October 2017 Portfolio Review: This Market Is Spooky

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Includes: ABBV, ADM, BNS, CMCSA, CVS, D, EMN, GM, JNJ, KR, LUV, MGA, MO, O, PFE, QCOM, SKT, T, TD, TROW, UNP, VLO, WSM
by: New Div on the Block

Summary

The latest earnings season continues to buoy this ever-frothy market at regular record highs.

Though I didn't have much new cash to invest this month, I discuss why the portfolio ticked down.

A look at dividends collected in October, and what's ahead for November.

As Halloween ushers in the end of the month of October, investors don't seem to be spooked by blanket market overvaluation. Earnings season is in full swing again, and many blue-chip companies are reporting solid results that continue to keep the Dow, Nasdaq, and S&P floating at very high levels. Blowout earnings for tech giant Amazon (AMZN) in particular sent the Nasdaq index rocketing higher in the last week. For the year, the S&P is now sitting at gains of around 15%, well above the expected 9-10% average rate of return. The Nasdaq meanwhile, has nearly doubled that, now sitting at a 28% return YTD. Who knows when or how this train will slow down, but it feels pretty near impossible to be betting against the market at this point.

I don't have reliable comparison numbers for my own portfolio on YTD basis due to complications with changing brokers at the beginning of the year, but as of the earliest reliable comparison I have (4/28/17), the New Div on the Block portfolio is outpacing the S&P 500 at 14.35% total return to the S&P's 8.01% in the same timeframe. Nevertheless, this month was actually a slight down month for me, fueled most directly by a painful 15% decline for CVS Health (CVS) and also a 14% drop for AT&T (T).

Though I'm not in panic mode over either stock, I have to admit my frustration with CVS is growing. Part of that is on me for catching the falling knife much too early last year, but it's a been a learning opportunity and I'm willing to stay patient for the time being. I know the potential is there, though the recent news of a possible tie-up with Aetna (AET) adds a whole new layer of wrinkles to my original investment thesis.

In any case, let's take a look at the portfolio as a whole before I digress entirely.

Portfolio Snapshot

Company Sector Shares % Portfolio % Income Sector Weight Global BMI

Staples


13.8% 8.1%
CVS
21.369 4.72% 4.28%

Archer Daniels Midland (ADM)
25.5627 3.37% 3.27%

Kroger (KR)
35.1968 2.35% 1.76%

Altria Group (MO)
16 3.31% 4.23%


Materials


3.0% 5.9%
Eastman Chem (EMN)
10.1175 2.96% 2.06%


Telecoms


4.8% 2.6%
AT&T
44.0872 4.78% 8.65%
Tech 1.7% 17.6%
Qualcomm (QCOM) 10.3069 1.70% 2.35%
Industrials 8.9% 12.1%
Southwest Airlines (LUV) 36.2231 6.29% 1.81%
Union Pacific (UNP) 7.0368 2.63% 1.70%
Cyclical 16.6% 12.1%
General Motors (GM) 52.6294 7.29% 8.00%
Magna Int'l (MGA) 38.5716 6.79% 4.25%
Williams-Sonoma (WSM) 15.129 2.52% 2.36%
Health 18.1% 10.6%
AbbVie (ABBV) 25.4694 7.41% 7.24%
Pfizer (PFE) 46.2916 5.23% 5.93%
J&J (JNJ) 12.1524 5.46% 4.09%
Energy 6.6% 5.8%
Valero (VLO) 25.8094 6.57% 7.23%
Financials 18.2% 18.0%
Toronto-Dominion (TD) 35.2824 6.47% 6.57%
Bank of Nova Scotia (BNS) 25.4233 5.29% 6.23%
T. Rowe Price (TROW) 21.3541 6.40% 4.87%
Utilities 2.6% 3.1%
Dominion (D) 10.0972 2.64% 3.11%
REITs 5.9% 4.0%
Realty Income (O) 12.223 2.12% 3.10%
Tanger Factory Outlets (SKT) 50.4179 3.70% 6.91%

As I am still very much in the building stages of my portfolio construction, I am not too worried about the levels of variance from my targets as represented by the Global BMI breakdown. As I continue to build and add holdings, these numbers will even out and better reflect a diversified portfolio and one that includes holdings across all 11 GICS sectors.

At the end of the month, my current yield is 3.22% with a yield on cost of 3.66%.

Purchases & Sales

None.

Dividends Received

The first month of the quarter is always slow, as only 3 of my holdings (reliably) pay dividends on the JAJO schedule. It's nice to see a new face on this schedule though, as I received my first dividend from DGI stalwart Altria. I look forward to lots MO money in the years to come through the power of compounded reinvestment! In total I received a paltry $18.27 during the month of October, with the usual disclaimer that I received only partial dividends from BNS and so will report the full amount with next month's report.

November Preview

Though bargain-hunting holiday shopping is fast approaching, looking for deals and steals in the stock market seems a much taller order. I don't anticipate having any substantial cash to contribute to investment until December, but in a hypothetical world where I was looking for opportunities this month, here's a few starting points:

Comcast (CMCSA)

I talked about T in this section a few months ago and could probably do so again, but it's being covered ad nauseam on SA at this point and I want to see dividend clarity before I go after any more shares. In the meantime, though, on the content side of the media biz, Comcast looks relatively cheap these days. Though the company did report a miss on its recent earnings, one has to keep in mind that the comps to last year's Q3 are skewed by the Rio Summer Olympics; excluding that, revenue was up nearly 6%. Consumer cord-cutting, or relying exclusive on online content streamers like Hulu and Netflix (NFLX), is going to remain a headwind for Comcast and peers going forward, but the company's NBC Universal segment remains a strong growth opportunity. The current dividend yield is a modest 1.75%, but with strong growth rates of at least 10% per year each of the last 5 years.

Eastman Chemical (EMN)

An existing holding of mine, Eastman remains an under-followed strong performer that just posted another round of quarterly results blowing past analyst expectations. Eastman now expects full-year EPS to come in at the high end of its previously disclosed range, and is signaling revenue growth of 9-10%. This kind of quiet, standout performance is a nice addition to the traditional DGI model, as it can add a nice mix of diversification into a sector and a name that is hardly talked about in the community. Though EMN has appreciated nicely since I first bought it in March, analysts continue to see it as undervalued and I would have few qualms adding to my position with the right opportunity. The yield is currently sitting at 2.25%, and I'd be tempted to increase my stake should the it tick back up above 2.3%.

Which companies are you watching this month? Did you purchase anything in October? Add your ideas to my watch list, leave a comment below, and thanks for stopping by!

Disclosure: I am/we are long MGA, TROW, ADM, GM, CVS, BNS, T, LUV, TD, QCOm, VLO, ABBV, PFE, EMN, JNJ, O, SKT, WSM, KR, UNP, D, MO.

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.