My 89 Stock Portfolio Yield And Risk Evaluation - Playing With Fire?

by: RoseNose


The portfolio will be defined using 4 yield terms: High High, High, Low and Low Low Yield.

Credit rating and/or debt is shown for them all, as the yield on the portfolio is ~4% as of Q3 2017.

I also provide and test the 5-year dividend growth rate + current yield to determine total return, or what some call the Chowder Rule.

I evaluate and offer my plan for each group of yield types and actions I have taken.

Listed below is the 82 stock Rose Portfolio showing stock type and current yield for the price on October 29, 2017.

It is important you know your investment types and their particular attributes before you invest. I want to show you can invest in many stock types and still get growth, along with not just too much risk.

My stock types

C is common stock

C-f is common stock from a foreign country

CEF is Closed-End Fund

ETF is Exchanged-Traded Fund

The next 3 are RICs, or Regulated Investment Companies:

eR is Equity REIT (Real Estate Investment Trust)

mR is mortgage REIT

BDC is Business Development Company

Stock yield type

These are using my definition and reasoning with the 10-year T-bill near 2.4%. I define them as:

HHY, or High High Yield, is >4.5%

HY, or High Yield, is >2.5%

LY, or Low Yield, is >1.5%

LLY, or Low Low Yield, is less than 1.5% or no yield.

I have noted below this chart any changes I made for the month of October.

These are alphabetical and 9 stocks that I do not own at the broker appear at the end of the list out of order.

Name Ticker Stock Yield 10/29/17
Type Type Yield
AbbVie (ABBV) C HY 3.1
Automatic Data Processing (ADP) C LY 1.9
Amgen (AMGN) C HY 2.6
Alerian MLP ETF (AMLP) ETF HHY 5.8
Apple Hospitality REIT (APLE) eREIT HHY 6.3
Boeing (BA) C LY 2.2
Becton, Dickinson (BDX) C LLY 1.4
Bristol-Myers Squibb (BMY) C HY 2.6
Anheuser-Busch (BUD) C-f HY 3.2
Blackstone (BXMT) mR HHY 7.8
Cardinal Health (CAH) C HY 3
Celgene (CELG) C LLY 0
Cherry Hill Mortgage Investment (CHMI) mR HHY 10.6
Colgate-Palmolive (CL) C LY 2.3
Cummins Inc. (CMI) C LY 2.4
CorEnergy (CORR) eR HHY 8.4
Cisco (CSCO) C HY 3.4
CVS (CVS) C HY 2.9
Chevron (CVX) C HY 3.8
Dominion Energy (D) C HY 3.8
Diageo plc (DEO) C-f LY 2.4
Digital Realty Trust (DLR) eR HY 3.2
Gladstone (GAIN) BDC HHY 7.6
General Mills (GIS) C HY 3.8
Genuine Parts Company (GPC) C HY 3.1
W.W. Grainger (GWW) C HY 2.6
Home Depot (HD) C LY 2.1
Hershey (HSY) C LY 2.5
International Business Machines (IBM) C HY 3.9
Intel (INTC) C LY 2.5
Johnson & Johnson (JNJ) C LY 2.4
Kimco (KIM) eR HHY 5.9
Kimberly-Clark (KMB) C HY 3.5
Coca-Cola (KO) C HY 3.2
Lockheed Martin (LMT) C HY 2.6
Alliant (LNT) C HY 2.9
MasterCard (MA) C LLY 0.6
McDonald's (MCD) C LY 2.4
Medtronic (MDT) C LY 2.3
3M (MMM) C LY 2
Monroe Capital (MRCC) BDC HHY 9.6
Newtek (NEWT) BDC HHY 8.8
Nike (NKE) C LLY 1.3
New Residential Investment Corp. (NRZ) mR HHY 11.2
Omega Healthcare Investors (OHI) eR HHY 8.2
Occidental Petroleum Corp. (OXY) C HHY 4.7
Pfizer (PFE) C HY 3.6
Procter & Gamble (PG) C LY 3.1
Royal Dutch Shell-B (RDS.B) C-f HHY 5.9
Sabra Healthcare REIT (SBRA) eR HHY 7
Starbucks (SBUX) C LY 1.8
J.M. Smucker (SJM) C HY 3
Tanger Factory Outlet Centers (SKT) eR HHY 5.9
Southern Company (SO) C HHY 4.5
Simon Properties Group (SPG) eR HHY 4.7
STAG Industrial (STAG) eR HHY 5.1
STORE Capital (STOR) eR HHY 5.1
AT&T (T) C HHY 5.8
Teva Pharmaceutical (TEVA) C-f HY 2.6
Target (TGT) C HY 4.1
TriplePoint Venture Growth (TPVG) BDC HHY 10.4
Uniti Group (UNIT) HHY 13.8
Union Pacific Corp. (UNP) C HY 2.1
Visa (V) C LLY 0.7
V.F. Corp (VFC) C HY 2.6
Valero (VLO) C HY 3.6
Ventas (VTR) eR HHY 5
Verizon (VZ) C HHY 4.8
WEC Energy (WEC) C HY 3.1
W.P. Carey (WPC) eR HHY 5.9
Washington Prime Group (WPG) eR HHY 12.7
Exxon Mobil (XOM) C HY 3.7
Phillip Morris (PM) C HY 4
Duff & Phelps (DPG) CEF HHY 6.8
Altria (MO) C HY 4
Xcel (XEL) C HY 2.9
Madison Gas (MGEE) C LY 1.9
PepsiCo (PEP) C HY 2.9
Kraft-Heinz (KHC) C HY 3.2
Mondelez (MDLZ) C LY 2.2
MetLife (MET) C HY 2.9

