Seeking Alpha

5%+ Dividend Yield Portfolio: Crushing The Volatility (March 2018 Review)

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Includes: GCOW, IRM, REET, SRET
by: Dividend Disco
Summary

Volatility continued to bedevil the markets in March, but remember that this is normal (not the calm rise of 2017).

Thanks to REITs, my March capital gains (0.5%) crushed the S&P 500 (-2.5%).

My dividend yield of almost 5% also crushed the pathetic 1.77% of the S&P 500.

I also continue to narrow my portfolio to only my best ideas by trading out of ideas that were just 'okay.'

Outlook

In my February 2018 article, I told everyone to “buckle up, buttercup, the ride might be choppy” and boy, did March continue to deliver!

Volatility

Source: Charles Schwab

Correspondingly, the market has been pretty rough on the major indexes lately, with all the majors in solidly red territory (for the second month in a row). However, all hope is not lost… especially for value-oriented folks like me. I have relied on my strong ~5% yield and value tilt to tread water in this bout of volatility. No one really knows how this all started (I personally find most of the explanations weak and/or backward data-fitting as opposed to predictive) or how long this will last… so if the past two months have really scared you, then you need to find a safer investment strategy!

Crystal ball time: I don’t think that we’ve seen the end of this bull market. Frankly, the economy is too strong (GDP is growing, earnings estimates are being beat at a high rate, hiring numbers are great, etc.) and I think this volatility is mostly due to profit-taking after a long run-up. One of my favorite indicators is corporate M&A since businesses generally only buy when their positions are strong and their outlook is sunny. While it is not a perfect indicator, March 2018 just showed the third-highest level ever for M&A activity!

M&A

Source: Charles Schwab

March 2018 Review

March 2018 was especially sweet for me since I had one of my biggest dividend months ever while earning a positive return (even though the S&P 500 took a drubbing). In March, my portfolio gained 0.5% (which doesn’t sound like much, but it was 300 bps ahead of the S&P 500 which lost 2.5%). However, I am even more pleased about my dividends which came in at a new March record for me.

March 2018 rewarded me with realized dividends of $1,135 (versus $460 in 2017… a gain of over 147%). For the 12 months ending March 2018, my portfolio delivered $13,926 in cash to me (a realized yield of 4.9% for my full portfolio including cash reserves). My 2018 goal was to increase dividends by ~5% to $13,500 for the year, so I hope I can hang on to this early performance. Fear and greed are hard to balance, but I am happy with where I am overall. My yield-focused strategy still makes the most sense to me as paper gains may come and go, but cash is forever!!

Background

Since I write for Seeking Alpha primarily to improve my own investment portfolio, I think it is important that you know my objectives. Please consider this context when you look at any advice I give and form your own opinions based on your needs and desires.

  • Goal: Attractive, risk-adjusted, absolute returns (5-15% annually) over a long-term time frame while minimizing capital loss and extreme drawdowns.
  • Strategy: 'Enhanced' dividend growth or DGI strategy that focuses on a core of diversified holdings (ETFs and individual companies -- my general screening criteria: growing companies (YoY EPS growth >0%) with attractive valuations (PEG <1.5 and P/E <20) and strong and safe dividends (yield >4%, payout <90%, and market cap >$500MM)…no tobacco stocks or micro caps), supplemented with return-enhancing tools like hedges (derivatives and shorts), commodity exposure, etc., as well as some crazy picks.
  • Balance: Blend of ETFs (domestic and international) and individual companies (where there is a compelling reason to own). Seek to not overweight any one sector unless there is a compelling reason to do so (although the nature of these investments leads me to be overweight in traditional dividend-paying sectors like financials, REITS, and energy).

Note: I violate these guidelines constantly, so please call me out on it!

