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Saturday, December 17, 2022

Monthly Review of DivGro: November 2022

Welcome to the November review of DivGro, my portfolio of dividend growth stocks. I provide a summary of transactions and dividends received in the past month. I also consider the impact on DivGro's projected annual dividend income (PADI).

In November, I did some portfolio reorganization. The main reason for doing so was to round out my positions, where possible, to multiples of 100 shares. I'm using options trading to boost dividend income, and for covered calls, I prefer having multiples of 100 shares so I can write covered calls on all my shares. 

I added shares to 17 existing positions and reduced my investment in one holding. Additionally, I closed five positions, including two closed-end funds (CEFs). Ten DivGro stocks announced dividend increases in November, while four positions were affected by dividend cuts or exchange-rate fluctuations. The net result of these changes is that DivGro's PADI decreased by about 0.1% in November. Year over year, PADI increased by 18.6%.

As for dividend income, in November, I received dividends totaling $2,598 from 25 stocks in my portfolio, a year-over-year decrease of 12%. So far in 2022, I've collected $41,718 in dividends, or about 97% of my 2022 goal of $43,200.

DivGro's PADI of $45,972 means I can expect to receive $3,831 in dividend income per month, on average, in perpetuity, assuming the status quo is maintained. But DivGro's 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 $2,598 from 25 different stocks in November:

  • Apple Inc (AAPL)income of $46.00
  • AbbVie Inc (ABBV)income of $141.00
  • Accenture plc (ACN)income of $11.20
  • Virtus Artificial Intelligence & Technology Opportunities Fund (AIO)income of $180.00
  • Air Products and Chemicals, Inc (APD)income of $25.92
  • Bristol-Myers Squibb Company (BMY)income of $162.00
  • BlackRock Science and Technology Trust (BST)income of $150.00
  • Costco Wholesale Corporation (COST)income of $9.00
  • CVS Health Corporation (CVS)income of $55.00
  • Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO)income of $171.75
  • Eaton Vance Tax-Advantaged Dividend Income Fund (EVT)income of $186.00
  • General Dynamics Corporation (GD)income of $126.00
  • Hormel Foods Corporation (HRL)income of $78.00
  • Lowe's Companies, Inc (LOW)income of $105.00
  • Mastercard Incorporated (MA)income of $24.50
  • Main Street Capital (MAIN)income of $57.20
  • BlackRock MuniHoldings California Quality Fund (MUC)income of $66.00
  • National Retail Properties, Inc (NNN)income of $110.00
  • Realty Income Corporation (O)income of $37.20
  • The Procter & Gamble Company (PG)income of $91.33
  • Royal Bank of Canada (RY)income of $143.47
  • Starbucks Corporation (SBUX)income of $106.00
  • The Toronto-Dominion Bank (TD)income of $130.37
  • Texas Instruments Incorporated (TXN)income of $124.00
  • Verizon Communications Inc (VZ)income of $261.00

Here is a chart showing DivGro's monthly dividends plotted against PMDI. It is clear that 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 great if dividends were distributed more evenly, I don't want to change my investment decisions based on the timing or frequency of dividend payments.


Dividend Changes


In November, the following stocks announced dividend increases:

  • Automatic Data Processing, Inc (ADP)increase of 20.19%
  • Aflac Incorporated (AFL)increase of 5.00%
  • Atmos Energy Corporation (ATO)increase of 8.82%
  • DTE Energy Company (DTE)increase of 7.63%
  • Hormel Foods Corporation (HRL)increase of 5.77%
  • Main Street Capital (MAIN)increase of 2.27%
  • Merck & Co., Inc (MRK)increase of 5.80%
  • NIKE, Inc (NKE)increase of 11.48%
  • Snap-on Incorporated (SNA)increase of 14.08%
  • Tyson Foods, Inc (TSN)increase of 4.35%

I like seeing dividend increases above 7%, and five of this month's ten increases top my expectations.

Unfortunately, two of my closed-end funds (CEFs) announced distribution cuts, mainly due to continued interest rate increases by the Federal Reserve to combat inflation: 
  • Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO)decrease of 23.33%
  • Eaton Vance Tax-Advantaged Dividend Income Fund (EVT)decrease of 8.49%
Moreover, the dividends paid by two Canadian banks are lower in USD terms due to exchange rate fluctuations:
  • Royal Bank of Canada (RY)decrease of 2.97%
  • The Toronto-Dominion Bank (TD)decrease of 5.91%
These changes will decrease DivGro's PADI by $578.


