Dividend Sensei's Portfolio Update 35: If You Want To Get Rich, Follow The Data

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Includes: AAPL, ABBV, ADM, AEP, ALLE, AM, AMT, ANDX, AOS, APD, APTS, AQN, AVGO, AY, BAC, BAM, BEP, BIP, BLK, BLL, BNS, BPMP, BUD, CCI, CL, CLDT, CLX, CMCSA, CNXM, CONE, COR, CORR, COST, CSL, CTRE, CWEN, D, DIS, DM, DOV, ECL, ENB, EPD, EQGP, EQIX, EQM, ERIE, ET, ETN, FDS, FDX, FELE, FTS, GIS, GLW, GPC, GRC, HAS, HD, HEP, HESM, HII, HON, HRL, HSY, HUBB, IFF, INGR, IRM, ITW, IVZ, JNJ, KIM, KMB, KMI, KO, LANC, LECO, LEG, LOW, LUV, LYB, MAA, MAN, MDLZ, MDT, MKC, MMM, MMP, MO, MPLX, MPW, MRT, MSFT, MWA, NBLX, NHI, NTES, O, OMP, OZK, PCAR, PEGI, PEP, PFE, PFG, PG, PM, PPG, PRU, PSXP, PXD, QQQ, QSR, QTS, RCL, ROST, RY, SBUX, SCHD, SEP, SHLX, SKT, SNA, SPG, SWKS, T, TAP, TD, TEGP-OLD, TERP, TJX, TRP, TTC, TU, TXN, UL, UNP, V, VFC, VLP, VTR, WBA, WGP-OLD, XOM
by: Dividend Sensei
Summary

There is much debate in the world of investing about how to build a portfolio to meet your long-term needs.

You can find good arguments on both sides about how many stocks to own, and whether or not you should book profits early or let your winners run.

Two little known long-term studies have a definitive answer on both questions with potentially shocking but important implications for your portfolio.

It turns out that over time just a handful of winners generate most of the market's incredible gains. This means that diversification, a long-term focus, and proper risk management are key to reaching your financial goals.

This week there are 145 quality dividend growth stocks trading at attractive valuations (from a master watchlist of 205 companies).

(Source: imgflip)

First, let me be very clear that this is my personal portfolio tailored to my specific financial situation, risk profile, time horizon, and personality traits. I am not recommending anyone mirror this portfolio, which is merely designed to show my unique, rule-based, methodical approach to value-focused, long-term, dividend growth investing.

My situation is unique, as though only 31, I'm already retired (medical retirement from the Army), thus making this portfolio an income-focused retirement portfolio (though in a taxable account). I'm also working full-time (self-employed), and thus have an external source of income to continually add to this portfolio. I do not plan to actually tap the portfolio's income stream for 20-25 years when I plan to move my family (and help support my parents) to the promised land of my people (retired dividend investors): Sarasota, Florida.

What this portfolio can be used for is investing ideas; however, this portfolio includes high-, low-, as well as medium-risk stocks, so it's up to each individual to do their own individual research and decide which, if any, of my holdings are right for you.

For a detailed explanation of my methodology, please read my introductory article to the EDDGE (Eternal Daily Dividend Growth Experiment) 4.0 portfolio. However, keep in mind that the portfolio is not static, and both it and the underlying investment strategy will evolve and adapt over time. This is because a changing world, new knowledge, and more experience will cause me to fine-tune it over coming years and decades to maximize my income and total returns.

Also, to make it easier to digest, I've decided to try separating my weekly investment lesson/commentary from the actual portfolio update. This week's commentary explains 3 Reasons Investors Should Be Cheering And Buying These 6 Undervalued Sectors.

Diversification, Buy And Hold Investing, And The Challenge Of Active Management

A few weeks ago on one of my comment threads, a reader called Buy&Hold2012 inspired a spirited debate about the best way to achieve long-term financial success. That's because B&H2012 had a personal policy of NEVER selling any stock he bought. Over the decades he amassed a portfolio of dozens of companies that allowed him to generate $600,000 per year in dividends.

Many commenters argued that this lead to a suboptimal "de-worsified" portfolio because he had held onto some formerly good dividend stocks (such as GE and CenturyLink) that ended up cutting their payouts as their fundamentals deteriorated.

B&H 2012 countered with the fact that even if some of his investments failed over time owning and never selling just a handful of superstar stocks like Home Depot (HD), Starbucks (SBUX), Apple (AAPL), TJX Companies (TJX), and Amazon (AMZN) was enough to ensure excellent returns and get him to his goals.

Chart HD Total Return Price data by YCharts

Well it's hard to argue with that given that some companies are indeed world beaters that end up crushing the market over time. Outperformance like that makes up for a lot of mistakes.

Which brings up two importance concepts that have long been a hit topic of debate for investors: how diversified should you be? And should you buy and hold forever? Or is it better to try to sell your losers in hopes of stacking your portfolio with giant winners?

What The Data Says

A study by JPMorgan Chase (JPM) Asset Management found that between 1980 and 2014 a shocking number of companies in the Russell 3000 (which represents 98% of the US stock market) suffered catastrophic losses. That means they declined 70+% and never recovered.

(Source: Morgan Housel)

Another 25% of stocks underperformed the market during this time. In effect this means that 65% of American stocks were ones you'd have wanted to avoid. This seems to support those who think that selling your losers is a good idea. This is actually the camp I'm in with my "buy and hold until the thesis breaks" strategy.

But wait a second if B&H2012 is wrong then how did he manage to get a portfolio big enough to generate over half a million per year in passive income?