Portfolio Composition as of March 31, 2018

Security Type Div Yield Market Value Last Month Value Gain/Loss(%)
FUNDS 3.8% $107,122 $108,380 -1.2%
Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) ETF 2.7% $14,709 $15,147 -2.9%
SPDR S&P 500 High Dividend ETF (NYSEARCA:SPYD) ETF 3.9% $14,304 $14,404 -0.7%
SPDR S&P Emerging Markets Dividend ETF (NYSEARCA:EDIV) ETF 2.8% $10,790 $10,778 0.1%
SPDR S&P International Dividend ETF (NYSEARCA:DWX) ETF 3.9% $8,216 $8,269 -0.6%
Fst Tst Dow Jns Glbl Sel Dvd Idx ETF (NYSEARCA:FGD) ETF 4.1% $7,680 $7,800 -1.5%
ProShares S&P 500 Dividend Aristocrat ETF (BATS:NOBL) ETF 1.8% $6,225 $6,308 -1.3%
iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) ETF 0.3% $5,337 $5,404 -1.2%
UBS ETRACS Monthly Pay 2xLeveraged US High Dividend Low Volatility ETN (NYSEARCA:HDLV) ETN 12.2% $5,320 $5,382 -1.2%
Global X Super Dividend U.S. ETF (NYSEARCA:DIV) ETF 6.2% $4,806 $4,850 -0.9%
Vanguard Energy Index Fund ETF Shares (NYSEARCA:VDE) ETF 3.2% $4,619 $4,556 1.4%
iShares MSCI Australia ETF (NYSEARCA:EWA) ETF 4.5% $4,404 $4,564 -3.5%
PowerShares S&P 500 High Div Low Volatility Portfolio ETF (NYSEARCA:SPHD) ETF 3.5% $3,943 $3,938 0.1%
Oppenheimer Ultra Dividend Revenue ETF (NYSEARCA:RDIV) ETF 4.4% $3,508 $3,552 -1.2%
Global X NASDAQ China Technology ETF (QQQC) ETF 2.2% $3,047 $3,124 -2.5%
Fidelity Dividend ETF for Rising Rates (NYSEARCA:FDRR) ETF 2.9% $2,987 $3,100 -3.6%
iShares MSCI China Small Cap ETF (NYSEARCA:ECNS) ETF 3.1% $2,650 $2,579 2.8%
Horizons NASDAQ 100 Covered Call ETF (NASDAQ:QYLD) ETF 8.2% $2,380 $2,491 -4.5%
Market Vectors Gold Miners ETF (NYSEARCA:GDX) ETF 0.8% $2,198 $2,135 3.0%
COMPANIES 6.7% $122,566 $121,369 1.0%
Omega Healthcare Investors (NYSE:OHI) REIT 9.8% $18,928 $17,836 6.1%
Royal Dutch Shell (NYSE:RDS.B) (NYSE:RDS.A) Company 5.7% $9,830 $9,627 2.1%
Blackstone Mortgage Trust (NYSE:BXMT) REIT 7.9% $9,426 $9,315 1.2%
New Residential Investment (NYSE:NRZ) REIT 12.2% $8,455 $8,291 2.0%
BP (NYSE:BP) Company 5.9% $8,108 $7,772 4.3%
Ventas REIT (NYSE:VTR) REIT 6.4% $7,430 $7,248 2.5%
Tanger Factory Outlet REIT (NYSE:SKT) REIT 6.2% $6,600 $6,696 -1.4%
Iron Mountain (NYSE:IRM) REIT 7.2% $6,572 $6,297 4.4%
Sabra Healthcare REIT (NASDAQ:SBRA) REIT 10.2% $5,930 $5,672 4.6%
Qualcomm (NASDAQ:QCOM) Company 4.1% $5,541 $6,500 -14.8%
Ford Motors (NYSE:F) Company 5.4% $4,432 $4,244 4.4%
Archer Daniels Midland (NYSE:ADM) Company 3.1% $4,337 $4,152 4.5%
GlaxoSmithKline (NYSE:GSK) Company 5.5% $3,907 $3,631 7.6%
IBM (NYSE:IBM) Company 3.9% $3,836 $3,896 -1.5%
AbbVie (NYSE:ABBV) Company 4.1% $3,786 $4,633 -18.3%
Eni (NYSE:E) Company 4.5% $3,533 $3,317 6.5%
Transocean (NYSE:RIG) Company 0.0% $2,970 $2,733 8.7%
Kinder Morgan (NYSE:KMI) Company 3.3% $2,771 $2,981 -7.0%
KKR Real Estate Finance Trust (NYSE:KREF) REIT 8.0% $2,006 $1,960 2.3%
Teva Pharmaceutical Industries (NYSE:TEVA) Company 0.0% $1,709 $1,872 -8.7%
VARIOUS POSITIONS OF <$1,000 VALUE VARIOUS 2.0% $2,460 $2,697 -8.8%
FIXED INCOME TOTAL 4.5% $16,077 $15,982 0.6%
Bank of America Corporation (NYSE:BAC) - Pref L (BML+L) Pref 4.4% $4,698 $4,670 0.6%
Goldman Sachs (NYSE:GS) - Pref A (GS+A) Pref 4.3% $4,588 $4,492 2.1%
WisdomTree BofA Mrl Lynch HYBd ZrDr ETF (NASDAQ:HYZD) ETF 4.8% $2,390 $2,409 -0.8%
Goldman Sachs - Pref D (GS+D) Pref 4.6% $2,287 $2,245 1.9%
WisdomTree BofA Mrl Lynch HYBd NgtDr ETF (NASDAQ:HYND) ETF 4.8% $2,114 $2,166 -2.4%
SHORTS TOTAL 0.0% $10,939 $10,886 0.5%
ProShares Short S&P 500 (NYSEARCA:SH) ETF 0.0% $7,575 $7,400 2.4%
ProShares Short Real Estate (NYSEARCA:REK) ETF 0.0% $3,364 $3,486 -3.5%
SCHWAB ROBO-ADVISOR TOTAL 2.0% $12,626 $12,660 -0.3%
TOTAL 4.9% $269,330 $269,278
TOTAL + CASH $27,093 4.5% $296,424 $287,113 0.5%

