My K.I.S.S. Dividend Portfolio: 1st Quarter 2018 Update

|
Includes: AAPL, AFL, AMGN, AMP, APD, ARLP, AVA, BA, BDX, BLK, BPL, CBRL, CINF, CMI, CSX, CVS, CVX, D, DE, DLR, DRI, EMR, FCPT, FLIC, GD, HAS, IBM, ITW, JNJ, LHX, LLL, LMT, MCD, MGA, MSFT, NHI, NLY, NSC, NUS, NVS, O, OKE, PAYX, PEP, PG, PRU, PTY, QCOM, RTN, RY, SKT, SO, SYY, TGT, TROW, TUP, UGI, UTX, WBA, WEC, WFC, WMT, WPC
by: The Part-time Investor
Summary

A successful DGI portfolio can be created using very simple criteria.

Just a couple of hours every quarter is all that is necessary to manage a well-designed DGI portfolio.

My K.I.S.S. portfolio continues to provide acceptable (to me) dividend growth and continues to beat "The Market" in terms of total return.

Wow! What a ride! Saying this market has been volatile is quite the understatement. Down 1000 points one moment, up 500 points the next. It’s all I can do to just hang on! My portfolio went from being up 6% to being down 3%, all in the span of a few weeks. But guess what...

I DON’T CARE!!!

OK, that’s a lie. Yes, I care, but I’m not losing any sleep over it. Why not? Because I’m a dividend growth investor. I’m not worried about the prices of my stocks. I’m worried about how much they are paying me in dividends, and how quickly those dividends are growing. And as you’ll read later in my article my dividend payments and dividend growth are doing just fine. Even as the market goes up and down like a roller coaster, my dividends keep growing.

But more about that later. For now, let me present to you my latest quarterly portfolio update.

If you wish to review my previous quarterly updates, you can find them here:

My K.I.S.S. Dividend Portfolio: 1st Quarter 2017 Update

My K.I.S.S. Dividend Portfolio: 2nd Quarter 2017 Update

My K.I.S.S. Dividend Portfolio: 3rd Quarter 2017 Update

My K.I.S.S. Dividend Portfolio: 4th Quarter 2017 Update

Review of My First-Quarter Contributions and Dividends

These are the total dividends I received over the past three months and the comparison (in parenthesis) to the same months during 2018:

Jan: $2,818.15 ($2,219.79) (+26.96%)

Feb: $5,019.33 ($4,016.76) (+24.96%)

Mar: $5,886.99 ($4,960.57) (+18.68%)

Total dividends collected in the first quarter were $13,724.47, an increase of 22.57% over the $11,197.02 collected over the fourth quarter of 2017. $2,404.29 of this was immediately reinvested through DRIP plans in my Schwab accounts.

I did not receive my fourth quarter pension contribution (last quarter) of $13,500 until the first day of this quarter. But this quarter’s contribution is late again, so I still only had one contribution to invest. I also received $650 in catch-up contributions. Therefore, including cash left over from the previous quarter, the total the funds I had available for investment this past quarter was $25,852.64.

The K.I.S.S. System

Over the past three years, I have been developing and refining my Keep It Simple, Stupid (K.I.S.S.) system for creating a dividend growth portfolio. The system I developed has been discussed in my previous updates, but as a quick summary, my criteria for buying stocks are as follows:

For Purchase of Regular stocks

  • The stock is on the Dividend Champions, Contenders and Challengers [CCC] list (as compiled by David Fish)
  • The payout ratio < 60%
  • For stocks with a yield between 2.0 and 2.5%, the Chowder Number (Dividend yield + 5-yr dividend growth rate) >16
  • For stocks with a yield between 2.5 and 3.0%, the Chowder Number (Dividend yield + 5-yr dividend growth rate) >14
  • For stocks with a yield greater than 3.0%, the Chowder Number (Dividend yield + 5-yr dividend growth rate) >12
  • A Credit Rating of BBB+ or better from S&P
  • F.A.S.T. Graph shows a 10-year uptrend in earnings; F.A.S.T. Graph shows that the stock is not overvalued.