(Source: Morgan Housel)

Because he's not wrong. That same study found that 7% of the market's top winners generated pretty much all of the market's 11.9% CAGR total return over the time. Note as well that with the exception of utilities (which are not by nature "world beaters") every sector had just a handful of top names that generated most of that sector's contribution to the market's overall strong returns.

Another study found that between 1926 and 2009 (which involved the two largest market crashes in US history) stocks generated 9.6% total returns. However if you take out the top 25% then that number falls to -0.6%. Or to put another way the top 25% of stocks over that 83 year period generated 100.6% of the market's total returns. The rest lost money.

So what implications can we draw from this? First, active management is hard, which is why just 5% of active fund managers can beat the S&P 500 over any three year period. This is why for most investors passive investing such as with low cost ETFs is usually the best choice. Personally my favorite is the Schwab US Dividend Equity ETF (SCHD) and I consider the Nasdaq (QQQ) to be a better overall long-term index than the S&P 500 overall. In fact if my own investment experiment doesn't hit my predetermined return targets I plan to use these two ETFs to as the cornerstones of my next portfolio (gradually shifted over time).

Second, diversification is indeed key because it's very hard to tell which companies are going to be the superstars of the next 30, 40 or 50 years. Amazon may still be a great company but it's almost certainly not going to deliver 30% annualized returns over the next few decades.

Third, buy and hold is also critical. Because if you had sold off a major winner after the first double (to "play with house money") then you miss out on decades of incredible compounding power that could potentially let you retire from just one big winner.

Fourth, selling losers whose investment thesis has broken is probably a good idea. After all you should always buy a stock with a very specific goal in mind, both why you are buying it but also when you would sell it. In other words while you want to avoid selling the next Amazon, Apple, or Home Depot, it's pretty fair to say that CenturyLink and GE are not going to be epic world beaters going forward.

While packing your portfolio with epic superstar companies is one way to beat the market, those studies also show that merely avoiding the worst companies is also a great way to generate excellent returns.

That's why I'm personally drawn to dividend stocks, especially those with long uninterrupted track records of annual payout increases (dividend aristocrats and kings).

(Source: Motley Fool)

While true that none of these companies are going to be the next Apple or Starbucks, they are also much higher quality than your average stock. Which is why they tend to beat the market over time. For example between 1991 and 2017 the dividend aristocrats generated 12.0% CAGR total returns compared to 9.9% for the S&P 500. That annual 21% outperformance would have meant an extra $74,800 on an initial $10,000 investment over that 26 year period.

My goal is to not just own many of those aristocrats and kings but to buy quality dividend growth stocks that are future aristocrats and kings. Which is why dividend safety and risk management is such an essential part of my overall investment strategy. If a dividend gets cut it means I was wrong. So I admit my mistake and recycle that capital into better companies with brighter long-term prospects.

The State Of The Economy (AKA Recession Watch)

I use five key meta analyses to track the health of the economy. That includes those which have historically proven to be good predictors of recessions: the yield curve, the BaR economic graph, Jeff Miller's meta analysis of leading economic indicators, The St. Louis Fed's smoothed out recession risk indicator, and the New York Fed's real time GDP growth tracker.

(Source: Business Insider)

The yield curve has proven the single most accurate predictor of recessions over the past 80 years. Specifically, when the curve inverts, or goes below 0 (because short-term rates rise above long-term rates), then a recession becomes highly likely. It usually begins within 12 to 18 months.

Yield Curve Inversion Date

Recession Start Date

Months To Recession Once Curve Inverts

Aug. 1978

Jan. 1980

17

Sept. 1980

July 1981

10

Dec. 1988

July 1990

19

Feb. 2000

March 2001

13

Dec. 2005

Dec. 2007

24

Average

16.6

(Source: St. Louis Federal Reserve, Ben Carlson)

Current 2/10 Yield Curve: 0.51% (up from 0.43% last week)

A few weeks ago the curve fell as low as 0.41%, the lowest number since 2007. That 8 basis point increase is nice but it's still too early to determine whether or not the curve is now steepening or merely trading in a flat range. Fortunately history shows that the actual number isn't significant and recession risk is low as long as the curve is positive. Overall I'm optimistic that strong economic growth and rising inflation expectations should help to keep long-term rates rising over time and thus put off any potential inversion for many months if not years. That's especially true if the Federal Reserve avoids hiking short-term rates too aggressively if the curve falls too low.

The second economic indicator I watch is Economic PI's baseline and rate of change or BaR economic analysis grid. This is another meta analysis incorporating 19 leading indicators that track every aspect of the US economy. That includes the yield curve, through a different version of it.

(Source: Economic PI)

The BaR grid has shown to be a reliable indicator predicting the 1980, 1990, 2001, and 2007 recessions.

With 9 out of 19 economic indicators in the expansion quadrant (indicating accelerating growth), and 10 out of 19 still showing positive (though decelerating) growth, there remains little cause for concern. In fact in the past week one of the indicators switched to the expansion quadrant indicating slightly better economic conditions.

(Source: Economic PI)

Note, however, that five weeks ago, there were 12 economic indicators in the expansion quadrant, so the trend is still slightly negative. This seems to indicate that economic growth is slowing slightly but remains firmly positive. In fact the mean coordinate point (economic aggregate) remains at a neutral position but about 37% above baseline. That's about the same level as last week.

Next there's Jeff Miller's excellent economic indicator snapshot, a rich source of numerous useful market/economic data. It also provides an actual percentage probability estimate for how likely a recession is to start in the next few months.

(Source: Jeff Miller)

What I'm looking at here is the quantitative estimates of short-term recession risks. In this case the four month recession risk is about 0.73%. While that is up slightly from last quarter I don't consider it statistically significant. In addition, rising inflation expectations (Core PCE now up to 1.9% YOY growth) which is why long-term rates are rising, are a bullish sign of economic optimism from the bond market.

For another look at recession risk I like to use the St. Louis Fed's smoothed out recession risk indicator. This looks at the risk of a recession beginning in the current month (it's actually delayed two months).

(Source: St. Louis Federal Reserve)

The way to read this graph is to understand that in the past (since 1967) as long as the reading (currently 0.1% recession risk) is under 18% then the economy has never been in a recession. This means that this graph can tell us with about four month lead time whether or not the economy is likely to be contracting.

Finally there's the New York Fed's real time GDP tracker (historically far more accurate than the Atlanta Fed's GDP model).

Current Economic Growth Projections

  • Q2 2018 projection: 3.2% (up 0.2% from last week )

Note that this is broadly in line with what most economists are expecting (2.7 to 3.3% 2018 growth) and indicates continued strong economic growth. That bodes well for continued job growth, and thus a continued tightening of the labor market that should eventually boost wages at a faster rate. Last month private sector wages grew 2.9% YOY which is up from 2.6% a year ago. That in turn could spur stronger consumer spending (70% of the US economy) and drive stronger corporate investment and earnings/cash flow/dividend growth.

Master Watchlist

There are about 3,000 dividend-paying stocks in America. This list has a goal of eventually listing all low/medium risk dividend growth stocks that have the potential to achieve 10+% total return potential.

Target yield indicates approximately fair value, which is the most I'd ever recommending paying for a company, no matter how good it is.

Total return potential is taken from the Gordon Dividend Growth model which found that, over time, total return for dividend stocks tracks yield + long-term dividend growth (a proxy for earnings and cash flow growth).

The projected dividend growth is from either management guidance or the current analyst consensus. Finally, I've included a sector column because some investors, for various reasons, don't want to/can't invest in MLPs.

Bolded and bracketed stocks are at fair value or better and worth buying today. The order of the stocks is the order I recommend buying them in assuming that maximizing total return is your primary goal.

Ticker

Company

Target Yield (Fair Value)

Current Yield

Potential Long-Term Dividend Growth

Total Return Potential

Sector

Industry

(AMGP)

Antero Midstream GP

0.4%

2.3%

26.3%

28.6%

MLP (no K1)

Oil, Gas & Consumable Fuels

(AM)

Antero Midstream Partners

3.7%

5.4%

19.9%

25.3%

MLP

Oil, Gas & Consumable Fuels

(PXD)

Pioneer Natural Resources

0.1%

0.3%

23.6%

23.9%

Energy

Oil, Gas & Consumable Fuels

(DM)

Dominion Midstream Partners

3.3%

9.1%

14.0%

23.1%

MLP

Oil, Gas & Consumable Fuels

(NBLX)

Noble Midstream Partners

3.6%

3.8%

19.0%

22.8%

MLP

Oil, Gas & Consumable Fuels

(EQGP)

EQT GP Holdings

2.5%

4.2%

18.0%

22.2%

MLP

Oil, Gas & Consumable Fuels

(LOW)

Lowe's Companies

1.7%

1.9%

19.8%

21.7%

Consumer Cyclical

Home Improvement Stores

(HII)

Huntington Ingalls Industries

1.2%

1.3%

20.0%

21.3%

Industrial

Defense

(CNXM)

CNXM Midstream Partners

5.5%

6.8%

14.0%

20.8%

MLP

Oil, Gas & Consumable Fuels

(ETE)

Energy Transfer Equity

5.8%

7.2%

13.0%

20.2%

MLP

Oil, Gas & Consumable Fuels

(COR)

CoreSite Realty Corp

3.5%

3.8%

16.3%

20.1%

REIT

Data Center REIT

(EQM)

EQT Midstream Partners

3.6%

7.8%

12.0%

19.8%

MLP

Oil, Gas & Consumable Fuels

MA

Mastercard

0.7%

0.5%

19.3%

19.8%

Financial

Credit Services

EOG

EOG Resources

0.7%

0.6%

19.0%

19.6%

Energy

Oil, Gas & Consumable Fuels

(HESM)

Hess Midstream Partners

5.0%

6.3%

13.0%

19.3%

MLP

Oil, Gas & Consumable Fuels

(OMP)

Oasis Midstream Partners

5.0%

8.3%

11.0%

19.3%

MLP

Oil, Gas & Consumable Fuels

(NTES)

NetEase

1.2%

1.3%

17.7%

19.0%

Technology

Internet Software & Service

(NYLD)

NRG Yield

6.0%

6.8%

12.0%

18.8%

YieldCo

Renewable Energy

(ABBV)

AbbVie

3.5%

3.6%

15.2%

18.8%

Healthcare

Biotechnology

V

Visa

0.7%

0.6%

18.1%

18.7%

Financial

Credit Services

(CCI)

Crown Castle

3.9%

4.1%

14.5%

18.6%

REIT

Telecom REIT

(RCL)

Royal Caribbean Cruises

1.9%

2.2%

16.2%

18.4%

Consumer Cyclical

Hotel, Resorts, Cruise Lines

(TEGP-OLD)

Tallgrass Energy GP

4.2%

9.4%

9.0%

18.4%

MLP (No K1)

Oil, Gas & Consumable Fuels

(AMT)

American Tower

1.8%

2.2%

15.9%

18.1%

REIT

Telecom REIT

(PEGI)

Pattern Energy Group

6.7%

9.6%

8.3%

17.9%

YieldCo

Renewable Energy

(LUV)

Southwest Airlines

0.8%

1.2%

16.4%

17.6%

Consumer Cyclical

Airlines

(SBUX)

