Quarterly Review Of DivGro: Q2-2022

I've been away visiting family in South Africa, so I haven't had a chance to post my Quarterly Review of DivGro for Q2-2022. Since Q3-2022 is almost over, I better get to it!

 

In my quarterly reviews, I summarize dividend income, dividend changes, and transactions executed in the past quarter. Also, I provide some charts showing various portfolio statistics. My quarterly reviews are mostly informational and help me track progress over time.

My portfolio generated about $10,780 of dividend income this quarter, and I'm projecting income from dividends of at least $11,420 per quarter going forward.

Year-to-date, I've collected dividend income of $24,267, or about 56% of my 2022 goal of $43,200. DivGro's all-time dividend income total is $182,990.

Dividend Income

In Q2-2022, I collected dividend income totaling $10,780, down 20% from the dividends received in Q1-2022. The reason for this drop in dividend income is that I received special dividends in January 2022, which accounted for a record quarterly total of $13,480 in Q1-2022. 

My Q2-2022 dividend income is up 13% from the dividends I received in Q2-2021. 

In Q2-2002, 88 different stocks and funds paid me quarterly dividends:

• Apple Inc (AAPL) — income of $46.00
• AbbVie Inc (ABBV) — income of $141.00
• Accenture plc (ACN) — income of $9.70
• Archer-Daniels-Midland Company (ADM) — income of $80.00
• Automatic Data Processing, Inc (ADP) — income of $104.00
• Aflac Incorporated (AFL) — income of $80.00
• The Allstate Corporation (ALL) — income of $85.00
• Amgen Inc (AMGN) — income of $223.10
• American Tower Corporation (AMT) — income of $14.00
• Air Products and Chemicals, Inc (APD) — income of $25.92
• Atmos Energy Corporation (ATO) — income of $136.00
• Broadcom Inc (AVGO) — income of $123.00
• American States Water Company (AWR) — income of $67.53
• Franklin Resources, Inc (BEN) — income of $87.00
• BlackRock, Inc (BLK) — income of $170.80
• Bristol-Myers Squibb Company (BMY) — income of $162.00
• The Bank of Nova Scotia (BNS) — income of $116.77
• Chubb Limited (CB) — income of $80.00
• Comcast Corporation (CMCSA) — income of $81.00
• Cummins Inc (CMI) — income of $72.50
• Canadian National Railway Company (CNI) — income of $144.38
• Costco Wholesale Corporation (COST) — income of $9.00
• Cisco Systems, Inc (CSCO) — income of $91.20
• Cintas Corporation (CTAS) — income of $9.50
• CVS Health Corporation (CVS) — income of $55.00
• Chevron Corporation (CVX) — income of $213.00
• D.R. Horton (DHI) — income of $22.50
• Digital Realty Trust, Inc (DLR) — income of $54.90
• DTE Energy Company (DTE) — income of $88.50
• Anthem, Inc (ELV) — income of $12.80
• Enbridge Inc (ENB) — income of $204.00
• FedEx Corporation (FDX) — income of $37.50
• General Dynamics Corporation (GD) — income of $126.00
• Gilead Sciences, Inc (GILD) — income of $146.00
• The Home Depot, Inc (HD) — income of $133.00
• Honeywell International Inc (HON) — income of $68.60
• Hormel Foods Corporation (HRL) — income of $78.00
• International Business Machines Corporation (IBM) — income of $165.00
• Intercontinental Exchange, Inc (ICE) — income of $38.00
• Intel Corporation (INTC) — income of $73.00
• Illinois Tool Works Inc (ITW) — income of $73.20
• Johnson & Johnson (JNJ) — income of $142.38
• JPMorgan Chase & Co (JPM) — income of $110.00
• The Coca-Cola Company (KO) — income of $88.00
• Lockheed Martin Corporation (LMT) — income of $112.00
• Lowe's Companies, Inc (LOW) — income of $80.00
• Mastercard Incorporated (MA) — income of $24.50
• McDonald's Corporation (MCD) — income of $69.00
• Mondelez International, Inc. (MDLZ) — income of $70.00
• Medtronic plc (MDT) — income of $63.00
• 3M Company (MMM) — income of $111.75
• Altria Group, Inc (MO) — income of $207.00
• Merck & Co., Inc (MRK) — income of $138.00
• Microsoft Corporation (MSFT) — income of $62.00
• NextEra Energy, Inc (NEE) — income of $42.50
• Virtus Equity & Convertible Income Fund (NIE) — income of $625.00
• NIKE, Inc (NKE) — income of $4.58
• National Retail Properties, Inc (NNN) — income of $119.25
• Northrop Grumman Corporation (NOC) — income of $69.20
• Oracle Corporation (ORCL) — income of $48.00
• Public Service Enterprise Group Incorporated (PEG) — income of $135.00
• PepsiCo, Inc (PEP) — income of $69.00
• Pfizer Inc (PFE) — income of $80.00
• The Procter & Gamble Company (PG) — income of $91.33
• Philip Morris International Inc (PM) — income of $150.00
• Pinnacle West Capital Corporation (PNW) — income of $212.50
• Public Storage (PSA) — income of $120.00
• QUALCOMM Incorporated (QCOM) — income of $52.50
• Raytheon Technologies Corporation (RTX) — income of $55.00
• Royal Bank of Canada (RY) — income of $140.00
• Starbucks Corporation (SBUX) — income of $68.60
• Snap-on Incorporated (SNA) — income of $85.20
• Sempra (SRE) — income of $57.25
• Stryker Corporation (SYK) — income of $6.95
• The Toronto-Dominion Bank (TD) — income of $138.05
• The TJX Companies, Inc (TJX) — income of $29.50
• T Rowe PriceT. Rowe Price Group, Inc (TROW) — income of $120.00
• The Travelers Companies, Inc (TRV) — income of $93.00
• Tyson Foods, Inc (TSN) — income of $69.00
• Texas Instruments Incorporated (TXN) — income of $86.25
• UnitedHealth Group Incorporated (UNH) — income of $99.00
• Union Pacific Corporation (UNP) — income of $62.40
• United Parcel Service, Inc (UPS) — income of $76.00
• Visa Inc (V) — income of $37.50
• Valero Energy Corporation (VLO) — income of $147.00
• Verizon Communications Inc (VZ) — income of $160.00
• W. P. Carey Inc (WPC) — income of $105.70
• Xcel Energy Inc (XEL) — income of $80.44

