Another quarter, another chance to look in our rearview mirror and make adjustments for the journey ahead.
Unsurprisingly, volatility was a common theme for our authors this time around. Also unsurprisingly, at least for D&I investors, our authors were relatively unfazed by the turbulence and used it as an opportunity to reaffirm their focus on income and dividend growth.
As for me, I thought I'd take this chance to take a personal look forward and share that I'm expecting my third son in May, so at some point in the next couple of months, I'll disappear for a bit. We're working on a plan for my absence, and I trust you'll all be in very good hands while I'm off holding a new tiny person in my hands. Never fear, I'll be back before you know it, no worse for the wear!
Without further ado, here are the quarterly reviews from four of our esteemed contributors. Please share your own thoughts in the comments below!
The start of 2018 saw a notable increase in volatility in the broad market. The major indices were down over the past quarter, which is normal and to be expected from time to time, especially given the major run up we've had over the past ten years.
From a dividend perspective, it's all been noise to me. I would prefer a market in which reasonable valuations abound rather than a red hot market. A hot market only benefits net sellers, and with decades to go before official retirement, it just means less shares accumulated through reinvestment.
I think one big story for me this quarter was the whipsawing with regards to REITs and interest rates. It seemed as though the story changed on a daily basis. One day, increasing interest rates will help REITs because a stronger economy means REITs can raise rents. The next day the story would highlight that increasing rates will make bonds look more attractive.
I've continued to receive larger payouts from my holdings and am looking forward to the next round of announced increases. I'm particularly interested in the upcoming dividend announcements from both Apple (AAPL) and Johnson & Johnson (JNJ). I believe that the dividend increase is the most outward sign from management as to how the company is operating.
Looking forward I'm still very optimistic. Companies are making record profits, and I don't believe the full impact of the tax reform has been fully captured by the market. I'm hopeful that more quality dividend payers will become reasonably valued so that I can continue generating my income stream!
This past quarter my portfolio was down about 1.4%. The change in market value for the quarter was down about $5,000, but that was partially offset by collecting $1,500 in dividends and fund distributions. For the quarter, I collected $432 in dividends, and in order to reach my goal I need $2,500 in dividends per quarter, so I still have a way to go, but last quarter I was at $316, so I am making progress.
Being down a little over 1% for a quarter is no reason to panic as far as I can tell, so my philosophy going forward has not changed. My plan remains to purchase high quality dividend growth stocks that have a history of rewarding their shareholders as well as the ability to continue doing so going forward (a healthy balance sheet and plenty of free cash flow). I feel that dividend growth stocks are the perfect vehicle for me and my retirement portfolio. Stocks that pay me now to own them and pay me more each year as time goes on sound almost too good to be true. But there are literally dozens and dozens of them that I follow, and I don't have enough cash to buy all the stocks I want in any given month.
To purchase these stocks, I plan to sell roughly $2,000 per month of my S&P 500 index fund. With the proceeds, I will either purchase a new position or add to an existing position, depending on where I perceive the best value to be. It is possible I will use the proceeds to rebalance the overall portfolio so that my asset allocation remains approximately on target. Currently the percentage of my domestic fixed income investments is a little bit below my target percentage, so I am keeping an eye on that.
I will also use any dividends or fund distributions, of which I had close to $900 in March, to add to the proceeds of the index fund sale. Bonus: If the stocks I want to buy are down, that means their dividend yield will be up. If that's the case, any cash I collect via dividends will buy me more future dividends than if the stocks had lower yields. The power of compound interest cannot be underestimated. I look forward to the day in a few years where I can buy $1,000 or more of a stock each month without selling something else to raise cash. That is going to be an exciting day for me, and one I hope many readers of Seeking Alpha reach or exceed. Good luck to all!
The volatility associated with this last quarter has affirmed my strategy and the companies I am choosing to invest in. I have seen my clients' portfolio fluctuate by thousands of dollars per day, but the dividends have remained consistent and have continued to increase during this time. It is comforting to me (and my clients) that their portfolio can experience profound value fluctuations but can still generate a regular monthly and quarterly income that is able to relieve the stress of the market's irrationality. While my strategy has remained the same, I am looking to establish positions (or increase positions) in companies that benefit from revenues generated in countries like Canada and Mexico. I have also gained renewed interest in securities that have fallen out of favor because of the threat of rising interest rates (such as REITs or utilities). These groups have a lot to offer investors who are looking to protect their gains while generating an income that will benefit their portfolios during the tumultuous times to come.
In the quarters ahead I am looking to benefit from the irrational/knee-jerk reactions of the market by purchasing the best-of-breed companies at a discount. The key to this strategy is maintaining patience even when the rest of the market isn't.
The Fed's approach to monetary policy has acted as a catalyst for many of the financial investments that my clients' and I both hold. While I don't find their decisions to be surprising, I do believe that the market hasn't fully digested the impact of interest rates (especially on banks) while simultaneously overreacting on the REIT sector and causing some high-quality names to unjustifiably lose 1/3 of their value. This has given buyers a lot more buying power in a much more reasonably valued REIT sector.
While my goals haven't changed, I have expanded my fundamental strategy to include more trading than I would've in the past. By trading a small portion of my (and my clients') portfolio((s)) (specifically traditional and ROTH IRAs so as to avoid taxable consequences), I have been able to add extra juice to the returns of our portfolios. The key to this strategy is creating a list of only the best dividend-paying companies that can be partially or wholly sold once they reach their price target. The reason why this strategy works is that the increased uncertainty in the market has caused more stocks to trade within a range instead of breaking out to new all-time highs (like they did in 2016 and 2017).
The past quarter for my portfolio represented an opportunity to get back to fundamentals. I had been successfully speculating in the cannabis market, which is far outside of my traditional wheelhouse for investments; my strategy involves primarily purchasing top notch dividend growth equities for the rising cash flow. After trimming the profits from my cannabis positions in early January, I reinvested the proceeds back into a number of companies in the Utility sector where the share prices have been weak of late. In terms of highlights, I would say that the timing of this repositioning was fortuitous as the cannabis stocks began tanking just a few days after I made the trades.
Looking out to the quarter we've just begun, I would say the hot topic is the looming trade war between the U.S. and China. As an investor with a long-term mindset, this represents a great opportunity to really think about the sort of investments I want to be holding in the event the market takes a nosedive. At the end of the day, there's really no excuse in my view to be holding subpar investments when there are so many stellar alternatives that are likely to trend upward over the decades to come. In the great scheme of things, there are always bumps along the road, whether it be a trade war, government shutdowns, political quarreling over raising the debt ceiling, or whatever else comes along. The bottom line is that the best companies in the world will be doing more business in the years to come, and my focus is on securing a share of those proceeds by way of company-issued dividends.
All this to say that my strategy continues to be dividend-growth-oriented, and, if anything, the turbulence of the past quarter has given cause for me to refocus on what has been working since 2009 when I began investing in earnest during the heart of the financial crisis. My message at this point would be that the winning strategy continues to be identifying the best-of-breed companies, taking a long position, and sticking with them over time.
So, what about you? How did the most recent quarter treat you, and what are you looking forward to? As always, keep the conversation going by weighing in the comments below.
If you enjoy the D&I Digest and would like to be alerted to future editions, don't forget to "follow" me! And please let me know if there's a topic you'd like to see covered in a future D&I Digest, either by commenting below or sending me a private message. I'd love to hear from you.
Finally, here are some recent Dividends & Income content you might want to check out (if you haven't already):
Healthcare REITs Are On Life Support by Hoya Capital Real Estate
Retire Rich: How To Buy Low And Sell High by Financially Free Investor
Where's The Dividend? (Hold The Onions) by SA Marketplace
How To Retire At 64 With Only Half A Million by Colorado Wealth Management Fund
All-Out Trade War Looms - These Dividend Stocks Remain A Hedge by George Schneider
Why Dividend 'Yield On Cost' Is Irrelevant by Rob Marstrand
Why I'm Taking Risk Off The Table And Raising Cash by Nicholas Ward
Retirement Strategy: You're Ready To Retire And Never Planned - But You Do Have Options by Regarded Solutions
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.