The use of different Chowder Number requirements is a change I made to my criteria over the past few years. I prefer to have stocks with higher yields, but if the rest of the story is compelling enough I am willing to buy stocks with yields in the 2.0% to 3.0% range if their DGRs and Chowder Numbers are higher, as shown in my criteria above. Please see the previous article I wrote about different yields, DGRs and Chowder Numbers to read about my thinking on this topic.

For Purchase of MLPs, REITs, Utilities and Telecoms (High Yielders)

  • The stock is on CCC list
  • Yield > 4%
  • Chowder Number > 8%
  • DGR for all time periods (1-yr., 3-yr., 5-yr. and 10-yr.) at least 3.5%.
  • F.A.S.T. Graph shows a 10-year uptrend (or for the life of the company, if less than 10 years) in funds from operations ("FFO").
  • F.A.S.T. Graph shows that the stock is not overvalued based on its FFO.

Since most of the work has already been done for us by David Fish (the CCC list) Chuck Carnevale (FAST Graphs) and S&P (The S&P Quality rankings) the time that it takes me to run this screen is only about 1-2 hours per quarter

My criteria for selling a stock are also very simple. I will only sell if the stock cuts its dividend. I do not look at anything else when deciding whether or not to sell. Therefore, the only other work that needs to be done during the quarter is to watch for the dividend announcement from each company, and put in a sell order if there is a dividend cut. One caveat, as I mention below, I will sell spin-offs from my stocks if those new companies don't have dividend policies I'm comfortable or familiar with. Again, it comes down to the dividend.

Sales

There were no sales made this quarter.

Purchases

Early in the quarter, after I received my pension contribution from last quarter, I ran the screens above, but found no stocks I was interested in. So instead I used my PAAY system to reinvest this money into more shares of some of the stocks I already own.

PAAY and Reinvesting

When reinvesting I put my available cash not back into the stocks that paid the dividend but instead into more shares of my most undervalued positions. This is where my "Percent Above Average Yield" (PAAY) system comes in. (I discussed how I use PAAY in a previous article.) I believe that the stocks with the highest PAAY are the most undervalued. Please note that I use PAAY only to rank the companies already in my portfolio for purposes of reinvesting my dividends, not for new purchases. (It would be too difficult to calculate the PAAY for all stocks under consideration for purchase.)

Based on the PAAY of all my stocks in early January these are the purchases I made with the pension contribution I receive early in the quarter.

Stock

Shares

Price

Commission

Total cost

Amgen (NASDAQ:AMGN)

13

179.03

0.39

-2,327.78

Dominion Resources (NYSE:D)

31

77.75

0.93

-2,411.18

Hasbro (NASDAQ:HAS)

26

92.02

0.78

-2,393.30

ONEOK (NYSE:OKE)

43

56.47

1.29

-2,429.50

UGI Corp (NYSE:UGI)

50

47.528

4.1

-2,380.50

Walgreens Boots Alliance (NASDAQ:WBA)

33

73.18

0.99

-2,415.93

When the quarter ended, using the dividends I had collected during the quarter. I once again used my PAAY system to pick the stocks I wanted to reinvest in. Here is what I bought.

Alliance Resource Partners (NASDAQ:ARLP)

58

17.15

1.74

-996.44

Annaly Cap. Mangmt (NYSE:NLY)

96

10.34

2.88

-995.52

Buckeye Partners (NYSE:BPL)

26

37.29

0.78

-970.32

Digital Realty (NYSE:DLR)

10

102.48

0.3

-1,025.10

Dominion Resources (D)

15

67.23

0.45

-1,008.90

Hasbro (HAS)

12

83.75

0.36

-1,005.36

National Health Inv. (NYSE:NHI)

15

66.51

0.45

-998.1

PepsiCo (NYSE:PEP)

9

107.78

0.27

-970.29

Tanger Factory Outlets (NYSE:SKT)

44

22.43

1.32

-988.24

Walgreens Boots Alliance (WBA)