Starbucks

1.4%

2.1%

15.4%

17.5%

Consumer Cyclical

Restaurant

NEP

NextEra Energy Partners

4.1%

3.9%

13.5%

17.4%

YieldCo

Renewable Energy

(CMCSA)

Comcast

1.7%

2.4%

15.0%

17.4%

Telecom

Cable & Satellite

NVDA

NVIDIA

0.28%

0.25%

17.0%

17.2%

Technology

Semiconductors

(QSR)

Restaurant Brands International

1.4%

3.2%

14.0%

17.2%

Consumer Cyclical

Restaurant

(HD)

Home Depot

2.1%

2.2%

14.9%

17.1%

Consumer Cyclical

Home Improvement Stores

(BUD)

Anheuser-Busch InBev

2.6%

3.6%

13.4%

17.0%

Consumer Defensive

Alcohol

(SWKS)

Skyworks Solutions

1.1%

1.3%

15.6%

16.9%

Technology

Semiconductors

(AVGO)

Broadcom

1.6%

2.9%

13.9%

16.8%

Technology

Semiconductors

(UNP)

Union Pacific

2.0%

2.0%

14.8%

16.8%

Industrial

Railroads

(ALLE)

Allegion PLC

0.7%

1.1%

15.7%

16.8%

Industrial

Building Products

BLK

BlackRock

2.5%

2.1%

14.4%

16.5%

Financial

Asset Management

(WGP-OLD)

Western Gas Equity Partners

3.6%

6.5%

10.0%

16.5%

MLP

Oil, Gas & Consumable Fuels

(EQIX)

Equinix

2.1%

2.4%

14.0%

16.4%

REIT

Data Center REIT

(VLP)

Valero Energy Partners

2.8%

5.0%

11.0%

16.0%

MLP

Oil, Gas & Consumable Fuels

CTAS

Cintas

1.1%

0.9%

15.1%

16.0%

Industrial

Business Services

HP

Helmerich & Payne

4.1%

3.9%

12.0%

15.9%

Energy

Oil Service

(QTS)

QTS Realty Trust

3.1%

4.7%

11.0%

15.7%

REIT

Data Center REIT

SPGI

S&P Global

1.3%

1.0%

14.7%

15.7%

Financial

Capital Markets

(SHLX)

Shell Midstream Partners

3.2%

5.6%

10.0%

15.6%

MLP

Oil, Gas & Consumable Fuels

ADP

Automatic Data Processing

2.4%

1.9%

13.6%

15.5%

Industrial

Business Services

(LECO)

Lincoln Electric Holdings

1.7%

1.7%

13.7%

15.4%

Industrial

Electric Machinery

(CSL)

Carlisle Companies

1.2%

1.4%

14.0%

15.4%

Industrial

Diversified Industrials

NDSN

Nordson

1.0%

0.9%

14.5%

15.4%

Industrial

Diversified Industrials

(AQN)

Algonquin Power & Utilities

4.7%

5.3%

10.0%

15.3%

Utilities

Diversified Utilities

SHW

Sherwin-Williams

1.1%

0.9%

14.3%

15.2%

Basic Materials

Specialty Chemicals

(MO)

Altria

4.0%

5.0%

10.1%

15.1%

Consumer Defensive

Tobacco

(ANDX)

Andeavor Logistics LP

5.9%

9.1%

6.0%

15.1%

MLP

Oil, Gas & Consumable Fuels

(MSFT)

Microsoft

0.9%

1.7%

13.2%

14.9%

Technology

Software

(BIP)

Brookfield Infrastructure Partners

4.5%

4.9%

10.0%

14.9%

Utility

Diversified Utilities

UNH

UnitedHealth Group

1.6%

1.2%

13.6%

14.8%

Healthcare

Health Insurance

(ENB)

Enbridge Inc

3.5%

6.7%

8.0%

14.7%

Energy

Oil, Gas & Consumable Fuels

(IVZ)

Invesco

3.2%

4.2%

10.5%

14.7%

Finance

Asset Management

(FDX)

Fedex

0.6%

0.8%

13.8%

14.6%

Industrial

Shipping & Logistics

(HAS)

Hasbro

2.6%

2.9%

11.7%

14.6%

Consumer Cyclical

Toys

(LEG)

Leggett & Platt

3.0%

3.6%

11.0%

14.6%

Consumer Cyclical

Furniture

(MDLZ)

Mondelez International

1.7%

2.2%

12.3%

14.5%

Consumer Defensive

Food & Beverage

(CONE)

CyrusOne

3.3%

3.5%

11.0%

14.5%

REIT

Data Center REIT

(TXN)

Texas Instruments

1.5%

2.2%

12.2%

14.4%

Technology

Semiconductors

OKE

ONEOK

5.0%

4.8%

9.6%

14.4%

Energy

Oil, Gas & Consumable Fuels

(APTS)

Preferred Apartment Communities

6.7%

7.4%

7.0%

14.4%

REIT

Apartment REIT

(PSXP)

Phillips 66 Partners

3.1%

5.4%

9.0%

14.4%

MLP

Oil, Gas & Consumable Fuels

BDX

Becton, Dickinson & Company

1.7%

1.3%

13.0%

14.3%

Healthcare

Medical Equipment

(ECL)

Ecolab

1.1%

1.1%

13.2%

14.3%

Basic Materials

Specialty Chemicals

(MWA)

Mueller Water Products

0.9%

1.7%

12.6%

14.3%

Industrial

Water Infrastructure

TXRH

Texas Roadhouse

1.8%

1.6%

12.6%

14.2%

Consumer Cyclical

Restaurants

(ROST)

Ross Stores

1.0%

1.1%

13.0%

14.1%

Consumer Cyclical

Retail

(KMI)

Kinder Morgan

4.1%

5.0%

9.0%

14.0%

Energy

Oil, Gas & Consumable Fuels

(ADM)

