January 2018 Portfolio Review: A New Dimension

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Includes: FB, GLW, O
by: New Div on the Block
Summary

The first month of the new year was marked by the latest corporate earnings cycle, which has been affected by new tax laws.

Except for the last few trading days of the month, last year's upwards momentum has remained intact.

A look at purchases, sales, and dividends collected in January, and what's ahead in February.

The first month of 2018 is already in the books, and even a brief government shutdown couldn't slow down this market freight train. After peaking at almost a 7.5% gain for the month (!), a couple of cool-off days left the S&P sitting higher by 5.62% since January 1. Investors have been focusing primarily on corporate earnings, many of which were affected by one-time tax charges under new laws passed by the administration. Despite the proliferation of GAAP losses by companies all across the market, lowered corporate tax rates and repatriation of foreign-held cash and equivalents are expected to be positive catalysts for future earnings in the quarters to come.

On the other side of the coin, the onset of a rising rate environment is putting downward pressure on high-yield investment sectors like REITs and Utilities. Vaunted monthly dividend payer Realty Income (O), for example, briefly touched a 5% forward yield on January 30 for the first time in months. It's not all macro news though. In the utilities sector, popular DGI choice Dominion Energy (D) fell as much as 7.5% as investors digested the company's decision to pursue an acquisition of troubled South Carolina utility Scana (SCG).

Overall, the New Div on the Block portfolio gained only 1.74% in January, lagging the S&P 500 by just under 3%. Given that my portfolio time horizon is several decades, individual month performance is not going to be overly concerning to me, but it is worth thinking about what components of my portfolio are contributing (or not contributing) to its overall success. So, without further ado, let's take a look at how things stand.

Portfolio Snapshot

Company Sector Shares % Portfolio % Income Sector Weight Global BMI
Staples 13.1% 8.0%
CVS Health (CVS) 21.5261 4.44% 3.96%
Archer Daniels Midland (ADM) 25.7606 2.90% 3.03%
Kroger (KR) 35.366 2.82% 1.63%
Altria Group (MO) 16.1497 2.98% 3.92%
Materials 2.7% 5.9%
Eastman Chem (EMN) 10.1759 2.65% 2.10%
Telecoms 4.4% 2.6%
AT&T (T) 44.7301 4.39% 8.22%
Tech 6.8% 17.5%
Qualcomm (QCOM) 10.3973 1.86% 2.18%
Facebook (FB) 10 4.90% 0.00%
Industrials 8.3% 12.2%
Southwest Airlines (LUV) 36.2929 5.79% 1.67%
Union Pacific (UNP) 7.0714 2.48% 1.73%
Cyclical 16.1% 12.5%
General Motors (GM) 53.1026 5.91% 7.42%
Magna Int'l (MGA) 38.732 5.81% 3.92%
Williams-Sonoma (WSM) 15.2565 2.05% 2.19%
Comcast (CMCSA) 21.0766 2.35% 1.47%
Health 16.5% 10.6%
AbbVie (ABBV) 25.6421 7.55% 6.70%
Pfizer (PFE) 46.6974 4.54% 5.84%
Johnson & Johnson (JNJ) 12.2241 4.43% 3.78%
Energy 6.6% 5.9%
Valero (VLO) 26.0174 6.55% 7.65%
Financials 16.5% 18.4%
T. Rowe Price (TROW) 21.4691 6.29% 4.50%
Toronto-Dominion (TD) 35.8086 5.71% 6.42%
Scotia Bank (BNS) 25.6302 4.47% 6.05%
Utilities 4.0% 2.8%
Dominion 20.1938 4.05% 6.20%
REITs 5.1% 3.9%
Realty Income 12.3635 1.72% 2.99%
Tanger Outlets (SKT) 51.1216 3.38% 6.44%

As I am still very much in the building stages of 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 2.85%, with a yield on cost of 3.54%.

Purchases & Sales

1/12/18 BUY 10 shares of Facebook @ $177.50

Though 2017 was a good year for the New Div on the Block portfolio, as it was for nearly every portfolio, one of the biggest factors hindering further growth was my lack of exposure to pure-play growth stocks. Though these stocks do not fit the traditional DGI model, a well-diversified portfolio is made up of more than just one kind of stock. Purchasing shares of Facebook addresses this gap, and increases my exposure to the Technology sector, my biggest laggard in sector size. Of the four FANG stocks, I found Facebook to be of the most compelling value, especially given its exceptional FCF and impressive revenue growth. I am excited to see what FB's shares can offer to my portfolio's performance in the months and years ahead.

Dividends Received

Though the first month of the quarter is always slow, the first quarter of the year is often filled with annual dividend raises, and that's always great news for dividend growth-focused investors like me. So, in addition to receiving $26.69 in dividends from five different companies, I was also able to celebrate three dividend increases in January!

Company New Dividend % Inc
Valero $0.80 ($3.20) 14.3%
Comcast $0.19 ($0.76) 20.6%
Realty Income $0.219 ($2.63) 3.1%

Excluding a $4.53 dividend from Southwest Airlines, which is only paid in the first month of the quarter at the beginning of the year, this quarter's total was still 21.2% higher than October's total, aided also by my first dividend from Comcast.

February Preview

The purchase of Facebook shares has left me fully invested, so I don't anticipate adding any new money in February. The next opportunity for fresh investment will likely be in March or April from my tax refund. But a good investor is always watching, and here are a few choice picks from my list these days:

Corning (GLW)

Corning is a glassmaking giant with an entrenched position as a manufacturer of the glass used in all manner of displays for computers, televisions, and smartphones. The company also produces fiber optics for telecommunications companies, notably Verizon (VZ), which previously inked a deal for over $1B of Corning fiber optics. Though Corning's earnings reports over the last year have not always been consistent, a bit of investor patience will suit long-term-oriented investors. The company has sold off rather heavily since its latest earnings report despite healthy demands for its flagship Gorilla Glass brand and core sales growth of 7%. The current dividend yield sits at just under 2%, but growth over the last three years has exceeded 12% each year.

Realty Income

I already own a bit of O, but with the yield now north of 5% for the first time in a while, it's worth another look. The company's performance has been nothing but solid, routinely beating estimates on FFO and creating a solid basis for its continuously growing dividend. Despite the overhanging shadow of Amazon (AMZN), diversified traditional retail landlords like O have so far managed to weather the storm better than expected. With the newest declared dividend at $0.219 and taking into account O's full-year guidance of $3.03-3.07 of AFFO per share, its payout ratio sits at a comfortable (for a REIT) 85.6-86.7%. With more interest rate hikes on the way, I expect to continue to see REIT prices fall, which will continue to create investment opportunities in high-quality names.

Which companies are you watching this month? Did you purchase anything in January? Add your ideas to my watchlist, 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, CMCSA, FB.

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.