16

62.6

0.48

-1,002.08

As mentioned above, some of my stocks are held in two Schwab accounts (formerly OptionsXpress). I received the following shares of these stocks due to DRIP plans I've set up in these accounts (most of my portfolio is held in a Univest account which does not offer DRIPs):

STOCK

SHARES

ALLIANCE RES PARTNER LP (ARLP)

34.9926

ANNALY CAPITAL MGMT REIT (NLY)

46.4876

AVISTA CORPORATION (NYSE:AVA)

3.5244

CHEVRON CORPORATION (NYSE:CVX)

0.2323

FOUR CORNERS PROPERT (NYSE:FCPT)

3.304

ONEOK INC (OKE)

5.7061

PIMCO CORPORATE OPPORTUN (NYSE:PTY)

25.2004

W.P. CAREY INC. REIT (NYSE:WPC)

3.4524

Following these transactions, this is the present composition of my portfolio (as of market close 4/6/18).

Company Name

Shares

Price

Market Value

Dividend

Yield

Expected Income

Apple Inc. (NASDAQ:AAPL)

170

168.38

$28,624.60

2.52

1.50%

$428.40

Aflac Incorporated (NYSE:AFL)

490

43.37

$21,251.30

1.04

2.40%

$509.60

Amgen Inc. (AMGN)

162

168.14

$27,238.68

5.28

3.14%

$855.36

Ameriprise Financial, Inc. (NYSE:AMP)

234

141.31

$33,066.54

3.32

2.35%

$776.88

Air Products and Chemicals, Inc. (NYSE:APD)

119

159.96

$19,035.24

4.40

2.75%

$523.60

Avista Corporation (AVA)

607.86

51.92

$31,560.09

1.49

2.87%

$905.71

The Boeing Company (NYSE:BA)

199

326.12

$64,897.88

6.84

2.10%

$1,361.16

Becton, Dickinson and Company (NYSE:BDX)

137

215.5

$29,523.50

3.00

1.39%

$411.00

BlackRock, Inc. (NYSE:BLK)

40

519.92

$20,796.80

11.52

2.22%

$460.80

Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL)

212

163.16

$34,589.92

4.80

2.94%

$1,017.60

Cincinnati Financial Corporation (NASDAQ:CINF)

324

73

$23,652.00

2.12

2.90%

$686.88

Cummins Inc. (NYSE:CMI)

221

157.9

$34,895.90

4.32

2.74%

$954.72

CSX Corporation (NYSE:CSX)

709

54.35

$38,534.15

0.80

1.47%

$567.20

CVS Health Corporation (NYSE:CVS)

294

63.38

$18,633.72

2.00

3.16%

$588.00

Chevron Corporation (CVX)

172.68

114.76

$19,816.76

4.48

3.90%

$773.61

Dominion Energy, Inc. (D)

265

66.22

$17,548.30

3.34

5.04%

$885.10

Deere & Company (NYSE:DE)

193

145.39

$28,060.27

2.40

1.65%

$463.20

Digital Realty Trust, Inc. (DLR)

291

104.3

$30,351.30

4.04

3.87%

$1,175.64

Darden Restaurants, Inc. (NYSE:DRI)

365

86.86

$31,703.90

2.52

2.90%

$919.80

Emerson Electric Co. (NYSE:EMR)

337

66.31

$22,346.47

1.94

2.93%

$653.78

Four Corners Property Trust, Inc. (FCPT)

751.3

22.95

$17,242.34

1.10

4.79%

$826.43

The First of Long Island Corporation (NASDAQ:FLIC)

944

27

$25,488.00

0.60

2.22%

$566.40

General Dynamics Corporation (NYSE:GD)

198

215.74

$42,716.52

3.72

1.72%

$736.56

Hasbro, Inc. (HAS)

386

84.43

$32,589.98

2.52

2.98%

$972.72

Harris Corporation (NYSE:HRS)

253

161.04

$40,743.12

2.28

1.42%

$576.84

International Business Machines Corp (NYSE:IBM)

110

150.57

$16,562.70

6.00

3.98%

$660.00

Illinois Tool Works Inc. (NYSE:ITW)

