This is a brief portfolio update. In recent months, some of the higher quality, lower-yielding blue chips have appreciated nicely and have been trading near 52-week (or all time) highs. I've been weighing the virtues/risks of trimming some of these and broadening the portfolio's diversification.
I took advantage of market highs to rebalance the portfolio.
No matter how much I like my favorite companies, such as Johnson & Johnson (JNJ), Microsoft (MSFT) and 3M (MMM), I seem to have an internal guidance system that makes me cautious when a holding becomes more than 3.5% of the portfolio. I learned very early on that diversification is an important component of portfolio management. Each investor must determine his or her comfort level, and for better or for worse, my "ceiling" seems to be around 3.5% per holding.
Prior to rebalancing on July 13-14, JNJ and MMM were each 3.72% of the portfolio and MSFT was 3.64%. After rebalancing, Apple (AAPL) is now the largest position at 3.47%. MSFT is now 3.39%, Pfizer (PFE) is now 3.11%, JNJ is now 3.09% and MMM is now 2.96%. The table below gives you the "before and after" percentages of the entire portfolio.
I added Exxon and Target to the portfolio.
Over the past few months, Exxon (XOM) and Target (TGT) have worked their way to the top of my watch list. My wife owns both of these in her portfolio, but this is my initial investment in TGT. When Target's website was compromised in 2014 and their ill-fated venture into Canada was collapsing, I thought I might be able to pick up shares at a 4% yield. I was ready to buy, but the company's share price held up better than I expected. So, I moved on.
(Ten-year graph from Seeking Alpha)
Target has suffered along with many other retailers due to changes in the sector. It recently traded as low as $48.56, which was a 38.8% decline. In my recent study of TGT, I was helped by various Seeking Alpha contributors, including the July 17, 2017 article by Bank on Insight. I made the decision to take a position in TGT on the evening of July 12. Early on July 13, Target raised their guidance for Q2 2017 earnings per share above the high end of its previous guidance range of $0.95 to $1.15. After a long period of bad news about sales and earnings, the market welcomed this announcement. On the night of July 12, I told my wife that I had decided to add TGT. My target price for Target was $49.95, which seemed appropriate for a retailer. On the morning of July 13, I told her the stock was up $3 in pre-market trading. I did not buy shares that day, but on July 14 I made an initial investment at $53.57. Target is now 1.24% of the portfolio. On the same day, I trimmed my exposure to Walmart (WMT) from 3.21% to 2.40%.
During the oil crisis, Exxon dipped into the low $70s in the summer and fall of 2015. By November, 2015, XOM quickly recovered to the mid-$80s before falling back to the mid-$70s by year-end 2015. The stock staged a strong 18-month recovery to the mid $90s by July, 2016. By the fall of 2016, the price was in the low to mid-$80s before rallying to the low-$90s by year-end. In 2017, Exxon has traded between the high $70s and the mid $80s.
(Ten-year graph from Seeking Alpha)
I previously owned shares of XOM beginning in August-September, 2015, buying shares ranging in price from $69.62 to $73.19. My cost basis was $70.87. I closed the position in January, 2016 at $77.02, thus missing the strong rally that culminated in July, 2016. XOM remained on my watch list.
Exxon is well-covered by Seeking Alpha contributors. Among many excellent recent articles, one catalyst for my decision to re-establish a position in XOM was the June 22, 2017 article by Simply Safe Dividends.
During the course of 2017, Exxon has traded in a relatively narrow range (compared with the up-and-down spikes of recent years). The oil business continues to be volatile due to a variety of factors, but I've watched XOM navigate this market with confidence. As part of the portfolio rebalancing, I added shares of XOM on July 14 at $81.32. XOM is now 1.89% of the portfolio.
Two under-represented sectors received a boost.
The addition of Target raised the consumer discretionary portion of the portfolio from 4.4% to 5.5%, and the addition of Exxon lifted energy sector exposure from 3.6% to 5.5%.
