I am pleased to present our 3rd Quarter portfolio review. Our portfolio now contains 51 holdings and yields just below 5% at today's cost. 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 core CCC holdings, we own three additional stocks from the "Frozen Angel List" and five 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 advisers -- 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 through dividend growth greater than inflation 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, recently revised and 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 as required by our plan.
Our portfolio began this year yielding income 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 remains exciting to experience firsthand the direct results of strong consistent dividend growth. 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. Now nine months into the current year, 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.
Last quarter proved challenging as three of our holdings were removed from the lists of Dividend Challengers - two for dividend cuts AstraZeneca (NYSE:AZN) and Dynex Capital (NYSE:DX) and because of a dividend freeze to Pennant Park (NASDAQ:PNNT).
I have sold our position in AZN and will redeploy the funds. Due to the small cut in the dividend and the pounding suffered by MREITS, I decide to place DX on probation for one quarter rather than sell. I will do the same with PNNT. During this period we will not add to either position and look for signs of improvement. These two holdings will join two others currently warming the bench Linn Co. (NASDAQ:LNCO) and Digital Realty (NYSE:DLR). Many will recall my controversial decision not to sell our interest in LNCO as soon as an investigative inquiry was announced. We have shaved our losses considerably during this period and will continue to monitor moving forward. We have also decided to continue with DLR due to its fundamentals and the general overall weakness in REITS during the past quarter.
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 35.04%. 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. We like to think of the process as TDR - Total Dividend Return - yield plus dividend growth.
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 America
Enbridge Energy Partners
Royal Dutch Shell
Nat. Health Inv.
Vanguard Nat. Resources
5 Year EPS
Leggett & Platt
Enterprise Product Ptnrs
22.38 3 yr.
Dr. Pepper Snapple
22.3 - 3 yr.
Calumet Specialty Products
Bank of Montreal
Energy Transfer Parters
28.87- 5 yr.
Alliance Resource Partners
Remember all of the above are not currently available at fair value. Please do you own due diligence. Those of you building portfolios may wish to consider some of the additional holdings that I call my Dividend Safety Superstars. That series begins here.
As always I look forward to comments and suggestions from each of you.
Disclosure: I am long ARLP, AVA, BCE, BMO, COP, CVX, CLMT, DLR, DPS, DRI, DX, 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, 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.