5%+ Dividend Yield Portfolio: Pruning My Portfolio To Improve Returns And Lower Fees (July 2017 Review)

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Includes: AMJ, DEM, EWA, FDD, FGD, FRA, HDWX, IEP, IRM, JHDG, JSD, QAUS, REET, SDIV, SPYD, TOT, VLO
by: Dividend Disco

Summary

Another positive returns month, but I’m still lagging the S&P 500 for the year.

I’m positioning myself more "risk-on" to match the mood of the market.

I’m also reducing total holdings to focus on my best ideas (I closed 20% of my positions in July).

Outlook

Strong, steady returns continue to characterize the market. If your portfolio isn’t in a "risk-on" position, then you are probably suffering.

Now, I’m not saying it is time to throw caution to the wind and take the riskiest positions that you can find, but having a strategic plan that embraces risk-taking will likely serve you well through at least the end of this year. Overall, I think the general trend will be positive as robust profits and still-low interest rates will fuel buyers (with a slight wild card from Washington making something happen on taxes - note: I doubt we will see tax reform, but I think a modest tax cut should be the base assumption). But it is important to remember that the "stock market" is really a "market of stocks," each having its own story, trajectory, successes and breakdowns. My personal crystal ball sees a rotation from tech and financials (both have gotten quite rich) and towards healthcare (benefiting as the storm clouds of political action seem to have weakened, for a while at least) and energy (as crude prices have likely bottomed for 2017). Good values are still available in this market (though harder to find), so having a strategy and process is as important as ever. I will remain a contrarian focused on value stocks (in this time of strong growth returns) as I think that mean-regression is a proven phenomenon over longer time periods. And the strong dividend yields that I collect continue to pay me about 5% annually to be patient.

To me, "patient" does not mean "inactive." As my readers have noted, I hold a lot of positions for a portfolio my size (especially a lot of ETFs with overlapping holdings). While I believed in each of these positions when I initiated them, I felt that this was a good time to go through each of my holdings and make sure that I would continue to hold my best ideas. This resulted in a busy July for me (trading wise) as I took my readers’ advice to lessen my number of holdings to eliminate overlapping ETF strategies and redeploy funds. It was particularly painful for me since I was generally pretty happy with my positions (otherwise I would have sold them long ago), but in doing the research on my own holdings, I was able to cut fees and increase dividend yields with mostly the same underlying holdings. I would highly encourage all of you to do the same (especially if you own a lot of ETFs or mutual funds like I do). There have been a lot of changes and new fund introductions in the ETF and mutual fund space, so I bet you will be surprised at what you learn in the process and happy with any moves to prune your portfolio.

June 2017 Review

June was a productive month for my portfolio as I managed a solid 0.6% gain; however, my 4.0% return for the year is badly lagging the "risk-on" 11.6% return of the S&P 500. It is hard not to be envious of the great year that growth stocks are having, but value stocks’ time will come, so I’ll stay patient (and keep cashing my dividend checks).

As is typical of July, my realized dividends were light at only $664 for July 2017, but my YoY dividends are up 9.5%! For the 12 months ending July 2017, my portfolio delivered $12,200 in cash to me (a realized yield of 4.5%). I remain confident that I will make my $13,000 2017 goal even with my sizable cash and short positions. Fear and greed are hard to balance, but I am happy with where I am overall. My yield focused strategy still makes the most sense to me as paper gains may come and go but cash is forever!!

Background

Since I write for Seeking Alpha primarily to improve my own investment portfolio, I think it is important that you know my objectives. Please consider this context when you look at any advice I give and form your own opinions based on your needs and desires.

GOAL: Attractive, risk-adjusted, absolute returns (5-15% annually) over a long-term time frame while minimizing capital loss and extreme drawdowns.

STRATEGY: "Enhanced" dividend growth or DGI strategy that focuses on a core of diversified holdings (ETFs and individual companies - my general screening criteria: growing companies (YoY EPS growth >0%) with attractive valuations (PEG <1.5 and P/E <20) and strong and safe dividends (yield >4%, payout <90%, and market cap >$500MM) - no tobacco stocks or micro caps) supplemented with return-enhancing tools like hedges (derivatives and shorts), commodity exposure, etc., as well as some crazy picks.

BALANCE: Blend of ETFs (domestic and international) and individual companies (where there is a compelling reason to own). Seek to not overweight any one sector unless there is a compelling reason to do so (although the nature of these investments leads me to be overweight in traditional dividend paying sectors like financials, REITs, and energy).

Note: I violate these guidelines constantly, so please call me out on it!

Portfolio Composition as of July 31, 2017

Portfolio Moves in July 2017

New Positions

SHARE BUY – iShares MSCI Australia ETF (NYSEARCA:EWA): Bought 200 shares of this Australian ETF at $21.41 on July 10.

  • Reasoning: Australia has seen some weakness of late, but has a strong economy with a history of strong dividends (though the housing market might be overheating).

SHARE BUY – First Trust Dow Jones Global Select Dividend Index Fund (NYSEARCA:FGD): Bought 100 shares of this global dividend ETF at $25.63 on July 20.

  • Reasoning: This is my top global dividend ETF right now due to its high yield (4.1%) and modest expense ratio (0.58%), so I have sold other positions to buy more FGD.

SHARE BUY – Iron Mountain (NYSE:IRM): Bought 100 shares of this data storage REIT at $34.85 on July 25.

  • Reasoning: Iron Mountain shareholders have had a tough year, but I think there is strong dividend (6.3%) and value to be had here (and Brad Thomas agrees).

