DGI For The DIY: 2016 Portfolio Review

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Includes: ABBV, ABC, ABT, AMGN, BDX, CVS, CVX, D, GE, MDU, NXPI, O, OHI, SBUX, STAG, T, THO, UNP, V, WEC
by: Eric Landis

Summary

It's fitting that my 100th article on Seeking Alpha is an update on the portfolio that first got me interested in writing about investing.

My dividend growth portfolio is now four years old, and it continues to perform well, with a 15.6% increase in income year over year.

I highlight purchases made this quarter and provide companies I'll be watching in 2017.

DGI For The DIY 2016 is now in the books, and it turned out to be quite the year for me, both personally and professionally.

In October, my wife and I welcomed a new little girl to our family. Her birth offers some balance to the family dynamics by complementing her two older brothers, who are already doing their best to watch out for her. We now have three kids aged 5 and under, so to say the household is busy is the understatement of the year, but I wouldn't give it up for the world.

Portfolio-wise it was another stellar year, which I suppose is to be expected with the positive gains seen in the overall market. The total value of my portfolio has now more than doubled since it was introduced in the beginning of 2013, and my dividend income grew by another 15.6% year over year.

Celebration

My Seeking Alpha career has also continued to grow, as this update marks my 100th article on the site! This is unbelievable to me, as my wildest dreams wouldn't have seen this coming. I was hesitant to put myself out there when I penned my first article back in 2013, but am so happy that I made the plunge. To those of you out there contemplating doing the same: Just do it, you won't regret it!

If that all wasn't enough, I decided to take things one step further before 2016 came to a close, and I created a new website to share my portfolio's moniker: www.DGIfortheDIY.com. This is an exciting development for me and something I've been considering doing for some time. Fortunately I have a very supportive wife who encouraged me to go for it, and although it's been a lot of work getting it going, I am excited about the possibilities for it.

Now enough about that stuff. Let's get to the portfolio!

Market Comparison

The market started out the year slow, with a big swoon to begin January, but it overcame the fall and ended up with double-digit gains for 2016.

2016 Market Returns

The portfolio put up similar numbers, as it grew by 15.5% after taking out contributions made during the year. On a total dollar basis the portfolio increased by 24.1%, growing from $47,790 to $59,308.

Here are the numbers since the portfolio's inception:

DGI For The DIY: 2016 Update

Focusing in on dividends, you can see that Q4 saw a slight dip against Q3, which is mostly the result of Digital Realty paying its Q4 dividend in January rather than December.

Despite the fourth-quarter decline, the year over year number was still pretty good, as the annual dividends increased by 15.6%.

DGI For The DIY: Dividend Income Progress

The 15.6% income increase comes from a combination of reinvestment of dividends, new purchases of stock from cash deposited into the account, and through the increased dividends paid out by companies.

It's noticeable that as the portfolio has grown, and the cash contributions have a smaller effect on a percentage basis, the growth rate of dividend income has declined. I suspect that the annual income growth will settle in to the 12-14% rate over the next few years, which would come from roughly 3% dividend reinvestment, 3% of new contributions, and 6-8% of organic dividend growth.

Speaking of organic growth, here are the increases announced in Q4:

Date Company Previous Quarterly Rate New Quarterly Rate Sequential Increase Year Ago Dividend YoY Increase Dividend Yield
10/10/2016 Thor Industries, Inc. (NYSE:THO) $0.3000 $0.3300 10.00% $0.3000 10.00% 1.30% LINK
10/16/2016 Omega Healthcare Investors Inc (NYSE:OHI) $0.6000 $0.6100 1.67% $0.5600 8.93% 7.50% LINK
10/18/2016 Visa Inc (NYSE:V) $0.1400 $0.1650 17.86% $0.1400 17.86% 0.81% LINK
10/24/2016 AT&T Inc. (NYSE:T) $0.4800 $0.4900 2.08% $0.4800 2.08% 4.78% LINK
10/26/2016 Chevron Corporation (NYSE:CVX) $1.0700 $1.0800 0.93% $1.0700 0.93% 3.72% LINK
10/28/2016 AbbVie Inc (NYSE:ABBV) $0.5700 $0.6400 12.28% $0.5700 12.28% 4.18% LINK
11/3/2016 Starbucks Corporation (NASDAQ:SBUX) $0.2000 $0.2500 25.00% $0.2000 25.00% 1.72% LINK
11/3/2016 Stag Industrial Inc (NYSE:STAG) $0.115833 $0.1167 0.72% $0.115833 0.72% 5.89% LINK
11/10/2016 AmerisourceBergen Corp. (NYSE:ABC) $0.340000 $0.3650 7.35% $0.340000 7.35% 1.74% LINK
11/17/2016 Union Pacific Corporation (NYSE:UNP) $0.550000 $0.6050 10.00% $0.550000 10.00% 2.31% LINK
11/18/2016 MDU Resources Group Inc (NYSE:MDU) $0.187500 $0.1925 2.67% $0.187500 2.67% 2.69% LINK
11/21/2016 Becton Dickinson and Co (NYSE:BDX) $0.660000 $0.7300 10.61% $0.660000 10.61% 1.68% LINK
12/1/2016 WEC Energy Group Inc (NYSE:WEC) $0.495000 $0.5200 5.05% $0.495000 5.05% 3.54% LINK
12/9/2016 General Electric Company (NYSE:GE) $0.230000 $0.2400 4.35% $0.230000 4.35% 3.06% LINK
12/9/2016 Abbott Laboratories (NYSE:ABT) $0.260000 $0.2650 1.92% $0.260000 1.92% 2.60% LINK
12/14/2016 Realty Income Corp (NYSE:O) $0.202000 $0.2025 0.25% $0.191000 6.02% 4.08% LINK
12/14/2016 CVS Health Corp (NYSE:CVS) $0.425000 $0.5000 17.65% $0.425000 17.65% 2.42% LINK
12/16/2016 Dominion Resources, Inc. (NYSE:D) $0.700000 $0.7550 7.86% $0.700000 7.86% 4.01% LINK
12/20/2016 Amgen, Inc. (NASDAQ:AMGN) $1.000000 $1.1500 15.00% $1.000000 15.00% 2.96% LINK
Averages: 8.07% 8.75%

