Dividend Growth Portfolio: May 2018 Update

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Includes: AAPL, ABBV, AMD, AMZN, APLE, BA, CHCT, CLDT, CNP, DLR, ED, GE, GM, HAS, HD, HRL, HRZN, IBM, IDA, KMB, LMAT, LMT, LNT, LOW, LYB, MAIN, MC, MCD, MKC, MO, MU, MXIM, NEE, NHI, NRZ, O, OKE, ORIT, PEP, PFG, QCOM, RTN, SQ, T, TRGP, TROW, VFC, VGR, VTR, VZ, WPC, XOM
by: Tom Wilson

Summary

I'm a dividend growth investor, but I still hold a few positions in non-dividend paying companies that I see as special situations.

Since my last update, I've reduced my exposure to REITs and put more balance in my portfolio.

I currently have some special situation investments which are heavily overweight and skew some of the numbers. Namely, a collection of positions in Micron Technology.

Like many of you, I find these type of portfolio articles interesting to see what other people are invested in. It can generate ideas and give you something to look into.

It has been about a year and a half since I retired and subsequently wrote my first Seeking Alpha article detailing my dividend growth portfolio. I had intended to write periodic articles detailing the portfolio updates and changes (as many other authors do here), but life events sidetracked me for a while. Rather than detail all the changes I've made, I'm just going to present the portfolio as it stands now.

In general, I have made many major adjustments to reduce my overweight allocation to the REIT sector (I was way heavy in REITs) and to achieve more balance and diversification. With this in mind, I'll list my current holdings by sector and then discuss a few recent investments I've made that will be more relevant for someone looking for investment ideas.

Note: I include a "New?" column for denoting which investments are new positions since my original portfolio. Also, the CCC column refers to the classification the stock garners in David Fish's CCC list for dividend growth stocks.

Consumer Discretionary - Overall Weight: 7.36%

New? Stock CCC Level Yield Weight
Yes Amazon (AMZN) 1.5%
General Motors (GM) 4.12% 0.9%
Yes Hasbro (HAS) Contender 2.89% 0.8%
Yes Home Depot (HD) Challenger 2.16% 0.8%
Yes Lowe's (LOW) Champion 1.88% 0.7%
McDonald's (MCD) Champion 2.44% 1.6%
VF Corp. (VFC) Champion 2.36% 1.0%

I finally bit the bullet (20 years late) in Amazon. I just can't fight it anymore, and I see no end to its growth. It doesn't pay a dividend, so this is just a capital appreciation play for me. My Hasbro position is a trading position that I've bought and sold a couple of times. I bought Home Depot and Lowe's early this year when they pulled back a bit. Their yields aren't that big, but the dividend growth rates are huge at 29% and 21% respectively.

Consumer Staples - Overall Weight: 7.41%

New? Stock CCC Level Yield Weight
Yes Hormel (HRL) Champion 2.07% 2.1%
Yes Kimberly-Clark (KMB) Champion 3.81% 1.0%
Yes McCormick (MKC) Champion 1.93% 0.5%
Altria (MO) Champion 5.07% 2.4%
Pepsi (PEP) Champion 3.81% 0.9%
Vector Group (VGR) Contender 8.29% 1.6%

I picked up Hormel last August after it dropped a huge amount on a bad earnings report. It has been doing well since that time, and I'm up over 15% in ten months. I bought into KMB and MKC early this year when the market had its big correction, or pullback, or whatever that was. I'm down about 7% on KMB but up about 7% on MKC.

Energy - Overall Weight: 2.82%

New? Stock CCC Level Yield Weight
ONEOK (OKE) Contender 4.83% 1.0%
Targa Resources (TRGP) 7.56% 0.5%
Yes Exxon Mobil (XOM) Champion 4.04% 1.3%

I got stung a few years ago with some of the energy stocks, such as Kinder Morgan (NYSE:KMI). For this reason, I'm slowly wading back in a bit. Exxon seemed safe, and the yield over 4% was pretty compelling. OKE has been a fantastic investment for me. Targa has a great yield, but its price has been range-bound for quite a while. Since Targa's yield is so high, I'm okay with the price stagnation. Just stay right there....

Financials - Overall Weight: 6.39%

New? Stock CCC Level Yield Weight
Horizon Tech Fin (HRZN) 11.72% 0.8%
Main Street (MAIN) Challenger 5.89% 2.9%
Yes Moelis & Co. (MC) Challenger 3.32% 0.5%
Oritani Fin (ORIT) 6.56% 0.6%
Yes Principal Fin (PFG) Contender 3.52% 0.7%
Yes T. Rowe Price (TROW) Champion 2.37% 0.8%

Some of my REIT money allocation went into the Financials this year. I had wanted PFG and TROW for a while and finally pulled the trigger when they pulled back. The Moelis & Co. investment actually came across my radar as a result of the comments section of a Seeking Alpha article I wrote a few weeks ago. You can still read it here. (Thanks for the tip khart100. I'm already up 5.2% in just 3 weeks.)