SHARE BUY – iShares Global REIT ETF (NYSEARCA:REET): Bought 100 shares of this global REIT ETF at $25.75 on July 26.

  • Reasoning: This is my top REIT ETF right now due to its high yield (5.1%) and low expense ratio (0.14%), so I have sold other positions to buy more REET.

SHARE BUY – SPDR S&P 500 High Dividend ETF (NYSEARCA:SPYD): Bought 200 shares of this U.S. dividend ETF at $35.54 on July 19.

  • Reasoning: This is my favorite U.S. dividend ETF right now due to its high yield (4.5%) and low expense ratio (0.12%), so I have sold other positions to buy more SPYD.

Exited Positions

SHARE SALE – JPMorgan Alerian MLP Index ETN (NYSEARCA:AMJ): Sold all 100 shares of this MLP ETN at $30.05 on July 25.

  • Reasoning: I have been underwater on this ETF since the crude crash in 2015, but by holding and collecting dividends, I managed to lose less than 10% on this position. But my readers were right when they said I need to focus on winners and not the sunk cost of past losers, so I sold this position to redeploy funds to more promising ones.

SHARE SALE – WisdomTree Emerging Markets High Dividend Fund (NYSEARCA:DEM): Sold all 200 shares of this emerging markets ETF at $40.75 on July 10.

  • Reasoning: I listened to my readers who encouraged me to winnow down my positions to only my best ideas, so I sold this good (but not great ETF) to redeploy funds to more promising ETFs.

SHARE SALE – First Trust STOXX European Select Dividend Index Fund (NYSEARCA:FDD): Sold all 200 shares of this European ETF at $13.18 on July 12.

  • Reasoning: I listened to my readers who encouraged me to winnow down my positions to only my best ideas, so I sold this good (but not great) ETF to redeploy funds to more promising ETFs.

SHARE SALE – BlackRock Floating Rate Income Strategies Fund (NYSE:FRA): Sold all 200 shares of this bank loan ETF at $14.15 on July 10.

  • Reasoning: I listened to my readers who encouraged me to winnow down my positions to only my best ideas, so I sold this good (but not great) ETF to redeploy funds to more promising ETFs.

SHARE SALE – Goldman Sachs Group Preferred A (GS+A): Sold 200 shares of this floating rate bank preferred ETF at $24.15 on July 5.

  • Reasoning: I listened to my readers who encouraged me to winnow down my positions to only my best ideas, so I sold this bank preferred at a 25% profit to redeploy funds to more promising ETFs.

SHARE SALE – SPDR S&P Inter Dividend Cuncyhedg ETF (NYSEARCA:HDWX): Sold all 50 shares of this international hedged ETF at $43.93 on July 31.

  • Reasoning: I think this was a great fund, but they closed it.

SHARE SALE – WisdomTree Japan Hedged Quality Dividend Growth Fund (NYSEARCA:JHDG): Sold all 100 shares of this Japanese ETF at $26.20 on July 10.

  • Reasoning: I made a quick 5% gain and wanted to redeploy into ETFs that better align with my dividend strategy.

SHARE SALE – Nuveen Short Duration Credit Opportunity Fund (NYSE:JSD): Sold all 100 shares of this bank loan ETF at $17.75 on July 27.

  • Reasoning: I listened to my readers who encouraged me to winnow down my positions to only my best ideas, so I sold this good (but not great) ETF to redeploy funds to more promising ETFs.

SHARE SALE – Icahn Enterprises (NYSE:IEP): Sold all 38 shares of Carl Icahn’s trading conglomerate at $53.55 on July 26.

  • Reasoning: I cut loose this sucker yield to focus on more sustainable business models and dividends streams.

SHARE SALE – SPDR MSCI Australia StrategicFactors ETF (NYSEARCA:QAUS): Sold all 100 shares of this Australian ETF at $50.95 on July 10.

  • Reasoning: I like the Australian market, but this ETF is closing due to small fund size.

SHARE SALE – Global X SuperDividend ETF (NYSEARCA:SDIV): Sold all 200 shares of this global dividend ETF at $21.95 on July 26.

  • Reasoning: I listened to my readers who encouraged me to winnow down my positions to only my best ideas, so I sold this good (but not great) ETF to redeploy funds to more promising ETFs.

SHARE SALE – Total (NYSE:TOT): Sold all 100 shares of this French oil major at $49.31 on July 12.

  • Reasoning: I cut loose this French oil major to focus on the better yield and positioning of Shell (NYSE:RDS.A) (NYSE:RDS.B).

SHARE SALE – Valero Energy (NYSE:VLO): Sold all 50 shares of this large U.S. independent oil major at $68.55 on July 25.

  • Reasoning: While I like VLO’s fundamentals, it is trading near record highs at a time when there are many cheaper options in the energy sector, so I took a 5% profit and concentrated my funds elsewhere.

Final Thoughts

Managing a stock portfolio has many analogies with tending a garden. It takes monitoring, weeding, and pruning to be successful. But just like a garden, overwatering and over-pruning will destroy returns and raise costs - so be judicious and follow a long-term strategy that you are comfortable with. For my portfolio, I reduced my portfolio by nine (net) positions and I couldn’t be happier with the results in terms of lowered fees and improved yields. I also get the peace of mind that comes from having conducted a thorough examination and reaffirming of my holdings. But were there any great trades or positions that I missed?

Comments encouraged.

Disclosure: I am/we are long ALL POSITIONS AS MENTIONED.

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: The author is an amateur who has a history of getting calls both right and wrong with zero predictive power. Trade at your own risk and never rely solely on this author's opinion. Also, as I have no knowledge of your circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended.