My Dividend Portfolio: Q1 2015 Update

by: Integrator


I review the 1st quarter performance of my dividend income portfolio, which is structured to facilitate early financial independence.

The portfolio had a number of new purchases, largely due to my accumulation strategy.

I am hopeful of trying to get to $3,500 in annual dividends in US stocks for 2015 and attain a combined $26,000 in total portfolio income.

I have been following a dividend growth strategy for some time. The aim of the portfolio is to provide early retirement via dividend income. This update summarizes portfolio progress in Q1 2015.

Source Of Funds

I am using selective reinvestment of my dividend income from 2014 as my primary source of funding for new investments, in addition to excess disposable income from savings.

2015 Dividend Income

In Q1 2015, I received approximately $3,947 in dividends. This was primarily from my Australian positions ($3,109), with the rest ($838) coming from my US portfolio.

My US portfolio is still small as far as being a major contributor to my dividend income. Positions of substance in the US portfolio include Coca Cola (NYSE:KO), McDonald's (NYSE:MCD), Lockheed Martin (NYSE:LMT), Verizon (NYSE:VZ), McCormick (NYSE:MKC), Cisco (NASDAQ:CSCO) and Western Union (NYSE:WU). Major contributors to my US dividend income in Q1 were BP ($192) and CME ($200) . My Australian dividend income was principally driven by Telstra (OTCPK:TLSYY) (which provided almost $1642.50 in income), with a solid contribution from Cochlear (OTCPK:CHEOY) also.

Key Observations For The Quarter

I received a nice income boost this quarter courtesy of a special dividend paid by the CME (NASDAQ:CME), which greatly increased my dividend income. The other big driver for quarterly dividend income this quarter was my increased position in BP (NYSE:BP), which was increased toward the end of 2014. While there is much conjecture about the safety of the big oil dividends, I am hanging firm behind BP's dividend for now given the public expressions of commitment by BP management toward the dividend.

My decision to accumulate Telstra during the midst of the telco's crisis in 2011 continues to literally pay dividends. In addition to a yield on cost of 10%, the position is up 110% since purchase and is my single largest source of dividend income.

The most notable dividend increase which occurred for my portfolio over the quarter was Mastercard's (NYSE:MA) 45% dividend hike. Of course, MA's dividend yield is still puny, but the fact that its payout is only 15%, and growth in revenue, and earnings continues to be double digit growth provides me with some comfort that it could turn out to be a dividend payer of substance in its ex growth phase. Strong organic growth plus a hefty increase in potential payout could provide substantial dividend income over time.

The declining value of the Australian dollar versus the US Dollar probably has the biggest impact on net income from my Australian dividend positions. In US dollar terms, I'm losing almost 20% of the income I'm getting in Australian in conversion to US dollars, a similar experience no doubt to those invested in Canadian stocks. While the Australian dollar had been at parity with the US dollar for most of the last few years, it has declined in value pretty rapidly through late 2014 and 2015. I knew the decline in the Australian dollar would arrive, I haven't been able to mitigate the currency impact fast enough.

Accumulation Strategy well under way

In a previous update, I had detailed that dividend accumulation was the main way that I would be looking to add future dividend income. The basis of this strategy is steady, regular accumulation of wide moat dividend paying stocks in small amounts every quarter. I have since finalized my list of 30 wide moat dividend stocks that I am adding to, and have made 2 purchases of my index. I've added $44 of forward income, for the quarter and my hope is that I will be able to add $200 in forward income over 2015. The purchase of my dividend accumulation fund was done at an effective yield of 2.2%, and a PE of just under 22. I'm feeling optimistic about what's in this portfolio, which includes some pretty storied names such as Johnson and Johnson, Starbucks, Disney, Hershey, Pepsi and P&G. Possibly the companies with the weakest long term foundation that are in this portfolio are Exxon and Conoco Philips whose moats are being subjected to an assault. I am sticking with them nonetheless. More details about the companies and my Q1 purchase can be found here.

Future Outlook

Quarterly accumulation of wide moat, US stocks will be the main way I will look to make additional investments in my dividend portfolio going forward. I expect to invest a total of $10,000 in my Dividend Accumulation Portfolio over the year. Interestingly, I've transitioned now to actually using some portion of my dividend income to meet regular expenses that come along, and as such, I'm not able to fully reinvest my dividend income to keep growing my portfolio.

I am optimistic of being able to achieve $3,500 in annual US income by the end of the year through my dividend portfolio, My expectation and hope is to be able to derive a little more than the almost $26,000 in dividends that the portfolio contributed last year. Depending on how the Australian dollar performs, this may end up being around USD $20,000. My Australian dividend income portfolio has not received much, if any new capital and is essentially in harvest mode at this point.

Given retirement location is uncertain, we are keeping our options open and not divesting the Australian assets. Nonetheless, given this objective, I have done my best to reposition my Australian portfolio in favor of more global Australian dividend paying companies.

While I'm reasonably confident to be able to attain my dividend forecast, I'm not entirely sure of the dividend outlook of a couple of small cap dividend investments that I had made a few years ago, which I still continue to retain in my portfolio. Its partly the result of the checkered performance of some of these less mature dividend paying companies that I have pivoted my strategy in recent times to buy and stick with large cap, wide moat payers.

Disclosure: The author is long BP, MKC, TLSYY, VZ, WU, MCD, KO, MA, LMT, KO, CME, CSCO, CHEOY.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.