Additionally, I received monthly dividends from 6 different stocks and funds:

• Virtus Artificial Intelligence & Technology Opportunities Fund (AIO) — income of $338.40
• BlackRock Science and Technology Trust (BST) — income of $300.00
• 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 $187.20
• Realty Income Corporation (O) — income of $111.15

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

Dividend Increases

Last quarter, I reported projected annual dividend income (PADI) of $42,546. This quarter PADI increased to $43,874. In 2022, I'm hoping to increase PADI to $45,000.  

DivGro's average YOC is 4.16%, down slightly from the 4.17% reported at the end of Q1-2022. 

Relative to the total capital invested, DivGro's projected annual yield is 6.90%, down from 6.54% at the end of Q4-2021. 

Finally, DivGro's projected annual yield is at 6.90%, down slightly from last month's 6.95%. I calculate the projected annual yield by dividing PADI ($43,874) by the total amount invested. 

The following table shows the stocks that announced dividend increases in Q2-2022 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
Lowe's Companies, Inc	LOW	31.25%	4.20	4.54%
Canadian National Railway Company	CNI	21.93%	2.2746	2.85%
Costco Wholesale Corporation	COST	13.92%	3.60	1.32%
UnitedHealth Group Incorporated	UNH	13.79%	6.60	2.73%
The TJX Companies, Inc	TJX	13.46%	1.18	2.67%
QUALCOMM Incorporated	QCOM	10.29%	3.00	2.87%
Northrop Grumman Corporation	NOC	10.19%	6.92	2.12%
Union Pacific Corporation	UNP	10.17%	5.20	3.51%
Medtronic plc	MDT	7.94%	2.72	2.96%
Raytheon Technologies Corporation	RTX	7.84%	2.20	3.53%
PepsiCo, Inc	PEP	6.98%	4.60	3.63%
Johnson & Johnson	JNJ	6.60%	4.52	3.11%
The Travelers Companies, Inc	TRV	5.68%	3.72	3.21%
The Procter & Gamble Company	PG	5.00%	3.6532	2.81%
Apple Inc	AAPL	4.55%	0.92	4.01%
Chubb Limited	CB	3.75%	3.32	2.72%
International Business Machines Corporation	IBM	0.61%	6.60	4.77%
Enbridge Inc	ENB	0.59%	2.72	7.08%
Realty Income Corporation	O	0.20%	2.97	5.47%
W. P. Carey Inc	WPC	0.19%	4.236	6.28%
Royal Bank of Canada	RY	0.12%	3.7333	4.18%

I like seeing dividend increases of at least 7%. This quarter, ten of the dividend increases topped 7%, while the arithmetic average of all the increases is 8.34%. That's a rate that 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 9.20%, while my position-weighted average is 10.17%.

