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Sunday, January 15, 2023

Monthly Review Of DivGro: December 2022

Welcome to the December review of DivGro, my portfolio of dividend growth stocks. This is the 120th monthly review since founding DivGro in January 2013, completing ten years of dividend growth investing and blogging!

In monthly reviews, I summarize transactions, dividends received, and dividend changes and how those events impact DivGro's projected annual dividend income (PADI).

In December, I opened one new position and added shares to three existing positions. Additionally, I closed one position. I also replace two positions called away by options assignments. Twelve DivGro stocks announced dividend increases in December, while one announced a dividend cut, and another will pay smaller dividends in USD due to exchange-rate fluctuations. The net result of these changes is that PADI decreased by about 0.2% in December. Year over year, PADI increased by 16.7%.

As for dividend income, in December, I received dividends totaling $5,927 from 50 stocks in my portfolio, a year-over-year increase of 25%. In 2022, I collected $47,646 in dividends, or about 110% of my 2022 goal of $43,200. 

DivGro's current PADI of $45,885 exceeds my 2022 goal of reaching $45,000 by 1.96%! 

PADI of $45,885 means I can expect to collect $3,824 in dividend income per month, on average, in perpetuity, assuming the status quo is maintained. That's a tidy monthly income! 

Of course, DivGro's PADI should increase over time because I invest in dividend growth stocks and reinvest all dividends received. 


Dividend Income


I received dividends from 50 different stocks for a monthly total of $5,927 in dividend income:

December's total was just $96 shy of January 2022's dividend income record of $6,023! 

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

  • Archer-Daniels-Midland Company (ADM) — income of $80.00
  • Aflac Incorporated (AFL) — income of $80.00
  • Virtus Artificial Intelligence & Technology Opportunities Fund (AIO) — income of $180.00
  • Amgen Inc (AMGN) — income of $223.10
  • Atmos Energy Corporation (ATO) — income of $148.00
  • Broadcom Inc (AVGO) — income of $138.00
  • American States Water Company (AWR) — income of $79.50
  • BlackRock, Inc (BLK) — income of $170.80
  • Cummins Inc (CMI) — income of $157.00
  • Canadian National Railway Company (CNI) — income of $67.49
  • Cintas Corporation (CTAS) — income of $11.50
  • Chevron Corporation (CVX) — income of $213.00
  • Anthem, Inc (ELV) — income of $12.80
  • Enbridge Inc (ENB) — income of $191.55
  • 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
  • The Home Depot, Inc (HD) — income of $190.00
  • Honeywell International Inc (HON) — income of $103.00
  • International Business Machines Corporation (IBM) — income of $165.00
  • Intercontinental Exchange, Inc (ICE) — income of $38.00
  • Intel Corporation (INTC) — income of $102.20
  • Johnson & Johnson (JNJ) — income of $85.88
  • The Coca-Cola Company (KO) — income of $88.00
  • Lockheed Martin Corporation (LMT) — income of $120.00
  • Main Street Capital (MAIN) — income of $96.00
  • McDonald's Corporation (MCD) — income of $76.00
  • 3M Company (MMM) — income of $111.75
  • Microsoft Corporation (MSFT) — income of $68.00
  • BlackRock MuniHoldings California Quality Fund (MUC) — income of $66.00
  • NextEra Energy, Inc (NEE) — income of $42.50
  • AllianzGI Equity & Convertible Income Fund (NIE) — income of $1000.00
  • NIKE, Inc (NKE) — income of $5.10
  • Northrop Grumman Corporation (NOC) — income of $69.20
  • Realty Income Corporation (O) — income of $49.60
  • PACCAR Inc (PCAR) — income of $37.00
  • Public Service Enterprise Group Incorporated (PEG) — income of $162.00
  • Pfizer Inc (PFE) — income of $80.00
  • Pinnacle West Capital Corporation (PNW) — income of $173.00
  • Public Storage (PSA) — income of $90.00
  • QUALCOMM Incorporated (QCOM) — income of $75.00
  • Raytheon Technologies Corporation (RTX) — income of $55.00
  • Snap-on Incorporated (SNA) — income of $97.20
  • The TJX Companies, Inc (TJX) — income of $29.50
  • T. Rowe Price Group, Inc (TROW) — income of $120.00
  • The Travelers Companies, Inc (TRV) — income of $93.00
  • UnitedHealth Group Incorporated (UNH) — income of $66.00
  • Union Pacific Corporation (UNP) — income of $91.00
  • United Parcel Service, Inc (UPS) — income of $76.00
  • Visa Inc (V) — income of $45.00
  • WEC Energy Group (WEC) — income of $50.93