Changes of note for the month of October:


  • BP plc (NYSE:BP), an HHY stock - keeping RDS.B. Just wanting to consolidate and decrease Energy exposure.
  • WPG - preferred H (I collected the dividend and sold the small very small position, which I most likely would have kept if I had owned a larger position). This was also HHY.

New additions

  • CELG - No yield stock or LLY. I am looking for growth.
  • IBM - HY 4% at purchase time.
  • CHMI - HHY 10.5% - mREIT.
  • SBRA - HHY 7% - an eREIT.
  • Mystery 6% - HHY.

Added to existing positions in

  • HSY
  • INTC
  • KMB
  • KIM
  • OHI
  • TPVG

The chart does not show the addition of even more HSY stock on October 31st and selling a few shares of APLE. I will explain the APLE trim a bit later in the article.

Here is a summation by number of stocks in each yield group by sectors:

The 7 mystery stocks that are HHY are subtracted out near the bottom of the chart. I wanted you to see the distribution of yield types by sectors. Most HHY are in the Financial and/or REIT sectors - they are RICs.

Next is an overview of the stocks by % Portfolio Value and % Income for 2017 and 2018 estimates.

Note the totals are not perfect, as I have some options and cash running around somewhere.

Am I playing with fire with so many stocks ~70% residing in the top yield categories in the portfolio by value.

To determine if there is a lot of risk, let’s take a closer look at the attributes of these stocks too. Please note the dividends are growing from 2017 to proposed 2018 in all cases.

Yield + 5-year dividend Growth Rate Test - which many call the Chowder Rule.

Here is a listing of the HHY stocks themselves and if they pass that rule, and what my plan might be for those that do not pass the rule. Credit ratings are included to show how some high yield stocks can have nice investment-grade credit ratings as well.

Most analysts do not cover the RICs - only a few have credit ratings. I show debt/cap from F.A.S.T. Graphs as numbers here for those that are not covered by M* or S&P.

Note, investment credit rating is BBB- or higher. The next step down from BBB- is BB+, just meaning the fewer the letters, the lower the credit rating.

I have learned, generally speaking, lower debt, and with a credit rating of investment grade, makes for a lower yield rate too. That is, lower risk means lower yield. Thus, when higher risk is involved, you will get a higher yield.

You should always look for being paid nicely for taking more risk.

