2012 turned out to be a great year for the Wells Family Portfolio as you'll discover in just a moment. It was an active quarter since it included the conversion of the last of my old mutual and index funds to dividend growth stocks. I am pleased to report that we concluded the year more than 98% invested. Our portfolio now contains 52 holdings producing a yield of just below 5%. None of our holdings represent more than 3% of our overall portfolio with most positions under 2%.
Our portfolio was constructed from the lists of Dividend Champions, Challengers and Contenders (CCCs) maintained by Seeking Alpha Contributor David Fish. Each CCC listed stock has the distinction of not only maintaining the dividend during the bear market of 2008 but growing it each year with most growing at a rate greater than inflation.
As retirees, our goal was to construct and maintain a portfolio that would substitute for the need to sell holdings each month to provide necessary retirement income. We sought to substitute for the 4% withdraw plus inflation rule recommended by advisors and instead rely exclusively on income generated from dividends growing at a rate that more than counters inflation.
I believe the key to continued success as investors lies in having a portfolio business plan that sets out specific guidelines for buying, selling and even trimming portfolio positions. Our plan was developed over a period of nearly a year after better defining our retirement income requirements and our personal risk tolerance. This plan defines our principal investment goals and sets out the clear performance benchmarks upon which success will be measured. A comprehensive quarterly review is conducted at the end of each quarter and modifications are made when required.
I have my portfolio business plan in hand so it's time to conduct my 4th Quarter Review. Our overall goal for 2012 of 4.5% income exclusively from dividends was surpassed by 10%, an amount far greater than inflation for the year. As I stated earlier our portfolio ended the year yielding over 4.9%. It is exciting to see firsthand the direct results of strong consistent dividend growth. Since our portfolio is designed to produce growing dividend income this metric, referred to by many as the "chowder rule," best represents our success.
Our overall portfolio beta remains under .70 as required by our plan. It is currently registered at .65. I'm pleased to announce no dividend cuts for the quarter. None of our holdings sustained a dividend cut during 2012. None of our stocks finished the quarter down more than 10%.
It was a busy quarter for stock purchases due to the reallocation of funds from the final group of old mutual and index funds. 11 new stock purchases were made include positions in the following:
Enbridge Energy Partners - EEP, Realty Income - O, Digital Realty - DLR, LinnCo - LNCO, Triangle Capital - TCAP, W.P. Carey -WPC, Alliance Resource Partners -ARLP, Vanguard Natural Resources - VNR, Enterprise Products Partners -EPD, National Health Investors - NHI, Kraft - KRFT.
Of the above positions all but KRFT and LNCO are Dividend Champions, Challengers or Contenders.
Four positions were sold or reduced following the last review and full evaluation of the comments received after its posting. Unilever - UL, Abbott - ABT, Wal-mart - WMT and my position in McDonald's - MCD was reduced to be more in line with other positions. UL and WMT were sold when they became overheated, resulting in significant reduction in dividend yield. It was decided that selling each and re-deploying to higher-yielding dividend growth funds would benefit the portfolio. ABT was also sold, this time because of concerns about the possible effects of the split. ABBV is now on our current watch list.
Stock | Ticker | Yield % | 5-Year DGR % | 10 Year Ave Return | 5 yr. EPS Growth | ||||||
