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Summary

  • As a retiree in the "Distribution Stage" of investing I have a portfolio business plan.
  • That plan calls for a quarterly portfolio review.
  • This quarter begins this year's emphasis on the dividend growth of my holdings.

I am pleased to present my First Quarter 2014 portfolio review. My portfolio finished the quarter with 48 holdings and yields roughly 5% at today's cost. Each of my holdings continue to represent less than 3% of the overall portfolio with most positions under 2%.

My portfolio was constructed starting in 2011 from the lists of Dividend Champions, Challengers and Contenders (CCCs) maintained by Seeking Alpha Contributor David Fish and available here. Nearly every stock selected 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, there are additional stocks from the "Frozen Angel List" and others from the "Near Challengers List" also complied by David.

As a retiree, my goal from the start was to construct and maintain a portfolio that would substitute for selling holdings each month to provide 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 on income generated from dividends growing at a rate greater than inflation. I set two major goals for our dividend growth investments: increased annual income through dividend growth greater than inflation and capital preservation.

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.

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. Dividend Growth appears to have slowed a bit this first quarter with growth in the range of 6.5% for the 14 stocks that announced this quarter. This is an area I examined closely when making new purchases this quarter. As risk averse investors, our overall portfolio beta remains under .70 as required by our plan. It is currently registered at .67.

There were no dividend cuts or freezes among our holdings this first quarter. During the next quarter Dynex Capital(NYSE:DX) and Digital Realty(NYSE:DLR) remain on the bench. Over the past quarter both have shown greater price stability and will likely be continued on probation unless cash needs to be raised. During this period we will not add to either position and look for continuing signs of improvement.

In my recent two part series I discuss the renewed emphasis I plan to place on Dividend Growth. This quarter I began that emphasis in the new purchases made to the portfolios of my wife and I. During the quarter the market gave us great opportunities to improve our portfolio's dividend growth. She sold Intel (NASDAQ:INTC) and picked up Target (NYSE:TGT). I sold Enbridge Energy MLP (NYSE:EEP) , Eli Lilly (NYSE:LLY), Leggett and Platt (NYSE:LEG) and PennantPark (NASDAQ:PNNT) all with low or no dividend growth and picked up Microsoft (NASDAQ:MSFT), Baxter (NYSE:BAX), Mattel (NASDAQ:MAT) and Ventas (NYSE:VTR). Most recently I began a position in SeaDrill (NYSE:SDRL). There are three additional positions PPL Corporation (NYSE:PPL), Waste Management (NYSE:WM) and Buckeye Partners (NYSE:BPL) with low dividend growth that may be sold when additional candidates with higher dividend growth come available at a good value.

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 return on capital is 47.06% compared to 55.96% for the S&P 500. Now that's what I call capital preservation!

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 their growth. Remember it is primarily 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 my portfolio. They were purchased at fair value or better between 2011 and today.

Stock

Ticker

Yield %

5-Year

DGR

%

10 Year

Ave Return

5 yr.

EPS

Growth

Omega Healthcare

Investors

OHI

5.8

9.4

29.56

7.3

Reynolds American

RAI

5

7.8

10.91

7.8

W.P.Carey

WPC

5.9

4.8

11.99

6.4

Pepsi

PEP

2.7

9.3

7.80

7.0

Procter & Gamble

PG

3

10.2

7.73

8.4

National Retail Properties

NNN

4.8

2.2

12.2

3.8

Altria

MO

5.1

15.0

17.1

7.4

Magellan Midstream Partners

MMP

3.3

6.8

21.60

16.3

Verizon

VZ

4.4

4.1

5.75

6.0

ConocoPhillips

COP

3.9

12.9*

13.5

4.53

Stock

Ticker

Yield %

5-Year

DGR

%

10 Year

Ave Return

5-Year EPS

Growth

Chevon

CVX

3.4

9.2

15.54

1.0

Health Care Reit

HCN

6.4

5.4

13.19

13.4

Digital Realty

DLR

5.5

20.6

16.29

8.1

Kinder Morgan Partners

KMP

7.2

7.4

13.54

11.8

Coke

KO

3.2

8.4

6.8

8.2

McDonald's

MCD

3.3

13.9

22.56

8.7

AT&T

T

5.2

4.4

7.01

6.1

Kimberly Clark

KMB

3.1

7.0

9.33

7.3

Sunoco Logistics

SXL

3

10.6

24.09

8.65

Plains All America

PAA

4.4

5.2

18.60

5.1

Stock

Ticker

Yield %

5-Year

DGR

%

10 Year

Ave Return

5-Year

EPS

Growth

Southern

SO

4.7

4.0

7.7

5.1

Darden Restaurants

DRI

4.2

25.8

9.66

10.8

Realty Income

O

5.4

1.5

13.28

4.5

Ventras

VTR

4.6

16.4

11.53

19.5

BCE Inc.

BCE

5.1

16.4

11.83

2.5

Royal Dutch Shell

RDS.B

4.6

6.7

9.54

 

Nat. Health Inv.

NHI

5.1

5.8

19.48

10.0

Vanguard Nat. Resources

VNR

8.5

45.5

17.11

(12.7)

Avista Corp.

AVA

4.2

14.3

12.04

4.0

Lorillard

LO

4.5

17.3

21.6

8.6

Rogers Communication

RCI

4

38.2

27.26

9.3

Stock

Ticker

Yield %

5Year

DGR

%

10 Year

Ave Return

5 Year EPS

Growth

Lockheed Martin

LMT

3.2

22.2

7.55

4.6

Microsoft

MFST

2.7

16.1

6.48

7.6

Enterprise Product Ptnrs

EPD

4

5.4

14.8

6.3

      

Baxter

BAX

2.7

16.4

10.39

7.4

PPL Corp.

PPL

4.6

3.4

9.15

.3

Hasbro

HAS

3.1

18.1

14.37

7.4

Waste Management

WM

3.6

8.1

7.30

7.3

Triangle Capital

TCAP

8.2

9.6

22.38 3 yr.

15.0

Stock

Ticker

Yield %

5-Year

DGR

%

10 Year

Ave Return

5 Year

EPS

Growth

Paychex

PAYX

3.3

*

5.42

9.54

SeaDrill

SDRL

11.15

19.9

35.1(5yr)

17.1

      

Kraft

KRFT

3.7

  

3.35

Mattel

MAT

13.9

16.4

10.04

8.2

Bank of Montreal

BMO

4.1

4.6

12.15

7.12

Wisconsin Energy

WEC

3.4

19.1

11.17

5.6

Energy Transfer Parters

ETP

6.8

 

15.82

2.65

B&G Foods

BGS

4.2

18.0

28.87- 5 yr.

14.2

Alliance Resource Partners

ARLP

5.6.

15.0

21.5

6.0

A large number of the above are not currently available at fair value. Please do you own due diligence. Those of you building portfolios may also wish to consider some of the additional holdings which I call my Dividend Safety Superstars. That series soon to be up-dated begins here.

Next time out I'll have a discussion on what I consider my "low conviction" positions. As always it's time again to hear from each of you on your current approach to portfolio management and your quarterly review process.

Source: First-Quarter Portfolio Review: There's Change On The Way