Archer-Daniels Midland

2.6%

3.0%

11.0%

14.0%

Consumer Defensive

Farm Products

(AY)

Atlantica Yield

5.6%

5.9%

8.0%

13.9%

YieldCo

Renewable Energy YieldCo

BA

Boeing

2.4%

1.9%

12.0%

13.9%

Industrial

Aerospace & Defense

FBHS

Fortune Brands Home & Security

1.1%

1.4%

12.3%

13.7%

Industrial

Building Products

DCI

Donaldson Company

1.6%

1.5%

12.1%

13.6%

Industrial

Filtration Systems

(WBA)

Walgreens Boots Alliance

1.9%

2.5%

11.1%

13.6%

Consumer Defensive

Pharmacy

(CMI)

Cummins

2.6%

2.9%

10.7%

13.6%

Industrial

Heavy Trucks & Machinery

(OZRK)

Bank of the Ozarks

1.5%

1.6%

12.0%

13.6%

Financial

Banking

NKE

Nike

1.2%

1.1%

12.3%

13.4%

Consumer Cyclical

Apparel

(TJX)

TJX Companies

1.2%

2.3%

11.1%

13.4%

Consumer Cyclical

Retail

(TERP)

TerraForm Power

6.0%

6.9%

6.5%

13.4%

YieldCo

Renewable Energy

(SEP)

Spectra Energy Partners

6.0%

9.4%

4.0%

13.4%

MLP

Oil, Gas & Consumable Fuels

(DIS)

Disney

1.6%

1.6%

11.7%

13.3%

Consumer Cyclical

Entertainment

PSX

Phillips 66

2.8%

2.3%

11.0%

13.3%

Energy

Refining

(TTC)

Toro Company

1.3%

1.3%

12.0%

13.3%

Industrial

Agricultural Equipment

(BEP)

Brookfield Renewable Partners

5.6%

6.2%

7.0%

13.2%

YieldCo

Renewable Energy

(AAPL)

Apple

0.9%

1.6%

11.6%

13.2%

Technology

Consumer Hardware

(INGR)

Ingredion

2.0%

2.1%

11.0%

13.1%

Consumer Defensive

Agricultural Products

(SNA)

Snap-on

1.6%

2.1%

11.0%

13.1%

Industrial

Diversified Industrials

(BLL)

Ball Corp

0.8%

1.1%

12.0%

13.1%

Basic Materials

Metal & Glass Containers

(ETN)

Eaton Corp

3.1%

3.3%

9.7%

13.0%

Industrial

Diversified Industrials

(ERIE)

Erie Indemnity

3.0%

3.0%

10.0%

13.0%

Finance

Insurance

(APD)

Air Products & Chemicals

2.4%

2.6%

10.4%

13.0%

Industrial

Industrial Gas

NOC

Northrop Grumman

1.7%

1.5%

11.5%

13.0%

Industrial

Defense

(PFG)

Principal Financial Group

2.9%

3.5%

9.4%

12.9%

Financial

Insurance

(MRT)

MedEquities Trust

7.4%

8.3%

4.6%

12.9%

REIT

Medical REIT

(HUBB)

Hubbell Incorporated

2.3%

2.9%

10.0%

12.9%

Industrial

Electronic Components

CAT

Caterpillar

3.0%

2.0%

10.9%

12.9%

Industrial

Farm & Construction Equipment

(COST)

Costco

1.1%

1.1%

11.7%

12.8%

Consumer Cyclical

Retail

GD

General Dynamics

2.1%

1.8%

11.0%

12.8%

Industrial

Aerospace & Defense

MCO

Moody's

1.4%

1.0%

11.8%

12.8%

Finance

Financial Exchanges & Data

(VFC)

V.F Corp

2.0%

2.3%

10.5%

12.8%

Consumer Cyclical

Apparel

(TRP)

TransCanada

3.9%

5.0%

7.7%

12.7%

Energy

Oil, Gas & Consumable Fuels

(GIS)

General Mills

3.1%

4.7%

8.0%

12.7%

Consumer Defensive

Food & Beverage

(AOS)

A. O. Smith

1.1%

1.1%

11.5%

12.6%

Industrial

Building Products

(TD)

Toronto-Dominion Bank

3.4%

3.6%

9.0%

12.6%

Financial

Banking

(MMM)

3M

2.5%

2.7%

9.8%

12.5%

Industrial

Diversified Industrials

CB

Chubb

2.2%

2.2%

10.3%

12.5%

Finance

Insurance

TRNO

Terreno Realty

2.9%

2.4%

10.0%

12.4%

REIT

Industrial REIT

(TU)

Telus

4.1%

4.4%

7.9%

12.3%

Telecom

Wireless/Internet

(CORR)

CorEnergy Infrastructure Trust

8.2%

8.3%

4.0%

12.3%

REIT

Infrastructure REIT

(MKC)

McCormick & Company

2.0%

2.0%

10.3%

12.3%

Consumer Defensive

Food & Beverage

(SPG)

Simon Property Group

3.2%

5.0%

7.3%

12.3%

REIT

Retail REIT

ORI

Old Republic International

4.3%

3.7%

8.6%

12.3%

Finance

Insurance

(ITW)

Illinois Tool Works

2.1%

2.1%

10.2%

12.3%

Industrial

Diversified Industrials

NSA

National Storage Affiliates

4.5%

4.3%

8.0%

12.3%

REIT

Storage REIT

(MPLX)

MPLX

4.4%

6.7%

5.6%

12.3%

MLP

Oil, Gas & Consumable Fuels

(EPD)