168

152.6

$25,636.80

3.12

2.04%

$524.16

Johnson & Johnson (NYSE:JNJ)

159

128.1

$20,367.90

3.36

2.62%

$534.24

L3 Technologies, Inc. (NYSE:LLL)

146

207.78

$30,335.88

3.20

1.54%

$467.20

Lockheed Martin Corporation (NYSE:LMT)

144

334.66

$48,191.04

8.00

2.39%

$1,152.00

McDonald's Corporation (NYSE:MCD)

161

161.25

$25,961.25

4.04

2.51%

$650.44

Magna International Inc. (NYSE:MGA)

290

58.58

$16,988.20

1.32

2.25%

$382.80

Microsoft Corporation (NASDAQ:MSFT)

495

90.23

$44,663.85

1.68

1.86%

$831.60

National Health Investors, Inc. (NHI)

271

67.82

$18,379.22

4.00

5.90%

$1,084.00

Norfolk Southern Corporation (NYSE:NSC)

174

129.36

$22,508.64

2.88

2.23%

$501.12

Nu Skin Enterprises, Inc. (NYSE:NUS)

394

73.1

$28,801.40

1.46

2.00%

$575.24

Novartis AG (NYSE:NVS)

240

80.2

$19,248.00

2.72

3.39%

$652.26

Realty Income Corporation (NYSE:O)

386

52.08

$20,102.88

2.63

5.06%

$1,016.72

ONEOK, Inc. (OKE)

560.37

56.69

$31,767.38

3.08

5.43%

$1,725.94

Paychex, Inc. (NASDAQ:PAYX)

438

60.72

$26,595.36

2.00

3.29%

$876.00

PepsiCo, Inc. (PEP)

186

109.3

$20,329.80

3.22

2.95%

$598.92

The Procter & Gamble Company (NYSE:PG)

166

78.43

$13,019.38

2.76

3.52%

$457.89

Prudential Financial, Inc. (NYSE:PRU)

125

102.33

$12,791.25

3.60

3.52%

$450.00

QUALCOMM Incorporated (NASDAQ:QCOM)

425

53.12

$22,576.00

2.28

4.29%

$969.00

Raytheon Company (NYSE:RTN)

198

215.91

$42,750.18

3.47

1.61%

$687.06

Royal Bank of Canada (NYSE:RY)

225

76.27

$17,160.75

3.76

4.93%

$846.00

Tanger Factory Outlet Centers, Inc. (SKT)

891

22.78

$20,296.98

1.37

6.01%

$1,220.67

The Southern Company (NYSE:SO)

341

44.79

$15,273.39

2.32

5.18%

$791.12

Sysco Corporation (NYSE:SYY)

372

59.72

$22,215.84

1.44

2.41%

$535.68

Target Corporation (NYSE:TGT)

384

72.29

$27,759.36

2.48

3.43%

$952.32

T. Rowe Price Group, Inc. (NASDAQ:TROW)

326

104.38

$34,027.88

2.80

2.68%

$912.80

Tupperware Brands Corporation (NYSE:TUP)

205

47.34

$9,704.70

2.72

5.75%

$557.60

UGI Corporation (UGI)

618

44.25

$27,346.50

1.00

2.26%

$618.00

United Technologies Corporation (NYSE:UTX)

108

122.76

$13,258.08

2.80

2.28%

$302.40

Walgreens Boots Alliance, Inc. (WBA)

299

63.47

$18,977.53

1.60

2.52%

$478.40

WEC Energy Group, Inc. (NYSE:WEC)

336

63.04

$21,181.44

2.21

3.51%

$742.56

Wells Fargo & Company (NYSE:WFC)

384

52.23

$20,056.32

1.56

2.99%

$599.04

Walmart Inc. (NYSE:WMT)

184

86.69

$15,950.96

2.08

2.40%

$382.72

W. P. Carey Inc (WPC)

276.95

62.32

$17,259.52

4.06

6.51%

$1,124.42

Cash

$2,392.29

High Yield Stocks

Alliance Resource Partners, L.P. (ARLP)

1591.89

16.85

$26,823.35

2.04

12.11%

$3,247.46

Annaly Capital Management, Inc. (NLY)

1800.27

10.48

$18,866.83

1.20

11.45%

$2,160.32

Buckeye Partners, L.P. (BPL)

448

37.29

$16,705.92

5.05

13.54%

$2,262.40

Omega Healthcare Investors, Inc. (NYSE:OHI)

851

26.59

$22,628.09

2.64

9.93%

$2,246.64

PIMCO Corporate & Income Opportunity (PTY)

1259.69

17.2

$21,666.67

1.56

9.07%

$1,965.12

$1,632,036.78

3.39%

$55,339.25

Returns

My portfolio has decreased in value this fourth quarter from $1,699,152.85 to $1,633,016.62. This is a return of -2.99%, if you do not include the pension contributions. In the same time period the "market", as represented by SPY, was down -2.31%. So I trailed the “market” by .68% this quarter.

I publish these updates to show how a simple DGI portfolio can be created and managed, and to show not only that a DGI portfolio can produce a high quality stream of increasing dividends, but that it can also produce market-matching (possibly even beating) returns. But in order to get people who are unfamiliar with DGI to believe that DGI can be a successful way to produce total return I have to show them the results compared to what they could otherwise be doing. By showing my results compared to some common benchmarks, I can demonstrate how effective DGI can be. This is why I always show the comparisons to benchmarks.

Based on articles written and comments made on SA, I have chosen to use three different entities as my benchmarks, the SPDR S&P 500 Trust ETF (NYSEARCA:SPY), the SPDR S&P Dividend ETF (NYSEARCA:SDY) and the Vanguard Dividend Growth Fund (MUTF:VDIGX). By using these benchmarks, I can compare my portfolio to the market as a whole, to a dividend growth ETF, and to a dividend growth mutual fund. These are the indices most often mentioned on SA as the ones that DGIers should be putting their money into by those who don't believe that individuals can beat an index.

To make the comparisons accurate, I run three paper portfolios made up of each of the three indices above. For each of these portfolios, whenever I have cash contributions put into my real-life account, I also put the same amount into the paper portfolios and "buy" more shares of the individual indices. And when SPY, SDY or VDIGX pays a dividend, it gets reinvested into more paper shares, just like I reinvest my real-life dividends in my portfolio. As far as I can tell, this is the most accurate way I have to compare their performances.

This quarter the returns of my benchmarks were:

SPY -2.31%

SDY -3.57

VDIGX -2.50%

Kind of a mixed bag. I beat SDY but trailed SPY and VDIGX.

Over the life of the portfolio my portfolio continues to beat the S&P and the other benchmarks by a significant amount.

The Total return for my portfolio and each of the benchmarks are

KISS : 107.45%

SPY (S&P ETF) : 96.68%

SDY (dividend ETF) : 85.86%

VDIGX (Dividend Mutual Fund) : 81.67%

Dividends

During the first quarter I collected $13,724.47 in dividends. With the declared dividends for each of my companies, the amount of dividends I expect to collect in the next 12 months (ED12) is $55,339.25, a 5.43% increase over the $52,487.24 ED12 from just last quarter. It is also a 17.02% increase from the 47,289.38 ED12 from one year ago. As many of my stocks continue to increase their dividends over the coming year, I expect that the dividend growth will be even higher. (It is important to note that the growth in my ED12 is due both to the dividends expected from new contributions, as well as the actual organic dividend growth of the stocks in my portfolio.)

The present yield of my portfolio is 3.39%. This has dropped over the past two years due to the increase in the portfolio value, not due to a drop in dividends. As shown in the following graph, my dividend income continues to grow year by year.


Quarterly Dividends

Conclusion

In case I haven’t mentioned it before, I am a dividend growth investor. What this means is that my focus is on my dividend and my dividend growth, not on my stock price appreciation. Yes, of course, I want my stocks to go up in price, but it’s not what drives my stock selection. I don’t buy a stock because I believe it will double in price over the next few years. I buy a stock because I expect it to pay me a good dividend, and I expect that dividend to increase every year going forward. And I believe that if the dividend does grow year after year I’m pretty sure the stock price will follow eventually.

So, as I mentioned at the top of the article, none of this market volatility has bothered me because through it all my dividend stream has continued to increase. This quarter, as the market has made crazy moves up and down, I have collected more in dividends than I ever have before. To demonstrate what I mean I’ll give you some examples.

On Feb 2 the Dow dropped 1,175.21 points. But on that day I collected $254.40 in dividends.

From Feb 27 through March 2 the Dow dropped 1,171.21 points. But over those four days I collected a total of $1,551.28 in dividends.

On March 22 and 23 the Dow dropped 1,149.11 points. But I collected $403.20 over those two days.

And on April 2 the Dow dropped 458.92 points. But on that day I collected $271.37.

So as the market was freaking out over trade wars, interest rates and other such things, I just kept watching my dividends roll in. This is a perfect illustration of one of the reasons I am a dividend growth investor. It allows me to ignore the day to day, week to week, month to month and even year to year moves in the stock market. As long as my dividends keep increasing I'm happy.

When I started writing these updates five years ago, I had a few purposes in mind. First, I wanted to demonstrate that a DGI portfolio could be effectively and successfully managed using simple, easy to understand and easy to carry out rules that would not take an exorbitant amount of time. Second, I wanted to show that the results of such a portfolio could match the results that someone would get if they invested passively in a market ETF or mutual fund, but would at the same time produce more dividend income. Third, I wanted to show that managing a DGI portfolio takes patience. It is not a system where you buy and sell stocks frequently. It is a buy and hold (and monitor) system. Transactions should be kept to a minimum, and when bought you should expect to hold on to your stocks for many years. I think my results over the past five years have gone a long way in demonstrating these three principles.

Also, more personally for myself, by putting my system out there for everyone to see and comment on, and by making a public commitment to it, I thought it would make it more likely for me to stick to it. If I have to answer a question from someone as to why I did something that did not follow my plan, I better be able to have a good explanation. Publicly disclosing my portfolio helps me to maintain my discipline in managing it.

I am a part-time investor. I do it as a hobby and because I trust myself to look after my interests more than I trust anybody else. I am not a professional and have no formal training in finance, economics or investing. Most of what I know I have learned here on Seeking Alpha. If I can produce dividend income and total returns that beat the market, then anybody can. All you have to do is take the time to read about DGI from some of the best contributors here on SA (DVK, Chowder, Bob Wells, etc.), set up a system that you are comfortable with and stick to that system. And try to keep it as simple as possible. The more complicated it is the harder it is to follow, and in my opinion the worse your results will be in the end.

DGI has taught me to have a long-term focus, and for that focus to be on the dividends, not on price movement. The prices of some of my stocks may fall from time to time, but as long as the dividends continue to rise I know the stock prices will eventually recover. More importantly, while waiting for that to happen, I will continue to collect dividends from those stocks. And as the dividends increase, if the prices stay low, it will just give me even more opportunities to buy more shares of undervalued stocks. I'm already enjoying some of the benefits of my patience, as I was able to buy shares at depressed prices, which means I will collect even more dividends in the coming years.

And yes, some of my stocks have cut their dividends over the past few years, but that is bound to happen from time to time. I just simply replace them with other, hopefully better quality stocks, and continue with my plan. And even with these dividend cuts, overall, my dividend income continues to grow year after year.

So going forward I will continue to focus on the dividends and to follow my simple K.I.S.S. rules. They have been working very well so far. I believe my results continue to support my hypothesis: That by using simple, straightforward, easy-to-understand criteria for buying and selling, and by using the hard work of other people (Thank you David Fish, Chuck Carnevale, S&P and all the wonderful SA contributors I have learned from!), that someone (me!) can achieve excellent investment results without having to put an inordinate amount of time into the process.

Thank you for reading my article. I welcome your comments and criticisms.

Disclosure: I am/we are long AMGN, MCD, MSFT, LMT. 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.