5% Dividend Yield Portfolio Performance And Trades For January 2016

by: Dividend Disco

Summary

Tough start to 2016 offers attractive entry points.

My dividend focused and hedged portfolio outperformed the S&P 500 by almost 2x in January!

Many trades to better position my portfolio for 2016.

Overview

January 2016's 'worst start ever' was a fearful time for many, but for a young(ish) investor like me, it presented a great opportunity to pick up quality investments on sale. As regular readers know, I have been hedging my portfolio with shorts and a heavy cash position to prepare for upcoming volatility. In January, this strategy paid off as my -2.6% performance (before dividends) crushed the S&P 500's -4.8% returns. On a personal note, while vindication is a terrible investment thesis, it sure feels cathartic to be beating the S&P 500 after I spent the last few months marginally underperforming. Unfortunately, my beat was of the 'lost less' variety (aka I created alpha but lost wealth on paper).

Going forward, I am not a doom and gloom guy predicting a U.S. recession, but I saw/see a market with generally elevated valuations that is running out of upward momentum. I still think we will see a flat-ish 2016 with many drawdowns and rallies (look at the remarkable similarity between the August 2015 drawdown and January 2016's dig), so my goal is to maximize my returns in this type of environment by selectively buying the dips and selling the rips. For readers looking for specific DGI trade ideas to implement in February 2016, see my recent Seeking Alpha article here.

Background

Since I write for Seeking Alpha primarily to improve my own investment portfolio, I think it is important that you know my objectives. Please consider this context when you look at any advice I give and form your own opinions based on your needs and desires.

GOAL: Attractive, risk-adjusted, absolute returns (5-15% annually) over a long-term time frame while minimizing capital loss and extreme drawdowns.

STRATEGY: 'Enhanced' dividend growth (NYSE:DGI) strategy that focuses on a core of diversified holdings (ETFs and individual companies -- my general screening criteria: EPS growth >10%, P/E <20, PEG <2, yield >3%, sufficient dividend coverage, strong dividend history, attractive growth story…no tobacco stocks or micro caps), supplemented with return enhancing tools like hedges (derivatives and shorts), commodity exposure, etc., as well as some crazy picks.

BALANCE: Blend of ~50% ETFs (domestic and international…often sector focused) and individual companies (where there is a compelling reason to own). Seek to not overweight any one sector unless there is a compelling reason to do so (although the nature of these investments lead me to be overweight in traditional dividend paying sectors like financials and energy).

Note: I violate these guidelines constantly, so please call me out on it!

Cash Generation

Cash payments (dividends and interest) continue to come in as my portfolio's realized yield of 4.8% for the last 12 months (slightly down from 4.9% in 2015) is starting to recover from the energy sector's dividend cuts. I also think my dividend sustainability is much better as I have worked to eliminate sucker yields and focus on dividend growth and sustainability in my ticker screening.

In January 2016, I earned $525.15 in cash. For all of 2016, my goal is to earn $12,000 (that's an even $1,000 per month in good months when the market is moving up and bad months when it's trading off). Looking forward at the sideways market I think we will see for the coming period, a yield focused strategy makes more sense than ever to me since paper gains may come and go but cash is forever!!