It was another solid quarter for increases, with an average of 8.07% for quarter-over-quarter declarations and 8.75% on a year-over-year basis. As expected, Starbucks and Visa led the way, as they announced increases of 25% and 17.86%. CVS Health and Amgen were also generous, providing boosts of 17.65% and 15%.

I was a bit surprised to see an increase from General Electric, as I expected the dividend to remain frozen until the end of 2017. Union Pacific was also a pleasant surprise, as I was expecting just a few penny increase rather than the 10% increase it announced.

One of the smaller increases came from Chevron, which gave a token $0.01 increase to keep the dividend growth streak alive. The smaller increases from Abbott Labs and STAG Industrial were also notable but weren't surprising as Abbott is working through the St. Jude acquisition while STAG is working to lower its payout ratio a bit from previous levels.

In all I'm quite happy with the overall numbers, as the 8.75% growth along with dividend reinvestment gets me to a nearly 12% earnings growth rate for the portfolio.

Portfolio Transactions

It was a relatively quiet quarter on the trade front, as I had just one sale and seven buys in the portfolio.

The lone sale occurred in October, when I cashed out my lone non-dividend paying company with the sale of NXP Semiconductors (NASDAQ:NXPI).

DGI For The DIY: Q4 2016 Sales

NXPI was a very profitable investment for me, as I realized an 88% gain after nearly three years of owning it. I sold my shares after QCOM announced it was acquiring the company, and I used a portion of the proceeds to add to my QCOM position. I like the deal for QCOM's future growth prospects, as it adds diversification to its current business and is expected to be accretive to future earnings considering it is an all-cash acquisition that won't dilute the share count.

In addition to the QCOM buy, I also used some of the proceeds to average down on my recently acquired positions in Lowe's Companies and CVS Health.

On November 10th I took advantage of the selloff in Omega Healthcare and picked up an additional 17 shares of the company when they were yielding nearly 8.6%. That has worked out well so far, as shares have rebounded by more than 10% and the company announced another increase to the dividend.

Finally, I rounded out the year by adding to my holdings in Abbott Labs and AbbVie, bringing them both to full positions in the portfolio. I like Abbott as an alternative to the pharma companies in my portfolio, and think the St. Jude acquisition should help solidify its position in the medical devices market. I also think AbbVie a nice opportunity at a 4%+ yield following its October dividend hike.

Here are the prices I paid for my new shares:

DGI For The DIY: Q4 2016 Purchases

Current Portfolio

With those trades now recorded, here is how the portfolio sits as 2016 comes to a close:

DGI For The DIY: Portfolio1

DGI For The DIY: Portfolio2

Here is a more detailed breakdown of the portfolio based on sector weighting and income:

DGI For The DIY_Portfolio Weightings

With the recent pullback in the healthcare sector, I took advantage of the opportunity and added to my positions. I have been wanting to bring up my weighting in the sector, and with the recent purchases it is now over 10% of the portfolio. Additionally, companies like Walgreens Boots Alliance, CVS Health, and Omega Healthcare reside in the consumer staples and REIT sectors, further adding to my exposure to the industry.

I'm now pretty happy with the balance in the portfolio, and I don't see any glaring things that need to be done at this time.

On The Radar

I don't have any immediate candidates to sell at this time, although I'll admit my patience for GameStop Corp. and Polaris Industries is beginning to wear thin. Despite the underperformance, I remain content to let them work through their issues, especially considering they are only half-sized positions in the portfolio.

For potential purchases, I still have plenty of "want to owns" on the wish list, with NextEra Energy, Inc. (NYSE:NEE), VFC Corp. (NYSE:VFC), and Nike, Inc. (NYSE:NKE) bringing the most interest at this time. However, with just $54.70 in cash in the account to begin the year, I must bide my time until I have enough built up again for another buy.

Conclusion

With the portfolio at record highs in both income and value, I can't find much to complain about right now. My income growth remains on a good trajectory, and I feel like I have a really solid group of companies, lessening my urge to tinker with positions.

I hope this update finds you well. Best wishes and Happy Investing in 2017!

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

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 an 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.

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