Transactions


Here is a summary of my transactions in November:

Closed Positions

I closed my positions in two of the five CEFs I've owned in 2022:

  • Virtus Artificial Intelligence & Technology Opportunities Fund (AIO)sold all 1,200 shares
  • BlackRock Science and Technology Trust (BST) — sold all 600 shares
While neither of these funds have cut their distributions, Simply Safe Dividends deem their distributions to be Unsafe. The NAV of each fund has fallen precipitously, driving their distribution yields to around 10%. That is too high, in my opinion, and it appears that the headwinds for growth stocks will continue well into next year as the Fed continues to increase interest rates. 

Another reason for closing these positions is to offset capital gains. This time of the year, I look for  opportunities to limit my tax obligations, and both these sells will help to do so!

I collected distributions totaling $1,953 from AIO, but recorded a capital loss of 15.1% (or 21.6% annualized) in the process. For BST, I collected distributions totaling $1,512, but recorded a capital loss of 22.5% (or 31.4% annualized). 

These sells removes no less than $3,960 from DivGro's PADI, though the buys I present below countered most of the "loss". 

Additionally, I've closed my positions in the following stocks:
  • American Tower Corporation (AMT) — sold all 50 shares
  • 3M Company (MMM)sold all 75 shares 
  • Tyson Foods, Inc (TSN)sold all 200 shares 
In October, I increased my position of AMT to 50 shares, so this closing trade might surprise you. While I still believe AMT is a solid stock, I wanted to shift some funds to higher-yielding investments. I'll probably reinvest in AMT in the new year. 

I collected dividends totaling $57 and recorded a capital gain of 5.9% (15.3% annualized). The sell reduces PADI by $59.

MMM is another matter. The stock is facing significant headwinds, including legal battles over PFAS chemical spilling and ear plugs provided to the military. Legal costs are climbing and the company even could be forced into bankruptcy if the worse-case scenario becomes reality. MMM yields a jucy 4.9%, but that's due to a falling stock price in the face of the legal battles. 

I collected dividends totaling $1,020 from my MMM investment, and recorded a capital loss of 20.7% (or 8.8% annualized). DivGro's PADI will reduce by $447 following my divestment. 

Finally, I also decided to close my position in TSN. The company is facing deteriorating margins and a challenging macroeconomic environment. TSN's DVK quality score is only 15, and it's forward yield of 3.1% is not adequate compensation for the increased near-term risk, in my view. 

I collected dividends totaling $228 from TSN and recorded a capital loss of 12.2% (or 14.5% annualized) from my investment. DivGro's PADI will reduce by $384 as a result of closing this position.

Increased Positions

As mentioned in the introduction to this month's review, I decided to round out several positions to multiples of 100 shares. In some cases, the reason for rounding out my positions is so that I can write covered calls. Otherwise, I wanted to recover some of the PADI lost due to the aforementioned sells.
  • BlackRock MuniHoldings California Quality Fund (MUC) — added 1,500 shares and increased position to 3,000 shares
  • Virtus Equity & Convertible Income Fund (NIE) — added 750 shares and increased position to 2,000 shares
Both of these funds are riskier investments. My investment in leveraged CEFs is intentional. With only a few years left before retirement, I need to increase my annual dividend income and boost reinvestment opportunities to expand my portfolio positions.

The abovementioned buys add $2,292 to DivGro's PADI and reduce the average cost basis of both positions.
  • The Bank of Nova Scotia (BNS) — added 150 shares and increased position to 300 shares
  • Comcast Corporation (CMCSA) — added 50 shares and increased position to 500 shares
  • Digital Realty Trust, Inc (DLR) — added 155 shares and increased position to 200 shares
  • Intel Corporation (INTC) — added 210 shares and increased position to 490 shares
  • Main Street Capital (MAIN) — added 40 shares and increased position to 300 shares
  • Medtronic plc (MDT) — added 100 shares and increased position to 200 shares
  • Altria Group, Inc (MO) — added 70 shares and increased position to 300 shares
  • Realty Income Corporation (O) — added 50 shares and increased position to 200 shares
  • Oracle Corporation (ORCL) — added 50 shares and increased position to 200 shares
  • Public Service Enterprise Group Incorporated (PEG) — added 50 shares and increased position to 300 shares
  • PepsiCo, Inc (PEP) — added 40 shares and increased position to 100 shares
  • Union Pacific Corporation (UNP) — added 22 shares and increased position to 70 shares
  • United Parcel Service, Inc (UPS) — added 50 shares and increased position to 100 shares
  • Verizon Communications Inc (VZ) — added 100 shares and increased position to 500 shares
  • WEC Energy Group (WEC) — added 15 shares and increased position to 85 shares
For my UNP, INTC, and WEC positions, I didn't have enough cash to complete the rounding out process. I'll do so once I've collected enough dividends (and options income) to afford the necessary shares. 