Portfolio Composition as of January 31, 2016

Security Type Div Yield Market Value Last Month Value Gain/Loss(%)
DIVIDEND GROWTH FOCUSED FUNDS 5.4% $53,632 $56,022 -4.3%
SPDR S&P International Dividend ETF (NYSEARCA:DWX) ETF 5.8% $9,807 $9,835 -0.3%
SPDR S&P Emerging Markets Dividend ETF (NYSEARCA:EDIV) ETF 5.3% $7,040 $7,013 0.4%
WisdomTree Emerging Markets High Div ETF (NYSEARCA:DEM) ETF 5.2% $6,448 $6,706 -3.9%
Deutsch X Trk MSCI EAFE Hdg Eqy ETF (NYSEARCA:DBEF) ETF 3.2% $5,214 $5,248 -0.6%
iShares MSCI Australia (NYSEARCA:EWA) ETF 5.4% $3,580 $3,848 -7.0%
UBS ETRACS Wells Fargo MLP Ex-Energy ETN (NYSEARCA:FMLP) ETN 4.7% $3,130 $3,650 -14.2%
JPMorgan Alerian MLP ETN (NYSEARCA:AMJ) ETN 7.9% $2,566 $2,897 -11.4%
ALPS International Sector Div Dogs ETF (NYSEARCA:IDOG) ETF 4.2% $2,350 $2,442 -3.8%
Global X SuperDividend U.S. ETF (NYSEARCA:DIV) ETF 8.4% $2,333 $2,394 -2.5%
IQ US Real Estate Small Cap ETF (NYSEARCA:ROOF) ETF 5.7% $2,275 $2,441 -6.8%
Fst Tst Dow Jns Glbl Sel Dvd Idx ETF (NYSEARCA:FGD) ETF 5.1% $2,110 $2,176 -3.0%
ALPS Emerging Sector Dividend Dogs ETF (NYSEARCA:EDOG) ETF 4.5% $1,946 $2,015 -3.4%
iShares Asia/Pacific Dividend (NYSEARCA:DVYA) ETF 5.3% $1,821 $1,962 -7.2%
WisdomTree China ex-State-Owd Entpr ETF (NASDAQ:CXSE) ETF 2.5% $1,531 $1,818 -15.8%
Market Vectors BDC Income ETF (NYSEARCA:BIZD) ETF 9.1% $1,480 $1,577 -6.1%
DIVIDEND GROWTH FOCUSED COMPANIES 7.5% $87,438 $89,096 -1.9%
New Residential Investment (NYSE:NRZ) REIT 17.3% $6,659 $6,250 6.5%
Omega Healthcare Investors (NYSE:OHI) REIT 6.2% $6,342 $6,996 -9.3%
Ventas (NYSE:VTR) REIT 5.2% $5,728 $5,843 -2.0%
HCP (NYSE:HCP) REIT 6.1% $5,438 $5,786 -6.0%
Wells Fargo (NYSE:WFC) Company 3.0% $5,023 $5,258 -4.5%
TOTAL (NYSE:TOT) Company 5.0% $4,432 $4,495 -1.4%
GlaxoSmithKline (NYSE:GSK) Company 5.9% $4,129 $4,035 2.3%
Care Capital Properties (NYSE:CCP) REIT 7.6% $3,743 $3,057 22.4%
AT&T (NYSE:T) Company 5.4% $3,700 $3,531 4.8%
Kinder Morgan (NYSE:KMI) Company 3.2% $3,027 $2,745 10.3%
Eni (NYSE:E) Company 5.3% $2,895 $2,980 -2.9%
Main Street Capital (NYSE:MAIN) Invest Co 7.8% $2,889 $2,764 4.5%
Prudential Financial (NYSE:PRU) Company 4.0% $2,803 $2,663 5.3%
The Blackstone Group (NYSE:BX) Invest Co 11.0% $2,627 $2,924 -10.2%
Atlantic Power (NYSE:AT) Company 4.7% $2,618 $2,758 -5.1%
Verizon Communications (NYSE:VZ) Company 4.8% $2,499 $2,311 8.1%
IBM (NYSE:IBM) Company 4.2% $2,496 $2,752 -9.3%
