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This is an update to my portfolio that was started towards the end of 2012 here on Seeking Alpha. I thought I would take a minute to refresh everyone on the goals of the portfolio.

Goals:

  1. The ultimate goal is to retire early, hopefully around 55. I am 36 now, so i have about 20 years to make this work. Since I have some time I will concentrate on both capital appreciation and dividend yield.
  2. I am striving for a portfolio that equally weights the individual sectors of the economy (consumer, industry, technology, utilities, etc.). 3-5 stocks per sector will be ideal. Personally, 50 stocks will be my maximum.
  3. I want the portfolio to have an average beta below .80 and an average yield over 3.5%. Dividends will be re-invested. Over time, I expect the beta to slowly go down and the yield to slowly rise.
  4. I will have a short-term bond position of around 25% initially. I will use Vanguard's Short Term Corporate Bond ETF (VCSH) for this. This allocation will act as a reserve, and will be used to ensure that the portfolio appreciates by 10% annually. When needed, funds will be withdrawn from the bond position and invested in dividend growth stocks to keep the portfolio on the 10% annual pace. There is nothing special about the 10% return, it is just a return that will ensure the $75,000 invested now will be valued at $500,000 in 20 years. Annual contributions will go into the bond allocation first, then go into the equities portion as needed.
  5. This is a real portfolio. It uses a portion of my retirement savings. This means transaction costs will be subtracted out of the portfolio as they are incurred. The good, bad and ugly will seen along the way.

Changes Made: Early this year I received good news that the company managing one of my 401ks was being changed. I had the opportunity to roll over the 401k to Vanguard and take more control of it. This extra money allowed me to focus more on individual stocks, as opposed to ETFs, and still stay fairly diversified within the individual sectors. I have consolidated the sectors of the economy into 10 categories to make things simple. The sectors are as follows:

  1. Consumer Discretionary
  2. Consumer Staples
  3. Finance
  4. Technology (combines Info. Technology and Telecommunications)
  5. Industrials
  6. Health Care
  7. Utilities
  8. Real Estate
  9. Energy
  10. Materials

The equities portion is targeted at $75,000, or $7,500 per sector. Many stocks do not fit into one sector perfectly. As a result all may not agree on my stock sector placements. The following table shows the current portfolio holdings and sector values.

SectorTickerValue
Consumer StaplesAltria (MO)
Coca-Cola (KO)$7,596
CVS Caremark (CVS)
Consumer Disc.Time Warner Cable (TWC)
Target (TGT)$7,469
McDonald's (MCD)
Ford (F)
Health CareJohnson&Johnson (JNJ)
Pfizer (PFE)$7,544
United Healthcare (UNH)
FinancialDiscover Financial (DFS)
Prospect Capital (PSEC)$7,482
Wells Fargo (WFC)
IndustrialGeneral Electric (GE)
Ratheon (RTN)$7,669
Caterpillar (CAT)
TechnologyAT&T (T)
Corning (GLW)$7,829
IBM (IBM)
EnergyConoco Phillips (COP)$7,380
Enbridge Energy (EEQ)
MaterialsAir Products & Gases (APD)
Freeport McMoran (FCX)$7,395
Agrium (AGU)
Seadrill Limited (SDRL)
UtilitiesNextra Energy (NEE)
Southern Company (SO)$7,436
Real EstateNational Retail Properties (NNN)
Stag Industrial (STAG)$7,578
American Realty Capital (ARCP)
Armour Residential (ARR)
Sectors Total $75,378
ReservesVanguard S.T. Corp.$28,758
Totals $104,136

Conclusion: I used the free versions of ycharts , Morningstar, Dividend Investor, along with the fine research of other Seeking Alpha members to aid in stock selection. I want the portfolio to do the following:

  1. Has a beta lower than .80, that slowly goes down over time.
  2. EPS generally increases over time to sustain the payout ratios.
  3. Dividend increases over time, preferably over 10% annually.
  4. Contain stocks I can see myself owning 10 years from today.

Of course, these rules are meant to be broken. A few of the stocks, such as United Health and Discover, only have a short dividend history, but I feel they will continue to pay and increase their dividends in the future. Stocks such as Utilities and Telecoms have slow dividend growth rates, but offer some stability. Price is not overly important to me. I want to own great companies for the long haul. I plan on adding to my allocations over time, not selling them. This will help in averaging my purchase prices.

The portfolio currently has an average beta of .86 and yields 4.1%. I would like the beta to be a little lower in the future. The one-year dividend growth rate is 18%. I expect this growth rate to slowly fall as several of the stocks have a short dividend history with very large increases (UNH, TWC, and AGU to name a few). Future rebalancing will be done to keep the sectors balanced on an annual basis. Using the 10% annual return goal, the portfolio will be valued at $80,625 (2.5% appreciation per quarter) at the end of 2013.

Thanks for stopping by and giving me your thoughts and ideas, I really appreciate it. I will write an update article when significant changes have occurred.

Source: Equal Sector Weights Dividend Growth Portfolio - Quarterly Update March 2013