My HHY Evaluation and Action

These investments, being HHY, only need an 8 to get a Pass, and many already offer that with the yield alone. Many offer some dividend growth as well, which you see in the above chart. Most pass and then some, so I am delighted for the most part.

T and VZ are the most frustrating in price decline recently, but they still are quality holdings. I would love to have them increase their dividend growth.

The worst credit-rated with a B is UNIT. I think most of you know it is a speculation only, and I have a very small position in it. I am getting paid well to take the risk with ~14% yield.

I did trim some APLE because of this evaluation. I see it is only performing as a ~6% bond. I want to see a dividend raise, or I will be exiting it completely when I know the alternative investment I want. It is not dangerous or risky right now, so I am in no hurry.

My adventure in AMLP has been extremely interesting, and I think I will exit it if I can with some more price appreciation. I see some of the MLPs in it have raised dividends, which could fuel an upward stock price advance. I admit to being intrigued with it being an ETF of MLPs and no K-1 tax form. Its yield is still quite nice, but I am pleased with just staying in RDS.B right now.

The Yield + Dividend growth rate number for this >2.5% yield class is 12.

Utilities and telecoms get a number of 8, so they pass at that level.

My evaluation of HY and the plan

BMY was purchased only for capital gains in the Roth. I have known for some time that the DGR is way too low to please me as a dividend growth investor. I should be selling it with options that end in early 2018.

Note, KMB, to some extent, and PG are overpriced and do not pass for that reason. As KMB has reached 3.5% yield, I have been adding more, and did so with GIS as well last month.

DLR has a low yield for an equity data center REIT, but has nice growth. Normally, an equity REIT should pass on its yield alone - DLR does so on its growth. I watch it closely and have been trimming it on and off for overvaluation.

GPC is one I add to when it goes nearer to $80 and 3% yield. A great quality stock.

VFC - I have a sad story to tell here. I have options to sell VFC that will be completed in 2 weeks unless the price falls lower. I think it is overpriced even now. I did buy it cheaply and will make nice capital gains. I do need to consolidate a bit nonetheless. I believe I will be funneling the cash over into GPC or even TGT, though I've not decided as yet. I would love to put the cash into MCD, but it is also overpriced.

Low Yield here is <2.5%. Lately, with low interest rates, these have not been low-yield.

Low Low Yield is <1.5%.

Evaluation and plan for LY and LLY

Know that with rising interest rates, some of these might see price decline themselves, unless earnings and dividend raises can support the price. Having a lower yield, they need more dividend growth and a number of 15 to pass.

Again the utilities only need an 8. Many have been purchased for quality alone, and some trade at 2018 or even 2019 valuations.

JNJ, MCD, BDX, MMM and some utilities are just plain overpriced.

ADP is involved in a proxy fight, and the price has risen to an unhealthy level.

DEO is a foreign stock and is also a bit pricey now.

HSY has been the only one I have been willing to add to, as it has such a nice dividend growth rate and is close to passing.

MDLZ finally has a new CEO, and I am hoping for better from it. I will hold.

UNP might be one I add to, but I haven't decided as yet.

The Rose Portfolio is a winner and gets to pass this test

This is a quality portfolio. However, it does possess some risk, and I am aware of it. I love doing the evaluation to help me see any risk that I might have.

The Rose Portfolio plan

Hold the RICs until they are not safe or offer too much risk.

I belong to The Wheel, and I know which authors to read for my risk assessment and warnings. I am well aware I have enough of these financial holdings, and continue to add to my quality consumer staples, healthcare and other sectors as they fall to a value I appreciate. This is a part of diversification as well, and some might consider it a form of hedging, but that is an entirely different topic.

I have 89 stocks and will never say no more, but I will say to all: Know your investments and their attributes, have places you can turn to or contributors you trust to aid in learning.

Build a quality foundation first, watch the dividend grow, and then go speculate with extra cash.

If you need income, then the plan may be different, but please have a plan.

I have done most of this through my investing life, and now I am having some real great fun. Know what? I continue to learn every day, and investing continues to amaze me.

I wish you all happy investing.

Disclosure: I am/we are long JNJ, NRZ.

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.