Following is a chart showing DivGro's monthly dividends plotted against PMDI. It is clear that quarter-ending months are huge outliers:

This is one reason that I also 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.

The reason the orange bars are tracking above the blue, staggered line is special dividends. These are not included in PMDI but do contribute to DivGro's total dividend income received. 


Dividend Changes


In December, the following stocks announced dividend increases or happened to pay higher dividends in USD due to exchange-rate fluctuations:

  • Amgen Inc (AMGN) — increase of 9.79%
  • Broadcom Inc (AVGO) — increase of 12.20%
  • Bristol-Myers Squibb Company (BMY) — increase of 5.56%
  • Canadian National Railway Company (CNI) — increase of 0.70%
  • CVS Health Corporation (CVS) — increase of 10.00%
  • Mastercard Incorporated (MA) — increase of 16.33%
  • Realty Income Corporation (O) — increase of 0.20%
  • PACCAR Inc (PCAR) — increase of 8.82%
  • Pfizer Inc (PFE) — increase of 2.50%
  • Stryker Corporation (SYK) — increase of 7.91%
  • WEC Energy Group (WEC) — increase of 7.22%
  • W. P. Carey Inc (WPC) — increase of 0.38%

Additionally, these positions will pay smaller dividends in the future:

  • Enbridge Inc (ENB) — decrease of 2.25%
  • BlackRock MuniHoldings California Quality Fund (MUC) — decrease of 12.5%

The net result of these changes is that DivGro's PADI will increase by $39.

I like seeing dividend increases above 7%, and six of the eleven increases top my expectations. The arithmetic average of this month's dividend increases is 8.1%, which luckily beats inflation. 

MUC's distribution decrease is disappointing and follows a rather large decrease of 20% announced in October 2022. Nevertheless, I decided to hang onto my position, which is exempt from federal taxes and provides an additional state tax benefit because I reside in California. 


Transactions


This section provides a summary of my transactions in December. As mentioned in the introduction, I opened one new position and added shares to three existing positions. Additionally, I closed one position and replaced two positions that were called away due to options assignments. 

New Position

  • Alliant Energy Corporation (LNT) — new position of 100 shares
I wanted to increase my exposure in the Utilities sector, and LNT is a good candidate. LNT's yield of  3.08% is about 7% higher than its 5-year average yield of 2.89. Additionally, the stock's 5-year dividend growth rate is 6.3%, which is very generous for Utilities. I also like how consistent LNT's EPS and dividend growth history is!


Portfolio Insight gives LNT an A+ Dividend Quality Grade, and the stock made my list of ten top-ranked dividend growth stocks in December. 

Replaced Positions
  • American States Water Company (AWR) — new position of 200 shares
  • Illinois Tool Works Inc (ITW) — new position of 85 shares
I sell covered calls on several positions I hold in tax-advantaged retirement accounts. When these covered calls move into the money before the expiration, they get assigned, and the shares are called away. This happened with AWR and ITW. I managed to replace all 200 shares of AWR but could only afford 85 shares of ITW after a rather big run-up. 

Selling covered calls is not without risk. Normally, I choose expiration dates three months out, and out-of-the-money strike prices with a buffer of at least 15%. Despite this somewhat conservative approach, sometimes, the covered calls get assigned. 