Portfolio Moves in March 2018

New Positions

Share Buy – Iron Mountain (IRM): Bought another 100 shares of this data storage REIT at $31.46 on March 19.

  • Reasoning: Iron Mountain shareholders have had a tough few years (I bought last summer at $34.85, but I think there is strong dividend (7.2%) and value to be had here.

Exited Positions

Share Sale– Pacer Global Cash Cows Dividend ETF (GCOW): Sold all 100 shares of this dividend-focused ETF at $24.05 on March 1.

  • Reasoning: I listened to my readers who encouraged me to winnow down my positions to only my best ideas, so I sold this good (but not great ETF) to redeploy funds to more promising ETFs.

Share Sale– iShares Global REIT ETF (REET): Sold all 100 shares of this REIT ETF at $24.05 on March 1.

  • Reasoning: I am getting out of my REIT ETFs to hold direct exposure to the REIT world in the form of individual companies (which have higher quality and avoid the ETF fees).

Share Sale– Global X SuperDividend REIT ETF (SRET): Sold all 400 shares of this REIT ETF at $14.05 on March 6.

  • Reasoning: I am getting out of my REIT ETFs to hold direct exposure to the REIT world in the form of individual companies (which have higher quality and avoid the ETF fees).

Final Thoughts

Volatility separates those with a solid plan from those without faster than just about anything (other than a true market crash). Always remember not to panic and sell or otherwise act irrationally. Focus on the core of your strategy and you should be fine for the long run. On the plus side, the big swings make for interesting trading options as previously expensive stocks have gone on sale. Be careful for falling knives, but if you’re like me (and have had cash on the sidelines) then there are some nice buying opportunities out there. Just keep your seatbelts fastened!

Comments encouraged.

Disclosure: I am/we are long ALL STOCKS AS MENTIONED. 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.

Additional disclosure: 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.