Review and Outlook
September (like July and August) proved to be a whole lot of nothing as neither the bulls nor the bears were in charge (despite a pickup in volatility which I mostly blame on Wall Street coming back from vacation). With the election pending, I don't see any sustained movements for the next six weeks in either direction although there might be some choppiness until the crystal ball gets clearer. Not to be partisan (politics and investing are rarely a winning combination), but it appears that the markets are responding favorably (or at least not unfavorably) to the likely election of Hillary Clinton (despite what can generously be called an 'enthusiasm gap' amongst, well, almost everybody) over Donald Trump. As long as the polls continue to point towards mixed governance (where both the Dems and Reps control at least one of the three elected bodies) expect for Wall Street to predict more of the status quo (I think this would be perceived as stability - and this stability will be perceived to be good for business).
Ok, enough political guesstimation. What matters for your portfolio is what you do about it. Please ignore the doom and gloom naysayers (your portfolio will thank you later) about the pending end of the world as we know it. At the federal level, we are likely to get more of the same (regardless of what happens in November), so try to tune out the noise. Instead, focus on what matters (which for me is the elevated valuations seen in the major market indexes). Part of the dividend investment mantra is staying invested throughout cycles so that dividends can be collected. I think this is a sound advice for most, though I like to take a slightly more active approach to hedge against downturns and stockpile cash when valuations are high. As a result, I have now built a meaningful short position against the market and have over 15% of my portfolio in cash. This is having an impact on my cash dividend production, but I think that by taking my foot off the gas a little right now I will get better buying opportunities in the future. (or maybe I am just costing myself returns...only time will tell)
On to my September performance, for the month I returned an uninspired 0.51% in capital appreciation for my portfolio (however, that was 25.5x the anemic 0.02% return for the S&P!). While it was not a big win to take to the bank, it also continued my overall outperformance in 2016 with YTD returns of 11.8% (versus the S&P 500's 7.8%). This is all before my ~5% realized dividend yield is factored in! As has been the case all summer, I continue to be nervous about the valuation storm clouds but don't think there is anything so imminent as to warrant a rush to liquidate attractive dividend payers.
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 or DGI strategy that focuses on a core of diversified holdings (ETFs and individual companies - my general screening criteria: growing companies (YoY EPS growth >0%) with attractive valuations (PEG <1.5 and P/E <20) and strong and safe dividends (yield >4%, payout <90%, and market cap >$500MM)...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 ETFs (domestic and international) 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 leads me to be overweight in traditional dividend-paying sectors like financials, REITS, and energy).
Note: I violate these guidelines constantly, so please call me out on it!
Cash payment (dividends and interest) is the keystone of my portfolio as market timing is practically impossible to repeatedly replicate, for even the pros. Over the last 12 months, my portfolio's realized yield was 4.1% (based on its current value) and delivered $11,440 in cash to me. The market's appreciation has lowered my effective yield (a high-class problem), but my projected forward yield is 4.8% on invested capital (but only 4.0% when my large cash position is factored in).
In September 2016, I earned $1,307.02 in cash (+15% from September 2015). With a YTD haul of $8,635, I am slightly behind my 2016 goal of $12,000 (aka an even $1,000 per month in good months when the market is moving up and bad months when it's trading off). I don't think that I will quite get there, but I will come close. Overall, my yield focused strategy still makes more sense than ever to me since paper gains may come and go but cash is forever!!