Target has a Standard & Poor's credit rating of A, while Exxon is rated AA+. The company lost its AAA rating during the oil crisis, leaving just JNJ and MSFT as the only two companies with that highest rating.
Target and Exxon are both Dividend Champions. TGT has raised the dividend for 50 consecutive years while XOM has raised the dividend for 35 consecutive years.
Diversification was enhanced.
The addition of TGT and XOM puts the portfolio at 40 common stocks (including real estate investment trusts), 2 master limited partnerships, 1 business development company, 1 closed-end fund and 7 exchange-traded funds. A Q2 2017 portfolio review was included in my July 5, 2017 article about Genuine Parts (GPC). Here is a simplified table showing the current portfolio allocation.
|Holding||Ticker||Prior Allocation||Current Allocation|
|Common Stocks & REITs|
|Johnson & Johnson||JNJ||3.72%||3.09%|
|Procter & Gamble||(PG)||3.08%||2.74%|
|Royal Bank of Canada||(RY)||2.43%||2.45%|
|Automatic Data Processing||(ADP)||3.01%||2.36%|
|Simon Property Group||(SPG)||2.00%||2.06%|
|International Business Machines||(IBM)||1.99%||1.97%|
|Pattern Energy Group||(PEGI)||1.97%||1.95%|
|Brookfield Infrastructure Partners||(BIP)||1.90%||1.88%|
|Tanger Factory Outlets||(SKT)||1.83%||1.87%|
|Hannon Armstrong Sustainable Infr||(HASI)||1.87%||1.85%|
|National Retail Properties||(NNN)||1.79%||1.83%|
|Brookfield Renewable Partners||(BEP)||1.74%||1.76%|
|MLPs and BDC|
|Enterprise Products Partners||(EPD)||1.92%||1.93%|
|Magellan Midstream Partners||(MMP)||1.64%||1.68%|
|Boulder Growth & Income Fund||(BIF)||1.62%||1.61%|
|Vanguard REIT Index Fund||(VNQ)||1.92%||1.93%|
|Vanguard High Div Yld Index Fund||(VYM)||1.38%||1.38%|
|Vanguard FTSE Emerg Mkt Ind Fnd||(VWO)||0.97%||0.99%|
|Vanguard FTSE Dev Mkt Ind Fnd||(VEA)||0.98%||0.98%|
|Vanguard Utilities Index Fund||(VPU)||0.93%||0.93%|
|Vanguard Total Stock Mkt Ind Fnd||(VTI)||0.88%||0.88%|
|Vanguard Mid-Cap Value Index Fnd||(VOE)||0.24%||0.24%|
In addition to new positions in Target and Exxon, I added some shares of Cisco, General Electric and Southern Company. I sold a few shares of Walmart, Johnson & Johnson, Automatic Data Processing, 3M, Coca-Cola, Procter & Gamble and Merck.
This rebalancing action increased the portfolio income by 2.3%.
I'm always happy to learn from the Seeking Alpha community. Your responses enrich our conversation. What's your view of Target and Exxon?
My goal is to write at least one article a week, usually about a company in my retirement portfolio. You can access a list of previous articles here.
To be notified of future articles on a real-time basis, just click "Follow" at the top of this article, then choose "Follow this author" and "Real-time alerts."
It's not my intent to advocate the purchase or sale of any security. I offer articles and blogs to provide ideas for stocks to study and to share a journal of my effort to design and build a retirement portfolio that puts a priority on relative safety, a history of dividend growth and solid future prospects. Your goals and risk tolerance may differ, so please do your own due diligence.
Disclosure: I am/we are long AAPL, MSFT, PFE, JNJ, MMM, CSCO, PG, GE, KO, MRK, RY, TD, WMT, ADP, GPC, BCE, SO, SPG, O, NNN, SKT, VTR, PPL, PSA, IBM, GWW, VTC, DUK, BIP, PEGI, XOM, TXN, HASI, BEP, WPC, APLE, TGT, WEC, AGR, UL, EPD, MMP, MRCC, BIF, VTI, VEA, VWO, VYM, VOE, VNQ, VPU.
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.