With 2016 in the rear view mirror, I thought it would be a good opportunity to think ahead to 2017 and establish some goals for my family's dividend growth portfolio. Throughout the year, I plan to revisit this article to see how I am progressing on these goals.
Goal #1: Increase in the Portfolio Value Growth of 6-8%
I recently had an article posted detailing our 2016 performance, which you can read here, and our portfolio did pretty well. Including just dividends received and not new money added to the account, we had 15% growth. This was greater than the total return for the S&P 500. This was far and away our best year in terms of total return, but I don't expect this to be the case every year. For example, in 2015, our portfolio's total return was just 5.39%. Still ahead of the S&P 500, but nowhere near this year's performance. I don't expect our portfolio to grow as much as it did this past year. 6-8% total growth is nothing to scoff at and I would be thrilled with this type of performance again.
If I have one complaint about such a run up it is that some stocks that I would like to own more of or add to our portfolio got away from me this year. Some names that I would like to own at a lower price include: PepsiCo (NYSE:PEP) and Cisco (NASDAQ:CSCO)
Goal #2: Dividend Yield of 2.5-2.75%, Dividend Growth of 7-10%
In the summary of our 2016 dividend performance, which you can read here, I stated that our dividend yield at the end of the year was 2.61%. Some readers might find that this yield is too small for their tastes. The wife and I have at least 20 years until retirement, so we don't need the dividend income to cover expenses just yet. Factor in that we had gains that were well above what I had expected and the yield was always destined to be on the smaller side. I also don't want to chase after companies yielding 7 or 8%. High yields are often high because the stock price has dropped to obscene levels because of something fundamentally wrong with the company. That screams like a dividend cut to me and not worth the risk to us.
The forward yield of our portfolio sits at 2.71%. This is higher than last year's yield and that is due to most of our 2016 buying being of companies, such as Qualcomm (NASDAQ:QCOM), Coca-Cola (NYSE:KO) and Verizon (NYSE:VZ), having juicy dividend yields. Many of the stocks I am aim to buy in 2017 are of the same ilk, so our yield should continue to climb.
If our portfolio repeated last year's dividend growth performance I would be very happy. Including a dividend cut by ConocoPhillips (NYSE:COP) of 66%, the average raise per position was 7.42%. If you adjust for weight of each position, the average dividend growth was almost 6%. Without this one cut, those raises were 9.3% per position and 7.1% when adjusting for position weight.
Last year, we focused a lot of buying shares of companies that had demonstrated that they were serious about dividend growth. Credit card company Visa (NYSE:V) gave us 18% bump while Boeing (NYSE:BA), Cisco and CVS Health (NYSE:CVS) all gave us 20%+ raises.
For companies we owned prior to the start of 2016, Starbucks (NASDAQ:SBUX) gave us a 25% dividend raise while Southwest (NYSE:LUV) bumped theirs 33%. On the flip side, Chevron (NYSE:CVX) just barely continued their dividend growth streak with a 0.90% raise while fellow oil super giant Exxon Mobile (NYSE:XOM) managed a 2.70% bump. Oil prices have rebounded this year, so Chevron and Exxon should be able to offer investors a bigger increase this year. We will continue to buy names that are committed to giving us dividend raises each and every year.
Goal #3: Increase The Size of Our Smallest Positions.
We greatly expanded the number of positions in our portfolio this year. We began 2016 with 27 positions and ended it with 35. As such, many of holdings are undersized and represent 2% or less of our total portfolio. I would like to spend 2017 applying new money to established positions trading at reasonable valuations. Visa, Apple (NASDAQ:AAPL), V.F. Corp (NYSE:VFC) and the already mentioned Cisco and Pepsi are some of our smallest positions. Each of these positions is under 2% of our total portfolio, making them well under a half position. All of these companies control a lot of market share in their individual sectors of the economy. They also happen to offer shareholders sizeable dividend increase each and every year. Some, like Pepsi and VF Corp, have raised dividends for multiple decades. Others, such as Apple, look like they might be Dividend Champions one day. Because of this, I hope to add to each of these names in the coming months.
Goal #4: Limit the number of New Positions
In 2016 we added 8 new positions. That is the most we have ever done in one year. I didn't intend for that to happen, but I found each new stock to be undervalued at the time of purchase. I would like to add to holdings that are less than a half position.
Of course, our first purchase this year was Nike (NYSE:NKE), but as you can read here, I thought shares were too good of a value to pass up. With 36 holdings, I am hesitant to add too many new names to our portfolio until we have increased the size of our smaller ones. Of course, if a company I have my eye on gets to a certain level, I will not hesitate to pull the trigger and add them to our stable of dividend paying stocks. A few names that might make it into our portfolio in 2017 include: Lockheed Martin (NYSE:LMT), Southern Company (NYSE:SO) and Becton, Dickinson and Company (NYSE:BDX).
Goal #5: Don't Be Afraid of Stocks That Have Had a Large Run Up in Price
About a year ago, I had an article published on SA detailing 5 stocks that I wanted to own but had not yet added to the portfolio. I eventually bought all of them except the already mentioned Lockheed Martin. I thought the largest defense contractor in an incredibly dangerous world was a good bet to own. Lockheed Martin has been a dividend juggernaut, raising them for the past 14 years and has an average dividend growth rate of almost 16% over the past 5 years. The one hang up I had was that my investment rules often find that the company is overvalued. At the time that article was published, Lockheed Martin was trading at about $212 a share. I thought that the stock had a nice run and was now overvalued. I was looking to get in below $200. Of course, I never got that price and though hindsight is 20/20, had I bought at that time, I would be sitting on a 20% gain from what I thought was an overvalued level. The reason Lockheed never gets into my value range is that the company continually performs well and thus, never goes on sale. Many of you are familiar with Chowder and he is always pounding the table about buying into strength. I don't want to totally abandon my investment rules, because they have served me well, but sometimes they keep me from buying stocks of great companies. This year, my goal is to not be afraid of purchasing shares of companies that deserve to have strong price action.
2016 was a pretty solid year for us, but that is behind us now. For 2017, I'm aiming for 6-8% total return and dividend growth of 7-10% across the portfolio. Every purchase made this year will be down with an aim towards reaching these goals. Periodically, I will review these goals to make sure we are on track. What do you think of the goals I've laid out? What are some of your goals for this year?
Disclosure: I am/we are long COP, PEP, CSCO, KO, BA , VZ, QCOM, V, SBUX, LUV, XOM, CVS, AAPL, VFC, NKE.
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: We are not investment professionals. Please do your own research prior to making an investment decision.