Prospect Capital Corporation (NASDAQ:PSEC) Invest Co 15.9% $2,480 $2,851 -13.0%
Blackstone Mortgage Trust (NYSE:BXMT) REIT 10.1% $2,478 $2,676 -7.4%
Ford Motors (NYSE:F) Company 4.9% $2,388 $2,669 -10.5%
Medical Properties Trust (NYSE:MPW) REIT 8.1% $2,271 $2,377 -4.4%
The Bank of Nova Scotia (NYSE:BNS) Company 5.1% $2,042 $2,022 1.0%
New Senior Investment Group (NYSE:SNR) REIT 11.3% $1,838 $1,972 -6.8%
Icahn Enterprises (NYSE:IEP) Invest Co 11.0% $1,580 $1,839 -14.1%
Full Circle Capital (FULL) Invest Co 18.5% $1,452 $1,526 -4.9%
Senior Housing Properties (NYSE:SNH) REIT 10.4% $1,448 $1,484 -2.4%
Banco Santander (NYSE:SAN) Company 6.3% $1,265 $1,471 -14.0%
Dorchester Minerals (NASDAQ:DMLP) MLP 8.2% $1,149 $1,060 8.4%
SPECULATIVE PORTFOLIO HOLDINGS TOTAL 0.4% $26,658 $28,742 -7.3%
United States 12 Month Oil ETF (NYSEARCA:USL) ETF 0.0% $7,940 $8,151 -2.6%
American Capital (NASDAQ:ACAS) Invest Co 0.0% $4,206 $4,137 1.7%
Transocean (NYSE:RIG) Company 0.0% $3,126 $3,714 -15.8%
Teucrium Agricultural ETF (NYSEARCA:TAGS) ETF 0.0% $2,537 $2,647 -4.2%
Teucrium Corn ETF (NYSEARCA:CORN) ETF 0.0% $2,172 $2,122 2.4%
Market Vectors Gold Miners ETF (NYSEARCA:GDX) ETF 0.9% $1,421 $1,372 3.6%
VARIOUS POSITIONS OF <$1,000 VALUE VARIOUS 2.0% $5,256 $6,599 -20.4%
FIXED INCOME HOLDINGS TOTAL 5.0% $35,254 $36,039 -2.2%
PowerShares Variable Rate Preferred ETF (NYSEARCA:VRP) ETF 5.0% $9,528 $9,704 -1.8%
Goldman Sachs (NYSE:GS) - Pref A (GS+A) Pref 4.9% $8,168 $8,285 -1.4%
Bank of America Corporation (NYSE:BAC) - Pref L (BML+L) Pref 5.0% $4,194 $4,296 -2.4%
Morgan Stanley (NYSE:MS) - Pref A (MS+A) Pref 5.1% $4,030 $4,158 -3.1%
U.S. Bancorp (NYSE:USB) - Pref H (USB+H) Pref 4.1% $2,174 $2,192 -0.8%
WisdomTree BofA Mrl Lynch HYBd ZrDr ETF (NASDAQ:HYZD) ETF 4.4% $2,124 $2,184 -2.7%
Goldman Sachs - Pref D (GS+D) Pref 5.2% $1,970 $2,040 -3.4%
WisdomTree BofA Mrl Lynch HYBd NgtDr ETF (NASDAQ:HYND) ETF 4.2% $1,860 $1,939 -4.1%
Eaton Vance Senior Floating-Rate Trust (NYSE:EFR) CEF 7.9% $1,206 $1,241 -2.8%
SHORT HOLDINGS TOTAL -0.7% $7,541 $6,033
ProShares Short S&P500 (NYSEARCA:SH) ETF 0.0% $10,950 $10,435 4.9%
ProShares UltraShort Russell2000 (NYSEARCA:TWM) ETF 0.0% $4,608 $3,929 17.3%
T-Mobile US (NASDAQ:TMUS) Company 0.0% ($2,811) ($2,738) -2.6%
PowerShares QQQ Trust (NASDAQ:QQQ) ETF 1.0% ($5,207) ($5,593) 7.4%
SCHWAB ROBO-ADVISOR HOLDINGS TOTAL 2.0% $9,168 $9,548 -4.0%
TOTAL 5.2% $219,691 $225,480
TOTAL + CASH $13,252.81 4.9% $232,944 $239,248 -2.6%