Omega Healthcare Investors | 7.04 | 9.4 | 29.56 | 7.3 | |||||||
Reynolds American | 5.37 | 7.8 | 10.91 | 7.8 | |||||||
W.P.Carey | 4.7 | 4.8 | 11.99 | 6.4 | |||||||
Pepsi | 2.95 | 9.3 | 7.80 | 7.0 | |||||||
Procter & Gamble | 2.99 | 10.2 | 7.73 | 8.4 | |||||||
National Retail Properties | 4.93 | 2.2 | 12.2 | 3.8 | |||||||
Altria | 5.23 | 15.0 | 17.1 | 7.4 | |||||||
Magellan Midstream Partners | 3.95 | 6.8 | 21.60 | (3.0) | |||||||
Verizon | 4.72 | 4.1 | 5.75 | 6.0 | |||||||
Conoco | 4.55 | 12.9* | 13.5 | 4.53 | |||||||
Stock | Ticker | Yield % | 5-Year DGR % | 10 Year Ave Return | 5-Year EPS Growth | ||||||
Chevon | 3.13 | 9.2 | 15.54 | 1.0 | |||||||
Health Care Reit | 4.87 | 5.4 | 13.19 | 13.4 | |||||||
Digital Realty | 4.30 | 20.6 | 16.29 | 8.1 | |||||||
Kinder Morgan Partners | 5.80 | 7.4 | 13.54 | 11.8 | |||||||
Coke | 2.74 | 8.4 | 6.8 | 8.2 | |||||||
McDonald's | 3.23 | 13.9 | 22.56 | 8.7 | |||||||
AT&T | 5.17 | 4.4 | 7.01 | 6.1 | |||||||
Kimberly Clark | 3.31 | 7.0 | 9.33 | 7.3 | |||||||
Sunoco Logistics | 3.59 | 10.6 | 24.09 | 8.65 | |||||||
Plains All America | 4.27 | 5.2 | 18.60 | 5.1 | |||||||
Stock | Ticker | Yield % | 5-Year DGR % | 10 Year Ave Return | 5-Year EPS Growth | |
Southern | 4.43 | 4.0 | 7.7 | 5.1 | ||
Darden Restaurants | 4.3 | 25.8 | 9.66 | 10.8 | ||
Realty Income | 4.97 | 1.5 | 13.28 | 4.5 | ||
Enbridge Energy Partners | 7.25 | 3.0 | 8.33 | 4.7 | ||
BCE Inc. | 5.2 | 16.4 | 11.83 | 2.5 | ||
Royal Dutch Shell | 4.70 | 6.7 | 9.54 | |||
Nat. Health Inv. | 4.21 | 5.8 | 19.48 | 10.0 | ||
Vanguard Nat. Resources | 8.73 | 45.5 | 17.11 | (12.7) | ||
Avista Corp. | 4.49 | 14.3 | 12.04 | 4.0 | ||
Lorilard | 5.29 | 17.3 | 21.6 | 8.6 | ||
Rogers Communication | RCI | 3.41 | 38.2 | 27.26 | 9.3 | |
Stock | Ticker | Yield % | 5Year DGR % | 10 Year Ave Return | 5 Year EPS Growth |
Lockheed Martin | 5.30 | 22.2 | 7.55 | 4.6 | |
Leggett & Platt | 3.94 | 10.1 | 6.50 | 8.7 | |
Enterprise Product Ptrs. | 4.66 | 5.4 | 14.88 | 6.9 | |
Westar Energy | 4.39 | 4.3 | 11.99 | 6.4 | |
Heinz | 3.40 | 6.4 | 8.95 | 7.3 | |
PPL Corp. | 4.75 | 3.4 | 9.15 | .3 | |
Hasbro | 3.85 | 18.1 | 14.37 | 7.4 | |
Waste Management | 4.01 | 8.1 | 7.30 | 7.3 | |
Astrazeneca | 5.92 | 10.2 | 6.96 | (3.5) | |
Triangle Capital | 7.88 | 9.6 | 22.38 3 yr. | 15.0 |
Stock | Ticker | Yield % | 5-Year DGR % | 10 Year Ave Return | 5 Year EPS Growth |
Paychex | 3.95 | * | 5.42 | 9.54 | |
Phillip Morris | 3.78 | 12.8 | 25.86 - 3yr | 11.03 | |
Eli Lilly | 3.65 | 2.7 | 1.48 | (6.0) | |
Dr. Pepper Scrapple | 3.02 | 22.3 - 3 yr. | 6.9 | ||
Kraft | 4.40 | 3.35 | |||
Alliance Resources | 7.03 | 13.6 | 22.83 | 1.42 | |
Bank of Montreal | 4.49 | 4.6 | 12.15 | 7.12 | |
LinnCo | 7.54 | ||||
Am Capital Mortgage Invest. | 13.80 | ||||
B&G Foods | 3.47 | 18.0 | 28.87- 5 yr. | 14.2 |
Stock | Ticker | Yield % | 5-Year DGR % | 10 Year Ave Return | 5 Year EPS Growth |
Enterprise Transfer Prt. | 7.61 | 0.8 | 18.42 | 21.35 |
We set two goals for our investments: increased annual income and capital preservation. As to the second goal, since we started in February of 2011 we have accrued 18.52% in total returns vs. 15.71% in total returns for the S&P 500 during the same period. At the end of January, for the year we were 6.79% in total returns vs. 5.18% for the market.
During the past year we learned a lot. We learned to be more patient and resist the temptation to buy stocks when they are overvalued. Now we more patiently wait and buy when they "disappoint the street" during earnings season. We learned that holding 50 or more positions would serve to safeguard major reduction of monthly income due to dividend cuts or even elimination. We learned that some of the best performers over the past turbulent decade have been stocks with low beta. We also discovered that for the risk adverse these stocks often outperformed particularly during down markets.
