I am pleased to present our 2nd Quarter portfolio review. Our portfolio now contains 51 holdings and yields just below 5%. All of our holdings represent less 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 and available here. Each stock from this list has the distinction of not only maintaining its dividend during the bear market of 2008 but growing it each year, with most growing at a rate greater than inflation. In addition to these core holdings, we own two additional stocks from the "Frozen Angel List" and four additional from the "Near Challengers List."
As retirees, our goal was to construct and maintain a portfolio that would substitute for selling holdings each month to provide our necessary retirement income. Our portfolio serves as a substitute for the 4% withdrawal of capital gain plus an additional withdrawal equal to inflation -- the rule recommended by our former advisors -- relying instead exclusively on income generated from sample dividends growing at a rate greater than inflation. We set two major goals for our dividend growth investments: increased annual income and capital preservation.
Since we began in February of 2011, I believe our continuing success as investors lies in having our portfolio business plan that sets out specific guidelines for buying, selling and on occasion trimming portfolio positions. Our plan, available here, was developed over a period of nearly a year after first 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. What follows is the comprehensive quarterly review we conduct at the end of each quarter and as required by our plan.
Our portfolio began this year yielding just below 4.9%. 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. It was exciting to experience firsthand the direct results of strong consistent dividend growth for the first time. Since our portfolio is designed to produce growing dividend income, applying the metric, referred to by many as the "chowder rule," at the time of purchase has proven instrumental in our success. Six months into the current year again, we are on track for another year of 10% dividend growth or more. As risk averse investors, our overall portfolio beta remains under .70 as required by our plan. It is currently registered at .65.
We experienced our first dividend cut this quarter when American Capital Mortgage (MGTE) cut its dividend. Our business plan requires that a position be sold following any cut in its dividend. After the sale of MGTE, we opened a new position in Pennant Park (NASDAQ:PNNT). We also trimmed a number of holdings this quarter to help balance portfolio weights. Profits were taken from Kimberly Clark (NYSE:KMB), McDonald's (NYSE:MCD), Pepsi (NYSE:PEP), Sunoco Logistics (NYSE:SXL) and Magellon Midstream (NYSE:MMP). We added to the following positions: Enbridge Energy (NYSE:EEP), Realty Income (NYSE:O), LinnCo (NASDAQ:LNCO), Digital Realty (NYSE:DLR), Triangle Capital (NYSE:TCAP), National Health (NYSE:NHI), Energy Transfer Partners (NYSE:ETP), Enterprise Product Partners (NYSE:EPD), Alliance Resources (NASDAQ:ARLP), BCE Inc., (NYSE:BCE), Lorillard (NYSE:LO) and Southern (NYSE:SO). These actions resulted in a slight increase in monthly dividend income.
Two of our holdings will spend the next 90 days on the bench due to losses in excess of 10% -- LNCO and DLR. They will be re-evaluated at the start of the next quarter, again as spelled out in our plan.
Capital preservation, a key objective for our portfolio, continues to exceed expectations, particularly for a portfolio with 35% less risk than the S&P 500 Index. We are pleased that since starting in February of 2011, our cumulative total return is 34.41% vs. 31.71% cumulative total return for the S&P 500 Index. Since we are in the distribution stage of our investments, capital returns do not directly affect our monthly income received from dividends. Capital gains do, however, help ensure our holdings maintain their dividends and hopefully increase the growth of their dividends. Remember it is through dividend growth, not capital growth, that our monthly income increases.
Below are the current holdings making up our portfolio. They were purchased at fair value or better between 2011 and today.
Procter & Gamble
National Retail Properties
Magellan Midstream Partners
Health Care Reit
Kinder Morgan Partners
Plains All American
Enbridge Energy Partners
Royal Dutch Shell
Nat. Health Inv.
Vanguard Nat. Resources
5 Year EPS
Leggett & Platt
Enterprise Product Ptrs.
Enterprise Transfer Prt.
22.38 3 yr.
25.86 - 3yr
Dr. Pepper Scrapple
22.3 - 3 yr.
Bank of Montreal
Pennant Park Capital
28.87- 5 yr.
As always I look forward to your thoughtful comments and suggestions on how we might improve the process by which we invest. Take care.
Disclosure: I am long ARLP, AVA, AZN, BCE, BGS, BMO, COP, CVX, DLR, DPS, EEP, EPD, ETP, HAS, HCN, KMB, KMP, KO, KRFT, LEG, LLY, LMT, LNCO, LO, MCD, MMP, MO, NHI, NNN, O, PAA, PAYX, PEP, PG, PM, PNNT, PPL, RAI, RDS.B, SO, SXL, T, TCAP, VNR, VZ, WM, WPC, WR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.