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5%+ Dividend Yield Portfolio: Bought The Dip (Feb. 2018 Review)

Mar. 01, 2018 3:07 PM ETABBV, ADM, BAC, BP, BXMT, DIV, DWX, E, ECNS, EDIV, EWA, F, FDRR, FGD, GCOW, GDX, GS, GSK, HDLV, HYND, HYZD, IBB, IBM, IRM, KMI, KREF, NOBL, RITM, OHI, QCOM, QQQC-OLD, QYLD, RDIV, REET, REK, RIG, SBRA, SCHD, SH, SKT, SPHD, SPYD, SRET, TEVA, VDE, VTR27 Comments
Dividend Disco profile picture
Dividend Disco
4.54K Followers

Summary

  • Volatility returned in Feb with indexes hitting correction territory and ending down about 5% for the month.
  • My paper returns also suffered (-3.6%) but edged the S&P 500 (-3.9%); however my dividends continued.
  • I went bargain shopping and added ETFs on the market weakness (and I hope you did too).
  • I’m still cautiously optimistic on 2018 (but less so about later in the year will be choppier as midterm election increases volatility).

Outlook

Volatility returned to the markets in February climaxing early in the month with the first 10% correction in years. In response, a record number of investors panicked and pulled $30.6 billion out of equity funds in one week (the largest ever amount of weekly based on records going back to 2004, according to analysts at Bank of America Merrill Lynch). However, within weeks, those losses had been largely trimmed and the month closed down about 5%.

The only question that matters is: what did you do?

Did you stay the course and hold? …or were you a buyer who took advantage of the volatility? …or did you panic and lock in losses?

I was a modest buyer during the month and (while never happy to suffer paper losses) was glad to be able to add equities at discounted prices. As time continues, volatility is far more likely to be the norm than the unusually calm and steady gains of the post-election period. Your mindset will be as important as your tactics this year…so if you panicked (or didn't sleep well at night), then you need to seriously consider reducing risk (or restrain yourself from checking your portfolio too often).

If looking for a place to deploy new capital or to reduce risk, I continue to believe that dividend paying, value stocks are the best buys in today's market (both from a historical perspective but also when factoring in the particularities of today's market dynamics). The historical argument is clear to recognize:

Source: Causeway Capital

However, today's market has further factors that predict outperformance as explained in a great longer read from Causeway Capital that is worthy of your time, but the conclusion echoes my thoughts:

Value investing requires discipline to have a realistic estimate of a stock's fair value

This article was written by

Dividend Disco profile picture
4.54K Followers
A mid-30s ex-venture capitalist and investment banker (finance degree)...now a serial startup CFO. I used to look for yield in all the wrong places, but have created a modified dividend growth (DGI) strategy that works for me.

Analyst’s Disclosure: I am/we are long ALL POSITIONS AS INDICATED. 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.

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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (27)

e
i agree with g man, i sold my kmi also along with my long suffering GE for my yearly tax loss. You wake up one day and realise you are holding a lot of dead money. I drank the Immelt and Kinder koolaid for too long and finally swept out the trash from my account.
j
This looks like it could be setting up for a breakout above 32
I'd add in the marijuana ETF's! They will balance out your KMI and TEVA ;) Thank you

Hard month...not just rude!
Pennywise The Dancing Clown profile picture
The overlapping positions in all those ETFs would drive me crazy. My typical advice to someone in your situation would be to buy something like ACWI or VT and then overlay with individual securities/factors/geo... to achieve the weights and allocations you seek. Some people like to make simple problems more complex than they have to be and enjoy working through the chaos - I hope that doesn't read as disparaging and condescending, it's mostly a matter of personal preference (until you consider the expenses of some of your ETFs and the time you're probably expending managing this portfolio).
DylanCirrilla profile picture
How did you come to a decision to hold this many positions? It seems like your ETFs and individual stocks have a lot of overlap
Investor Dude profile picture
Nice Article, how did you come up with those ETFs? Some are really micro cap and seem very risky to me beeing shut down when shit hits the fan
Y
Why no tobacco stocks?
G
Because... cancer!
Robert Falcone profile picture
I see what you're trying to do with teva, but it's only going to hurt returns. They're trying to play the cheap Indian generics game using much more expensive labor and facilities. They're also buying generics from other companies now to access markets which have significant barriers to entry.
r
Lot's of REITs and ETFs to cover..
snaimpally profile picture
Thanks for the article. I own some (NRZ, IRM, QCOM etc.) and it has given me some ideas for new acquisitions.
Me XMan profile picture
Thanks for posting this.
c
Sold IRM and bought NRZ and almost doubled my dividend. I have a little over $1,000 per month and should reach $1200 later this year.
Dividend Disco profile picture
Not a bad idea...but I already have a lot of NRZ though...
I like IRM at the current price, around $32, I might take a tiny position. Yes, with all the rates news it may keep on going down, possibly around $28 which would be another great opportunity to buy more.

If you want some other high yielders then why not consider dipping into ECC and OXLC (see Steven Bavaria's articles), and AMZA.
r
Long AMZA and MLPA..
A
Same here with KMI. More than likely the dividends will be paid.
Your still holding KMI, what a dog of a stock. Can't think very highly of your picks if your still holding that piece of đź’©! As far as ETFs, you should also look at DGRO, it's doing great for me.
He just has -9.9% loss, so it's not that bad, and DGI is longterm.

KMI announced last year they would grow the dividend from $0.50 to $0.80 in 2018 (just a few weeks away), to $1.00 in 2019, to $1.25 in 2020.

So yield on today's cost will be, 4.99%, 6.23%, and 7.79%.

Let's be optimistic, and expect the oil price to stay between $50 and $60, then adjust the future price to bring the yield to today's 3.00%, the expected future price for these years should eventually be around $26.66, $33.33, and $41.66
Yes, it is a very simplistic view, but it works for me.

Yes, KMI had planned and announced they would grow the dividend 10% per year before the 75% cut. Liar liar pants on fire.
But today their situation, and the global context, is a lot more favorable.

Also, they have also announced last year that they will buy back $2 billion worth of shares, or more than 5% of the share count at today's price.

KMI is fine by me.
Dividend Disco profile picture
Thanks for the comment...KMI is definitely a 'deep value' pick for me (and not all of these will work out)
You're talking yourself into liking a bad stock. Oh sorry, I was wrong, excuse me, a terrible stock! Look at the past two years, and you think the future holds $33.33 or $41.66? Those days are long gone. Hell I would rather buy GE and take my chances. Either way, I bet GE finishes the year higher than KMI.
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