Enterprise Products Partners

5.6%

6.1%

6.2%

12.3%

MLP

Oil, Gas & Consumable Fuels

JKHY

Jack Henry & Associates

1.4%

1.2%

11.0%

12.2%

Technology

Data Processing & Outsourcing Solutions

(IFF)

International Flavors & Fragrances

1.9%

2.2%

10.0%

12.2%

Basic Materials

Specialty Chemicals

PH

Parker-Hannifin

1.8%

1.7%

10.5%

12.2%

Industrial

Diversified Industrials

MGRC

McGrath Rentcorp

2.9%

2.1%

10.0%

12.1%

Industrial

Business Services

(MPW)

Medical Properties Trust

6.6%

7.7%

4.4%

12.1%

REIT

Hospital REIT

(SKT)

Tanger Factory Outlet Centers

4.7%

6.8%

5.3%

12.1%

REIT

Retail REIT

(PG)

Procter & Gamble

3.1%

3.9%

8.2%

12.1%

Consumer Defensive

Household & Personal Products

(PRU)

Prudential Financial

2.7%

3.5%

8.5%

12.0%

Financial

Insurance

(FDS)

FactSet Research Systems

1.2%

1.3%

10.7%

12.0%

Finance

Capital Markets

(KIM)

Kimco Realty Corp

7.0%

7.8%

4.1%

11.9%

REIT

Retail REIT

(LANC)

Lancaster Colony Corp

1.9%

1.9%

10.0%

11.9%

Consumer Defensive

Food & Beverage

(CLX)

Clorox

2.7%

3.2%

8.6%

11.8%

Consumer Defensive

Household & Personal Products

CFR

Cullen/Frost Bankers

2.8%

2.2%

9.5%

11.7%

Finance

Regional Banks

(D)

Dominion Energy

3.7%

5.3%

6.4%

11.7%

Utilities

Diversified Utilities

RTN

Raytheon

2.3%

1.6%

10.0%

11.6%

Industrial

Aerospace & Defense

(HON)

Honeywell International

2.0%

2.0%

9.6%

11.6%

Industrial

Diversified Industrials

(BNS)

Bank of Nova Scotia

3.8%

4.2%

7.4%

11.6%

Finance

Banking

WDFC

WD-40 Company

1.8%

1.6%

10.0%

11.6%

Consumer Defensive

Household & Personal Products

(KO)

Coca Cola

3.2%

3.7%

7.7%

11.4%

Consumer Defensive

Food & Beverage

(HSY)

Hershey

2.3%

2.9%

8.5%

11.4%

Consumer Defensive

Food & Beverage

STAG

STAG Industrial

5.9%

5.6%

5.8%

11.4%

REIT

Industrial REIT

(T)

AT&T

4.9%

6.2%

5.1%

11.3%

Telecom

Wireless/Internet

(GLW)

Corning

2.3%

2.6%

8.7%

11.3%

Industrial

Electronic Components

(IRM)

Iron Mountain

6.0%

7.3%

4.0%

11.3%

REIT

Storage REIT

(MMP)

Magellan Midstream Partners

4.3%

5.3%

6.0%

11.3%

MLP

Oil, Gas & Consumable Fuels

(PFE)

Pfizer

3.5%

3.8%

7.4%

11.2%

Healthcare

Pharmaceuticals

PF

Pinnacle Foods

2.4%

2.1%

9.1%

11.2%

Consumer Defensive

Food & Beverage

(KMB)

Kimberly-Clark

3.1%

3.8%

7.3%

11.1%

Consumer Defensive

Household & Personal Products

MCD

McDonald's

3.1%

2.5%

8.6%

11.1%

Consumer Cyclical

Restaurants

BF.B

Brown-Foreman

1.4%

1.1%

10.0%

11.1%

Consumer Defensive

Alcohol

(XOM)

Exxon Mobil

3.4%

4.0%

7.0%

11.0%

Energy

Oil, Gas & Consumable Fuels

(UL)

Unilever

3.2%

3.2%

7.8%

11.0%

Consumer Defensive

Household & Personal Products

DLR

Digital Realty Trust

4.7%

3.8%

7.1%

10.9%

REIT

Data Center REIT

(TAP)

Molson Coors Brewing Company

2.0%

2.7%

8.1%

10.8%

Consumer Defensive

Alcohol

(HEP)

Holly Energy Partners

8.0%

8.8%

2.0%

10.8%

MLP

Oil, Gas & Consumable Fuels

(PEP)

Pepsi

3.0%

3.7%

7.0%

10.7%

Consumer Defensive

Food & Beverage

(PPG)

PPG Industries

1.5%

1.7%

9.0%

10.7%

Basic Materials

Specialty Chemicals

NEE

NextEra Energy

3.0%

2.8%

7.9%

10.7%

Utilities

Diversified Utilities

(GPC)

Genuine Parts Company

2.7%

3.1%

7.6%

10.7%

Industrial

Auto Parts

BMO

Bank of Montreal

4.0%

3.8%

6.9%

10.7%

Finance

Banking

(BAC)

Bank of America

1.3%

1.6%

9.0%

10.6%

Finance

Banking

(GRC)

Gorman-Rupp

1.5%

1.5%

9.0%

10.5%

Industrial

Pumps

PNR

Pentair

2.0%

1.5%

9%

10.5%

Industrial

Water Infrastructure

(JNJ)

Johnson & Johnson

2.8%

2.9%

7.6%

10.5%

Healthcare

Diversified Medical

(BAM)

Brookfield Asset Management

1.5%

1.5%

9.0%

10.5%

Finance

Asset Management

CVX

Chevron

3.9%

3.5%

7.0%

10.5%

Energy

Oil, Gas & Consumable Fuels

(BPMP)