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

The arithmetic average of 5-year dividend growth rates of dividend-paying stocks in my portfolio is 10.41%, and the position-weighted average< is 10.65%. Most DivGro's stocks have 5-year DGRs that exceed my target dividend growth rate of 7.00%! (These are colored green in the chart above.)

 

Transactions

This quarter I deployed new capital and options income to add one position and expand four existing positions:

• PACCAR Inc (PCAR) — 
• a new position of 100 shares

This transaction followed an options assignment. 

I'm quite happy with this buy! While PCAR's forward dividend yield of 1.54% is quite low, the company regularly pays special dividends:

Year	Regular	Special
2021	$1.34	$1.50
2020	$1.28	$0.70
2019	$1.28	$2.30
2018	$1.09	$2.00
2017	$0.99	$1.20

• Comcast Corporation (CMCSA) — 
• added 150 shares and increased position to 450 shares
• Cisco Systems, Inc (CSCO) — 
• added 60 shares and increased position to 300 shares
• JPMorgan Chase & Co (JPM) — 
• added 100 shares and increased position to 210 shares
• Texas Instruments Incorporated (TXN) — 
• added 25 shares and increased position to 100 shares

I covered these transactions in monthly reviews, 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 99 different positions. Of these, 84 are dividend growth stocks, six 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've maintained the distribution of stocks in the Defensive Sectors at 33.4%. On the other hand, the distribution of stocks in the Sensitive Sectors increased to 41.0% from 39.4%. The increase happened at the cost of exposure to the Cyclical Sectors, which dropped from 27.2% to 25.6%. My goal remains to slowly move towards an equal super sector distribution.

Market Value

At the end of Q2-2022, DivGro's market value represented a simple gain of 109% on the total amount invested. Of course, this does not consider the timing and size of cash deposits and withdrawals. DivGro's IRR (internal rate of return) since inception is 14.1%, 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:

 

UNH is the largest position in my portfolio, followed by EVT and AMGN. On the other hand, NKE, Stanley Black & Decker (SWK), and AMT are the smallest positions. 

 
In November 2021, I reworked my system for determining the target weights of positions in DivGro. 
The system is dynamic and flexible and allows me to calibrate factors when my goals change. Here is a chart showing the current and target weights of dividend-paying stocks in DivGro:

I'm not really interested in trimming positions to bring them back into "compliance," especially for positions in my taxable account. Rather, I'll favor buying more shares of underweight positions to fill any gaps from below.

 
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. While I invest in relatively safe dividend growth stocks, I want to limit the potential damage of unexpected dividend cuts. 

 
I've increased my investments in three closed-end funds (CEFs), ETO, NIE, and EVT, significantly. 

These CEFs contribute more than 17% of DivGro's PADI, a rather risky proposition! 

 
With only a few years left before retirement, I'm willing to accept a bit more risk for the reward of higher-yielding investments. These use leverage to boost their distributions, allowing me to collect more income to expand my portfolio positions. 

AMGN at 2.03% is my largest single stock position by contribution to PADI. 

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

 

The top-yielding positions in DivGro are AIO, ETO, NIE, BST, MO, and EVT, with yields that range from 11.12% (AIO) down to 8.17% (EVT). Ordinarily, I don't like to see forward yields this high, but taking on more risk is necessary given the current inflation rate of 9.1%, the highest rate it's been in forty years!

The arithmetic average yield of dividend-paying stocks in my portfolio is 3.15%, while the position-weighted average yield is 3.35%. Although both of these average yields are on the low side, I'm not too concerned because DivGro's average dividend growth rate is relatively 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 as 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 is my oldest position, and with a payback of 102.34%, it has by far the largest payback in my portfolio! I'm happy to now have my first position return more in dividends than I've invested in the position! INTC is the second highest with 50.51%.

It's been a vicious six months for stocks, and certainly, DivGro was not spared! 

            

However, I'm happy to note that DivGro outperformed the S&P 500 on a trailing twelve-month basis through June 2022, with negative returns of 2.4% versus negative returns of 11.8% for the S&P 500! 

CVX and VLO have been the best performers over the past year, with share price appreciation of 38.23% and 36.12%, respectively. BST and TROW have performed the worst, with returns of -45.48% and -42.61%, respectively.

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:

Presently, TROW and INTC appear to offer the best opportunities for additional investment. Based on how I determine target weights, I need to add 32 shares to my TROW position, and 183 shares to my INTC position to turn them into full-sized positions. 

Concluding Remarks

I'll continue to focus on buying the highest-quality dividend growth stocks when they trade at discounted valuations. Additionally, I'll favor higher-yielding stocks. I need to increase my exposure to the Cyclical sectors and decrease my exposure to the Sensitive sectors to reach an equilibrium between the three supersectors. 

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