Increased Positions
  • Intel Corporation (INTC) — added 10 shares and increased position to 500 shares
  • WEC Energy Group (WEC) — added 115 shares and increased position to 200 shares
  • Xcel Energy Inc (XEL) — added 35 shares and increased position to 200 shares
These buys were mainly to round out my holdings to multiples of 100 shares, precisely so I could sell additional covered calls. 

Closed Position
  • International Business Machines Corporation (IBM) — sold 100 shares and closed position
I decided to close my long-held position in IBM. While the company is progressing nicely with its turnaround plans under Arvind Krishna's leadership, the company still faces massive competition from giants like Alphabet (GOOG) (GOOGL), Amazon (AMZN), and Microsoft (MSFT), particularly in its cloud business which is prominent for the company's growth plans.

I collected dividends totaling $2,744 from IBM and recorded a capital gain of 21.6% (or 6.2% annualized) from my investment. DivGro's PADI will reduce by $660 following the sell transaction.

December's transactions decreased DivGro's PADI by about $126. 

Here is a chart illustrating the current weight of DivGro positions versus my target weights: 


Note that I've updated how I determine target weights for positions in DivGro. I added Portfolio Insight's Dividend Quality Grade as an eighth determining factor (even though I already account for dividend quality using the scoring system of DVK Quality Snapshots). I'll discuss this change in a future blog post. 

Portfolio Diversification


I'm slowly rebalancing DivGro between 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 and Cyclical sectors increased by 1.6% and 0.3%, respectively, whereas my exposure to the Sensitive sector decreased by 1.9%. 

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
Nov 30, 2022 34,589.77 4,080.11 11,468.00 3.703 20.58
Dec 31, 2022 33,147.25 3,839.50 10,466.48 3.879 21.67

In December, the DOW 30 dropped 4.2%, the S&P 500 dropped 5.9%, and the NASDAQ dropped 8.7%. The yield on the benchmark 10-year Treasury note rose to 3.879, while CBOE's measure of market volatility, the VIX, increased by 5.3% to 21.67.

DivGro outperformed the S&P 500 in December, despite a loss of 2.12%! The following chart shows how the stocks and funds in my portfolio performed over the past month:


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, so if I include dividends, DivGro's outperformance would be even bigger. 

DivGro also outperformed the S&P 500 on a trailing twelve-month basis, with negative returns of 5.58% versus negative returns of 19.44% 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


Given DivGro's current market value and the total capital invested, the portfolio has returned about 114% 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 13.7%.

I track the yield on cost (YoC) for individual stocks, as well as an average YoC for my portfolio. DivGro's average YoC increased from 4.20% last month to 4.28% this month.

Another interesting statistic is percentage payback, which relates dividend income to the amount of capital invested. DivGro's average percentage payback is 31.1%, up from last month's 30.3%.

Finally, DivGro's projected annual yield is at 6.92%, down from last month's value of 6.94%. I calculate projected annual yield by dividing PADI ($45,885) 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:


I easily achieved my goal of collecting at least $43,200 in dividend income in 2022! In fact, 2022's total of $47,646 is 10.29% higher than the target I set for 2022. Year-over-year, DivGro's dividend income increased by about 26%.


Likewise, I achieved my PADI goal for 2022 by increasing DivGro's PADI to $45,885, which tops my 2022 target of $45,000 by 1.96%! Year-over-year, DivGro's PADI increased by about 17%.

Unfortunately, I did not achieve my other 2022 goals, including my options income goal of collecting options income of at least $12,000 in 2022. I'll discuss these in an upcoming Goals post. 

Looking Ahead


I'm planning a few changes for DivGro, which I'll discuss in an upcoming post. 

Before doing so, though, I plan on writing my 40th Quarterly Review and 10th Annual Review articles! 

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

Thanks for reading, and happy investing!
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