Portfolio Composition as of September 30, 2016
|Security||Type||Div Yield||Market Value||Last Month Value||Gain/Loss(%)|
|CORE DIVIDEND FUNDS||4.8%||$64,367||$63,930||0.7%|
|SPDR S&P International Dividend ETF (NYSEARCA:DWX)||ETF||4.6%||$11,229||$11,082||1.3%|
|SPDR S&P Emerging Markets Dividend ETF (NYSEARCA:EDIV)||ETF||3.7%||$8,425||$8,504||-0.9%|
|WisdomTree Emerging Markets High Div ETF (NYSEARCA:DEM)||ETF||4.2%||$7,966||$7,980||-0.2%|
|Deutsch X Trk MSCI EAFE Hdg Eqy ETF (NYSEARCA:DBEF)||ETF||3.0%||$5,276||$5,242||0.6%|
|Fst Tst Dow Jns Glbl Sel Dvd Idx ETF (NYSEARCA:FGD)||ETF||4.8%||$4,700||$4,650||1.1%|
|JPMorgan Alerian MLP ETN (NYSEARCA:AMJ)||ETN||7.0%||$3,150||$3,100||1.6%|
|Global X Superdividend REIT ETF (NASDAQ:SRET)||ETF||8.0%||$3,042||$3,078||-1.2%|
|Pacer Global High Dividend ETF (BATS:PGHD)||ETF||3.4%||$2,786||$2,766||0.7%|
|SPDR MSCI Australia StrategicFactors ETF (NYSEARCA:QAUS)||ETF||3.9%||$2,503||$2,378||5.3%|
|Global X SuperDividend U.S. ETF (NYSEARCA:DIV)||ETF||7.2%||$2,488||$2,523||-1.4%|
|iShares Asia/Pacific Dividend (NYSEARCA:DVYA)||ETF||4.8%||$2,324||$2,313||0.5%|
|iShares MSCI Australia (NYSEARCA:EWA)||ETF||3.9%||$2,121||$2,052||3.4%|
|Eaton Vance Buy-Write Opportunities Fund (NYSE:ETW)||CEF||10.7%||$2,202||$2,219||-0.8%|
|Global X SuperDividend ETF (NYSEARCA:SDIV)||ETF||6.7%||$2,150||$2,147||0.1%|
|SPDR S&P Int'l Dividend Currency Hedged ETF (NYSEARCA:HDWX)||ETF||4.9%||$2,055||$2,042||0.6%|
|WisdomTree China ex-State-Owd Entpr ETF (NASDAQ:CXSE)||ETF||1.5%||$1,952||$1,853||5.3%|
|CORE DIVIDEND COMPANIES||6.8%||$77,375||$78,317||-1.2%|
|Omega Healthcare Investors (NYSE:OHI)||REIT||6.7%||$10,635||$10,860||-2.1%|
|New Residential Investment (NYSE:NRZ)||REIT||13.4%||$8,187||$8,507||-3.8%|
|Care Capital Properties (NYSE:CCP)||REIT||8.1%||$5,700||$5,998||-5.0%|
|Western Refining (NYSE:WNR)||Company||6.0%||$5,292||$5,032||5.2%|
|Royal Dutch Shell (NYSE:RDS.A) (NYSE:RDS.B)||Company||7.1%||$5,283||$5,169||2.2%|
|Ford Motors (NYSE:F)||Company||5.0%||$4,828||$5,040||-4.2%|
|Kinder Morgan (NYSE:KMI)||Company||2.2%||$4,256||$4,020||5.9%|
|Blackstone Mortgage Trust (NYSE:BXMT)||REIT||8.4%||$2,945||$2,982||-1.2%|
|The Bank of Nova Scotia (NYSE:BNS)||Company||4.2%||$2,650||$2,661||-0.4%|
|Verizon Communications (NYSE:VZ)||Company||4.3%||$2,599||$2,617||-0.7%|
|The Blackstone Group (NYSE:BX)||Invest Co||6.9%||$2,553||$2,742||-6.9%|
|Senior Housing Properties (NYSE:SNH)||REIT||6.8%||$2,271||$2,234||1.7%|
|Icahn Enterprises (NYSE:IEP)||Invest Co||12.0%||$1,517||$1,562||-2.9%|
|SPECULATIVE HOLDINGS TOTAL||2.7%||$31,381||$30,629||2.5%|
|Alon USA Energy (NYSE:ALJ)||Company||7.8%||$7,254||$7,362||-1.5%|
|United States 12 Month Oil ETF (NYSEARCA:USL)||ETF||0.0%||$5,589||$5,313||5.2%|
|Banco Santander (NYSE:SAN)||Company||5.3%||$3,537||$3,593||-1.6%|
|Teucrium Agricultural ETF (NYSEARCA:TAGS)||ETF||0.0%||$2,672||$2,625||1.8%|
|Market Vectors Gold Miners ETF (NYSEARCA:GDX)||ETF||0.5%||$2,647||$2,549||3.8%|
|Teucrium Corn ETF (NYSEARCA:CORN)||ETF||0.0%||$1,868||$1,771||5.5%|
|VARIOUS POSITIONS OF <$1,000 VALUE||VARIOUS||2.0%||$4,616||$4,506||2.4%|
|FIXED INCOME TOTAL||4.8%||$41,399||$40,508||2.2%|
|PowerShares Variable Rate Preferred ETF (NYSEARCA:VRP)||ETF||4.8%||$10,204||$10,253||-0.5%|