BP Midstream Partners

4.5%

4.9%

5.5%

10.4%

MLP

Oil, Gas & Consumable Fuels

(CTRE)

CareTrust REIT

5.0%

5.3%

5.0%

10.3%

REIT

Senior Housing REIT

(VTR)

Ventas

5.8%

6.1%

4.2%

10.3%

REIT

Healthcare REIT

(DOV)

Dover

2.2%

2.3%

8.0%

10.3%

Industrial

Diversified Industrials

(PM)

Philip Morris International

5.0%

5.3%

5.0%

10.3%

Consumer Defensive

Tobacco

(LYB)

LyondellBasell

3.4%

3.4%

6.9%

10.3%

Industrial

Petrochemicals

(CL)

Colgate-Palmolive

2.4%

2.7%

7.6%

10.3%

Consumer Defensive

Household & Personal Products

AFL

Aflac

2.4%

2.3%

8.0%

10.3%

Finance

Insurance

BMI

Badger Meter

1.3%

1.2%

9.0%

10.2%

Technology

Electronic Components

(PCAR)

PACCAR

1.5%

1.7%

8.5%

10.2%

Industrial

Construction Machinery & Heavy Trucks

(FTS)

Fortis

4.0%

4.1%

6.0%

10.1%

Utility

Electric Utility

(MAN)

ManpowerGroup

1.6%

2.1%

8.0%

10.1%

Industrial

Human Resources & Employment Services

(HRL)

Hormel Foods

2.0%

2.1%

8.0%

10.1%

Consumer Defensive

Food & Beverage

(MAA)

Mid-America Apartment Communities

4.1%

4.2%

5.9%

10.1%

REIT

Apartment REIT

(FELE)

Franklin Electric

1.0%

1.0%

9.0%

10.0%

Industrial

Pumps

(RY)

Royal Bank of Canada

3.8%

3.8%

6.2%

10.0%

Finance

Banking

(O)

Realty Income

5.1%

5.1%

4.9%

10.0%

REIT

Retail REIT

(NHI)

National Health Investors

5.8%

5.8%

4.2%

10.0%

REIT

Medical REIT

(MDT)

Medtronic

2.2%

2.2%

7.8%

10.0%

Healthcare

Medical Products

USB

US Bancorp

2.5%

2.4%

7.5%

9.9%

Finance

Regional Bank

LTC

LTC Properties

6.0%

5.8%

4.0%

9.8%

REIT

Healthcare REIT

AVB

AvalonBay Communities

3.9%

3.7%

6.1%

9.8%

REIT

Apartment REIT

CPT

Camden Property Trust

3.9%

3.7%

6.1%

9.8%

REIT

Apartment REIT

EMR

Emerson Electric

3.0%

2.7%

7.0%

9.7%

Industrial

Electrical Components

WPC

W.P Carey

6.7%

6.3%

3.3%

9.6%

REIT

Diversified REIT

MAIN

Main Street Capital

8.0%

7.5%

2.0%

9.5%

Finance

BDC

FRT

Federal Realty Trust

4.0%

3.4%

6.0%

9.4%

REIT

Retail REIT

ARE

Alexandria Real Estate Equities

3.5%

2.9%

6.5%

9.4%

REIT

Medical Office REIT

DEO

Diageo

3.0%

2.3%

7.0%

9.3%

Consumer Defensive

Alcohol

NNN

National Retail Properties

5.5%

4.8%

4.5%

9.3%

REIT

Retail REIT

EXR

Extra Space Storage

4.3%

3.4%

5.7%

9.1%

REIT

Storage REIT

PSA

Public Storage

4.9%

3.9%

5.1%

9.0%

REIT

Storage REIT

AMGN

Amgen

4.0%

3.0%

6.0%

9.0%

Medical

Pharmaceuticals

VZ

Verizon

6.0%

4.9%

4.0%

8.9%

Telecom

Wireless/Internet

PLD

Prologis

4.2%

3.0%

5.8%

8.8%

REIT

Industrial REIT

ESS

Essex Property Trust

4.2%

3.2%

5.2%

8.4%

REIT

Apartment REIT

RDS.B

Royal Dutch Shell

7.0%

4.9%

3.0%

7.9%

Energy

Oil, Gas & Consumable Fuels

Average

3.1%

3.5%

10.1%

13.6%

(Source: management guidance, FastGraphs, Gurufocus, Simply Safe Dividends, Google Finance)

Note that the average yield, dividend growth, and total return potential is based on equal weighting of all 205 companies. If you weight by total return potential (as I plan to do), then the portfolio looks like this:

  • Yield: 3.5%
  • Projected Dividend Growth: 11.0%
  • Total Return Potential: 14.5%

Note that those figures include even stocks that are too overvalued to buy today. In reality the yield and total return potential should be higher if you avoid overpaying.

Buys/Sells This Week

  • Bought $880 of Huntington Ingalls Industries (HII) - target allocation $11,000

Managed to pick up my first defense stock after a strong sell off near fair value.

Plan For The Next Week

Due to a need to diversify my portfolio more, I'm going to be buying undervalued (or fairly valued) technology stocks for the next few weeks. Why technology?

Two reasons. First I own very little technology right now (very overweight in REITs and energy). However according to BlackRock (BLK) the world's largest asset manager in today's economic and interest rate environment (bear flattening) technology, energy, and REITs do best. Now I'm not trying to time the market but rather deploy my capital into sectors are likely to do well (while still maintaining valuation discipline) should our strong economy persist for several years.

Thus I'll be buying Apple (AAPL) this week, as my second technology stock. I consider Apple to be the ultimate must own low risk dividend growth stock. And despite it being at near a 52 week high, after a careful analysis of the fundamentals I think there are 6 reasons it will crush the market over the coming decade (by as much as 63% per year).