Portfolio Moves in January 2016

…this was a VERY busy month for me - only time will tell if I created alpha or just trading commissions (my guess would be that I did some of both)

New Positions

SHARE BUY - Deutsch X Trk MSCI EAFE Hdg Eqy ETF : Bought 100 additional shares of this high dividend U.S. ETF at $25.32 on Jan 8.

  • Reasoning: With a high 6.5%+ yield and hedged international exposure, this ETF should allow me to earn a healthy yield with a strategy that fits my overall philosophy.

SHARE BUY - SPDR S&P International Dividend ETF : Bought 100 additional shares of this high dividend international ETF at $29.95 on Jan 15.

  • Reasoning: Despite a high 6%+ yield, this international ETF has been crushed over the last few years…but I think that the world economies and the dollar will turn around will eventually turnaround, so I am willing to collect my dividend and wait on this one.

SHARE BUY - SPDR S&P Emerging Markets Dividend ETF : Bought 100 additional shares of this high dividend emerging market ETF at $21.65 on Jan 11.

  • Reasoning: Despite a high 5.5%+ yield, this emerging market ETF has been crushed over the last few years…but I think that emerging markets will eventually outperform, so I am willing to collect my dividend and wait on this one.

SHARE BUY - Main Street Capital : Bought 100 shares of this Seeking Alpha favorite high dividend BDC at $27.55 on Jan 14.

  • Reasoning: With a high 7.5% yield and decent payout coverage, hopefully this speculative buy holds in there and doesn't turn into a sucker yield or a falling knife.

SHARE BUY - Prudential Financial : Bought 100 shares of this financial services company at $ 66.35 on Jan 20.

  • Reasoning: With a 4% yield, P/E <10, PEG of 1.5 and solid payout coverage, this fills my desire to have an insurer in my portfolio.

SHARE BUY - United States 12 Month Oil ETF : Bought 200 additional shares of this WTI crude oil ETF (I think it's the best of the oil commodity plays) along with 2 put contracts as my plan as oil continued to fall (crude was at $25-$30) in Jan.

  • Reasoning: I think we are at or close to the bottom in crude and believe that oil prices will return to a $50-$60 level in the next 2 years.

SHARE BUY - Wells Fargo : Continued weakness in the stock meant that my put option I wrote ($53.00 strike by 1/8/2016) was assigned.

  • Reasoning: Wells Fargo is a DGI stalwart (so I don't mind owning it), but shares have really taken a beating so I am underwater but willing to hold WFC as a core holding.

WROTE PUT - Apple (NASDAQ:AAPL): Wrote 1 put option ($90.00 strike by 3/18/2016) for $240.28 net of fees on 1 contract on Jan 27.

  • Reasoning: I think the world's largest stock is on sale. However, the yield is too low for me to own it directly, I will continue to write short dated puts to collect premium (estimated at ~$1,000 annually) versus the $200 I would get in dividend payments. And if the stock trades too low, then I will happily own it at the deeply discounted rate.

WROTE PUT - Alon Energy (NYSE:ALJ): Wrote a put option ($12.50 strike by 2/19/2016) for $50.54 net of fees on 2 contracts on Jan 5.

  • Reasoning: I would like to own this stock, but I will keep playing this one as an option until I am reasonably sure the oil bottom is in.

SHARE BUY - Ford Motors : Continued weakness in the stock meant that my put option I wrote ($13.50 strike by 1/15/2016) was assigned.

  • Reasoning: Ford has all the statistics of a great DGI pick (4%+ yield, P/E <12, etc…so I don't mind owning it), but many people are scratching their heads over the collapse in share price despite a special dividend and good Q4 earnings.

WROTE PUT - Greenbrier (NYSE:GBX): Wrote a put option ($22.50 strike by 3/18/2016) for $145.28 net of fees on 1 contract on Jan 27.

  • Reasoning: I would like to own this stock (P/E of 3.5, PEG of 0.36, yield of 3.3%, etc), but I will keep playing this one as an option until I am reasonably sure this is a falling knife so I should proceed with caution.

WROTE PUT - Glaxo Smith Kline : Wrote a put option ($37.00 strike by 2/19/2016) for $40.28 net of fees on 1 contract on Jan 19.

  • Reasoning: I already own GSK (a great DGI stock) and I want more…but I want it cheap (and to earn a cash yield until I get it).

WROTE PUT - STAG Industrial (NYSE:STAG): Wrote a put option ($17.50 strike by 2/19/2016) for $30.28 net of fees on 1 contract on Jan 11.

  • Reasoning: I would like to own this 8%+ yielding REIT, but I will keep playing this one as an option until I am reasonably sure this is a falling knife so I should proceed with caution.

Closed Positions

SHARE SALE - UBS ETRACS 2xLeveraged Long Wells Fargo Business Development Company Index ETN (NYSEARCA:BDCL): Any time a fund name is this long, it should be a red flag…in January, I finally took my own advice from my research on dividend ETFs and sold my entire position in this lower quality ETF at $16.35 (I purchased it on Jun 25, 2014 @ $26.85) for a better ETF.

  • Reasoning: It was time to allocate resources to better opportunities as I realize that I had chased yield and gotten burned on this ETF. (note: it has since sold off to $13 so no love lost here)

SHARE SALE - Caterpillar (NYSE:CAT): Cyclical stocks have high investment premiums and this made life over-interesting as put I wrote on CAT executed because the stock sold off below my $60.00 strike price. Fortunately, the stock traded up the very week and I was able to sell the shares I had bought at a small gain (plus the $65.28 premium I got for writing the put contract).