|Goldman Sachs (NYSE:GS) - Pref A (GS+A)||Pref||4.3%||$9,599||$9,386||2.3%|
|Morgan Stanley (NYSE:MS) - Pref A (MS+A)||Pref||4.2%||$4,850||$4,492||8.0%|
|Bank of America Corporation (NYSE:BAC) - Pref L (BML+L)||Pref||4.2%||$4,790||$4,770||0.4%|
|WisdomTree BofA Mrl Lynch HYBd ZrDr ETF (NASDAQ:HYZD)||ETF||4.6%||$2,362||$2,338||1.0%|
|Goldman Sachs - Pref D (GS+D)||Pref||4.5%||$2,335||$2,208||5.8%|
|WisdomTree BofA Mrl Lynch HYBd NgtDr ETF (NASDAQ:HYND)||ETF||4.8%||$1,950||$1,917||1.7%|
|Nuveen Floating Rate ETF (NYSE:JRO)||ETF||7.2%||$2,212||$2,166||2.1%|
|Nuveen Short Duration Credit ETF (NYSE:JSD)||ETF||7.2%||$1,684||$1,618||4.1%|
|Eaton Vance Senior Floating-Rate Trust (NYSE:EFR)||CEF||6.8%||$1,413||$1,360||3.9%|
|ProShares UltraPro Short Russell2000 (NYSEARCA:SRTY)||ETF||0.0%||$12,383||$12,999||-4.7%|
|ProShares Short S&P500 (NYSEARCA:SH)||ETF||0.0%||$9,520||$9,545||-0.3%|
|ProShares UltraShort MidCap4000 (NYSEARCA:MZZ)||ETF||0.0%||$2,983||$3,000||-0.6%|
|ProShares UltraShort Russell2000 (NYSEARCA:TWM)||ETF||0.0%||$2,881||$2,968||-2.9%|
|T-Mobile US (NASDAQ:TMUS)||Company||0.0%||($3,270)||($3,244)||-0.8%|
|PowerShares QQQ Trust (NASDAQ:QQQ)||ETF||1.0%||($14,838)||($14,592)||-1.7%|
|SCHWAB ROBO-ADVISOR TOTAL||2.0%||$10,573||$10,471||1.0%|
|TOTAL + CASH||$42,669||4.0%||$277,423||$271,113||0.5%|
Portfolio Moves in September 2016
SHARE BUY - Eaton Vance Buy-Write Opportunities Fund : Bought 200 shares of this S&P 500 buy/write fund at $11.05 on September 9.
- Reasoning: Buy/write funds offer an interesting way to earn a high yield while a breakout to the upside is unlikely.
SHARE BUY - SPDR MSCI Australia StrategicFactors ETF : Bought 50 shares of this Australian index fund at $47.55 on September 9.
- Reasoning: The Australian market pays great dividends, but has been in a slump as slow China growth weighs on supplier markets like Australia.
SHORT SALE - PowerShares QQQ Trust : Sold short 35 additional shares of well-known ETF at $117.75 on September 15.
- Reasoning: I couldn't pick a yield stock to sell, so I just sold the NASDAQ index as a hedge instead.
SHARE SALE - HCP, Inc. REIT (NYSE:HCP): Sold my position of 151 shares at $37.73 in this healthcare REIT on September 20.
- Reasoning: HCP has had some so well documented problems, so I am taking advantage of the recent run up in prices to take profits.
A slight tick up in volatility as the movers and shakers in the markets returned from the beach in September, but index levels remained virtually flat for the month demonstrating that there is plenty of noise out there but little signal. Trying to stay invested through all the negative headlines, political shenanigans, and other bricks in the 'wall of worry' is hard, but dividend yields can provide great comfort (especially in more turbulent but generally sideways markets). However, a strong focus on earnings power and dividend sustainability in addition to valuations to make sure that you aren't buying high just to see yourself brought low later will be key. Most importantly, this is not the time to try a new half-baked strategy (provided you have one that you believe in and is working for you). Good luck out there!
Disclosure: I am/we are long ALL STOCKS AS MENTIONED.
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.