A Real Dividend Growth Machine: Q2 2017 Portfolio Review

Includes: GILD, VINIX
by: Dividend Growth Machine


Review of recent results from a real dividend growth stock portfolio.

Discussion of portfolio changes in the second quarter of 2017.

Example of how a dividend growth investor manages his portfolio.


The purpose of this article is to review my investing progress in the second quarter of 2017. I follow a value-oriented dividend growth investing strategy that involves buying attractively valued stocks of companies that consistently pay and grow their dividends. My long-term investing goals are to: (1) build a sustainable and rising dividend income stream that beats inflation; and (2) preserve and grow my capital by attaining a satisfactory total return on my investments. In this article, I will provide an update on my progress toward achieving these goals since my previous review. As always, I will be presenting real results from a real portfolio involving real money.

Input To The Machine

New capital represents the input to my dividend growth machine and allows me to buy stocks. The figure below shows quarterly contributions of new capital to my investment accounts since 2012:

I contributed $3,000 in new capital early in Q2, increasing my year-to-date total to $15,000 and keeping me on track to reach my goal of $25,000 by the end of the year. As foreshadowed in my previous review, my contributions tapered off into the summer period during which I am not paid (as a professor, my salary is paid out during the academic year from mid-August to mid-May). However, I should be able to make a modest-sized contribution near the end of Q3, followed by larger contributions in Q4.

Parts Of The Machine

Dividend growth stocks represent the parts of my dividend growth machine. The table below shows the composition of my portfolio at the start and the end of Q2 2017, with various changes highlighted.

A breakdown of all transactions is provided in the following table:

It is obvious that I was relatively inactive during Q2. One reason is the aforementioned reduction in new capital contributions, but the main reason is that I have not come across much in the way of attractively valued dividend growth stocks recently, especially outside of the retail and healthcare segments of the market (I already have considerable exposure to those areas). Consequently, I made just one transaction, which occurred in early April:

  • I made another small increase to my position in large-cap biotech company Gilead Sciences (GILD) when its stock price dropped below $66, lowering my cost basis yet again. My opinion of the company has not changed: There continues to be weakness in the HCV franchise, but strength in HIV products. The stock continues to be undervalued (with some justification), but the modest uptick in the stock price in the past month makes me wonder whether sentiment is slowly starting to change. At this point, I am content to sit on my position and watch what develops going forward.

I made one purchase and zero sales during Q2, keeping with my desire to have low portfolio turnover. Transaction fees are averaging 0.33% of my total costs year to date, consistent with my goal of 0.4% or less.

Besides adding or removing parts from my machine, I want to make sure all the parts are running smoothly. I monitor the operating results of my companies and stay on the lookout for dividend increases (or decreases). Thus far in 2017, there have been dividend increases for 26 of the 38 stocks in my portfolio. The mean and median increases have been 7.3% and 5.6%, respectively.

Output Of The Machine

Dividends and capital gains represent the output of my dividend growth machine, all of which is selectively reinvested when sufficient funds are available. The figure below shows the dividends I have received.

I received $2,090 in dividends in Q2 2017, which is a 25.0% increase over the $1,672 that I received in Q2 2016. The increase reflects a combination of organic dividend growth, selective dividend reinvestment, and new capital investment. My year-to-date dividend total is $3,769. At the end of Q2 2017, my forward 12-month dividend total was $7,413, already putting me close to my year-end goal of $7,500. Evidently, my goal was somewhat conservative, and it will be interesting to see how much I exceed it.

The figure below shows end-of-month portfolio values and the cumulative amount of new capital added since the start of 2012.

My portfolio increased in value by nearly $14,000 in Q2 to finish at $294,035. Most of that gain came from organic growth and dividends. Barring a major downturn in the stock market, I should eclipse the $300,000 mark by the end of the year.

For completeness, I will also summarize the investments outside of my dividend growth machine. I participate in retirement plans with my employer, for which I have allocated 100% of all contributions to the Vanguard Institutional Index Fund (VINIX), which tracks the S&P 500 index and has an expense ratio of 0.04%. The combined value of both plans was $61,369 at the end of Q2. I also have a Health Savings Account to which I contribute each year and it ended the quarter with a value of $11,756.

Outlook For Q3 2017

As noted earlier, new capital will be contributed mostly near the end of Q3, once the next academic year is underway. I recently received a 2.8% pay raise (higher than last year), so that ought to provide a little bit of extra new capital going forward. Moreover, due to my lack of purchases in May and June, I have accumulated over $6,000 in cash to invest at some point. I have yet to make any purchases in July, but there are some stocks that are getting to valuations where I would consider buying them. I do not currently have any sales planned. This level of inactivity might seem boring to some people, but I do not think it is unusual for a value-minded dividend growth investor in today’s market. Even though I am in my sixth year of this investing strategy, I continue to learn the importance of patience. Good luck with your investing and thanks for reading!

If you like these portfolio reviews, please consider following me by clicking on the button at the top of the page. I write these reviews to help chronicle my investing progress and to provide an example of dividend growth investing in action that might be educational for other investors.

Disclosure: I am/we are long ALL STOCKS IN PORTFOLIO TABLE.

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.