I have been following a dividend growth strategy for some time. For 2013, my goal was approximately $27k in dividend income.This update summarizes portfolio progress in Q4 2013.
Source of Funds
I'm using selective reinvestment of my dividend income from 2012 as my primary source of funding for new investments, in addition to excess disposable income from savings. In 2012, my portfolio generated approximately $25k in dividends. Selective use of buying on margin helps make investments in advance of dividend income being available for investment.
Existing Investments in the Portfolio
My dividend portfolio currently has the following companies:
McDonald's (MCD), The Coca Cola Company (KO), Colgate-Palmolive (CL), Western Union (WU), CME Group (CME), Novartis (NVS), BP (BP), Cisco (CSCO), Lockheed Martin (LMT), Lorillard (LO), Westpac Bank (WBK).
New Investments to the Portfolio
The fourth quarter featured some modest activity in the portfolio and I made a number of new additions. Given that I have a rather sizable concentration of mid and small capitalized dividend payers that are Australian holdings, my objective has been to strengthen the core of my portfolio with US dividend growth holdings with wide moats that have displayed dividend growth over many years. I have been keen to increasing my exposure to dividend paying stocks with consistent underlying demand. This led me to look to healthcare stocks and consumer staples as an area to increase my holdings.
I added to my position in Resmed (RMD), which operates in the medical devices space.
The company produces medical masks that are used to treat a condition called sleep apnea. In its mildest form, sleep apnea produces symptoms like snoring, but in more severe forms, people actually stop breathing for several seconds at a time while they sleep, without even realizing it, and wake up tired and lethargic the next day.
Resmed's revenue growth has been very strong, with annual revenue growth over the last 5 years of greater than 13% annually. With a newly introduced dividend that has been recently hiked, Resmed yields around 2.1%.
I was able to pick up 40 shares of Resmed at $50 each.
McCormick & Company
I've been eyeing a stake in McCormick & Company (MKC) for quite some time. It's a maker of condiments and spices that has a very strong moat in my opinion.
Revenues have almost doubled in the last 10 years since 2003 with a annualized 7% growth in revenue .
McCormick's gross margin performance has been very steady since 2003, hovering around 40%, suggesting they've likely been able to retain pricing power
Return on Equity has been pretty good. McCormick has averaged approximately 25% return on equity consistently over the last 10 years. It's proven that it can consistently convert sales profitably to income over a long period of time.
McCormick shareholders would have been pretty content with financial performance. $10k invested in 2003 would be worth almost $40k today.
I was able to pick up 30 shares of McCormick at $68 recently.
Mead Johnson Nutrition
Finally, I was able to acquire a stake in Mead Johnson Nutrition (MJN). Mead Johnson is the maker of infant foods and infant formula. It was spun out by Bristol Myers several years ago and is well positioned for strong ongoing growth in the key markets of Asia and Latin America in the coming years.
Mead Johnson was particularly attractive to me given children's formula and nutrition is generally a very stable business, with parents reluctant to switch their child's formula once they start with a given brand. As disposable incomes rise in Asia and Latin America, the trend to consume a more premium product such infant formula, rather than make home grown mixes, should also increase over time.
Mead Johnson is valued at close to $17B and has a forward PE of around 20. The company offers a current dividend yield of about 1.6%,
I was able to pick up 25 shares of Mead Johnson at $83.50
It wasn't all just net additions to the portfolio in Q4 2013. Some of my dividend paying positions had shown large gains over 2013. I took advantage of these increases to exit some positions entirely, and trim some other positions. Ordinarily, I wouldn't have made any disposals in spite of the appreciation in price. However an upcoming property purchase created the need to free up a little bit of cash, and it was hard to pass up the opportunity to do so.
I completely exited my position in Apple. I partially trimmed positions in BP, Colgate, CME, Lockheed Martin, MasterCard and Visa. There were a number of stock specific reasons for these transactions.
2013 Dividend Income received
During Q4 of 2013, I received $5,866.70 in dividends from my Australian portfolio and $982.79 from my US stocks, for a total of $ 6,849.
My total dividend income for 2013 was $27,304.40, which meant I just scraped across the line for my $27,000 2013 dividend goal.
I intend to contribute additional capital toward high quality dividend paying stocks in 2014. An imminent property purchase will however likely reduce surplus funds available. Additionally, I've made the decision to make full contributions to my retirement accounts in 2014. I estimate that this will result in an incremental $500k over the life of the contribution horizon compared to investing that money in taxable accounts. This will further reduce surplus income available for dividend investment taxable accounts.
Even though the market in general is trading at a fairly full valuation, I'll be looking to add to my holdings. In particular, I want to increase my stake in McCormick & Co and Mead Johnson, as well as consider other stock specific opportunities as they arise.
I'll be revising my outlook and portfolio goals for 2014 shortly. In any case, I anticipate some modest outperformance of my 2013 dividend income in 2014.
Disclosure: I am long BP, CME, KO, MKC, MCD, LO, LMT, MJN, RMD, NVS, WBK, WU, . 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.
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I am an investor who is focused on disruptive businesses that are transforming industries lead by visionary leaders with substantial skin in the game. I have spent nearly 20 years in a formal capacity in various investment banking and corporate advisory roles, having attained my MBA with a concentration in finance. This led me toward a path in Venture Capital and working with entrepreneurs building new technology businesses, and I have had the opportunity to not only invest in a number of amazing privately held businesses, but also play a meaningful role in growing several of these early stage enterprises as well. I am now focused on applying my lens of private market disruption and leveraging secular tail winds to the public markets. This was a journey which I started with my public Project $1M portfolio series and which I have deepened with my marketplace service, Sustainable Growth