Annual Review Of DivGro, 2016

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Includes: AAPL, ABBV, AFL, CB, CMI, CSCO, D, DIS, ES, EXG, F, GD, GILD, IBM, INTC, JNJ, KMB, KO, LMT, MAIN, MCD, MMM, MO, MSFT, NEA, NIE, NKE, NOC, O, OHI, PFE, PG, PNNT, QCOM, RAI, RTN, STAG, T, TGT, TROW, TRV, UPS, VLO, WBA, WMT, XOM
by: FerdiS

Summary

I compile annual reports for DivGro, my portfolio of dividend growth stocks, to reflect on the year's transactions and to review DivGro's performance.

In 2016, DivGro generated dividend income of $10,700. I also recognized past dividend income of $4,691 due to account consolidation.

Forty-one of DivGro's holdings announced or paid higher dividends in 2016. The arithmetic average of these increases is 8.15%, which is well above the current US inflation rate.

Welcome to my fourth annual review of DivGro, my portfolio of dividend growth stocks! I compile annual reports for DivGro to reflect on the year's transactions and to review my portfolio's performance.

Keeping track of DivGro in a public forum helps me to learn and grow as a dividend growth investor. I learn from the research I do while writing articles, but also from interacting with like-minded investors.

In these annual reviews, I look at DivGro's performance as measured by dividend income, dividend increases, annualized returns, and rate of return. I also look at some highlights of the past year and share my outlook for the coming year.

Dividend Income

The main goal of DivGro is to generate a reliable and growing dividend income stream.

In 2016, DivGro generated a total of $10,700 in dividend income and I recognized past dividend income of $4,691 due to account consolidation. The total of $15,391 is 95% higher than 2015's total dividend income of $7,907.

Projected annual dividend income (PADI) increased by 83% to $12,376, meaning I can expect to earn monthly dividend income averaging at least $1,031 in perpetuity. (PADI one year ago was $6,776).

Here is a chart showing the contribution of each stock position to DivGro's PADI. Larger positions and higher-yielding stocks (such as BDCs and REITs) dominate:

Dividend Increases

In dividend growth investing, regular dividend increases are just as important as dividend income. I use selection criteria that favor stocks with a track record of paying higher dividends every year. In 2016, the following DivGro stocks paid or announced higher dividends:

1-Year Increase Company Ticker Increase %Incr
High
(above 9%)
Reynolds American
Valero Energy
Cisco Systems
Nike
Northrop Grumman
AbbVie
Qualcomm
Lockheed Martin
General Dynamics
Walt Disney
The Travelers Co's
Apple
Raytheon
Gilead Sciences
RAI
VLO
CSCO
NKE
NOC
ABBV
QCOM
LMT
GD
DIS
TRV
AAPL
RTN
GILD
36¢ to 46¢
50¢ to 60¢
21¢ to 26¢
16¢ to 18¢
80¢ to 90¢
57¢ to 64¢
48¢ to 53¢
$1.65 to $1.82
69¢ to 76¢
71¢ to 78¢
61¢ to 67¢
52¢ to 57¢
67¢ to 73.3¢
43¢ to 47¢
27.78%
20.00%
23.81%
12.50%
12.50%
12.28%
10.42%
10.30%
10.14%
9.86%
9.84%
9.62%
9.40%
9.30%
Medium
(4% - 9%)
Omega Healthcare
Intel
Microsoft
3M
Dominion Resources
Altria Group
Int'l Business Machines
Target
United Parcel Service
Eversource Energy
Johnson & Johnson
Pfizer
Coca-Cola
Realty Income
McDonald's
Cummins
AFLAC
Kimberly-Clark
Walgreens Boots Alliance
OHI
INTC
MSFT
MMM
D
MO
IBM
TGT
UPS
ES
JNJ
PFE
KO
O
MCD
CMI
AFL
KMB
WBA
56¢ to 61¢
24¢ to 26¢
36¢ to 39¢
$1.025 to $1.11
64.75¢ to 70¢
56.5¢ to 61¢
$1.30 to $1.40
56¢ to 60¢
73¢ to 78¢
41.75¢ to 44.5¢
75¢ to 80¢
30¢ to 32¢
33¢ to 35¢
19.1¢ to 20.25¢
89¢ to 94¢
97.5¢ to $1.025
41¢ to 43¢
88¢ to 92¢
36¢ to 37.5¢
8.93%
8.33%
8.33%
8.29%
8.19%
7.96%
7.69%
7.14%
6.85%
6.71%
6.67%
6.67%
6.06%
6.02%
5.62%
5.13%
4.88%
4.55%
4.17%
Low (below 4%) T. Rowe Price
Chubb
Main Street Capital
Exxon Mobil
AT&T
Wal-Mart Stores
Procter & Gamble
STAG Industrial
TROW
CB
MAIN
XOM
T
WMT
PG
STAG
52¢ to 54¢
67¢ to 69¢
18¢ to 18.5¢
73¢ to 75¢
47¢ to 48¢
49¢ to 50¢
66.29¢ to 66.95¢
11.5833¢ to 11.5¢
3.85%
2.99%
2.78%
2.74%
2.13%
2.04%
1.00%
0.72%

In 2016, fourteen DivGro stocks increased their dividends by more than 9%, while eight stocks had increases below 4%. Nineteen stocks had medium-sized increases (between 4% and 9%). The average of these 41 increases is 8.15%.