Health Care - Overall Weight: 2.96%

New? Stock CCC Level Yield Weight
AbbVie (ABBV) Challenger 3.69% 2.0%
Yes LeMaitre Vascular (LMAT) Challenger 0.84% 1.0%

LMAT is an interesting healthcare company that makes medical devices and implants, mainly for vascular surgery. It is not widely followed, but I recommend looking into it for the capital appreciation.

Industrials - Overall Weight: 4.21%

New? Stock CCC Level Yield Weight
Boeing (BA) Challenger 2.00% 1.0%
Yes General Electric (GE) 3.29% 0.8%
Yes Lockheed Martin (LMT) Contender 2.47% 1.5%
Yes Ratheon (RTN) Contender 1.62% 0.9%

I like these defense stocks. It seems like there is a never ending demand for their "products". I've owned Boeing for a long time and don't intend on selling anytime soon. Their backlog of plane orders is just astonishing. I didn't buy the GE shares until recently, so I'm thinking that, 5 years from now, these price levels are going to look like bargain basement in hindsight.

Information Technology - Overall Weight: 37.9%

New? Stock CCC Level Yield Weight
Yes Apple (AAPL) Challenger 1.55% 2.7%
Yes Advanced Micro Dev (AMD) 1.7%
IBM (IBM) Contender 4.36% 1.7%
Maxim Int (MXIM) Contender 2.92% 1.0%
Micron Tech (MU) 27.4%
Yes Square (SQ) 0.8%
Qualcomm (QCOM) Contender 4.49% 2.6%

I expect to take some heat in the comments section about my MOAB sized overweight position in Micron. Some of that position will likely be coming off the table this week since I sold some covered calls, which are now in the money. Some of the Micron position is also invested in January 2018 calls which are doing very well. A large portion of Micron is also in common shares which I intend to start trimming in about 4 or 5 weeks. I wrote an interesting Seeking Alpha article on Micron. You can read it here.

I purchased the Apple shares when it pulled back a couple months ago. I knew that they have a massive stockpile of cash to do something with, and I figured that it would benefit the shareholders in some fashion. I decided that Apple would likely be up over 200 before too long, so I might as well join the bandwagon.

Square was a recent purchase. I bought it based on my experience using their software interface to set up a credit card processing system for a webpage I run. I thought the interface was very slick and easy to use, and I also see Square credit card processors in many stores.

Materials - Overall Weight: 0.66%

New? Stock CCC Level Yield Weight
LyondellBasell (LYB) Challenger 3.55% 0.7%

I only own 1 materials stock, but boy is it a doozy. I wish I had gone all in and purchased a larger position. It's been very highly successful for me and is up 62% in less than 2 years.

Real Estate (REITs) - Overal Weight: 12.21%

New? Stock CCC Level Yield Weight
Apple Hosp (APLE) 6.50% 1.2%
Yes Com Healthcare (CHCT) 5.99% 0.6%
Chatham Lodging (CLDT) Challenger 6.63% 1.2%
Digital Realty (DLR) Contender 3.71% 2.4%
National Health Inv (NHI) Contender 5.66% 1.0%
New Residential (NRZ) Challenger 11.12% 2.1%
Realty Income (O) Champion 4.97% 2.0%
Ventas (VTR) Challenger 5.91% 0.7%
W. P. Carey (WPC) Contender 6.17% 1.0%

I am still overweight on the Real Estate sector, but I mostly feel comfortable with it at this point. The group was about 3 times this size last fall, so I have been successful in getting it trimmed way back. Some of these are hard to let go of after you get used to the dividend income they provide.

It may seem odd that I added a position in CHCT while I was cutting back on REITs. In actuality, I initiated the position just prior to starting the cut-backs. CHCT had a great looking chart, and they have been increasing the dividend every quarter. I couldn't resist, but I should have. In the last 10 months, it really hasn't done much overall.

Telecommunications - Overall Weight: 3.92%

New? Stock CCC Level Yield Weight
AT&T (T) Champion 6.19% 2.9%
Verizon (VZ) Contender 4.85% 1.0%

These two stocks are stalwarts in the portfolio and will likely never be sold. I have owned them for quite some time.

Utilities - Overall Weight: 2.77%

New? Stock CCC Level Yield Weight
Yes CenterPoint Energy (CNP) Contender 4.16% 0.9%
Consolidated Edison (ED) Champion 3.72% 0.4%
Alliant Energy (LNT) Contender 3.22% 0.5%
Yes NextEra Energy (NEE) Contender 2.76% 0.9%

I like the Utilities sector, but for some reason, I only seem to initiate smaller 1/2 or 3/4 sized positions. Lately, I've been in and out of IdaCorp (IDA) a couple times, but I don't currently own it. I would like to get it back again.

Cash - Overall Weight: 11.4%

After making adjustments with the REITs, I still have a decent sized cash position.

That's where I currently stand. Please feel free to comment on anything in my portfolio, or suggest any gems you've found. Try to refrain from hammering me too much on my large Micron position. I know it's too large, and I will be reducing it over time.

Disclosure: I am/we are long ALL POSITIONS LISTED IN MY PORTFOLIO.

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.