401(K) Reconstructed: 2015 Q2 Review

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Includes: AAPL, AMP, BAX, CBRL, CLDT, CMI, D, FLO, KMI, STAG, TUP, WEC, WYNN, XEL
by: Eric Landis

Summary

This series highlights my real and active retirement portfolio that was reconstructed from a portfolio of mutual funds to one consisting primarily of dividend growth stocks.

The portfolio continues to perform well with another quarterly record in dividends received.

Pullbacks in the REIT and Utility Sectors provided me with an opportunity to up the quality and yield of the portfolio.

Background

This is article number ten in the series highlighting the transition of my 401k portfolio from one of mutual funds to one focusing on the dividend growth investing strategy. This strategy shift has moved investments from a mindless accumulation of mutual funds in the hopes of capital appreciation to an active management of capital focused on building a growing source of dividend income that I hope will eventually fund my retirement.

Market Overview and Portfolio Highlights

Much like in the first quarter, market volatility continued in the second quarter of 2015, with the S&P rising as much as 3.25% during the quarter to end pretty much flat for the period.

^SPX Chart

^SPX data by YCharts

My portfolio did much the same, as it hit new highs in May before pulling back with the market to end the period. Overall, when considering new money added to the account, the portfolio was up slightly quarter over quarter.

What the portfolio lacked in capital gains, it made up for with dividend growth, which is what the focus of the portfolio is all about.

The $352.59 for the quarter was a new all-time high and was a 5.5% increase over the first quarter and a 27.0% gain year over year. This was driven mostly by organic dividend growth, but was also impacted by added capital purchasing new positions and reinvestment of dividends working their compounding magic.

Now that Q2 is complete it appears my goal set at the beginning of the year for $1380 in annual income will end up being easily reached, as I'm nearly halfway to that point with recently announced dividend increases set to create even more income growth in the second half of the year.

Speaking of that growth, here are all of the dividend increases that were announced during the quarter.

Date Company Previous Quarterly Rate New Quarterly Rate Sequential Increase Year Ago Dividend YoY Increase Forward Dividend Yield  
4/15/2015 (NYSE:KMI) $0.4500 $0.4800 6.67% $0.420 14.29% 5.20% Link
4/22/2015 (NYSE:AMP) $0.5800 $0.6700 15.52% $0.580 15.52% 2.10% Link
4/27/2015 (NASDAQ:AAPL) $0.4700 $0.5200 10.64% $0.470 10.64% 1.60% Link
4/28/2015 (NYSE:IBM) $1.1000 $1.3000 18.18% $1.100 18.18% 3.01% Link
5/4/2015 (NYSE:STAG) $0.1125 $0.1150 2.22% $0.110 4.55% 6.68% Link
5/5/2015 (NYSE:OXY) $0.7200 $0.7500 4.17% $0.720 4.17% 4.17% Link
5/6/2015 (NYSE:PSX) $0.5000 $0.5600 12.00% $0.500 12.00% 2.69% Link
6/2/2015 (NASDAQ:CBRL) $1.0000 $1.1000 10.00% $1.000 10.00% 2.91% Link
6/5/2015 (NYSE:FLO) $0.1325 $0.1450 9.43% $0.120 20.83% 2.75% Link
6/9/2015 (NYSE:TGT) $0.5200 $0.5600 7.69% $0.520 7.69% 2.64% Link
6/12/2015 (NYSE:WEC) $0.4225 $0.4575 8.28% $0.390 17.31% 3.82% Link
      AVG= 9.53% AVG= 12.29%    

The 12.29% year over year increase is down slightly from last quarter's announced 13.5% increases, but I certainly will not be complaining about a greater than double-digit average.

Another thing to note, in addition to the increases shown, Cracker Barrel also announced a $3.00 per share special dividend to be paid with the regular dividend.

Portfolio Transactions

I made four trades in the portfolio this quarter as I made an effort to upgrade the quality of my holdings and also worked to take advantage of the pullback seen in the REIT and utility sectors.

Portfolio sales:

Portfolio Purchases:

On April 21, I decided to finally cut ties with TAL International Group (NYSE:TAL) after it announced a 6th consecutive dividend payout at $0.72 per share and continued to see declining fundamentals. I sold for a loss, but as you can see, avoided another 25.5% decline by getting out when I did. TAL was replaced with STAG Industrial, which offers a slightly lower, yet still attractive yield of 6.7%. I previously shared my thoughts on the company with: "Aiming My Sights On A Beaten Down STAG Industrial".

Next, on May 18th, I sold my position in Baxter International (NYSE:BAX), which was in the process of spinning off its pharmaceutical business, which now trades under the name of Baxalta (BXLT). I wasn't impressed with how the company was performing, and was concerned that a potential dividend cut is looming. I put these funds into Chatham Lodging Trust (NYSE:CLDT), which I profiled with: "Booking Growth And Income With Chatham Lodging Trust". In this case, I was able to increase my dividend yield, and purchased a company that I feel has a much better platform for income growth going forward.

Finally, on June 19, I sold out of my positions in Tupperware Brands (NYSE:TUP) and Wynn Resorts (NASDAQ:WYNN) to open positions in Dominion Resources (NYSE:D) and Xcel Energy (NYSE:XEL). Tupperware has paid the same dividend for the last 6 quarters, and I don't expect an increase for several more as the company struggles with the effects of a strong dollar. Wynn was sold after the company took a big hit to revenues from Macau, which resulted in it cutting the dividend. These were replaced with two utilities that I have been watching for some time. Dominion was a company that I also highlighted recently, and Xcel is my local utility that has a nice track record of dividend growth, which should continue at a mid-single digit rate going forward.

In all, I think I was able to trim some of my weaker positions in the portfolio while adding to my yield and substantially upgrading the quality, especially in regards to Dominion and Xcel.

Here is the portfolio as it stands at the end of the second quarter.

On The Radar

With the recent utility and REIT additions, I am pretty comfortable with my holdings at the current time. However, there are still some companies out there like The Kraft Heinz Company (NASDAQ:KHC), Fastenal (NASDAQ:FAST), The Hershey Company (NYSE:HSY), 3M Company (NYSE:MMM) and a few others that I would like to eventually add to my portfolio. I am also getting close to having enough cash available for a new purchase, and have been eyeing Cummins (NYSE:CMI), Union Pacific (NYSE:UNP) and QUALCOMM (NASDAQ:QCOM).

Some current considerations for sale include Church & Dwight (NYSE:CHD), which appears to be significantly overvalued while trading at a 28 P/E multiple, and General Electric (NYSE:GE), which continues to work through asset sales and restructuring as it tries to return to a primarily industrial company.

Conclusion

All in all, it was another successful quarter for the portfolio. I was able to make a few trades that I feel upped the quality of my holdings, and overall my dividend income continues to increase as the portfolio seems primed to meet my dividend income goal for the year.

Happy investing!

Disclosure: I am/we are long AAPL, ABBV, ABC, AMP, CBRL, CHD, CLDT, CMI, CVX, D, DE, DLR, DPS, EOG, FLO, GE, GILD, GIS, GME, IBM, KMI, KO, LMT, MCD, MDP, MDU, MNK, MSFT, NSC, NXPI, O, OHI, OXY, PII, PM, PSX, QCOM, ROST, SBUX, STAG, T, TGT, THO, UNP, V, WBA, WEC, WFC, WSO, XEL.

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.

Additional disclosure: I am a Civil Engineer by trade and am not a professional investment adviser or financial analyst. This article is not an endorsement for the stocks mentioned. Please perform your own due diligence before you decide to trade any securities or other products.