 50 shares and increased position to 100 shares
• Enbridge Inc (ENB) — 
• added 200 shares and increased position to 300 shares
• Hormel Foods Corporation (HRL) — 
• added 100 shares and increased position to 300 shares
• Mondelez International, Inc. (MDLZ) — 
• added 100 shares and increased position to 200 shares
• Public Service Enterprise Group Incorporated (PEG) — 
• added 150 shares and increased position to 250 shares
• The Procter & Gamble Company (PG) — 
• added 75 shares and increased position to 100 shares
• Philip Morris International Inc (PM) — 
• added 100 shares and increased position to 120 shares
• Raytheon Technologies Corporation (RTX) — 
• added 40 shares and increased position to 100 shares
• Royal Bank of Canada (RY) — 
• added 100 shares and increased position to 150 shares
• Visa Inc (V) — 
• added 10 shares and increased position to 100 shares
• Valero Energy Corporation (VLO) — 
• added 50 shares and increased position to 150 shares
• Verizon Communications Inc (VZ) — 
• added 50 shares and increased position to 250 shares

Reduced Positions

• AbbVie Inc (ABBV) — 
• sold 100 shares and reduced position to 100 shares
• Franklin Resources, Inc (BEN) — 
• sold 200 shares and reduced position to 300 shares
• Comcast Corporation (CMCSA) — 
• sold 100 shares and reduced position to 300 shares
• Cisco Systems, Inc (CSCO) — 
• sold 100 shares and reduced position to 240 shares
• CVS Health Corporation (CVS) — 
• sold 100 shares and reduced position to 100 shares
• Gilead Sciences, Inc (GILD) — 
• sold 100 shares and reduced position to 200 shares
• The Coca-Cola Company (KO) — 
• sold 100 shares and reduced position to 200 shares
• Altria Group, Inc (MO) — 
• sold 100 shares and reduced position to 230 shares
• Merck & Co., Inc (MRK) — 
• sold 90 shares and reduced position to 200 shares
• PepsiCo, Inc (PEP) — 
• sold 80 shares and reduced position to 60 shares
• Pfizer Inc (PFE) — 
• sold 100 shares and reduced position to 200 shares
• The Toronto-Dominion Bank (TD) — 
• sold 100 shares and reduced position to 200 shares
• Xcel Energy Inc (XEL) — 
• sold 55 shares and reduced position to 165 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 Unsafe or Very Unsafe dividend growth stocks.

DivGro now contains 98 different positions. Of these, 82 are dividend growth stocks, seven are dividend-paying stocks, and five are CEFs (closed-end funds). I also own four stocks that do not pay dividends. 

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

I now also look at the distribution of my stocks by Super Sector:

This quarter I further reduced my exposure to Sensitive Sectors, though my exposure to Defensive Sectors also went down a bit. My goal is to slowly move towards an equal super sector distribution.

Market Value

At the end of Q4-2021, DivGro's market value represented a simple gain of 138% on the total amount invested. Of course, this does not take into account the timing and size of cash deposits and withdrawals. DivGro's IRR (internal rate of return) since inception is 17.5%, which is a better measure of portfolio performance. 

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 2.42%, Apple is my largest position, followed by Microsoft and Blackrock at 2.21% and 2.19%, 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, Pinnacle West Capital, contributes only 2.16%.

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

At 7.23%, Altria is the top-yielding position in DivGro, followed by Enbridge at 6.42%. 

The arithmetic average yield of dividend-paying stocks in my portfolio is 2.53%, while the position-weighted average yield is 2.47%. 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 94.79%, by far the largest payback in my portfolio! Intel is second with 47.05%.

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

Public Storage and Lowe's are the best performers over the past year, with share price appreciation of 62.2% and 61.04%, respectively. Pfizer is third with 60.42%.

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:

Pinnacle West Capital and All State appear to offer the best opportunities for additional investment.  Raytheon Technologies and Bristol-Myers Squibb are the only other DivGro stocks with discounts of over 20%. All four positions are essentially fully weighted based on how I determine 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 dividend growth stocks trading at reasonable valuations. Additionally, I'm still favoring higher-yielding stocks.  

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