These buys add $3,444 to DivGro's PADI. 

Reduced Position

Generally, I added shares to positions to round them out multiples of 100 shares. In the case of AMGN, though, adding 85 shares would have made the position too large!
  • Amgen Inc (AMGN) — sold 15 shares and reduced position to 100 shares
This sell trimmed $116 from DivGro's PADI. 

Altogether, this month's buys and sells increased DivGro's PADI by about $535.

After this November's transactions, here is chart illustrating the current weight of DivGro positions versus my target weights


Portfolio Diversification


The chart below shows the sector distribution of DivGro's holdings. I'm no longer too concerned about the sector distribution of DivGro's holdings across the 11 sectors. Nevertheless, I continue to monitor the sector distribution in case changes become necessary. 

I hope to slowly rebalance my portfolio holdings between the Defensive, Sensitive, and Cyclical supersectors. Below is a chart showing the current distribution with an insert of last month's distribution.

My exposure to the Defensive sector decreased by 0.6%, whereas my exposure to the Sensitive and Cyclical sectors increased by 0.1% and 0.5%, respectively.  


Markets


It is worth looking at the markets to understand the environment we're investing in:


  DOW
30
S&P
500
NASDAQ
Composite
10-YR
BOND
CBOE
VIX
Oct 31, 2022 32,732.95 3,871.98 10,988.15 4.052 25.88
Nov 30, 2022 34,589.77 4,080.11 11,468.00 3.703 20.58

In November, the DOW 30 gained 5.7%, the S&P 500 gained 5.4%, and the NASDAQ gained 4.4%. The yield on the benchmark 10-year Treasury note fell to 3.703, while CBOE's measure of market volatility, the VIX, decreased by 20.5% to 20.58.

DivGro performed well in November and outperformed the S&P 500! Here is a chart showing how the stocks and funds in my portfolio performed over the past month:


Note that this comparison is a price-performance comparison only and does not account for dividends. DivGro's position-weighted average yield is about double the average yield of the S&P 500!

DivGro also outperformed the S&P 500 on a trailing twelve-month basis, with positive returns of 2.71% versus negative returns of 12.36% for the S&P 500! 


Once again, this is only a price-performance comparison. The 1-year performance chart shows that my efforts to increase DivGro's Defensive sector exposure are paying off!

Portfolio Statistics


Based on the total capital invested and the portfolio's current market value, DivGro has delivered a simple return of about 122% since inception. In comparison, DivGro's IRR (internal rate of return) is 14.6%. (IRR takes into account the timing and size of deposits since inception, so it is a better measure of portfolio performance).

I track the yield on cost (YoC) of individual stocks, as well as an average YoC for my portfolio. DivGro's average YoC was unchanged from last month's 4.28%.

Percentage payback relates dividend income to the amount of capital invested. DivGro's average percentage payback is 31.1%, unchanged from last month.

Finally, projected annual yield is calculated by dividing PADI ($45,972) by the total amount invested. DivGro's projected annual yield is at 6.94%, down from last month's value of 7.22%. 

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:


I'm closing in on my goal of collecting $43,200 in dividend income in 2022. I'm happy to say that my all-time dividend income total crossed the $200,000 mark in November 2022!


Looking Ahead


I'm looking forward to my break from work over the Christmas season! 

December will be the 120th month of DivGro, and in January, I'll celebrate DivGro's 10-year anniversary. I'm unsure if I'll continue blogging about my DivGro portfolio in this current format. I'm looking for new challenges, and I think readers would appreciate a change!

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

Thanks for reading, and happy investing!
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