February 2018 Portfolio Update: Out Of The Clouds
Summary
- The longstanding string of positive months for markets finally ended as volatility has returned.
- February was a roller coaster ride, but my DGI portfolio is strapped in for the long run.
- A look at purchases, sales, and dividends collected in February, as well as what's ahead in March.
The old saying goes "What goes up must come down," and after nearly two years of month after month in the green, Mr. Market finally reminded us that things can't stay positive forever. Despite the relatively positive corporate earnings period, investors' attention has instead turned to other macroeconomic factors, such as the schedule of interest rate hikes and its potential effect on Treasury yields. It seems the public can't quite make heads or tails of competing statements from different members of the Fed, and that seems to have thrown the markets as a whole off guard.
In fact, all three major indexes were briefly in correction mode after falling just over 10% from their highs during the period from Jan 29 to Feb. 8, though things recovered somewhat as the month went on. The S&P finished the month down nearly 4%, while the tech-focused Nasdaq 100 rebounded more quickly and lost under 1%.
The New Div on the Block portfolio came up short again this month, posting a 4.1% decline, and leaving me with a YTD total return of -3.4%. The good news, as always, is that unrealized return is not a positive or a negative until one actually sells securities, which I have no plans to do. In fact, I see this as an excellent buying opportunity to pick up shares of quality companies at discounted prices. More on that in a moment, but first, let's take a look at where things stood at month's end.
Portfolio Snapshot
| Company | Sector | Shares | % Portfolio | % Income | Sector Weight | Global BMI |
| Staples | 12.4% | 7.8% | ||||
| CVS Health (CVS) | 21.669 | 4.03% | 3.81% | |||
| Archer Daniels Midland (ADM) | 25.7606 | 2.94% | 3.04% | |||
| Kroger (KR) | 35.366 | 2.63% | 1.55% | |||
| Altria Group (MO) | 16.1497 | 2.79% | 3.75% | |||
| Materials | 2.8% | 5.9% | ||||
| Eastman Chem (EMN) | 10.1759 | 2.82% | 2.00% | |||
| Telecoms | 4.5% | 2.5% | ||||
| AT&T (T) | 45.3044 | 4.51% | 7.97% | |||
| Tech | 6.8% | 18.0% | ||||
| Qualcomm (QCOM) | 10.3973 | 1.86% | 2.08% | |||
| Facebook (FB) | 10 | 4.90% | 0.00% | |||
| Industrials | 8.3% | 12.1% | ||||
| Southwest Airlines (LUV) | 36.2929 | 5.76% | 1.60% | |||
| Union Pacific (UNP) | 7.0714 | 2.53% | 1.82% | |||
| Cyclical | 15.9% | 12.6% | ||||
| General Motors (GM) | 53.1026 | 5.74% | 7.10% | |||
| Magna Int'l (MGA) | 38.732 | 5.85% | 4.50% | |||
| Williams-Sonoma (WSM) | 15.3663 | 2.18% | 2.11% | |||
| Comcast (CMCSA) | 21.0766 | 2.10% | 1.41% | |||
| Health | 17.2% | 10.6% | ||||
| AbbVie (ABBV) | 25.7999 | 8.20% | 8.71% | |||
| Pfizer (PFE) | 46.6974 | 4.65% | 5.58% | |||
| Johnson & Johnson (JNJ) | 12.2241 | 4.36% | 3.61% | |||
| Energy | 6.5% | 5.6% | ||||
| Valero (VLO) | 26.0174 | 6.46% | 7.32% | |||
| Financials | 16.7% | 18.4% | ||||
| T. Rowe Price (TROW) | 21.4691 | 6.60% | 5.29% | |||
| Toronto-Dominion (TD) | 36.0542 | 5.74% | 5.91% | |||
| Scotia Bank (BNS) | 25.8399 | 4.40% | 5.79% | |||
| Utilities | 4.1% | 2.7% | ||||
| Dominion (D) | 20.1938 | 4.11% | 5.93% | |||
| REITs | 4.9% | 3.8% | ||||
| Realty Income (O) | 12.4184 | 1.68% | 2.87% | |||
| Tanger Outlets (SKT) | 51.9179 | 3.18% | 6.25% |
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 3.12%, with a yield on cost of 3.76%.
Purchases & Sales
None
Dividends Received
Over the course of February, I added $106.26 to my investments in 8 different companies through dividend reinvestment, including stakes in BNS, TD, T, CVS, ABBV, O, SKT, and WSM. This exceeded my previous middle-month quarter total by a respectable 4.6%, all of which came naturally either from previously announced increases or by the power of compounding. Not bad to get an almost 5% raise for free!
It was also an exceptional month in anticipating future dividend increases. 6 more companies I own shares in announced hikes in their dividend over the course of the month, two of which were double raises!
At the beginning of the year, I wrote that I wanted to reach a 10% weighted average dividend increase for my portfolio, and wasn't sure I would be able to achieve that number without adding more high-growth exposure. Well, turns out I underestimated that power in my existing holdings, as even without accounting for the dividend raises to come, my portfolio's weighted average dividend increase sits at 10.1%!
Given that reality, I am revising my goal to a weighted average dividend increase of 12.5% for my portfolio for 2018.
| Company | New Dividend | % Inc |
| ADM | $0.335 ($1.34) | 4.7% |
| Union Pacific | $0.73 ($2.92) | 20.7%* |
| T. Rowe Price | $0.70 ($2.80) | 22.8% |
| AbbVie | $0.96 ($3.84) | 50.0%* |
| Magna Int'l | $0.33 ($1.32) | 20.0% |
| Scotia Bank | C$0.82 (C$3.28) | 3.8% |
*Both AbbVie and Union Pacific had previously announced raises for the 2018 cycle, therefore the % Inc column is based on the new dividend compared to the dividend from last year, rather than last quarter.
March Preview
I'm even happier about picking up some extra capital to invest through my tax refund, since that money is going to go even further given the opportunities this period of volatility has opened up. Here are a few of my top choices for the month:
PepsiCo (PEP)
PepsiCo is a global consumer staples company focused on beverages and snack foods. Its most recent earnings report came in with solid sales growth in emerging markets like Latin America, fueling a beat on top and bottom lines. Despite the results, the stock prices has drifted lower over the month to near its 52-week low, which I see as a compelling buying opportunity. The company has proven adaptive to changing market conditions by launching new products such as bubly, and recently announced a higher-than-expected dividend increase of 15%. I'm hoping to pick up shares that will yield 3.5% with the first new dividend payment.
W.P. Carey (WPC)
REITs have been hit especially hard since 2018 began, which has created buying opportunities for high-quality names. WPC is one such name, a globally-exposed and non-retail focused REIT with a stellar management record. In its most recent quarterly report, WPC exceeded analyst FFO expectations in reporting 7% YoY growth, and is now guiding for 2018 full-year FFO well above consensus. The company has a built-in growth driver whenever it chooses to by merging with privately held CPA:17, a natural complement to WPC's publicly-traded portfolio.
Which companies are you watching this month? Did you purchase anything in February? Add your ideas to my watchlist, leave a comment below, and thanks for stopping by!
This article was written by
Analyst’s 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.
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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