The following table shows DivGro holdings that did not pay higher dividends in 2016:

1-Year Increase Company Ticker Dividend Yield
None Eaton Vance Tax-Mnged Gl Div Eq Inc
Ford Motor Co
AGIC Eq & Convertible Inc Fnd
PennantPark Investment
EXG
F
NIE
PNNT
8.13¢
15¢
38¢
28¢
12.16%
4.95%
8.25%
14.62%

EXG and NIE are closed-end funds. I invested in these funds for income and diversification, not for dividend growth. PNNT announced a dividend cut of 10¢ per share, starting with its first dividend payment in 2017. I'll be closing my PNNT position soon. As for F, I'm boosting the stock's yield with covered calls, so I'm not too concerned about the company's decision not to increase its dividend.

One DivGro holding reduced its dividend in 2016:

1-Year Increase Company Ticker Decrease %Decr
Negative Nuveen AMT-Free Quality Municipal Income Fund NEA 6.69¢ to 6.2¢ 7.32%

NEA is a closed-end fund that pays monthly dividends yielding 5.55%. I'm not happy with the reduced dividend and I'm considering closing the position.

I like to see dividend increases of 7.5% or higher. In the following chart, DivGro stocks with increases of at least 7.5% are shown in orange.

I'm very happy about the outstanding increases from RAI, CSO, and VLO! Of course, such increases are not sustainable in the long run, but I'll celebrate them whenever they're offered!

Other Performance Measures

Below is chart showing annualized returns for stocks I've owned longer than one year, on average. General Dynamics Corporation (NYSE:GD) leads the pack with annualized returns of 45%, followed by Reynolds American, Inc (NYSE:RAI) with 41% and Altria Group, Inc (NYSE:MO) with 37%:

DivGro's average annualized return recovered nicely from 5.91% at the end of 2015 to 16.99% at the end of 2016. Last year, I reduced my exposure to energy stocks, which in 2015 were to blame for DivGro's poor performance.

On 31 December 2016, DivGro's internal rate of return was 11.93%, up significantly from -1.59% at the end of 2015.

DivGro's average YoC was 4.26%, up slightly from 2015's average YoC of 4.10%. Over time, as stocks I own pay higher dividends, DivGro's average YoC will increase. My goal is to achieve and maintain an average YoC of 12%.

Higher-yielding stocks currently dominate my YoC chart. I expect this picture to change in time, as dividend growth and the power of compounding from reinvested dividends kick in.

DivGro's payback increased from 7.98% for 2015 to 9.85% for 2016. Payback is the proportion of capital returned as dividends. Payback is an interesting statistic to track, and I consider it to be a reasonable measure of portfolio maturity.

MAIN dominates because of its higher yield (currently about 6%) and because it is one of my longest term holdings.

2016 Highlights

My personal highlight of 2016 was completing Piper, now officially nominated for an Academy Award for Best Animated Short. Creating the effects for Piper has been the most challenging thing I've ever attempted, but we had a wonderful team that worked long and hard to accomplish our visual goals. I feel blessed to have been part of it!

As for DivGro highlights, in 2016 projected monthly dividend income moved above $1,000 for the first time and I initiated an options trading strategy to boost dividend income. Dividend income in 2016 topped $15,000, while options income topped $7,700.

DivGro's page views increased from just under 370,000 at the beginning of 2016 to just under 660,000 at the end of the year. In 2016 I averaged about 800 page views per day compared to about 580 page views per day in 2015.

In 2016 I wrote 155 articles, including 64 premium articles for Seeking Alpha and 2 articles on The DIV-Net.

My most popular article in 2016 is one I published on 18 October at Seeking Alpha: Top Holdings Of Dividend ETFs (more than 26,000 pv's).

As for DivGro, the two most popular articles cover my options trading activity:

• 03 Nov: Options Update: October 2016 (Part 1) (1,320 pv's)
• 28 Nov: Options Update: November 2016 (1,259 pv's)

I find it quite interesting that so many readers are interested in options trading! In the last year or so, several dividend growth investors have started trading options to boost dividend income.

My all-time most popular article at DivGro is one in which I explain how I use Google Sheets to track my portfolio:

• 20 Jun'14: Tracking your DGI Portfolio (8,069 pv's)

The popularity of this article indicates that many DIY investors (like myself) continue to struggle with automatically downloading certain data into spreadsheets.

I hope to revisit this topic soon and, hopefully, provide more insight into how I track the stocks in my portfolio.

2017 Outlook

I've set some challenging goals for 2017, including a very aggressive goal of earning $8,400 in options income. Much of my activity in the second half of 2016 focused on preparing DivGro for options trading. I have more work to do, including transferring my taxable account from FolioInvesting to Interactive Brokers. Additionally, I'm consolidating our IRAs at FolioInvesting and bringing them into the DivGro fold.

I want to increase PADI to $14,400 and attempt to earn $12,960 in dividend income by 31 December 2017. This will be particularly challenging, as I'm planning to reduce new capital deposits to $1,000 per month. I'll continue to deposit premium article income from Seeking Alpha monthly and any "passive" income earned via Google Adsense biannually.

This year, I'm challenging myself to write 64 premium articles for Seeking Alpha and 6 articles for The DIV-Net. Additionally, I'll continue to publish non-exclusive articles at DivGro.

A special word of thanks to all my readers, especially to those that comment regularly and continue to encourage me! This community is amazing and I really love being part of it!

Thanks for reading!

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Disclosure: I am/we are long ALL STOCKS MENTIONED.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.