I started 2013 with the objective of attaining $27,000 in dividends for the year. I was also very focused on expanding my US portfolio given my significant concentration of Australian stocks.
I managed to just achieve my dividend target for 2013 and finished the year with $27,304 in dividends.
In addition to generating more of my dividend income from US stocks, one of my 2013 objectives was to add some cornerstone positions in some high quality, large cap dividend performers. I also wanted to increase my exposure to the healthcare and consumer staples sectors, in which I've been underweight. Most importantly, I wanted to do all of this while paying a fair price for any new positions that I accumulated.
- I managed to attain an annual run rate of $3.5k in USD dividends in 2013, which I'm hoping to build upon in 2014.
- I added a lot of quality names to my portfolio in Q1 of 2013 when prices were still fairly reasonable.
- I was able to establish some cornerstone positions in stocks that I consider to be high quality large cap stocks, namely Coca Cola (NYSE:KO), McDonald's (NYSE:MCD), BP (NYSE:BP), McCormick & Co (NYSE:MKC) and Colgate (NYSE:CL) at prices that were pretty reasonable.
- I traded too much in Q4 of 2013. When markets peaked toward the end of 2013, I took the initiative to trim a number of positions. A number of my positions had gains in excess of 50% for the year, such as Visa (NYSE:V), Mastercard (NYSE:MA), CME (NASDAQ:CME) and Lockheed Martin (NYSE:LMT). I chose to take some profits. In hindsight when I look at my activity in Q4 it looks excessive for someone who wants to build a long-term buy and maintain portfolio.
- I want to maintain a balance of names that are larger and more established, yet possibly slower growth versus some emerging Small Cap dividends, which I consider to be the gems of the portfolio. I don't have this balance quite right. I may have increased my exposure to smaller cap stocks in the market a little too much over 2013. I added names like Female Health Company (NASDAQ:FHCO), Health Care Services Group (NASDAQ:HCSG), Quality Systems (NASDAQ:QSII), Resmed (NYSE:RMD) Mercadolibre (NASDAQ:MELI) and Flowers Foods (NYSE:FLO), some of which I subsequently reduced or exited
- Quantity vs Quality: I probably wasn't as disciplined as I could be in terms of adding names to the portfolio. That's reflected to some degree in the 18 new dividend names that were added to my US portfolio in 2013 and the number of transactions that were done in 2013.
Transactions in Brief
Q1 featured the greatest amount of purchase activity for the year for me. I viewed the general market as having fairly attractive valuations. I was determined to pick up as many quality stocks as I could while valuations remained attractive. In hindsight, that decision was validated by the strong capital growth many of those positions achieved. I added the following positions in Q1 2013.
McDonald's - McDonald's needs little introduction as far as dividend growth stocks go. I view this as one of my ultimate bottom drawer dividend stocks along with Coca Cola and was happy to add this to my portfolio.
CME - I've long admired the business model of CME group, which serves as an exchange for the sale and purchase of risk instruments (futures, options) across stocks and commodities. I believed an increase in interest rate volatility was imminent and that CME would benefit in the long term, which was why I added it to my portfolio.
Novartis (NYSE:NVS) - I wanted to add some quality healthcare names to my portfolio in 2013. Novartis was one of the names I added given I believed it to have a very robust product pipeline.
BP - Oil exposure was not necessarily something that I was looking to add in 2013, but BP's large dividend and significant discount proved too difficult for me to pass up. I added BP to my portfolio
Western Union (NYSE:WU) - I had a belief that Western Union's money transfer business had been unreasonably marked down by the market. Clearly this business still has some major issues to overcome, including ongoing regulation and compliance, depressed cross border remittances and the shift of money transfer to mobile. Nonetheless, I believe Western Union has some latent advantages given its wide distribution network.
Quality Systems - I added Quality Systems as a promising small cap healthcare dividend payer. I subsequently became concerned that electronic medical record activity was being stalled by regulatory uncertainty and exited this position.
Q2 And Q3 2013
I continued to see reasonable value in Q2 and Q3. I added the following positions:
Cisco (NASDAQ:CSCO) - This large cap technology stalwart has some strong positions in the video delivery and hybrid cloud markets. While growth may be below trend for the next couple of years, my belief is that Cisco still has some strong market positions to drive long-term growth.
Lockheed Martin - I was principally attracted to Lockheed by the high initial yield on offer at the time of purchase, which was actually slightly above 5%. Lockheed's defense business will likely be subject to declining growth with government cuts to budget spending in the medium term, which may subdue dividend growth. This fact, plus a stellar 67% rise in 2013 prompted me to trim this position in Q4.
Apple (NASDAQ:AAPL) - I bought a position in Apple at $405 in Q2. While I viewed Apple's long-term position as a little uncertain, it seemed to be undervalued and offering a nice dividend yield. As Apple rose in value, my implied margin of safety was eroded, and I fully exited this stock around $525 in Q4.
Coca Cola - My classic bottom drawer dividend stock. I wanted to establish a long-term position in Coca Cola to provide a stable, reliable source of dividend income with minimal volatility. I got a chance to do so in Q2 at an attractive price.
United Guardian (NASDAQ:UG), Female Health Company, Health Care Services Group, Resmed - I added a clutch of small and mid cap healthcare services companies that I thought offered reasonable value. They happened to fit my goals to increase my healthcare exposure while potentially providing a little more upside given their early stage of growth.
Colgate - I wanted to add Colgate for the steady underlying demand that Colgate delivers and the exposure it provides to the healthcare sector. I found a reasonable entry point in Q2.
While I had the opportunity to selectively add a few more positions in Q4, the rapid appreciation in the positions that I had initiated early in the year provided strong incentive to trim some holdings that I felt had run too far too fast. I added the following positions in 2013:
McCormick & Company - Another consumer staple with stable underlying demand. I'd long admired this provider of seasonings and spices. It's steady revenue growth and strong return on equity combine to make this a wide moat company which I was keen to add my portfolio
Mead Johnson Nutrition (NYSE:MJN) - This maker of infant formula and nutritional supplements was previously spun out of Bristol Myers. I believe the company will experience strong growth in Asia and Latin America as consumers disposable incomes increase in these regions. While current yield is still small, I think long-term drivers for dividend growth appear positive
I also trimmed a number of my positions that I initiated early in the year. I completely exited Apple and took advantage of strong capital growth to trim BP, CME, Visa, Mastercard, Western Union, Lockheed Martin and Colgate. In hindsight, I probably went overboard with the volume of sales activity in Q4 and reduced some great positions.
I intend to add selectively to my portfolio in 2014, however I want to keep the focus on increasing existing positions rather than just adding a large number of net new positions. I don't really want to replicate a Dividend Managed Fund.
Another aim is to definitely decrease the frequency of trading, particularly sales activity. I want to limit any potential sales to situations where underlying earnings deteriorate rather than when there are outsized capital gains. I didn't stick to this approach in 2013.
While I won't have as much capital to deploy in 2014 as 2013, I'd like to build on my 2013 dividend income and continue to maintain a discipline of adding positions at reasonable value.