  • Reasoning: While the dividend and valuation story is compelling (P/E below 13 and 5% dividend yield), I think I will pass on owning this cyclical stock into this downturn.

SHARE SALE - Healthcare Trust Of America (NYSE:HTA): Sold 100 shares of this medical office building REIT at $27.25 on Jan 5 (I bought them on May 21, 2015 at $24.95).

  • Reasoning: While this is a favorite of Brad Thomas, the below market yield and high relative valuation (17x FFO) made me want to lock in gains and deploy to more attractive options (I was also overallocated to REITs, especially healthcare ones).

SHARE SALE - ProShares UltraPro Short Russell2000 (NYSEARCA:SRTY): Sold my 100 shares of SRTY at $39.25 (I 'bought' it on Nov 16, 2015 @ $28.67).

  • Reasoning: I used the weakness in the market to close out this short ETF and free up trading capacity while booking a terrific 37% gain!

SHARE SALE - Verizon Communications : Sold 50 shares of this DGI favorite technology company @ $48.55 on Jan 27 (I bought them on Jul 22, 2015 at $46.15).

  • Reasoning: I think VZ is great (and I kept 50% of my stake), but I wanted to free up cash to put to work in other ideas so I locked in a 5%+ gain.

CLOSED SHORT - SPDR S&P 600 Small Cap Growth ETF (NYSEARCA:SLYG): Sold my 25 share SLYG short at $159.25 (I 'sold' it on Jul 28, 2014 @ $173.15).

  • Reasoning: I used the weakness in the market to close out this short and free up trading capacity while booking a modest 9% gain.

CLOSED SHORT - SPDR S&P 500 ETF (NYSEARCA:SPY): Sold my 30 share SPY short at $192.05 (I 'sold' it on Jul 16, 2014 @ $197.87).

  • Reasoning: I used the weakness in the market to close out this short and free up trading capacity while booking a modest 3% gain.

PUT EXPIRED - Apple : Wrote a put option ($100.00 strike by 1/22/2016) for $138.28 net of fees on 1 contract on Jan 5. On Jan 22, the put option I wrote on expired worthless.

  • Reasoning: I think the world's largest stock is on sale. However, the yield is too low for me to own it directly, I will continue to write short dated puts to collect premium (estimated at ~$1,000 annually) versus the $200 I would get in dividend payments. And if the stock trades too low, then I will happily own it at the deeply discounted rate.

PUT EXPIRED - Glaxo Smith Kline : On Jan 15, the put option I wrote on GSK expired worthless. I earned $35.28 net of fees on 1 contracts I wrote on Dec 8, 2015.

  • Reasoning: I already own GSK (a great DGI stock) and I want more…but I want it cheap (and to earn a cash yield until I get it).

PUT EXPIRED - Target (NYSE:TGT): On Jan 15, the put option I wrote on TGT expired worthless. I earned $75.28 net of fees on 1 contracts I wrote on Nov 18, 2015.

  • Reasoning: Target had an earnings miss so the option premium was high on this DGI pick (P/E of 16, PEG of 1.5, dividend yield over 3%).

Final Thoughts

While no one likes to see red in their monthly performance checkup, I am very gladdened for the buying opportunities that presented themselves to add quality companies at sale prices. Furthermore, if the bottom has now been set for oil (which I would say it is 67% likely that it has been) then my 2016 portfolio performance will have a major tailwind as many of these stocks snap back due to short covering and the removal of doomsday thinking (see MLPs like KMI and Oil Majors like TOT).

My major dilemma today is trying to figure out how much capital to put out during the dips (I don't want to get caught without dry powder if there is ever a major selloff) and take off the table on the rips (I don't want to get too cute with my trading and miss major upside). I am also reminded just how hard it is to make money going short. Readers, how do you see the next 6 months? Are there killer trades that I am missing out on?

Disclosure: I am/we are long ALL POSITIONS MENTIONED IN THE ARTICLE.

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: The author is an amateur who has a history of getting calls both right and wrong with zero predictive power. Trade at your own risk and never rely solely on this author's opinion. Also, as I have no knowledge of your circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended.

About this article:

Expand
Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here