This month's article marks the 17th installment in my ongoing series that outlines my efforts to achieve dividend growth success. The portfolio is nicknamed the MnM portfolio, which is a moniker for "Minne(sota) 'n Monthly."
I titled the article this month to highlight the rapid growth of the portfolio as a result of the contributions made ($13.6k) and strong performance in the market ($11.5k) this year. The portfolio (and the broader market lately) has been on a heck of a run this year, but now I'm beginning to wonder how much further valuations can run.
It's important to keep in mind that, as great as it is to stare at these double-digit returns, the primary focus of the portfolio is income generation. I am essentially building my own pension from dividend-paying and dividend-growing stocks. This is particularly true in an environment with heightened volatility, where the portfolio value could decline to $80k just as quickly as it rose to $90k.
As it pertains to the portfolio, July was characterized by the reintroduction of Unum Group (NYSE:UNM) to the portfolio. When I rebalanced the portfolio earlier this year, I had sold my shares in Unum. Later, when I was rebuilding, Unum's share price had run up, leaving me to hold off on repurchasing the stock. Recently, the price has come back down and I took advantage of a decline in price to repurchase the stock and reintroduce it to the portfolio.
Note: The portfolio now holds 33 positions; however the holding of Ingevity Corporation (NYSE:NGVT), which was received as part of a spin-off from Westrock Company (NYSE:WRK), may be sold should it not present dividend growth opportunities. I am still targeting a portfolio size of ~35-40 positions over time. I feel that is enough that I can effectively follow them all, and equally weighted would provide strong diversification as each would represent approximately 2%-3% of the portfolio's total. I also receive 100 free trades each year from my brokerage, so I can trade in small quantities without worrying about brokerage trading costs.
That being said, here's what happened in July.
I have captured the activity for July and for the year-to-date in the standard rollforward summary below. The portfolio continued its upward climb during the month, moving largely in line with the broader market. I will be the first to admit that, much to my surprise, the market has continued to rally as we move past the midpoint of the year.
The net performance of the portfolio of 15.9% year-to-date continues to outperform the S&P 500. The portfolio collected $224.93 in dividends and interest during the month, and all but $.04 of interest was recurring on positions held.
The portfolio was comprised of the following securities as of July 31, 2016:
The following sections go into greater detail about the events that have occurred since the end of June.
This month I only purchased shares of Unum, buying 90 shares.
If you're not familiar with Unum, they are an insurer, largely insuring in the benefits, disability and life categories. I have written about Unum in the past (find my most recent article here). I ended up selling Unum at $32.09 back on March 21, and repurchased at $31.85 on July 13, so the transaction worked out fine. As far as missed dividends in between there really weren't any, as the Unum proceeds were invested elsewhere and the reinvestment now comes from new funds contributed to the portfolio this year.
Source: Yahoo Finance, August 2, 2016
In addition to buying the stock at an attractive valuation, I have focused much of my buying in recent months on sectors that haven't rallied alongside the overall market. I plan to continue adding shares of the banks and insurers as long as the valuations stay low. The failure of these sectors to rally seems to be largely the result of the Federal Reserve's decision to back off on the pace of interest rate rises, even though the banks and insurers are largely doing fine.
As mentioned already, I collected $224.93 in dividends and interest during the month, and all but $0.04 of interest was recurring. I have included the forward-looking dividend summary, which has been updated for the recast portfolio.
The income for the month has returned to normal levels, with the portfolio collecting from all positions that paid a dividend during July.
As I highlighted in the summary points of the article, the portfolio had two positions announce increased dividends during the month. This month it was only the steady REIT increasers Realty Income (NYSE:O) and Omega Healthcare (NYSE:OHI) that raised their dividends.
I envision that the rest of the year will see dividend increases come across at a similar pace, which is slightly reduced from the rate experienced at the start of the year. This would leave the portfolio with 2-3 dividend increases coming through each month for the remainder of the year.
What is encouraging to see is that even with the major rebalancing that occurred earlier this year, the amount of monthly income received has experienced a nice upward trend so far. The new funds contributed account for a good chunk of this, adding new income on top of the dividend increases and reinvestment. Income will only continue to increase as more funds are reinvested and dividend increases come across.
If you had asked me at the start of the year, I would have laughed at the idea of the portfolio's value surpassing $90k. The idea would have seemed even sillier when we saw the market sell-off in January and February. Life events that triggered the rollover, combined with a rally that virtually no one saw coming have driven the portfolio's value up significantly and led to all-time highs. It's important to note, and I want to highlight that had I tried to sit out and time the market when I rebalanced, I would have missed out on some substantial gains.
In 2017 when I am eligible to contribute to my employer's 401k, I will report those contributions along with these portfolio reviews so I can continue to give readers the full picture of the portfolio. I want to be fully transparent and show amounts subject to future rollover.
I am happy to have been able to reintroduce Unum back into the portfolio, which now includes everything I want in it with the exception of Johnson & Johnson (NYSE:JNJ), which still trades too high for me to chase.
Looking forward, I plan on watching the market in August, and should we see any measurable drop, I will deploy the last chunk of the remaining cash. I'm not certain if this fall will be as volatile as it was last year, but with the way it's been lately, opportunity might be only a month or two away. It's anyone's guess.
Source: Yahoo Finance, August 2, 2016
Overall the portfolio keeps chugging along and performing well. In keeping with the strategy I'm far less concerned about when the portfolio's valuation will top $100k, but rather, when monthly income will reach $300. Hopefully that won't be too long from now.
Disclosure: I am/we are long THE STOCKS LISTED IN THE PORTFOLIO.
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.