In coming weeks I'll be adding plenty of other tech names as well as stocks that while not technically in the sector still have massive growth catalysts (telecom tower and data center REITs for example).

The Portfolio Today

(Source: Morningstar)

Dividend Risk Ratings

  • Low risk: High dividend safety and predictable growth for 5+ years, max portfolio size 5% (core holding, SWAN candidate).
  • Medium risk: Dividend safe and potentially growing for next two to three years, max portfolio size 3%.
  • High risk: Dividend safe and predictable for one year, max portfolio size 1.0%.

Safety Outlooks

  • Negative outlook: Fundamentals of industry and/or company are deteriorating, rising risk of safety downgrade. If it's a turnaround story, the turnaround is unlikely to succeed.
  • Stable outlook: Fundamentals are stable, or if in turnaround the management plan seems likely to work, the risk of a safety downgrade is low.
  • Positive outlook: Fundamentals are strong and rising.

High-Risk Stocks

  • Uniti Group (UNIT) - Negative outlook (turnaround outlook iffy)
  • New Residential Investment Corp. (NYSE:NRZ) - Positive outlook
  • Omega Healthcare Investors (OHI) - Due to ongoing downturn in the SNF industry, stable outlook (confidence in turnaround plan)

Medium-Risk Stocks

  • Pattern Energy Group (PEGI): Will be upgraded when payout ratio declines under 85% - positive outlook
  • QTS Realty (QTS): Stable outlook
  • Medical Properties Trust (MPW): Due to long-term uncertainty surrounding medical REITs - positive outlook
  • EPR Properties (EPR): Due to exposure to cinemas (declining over time) - positive outlook
  • Chatham Lodging Trust (CLDT): Due to volatility of hotel cash flow - stable outlook
  • NRG Yield (NYLD) - Stable outlook
  • NetEase (NTES) - Positive Outlook (medium risk due to variable dividend policy)

Low-Risk Stocks

  • Enterprise Products Partners (EPD) - Stable outlook
  • AT&T (NYSE:T) - Stable outlook
  • Tanger Factory Outlet Centers (NYSE:SKT) - Negative outlook
  • Brookfield Property Partners (BPY) - Stable outlook
  • TransAlta Renewables (OTC:TRSWF) - Stable outlook
  • Simon Property Group (SPG) - Stable outlook
  • Enbridge (NYSE:ENB) - Stable outlook
  • Realty Income (O) - Stable outlook
  • Brookfield Infrastructure Partners (BIP) - Positive outlook
  • Dominion Energy (D) - Stable outlook
  • STORE Capital (NYSE:STOR) - Stable outlook
  • Canadian Imperial Bank of Commerce (CM) - Stable outlook
  • Telus (NYSE:TU) - Stable outlook
  • Ventas (NYSE:VTR) - Stable outlook
  • Iron Mountain (NYSE:IRM) - Stable outlook
  • Spectra Energy Partners (SEP) - Stable outlook
  • W.P. Carey (WPC) - Stable outlook
  • NextEra Energy Partners (NEP) - positive outlook
  • Altria (MO) - stable outlook
  • Royal Bank Of Canada (RY) - stable outlook
  • Bank of Nova Scotia (BNS) - stable outlook
  • Exxon Mobil (XOM) - stable outlook
  • AbbVie (ABBV) - stable outlook
  • EQT Midstream Partners (EQM) - Stable outlook
  • EQT GP Holdings (EQGP) - Stable outlook
  • MPLX (MPLX) - Stable outlook
  • Visa (V) - stable outlook
  • Home Depot (HD) - stable outlook
  • Lowe's (LOW) -stable outlook
  • Noble Midstream Partners (NBLX) - stable outlook
  • Starbucks (SBUX) - stable outlook
  • Antero Midstream Partners (NYSE:AM) - Stable outlook
  • Antero Midstream GP (AMGP) - Stable outlook
  • CNX Midstream Partners (CNXM) - Stable outlook
  • Dominion Midstream Partners (DM) - Negative outlook (liquidity trap for now)
  • Huntington Ingalls Industries (HII) - Stable outlook

Back to deleveraging mode, as I wait for the likely long off recession and bear market. My focus is on more diversification to crash-proof my portfolio against the next recession.

My portfolio began with five stocks, all medium- to high-risk, in two sectors. Right now, I'm up to 50 stocks, mostly low- to medium-risk, in 10 sectors. By next week, I'll be up to 51 holdings in 10 sectors. The goal by year-end is around 80 stocks, in 10 to 11 sectors.

The Morningstar holdings graphic is capable of showing my top 57 positions. However, my long-term goal is 200 stocks, which I estimate will take about 10 years to accomplish (barring a bear market). It will likely take about 15 years before I can fully weight my portfolio by total return potential. Note that I may end up owning a different number of stocks depending on how the portfolio returns bear out over time.

Top 10 Dividend Sources

  1. Pattern Energy Group: 5.6%
  2. Uniti Group: 5.3%
  3. EPR Properties: 4.3%
  4. Omega Healthcare Investors: 4.2%
  5. New Residential Investment Corp: 4.0%
  6. Enterprise Product Partners: 4.0%
  7. Medical Properties Trust: 4.0%
  8. Brookfield Real Estate Services: 3.6%
  9. CNX Midstream Partners: 3.5%
  10. Spectra Energy Partners: 3.3%
  11. Everything Else: 58.5%

The ultimate goal is to diversify enough to ensure no stock represents more than 5% of my income. That's to ensure that in a worst-case scenario in which one of my holdings' investment thesis breaks, my overall dividend income will be minimally affected.

However, because I used to weight by yield, this may take a few months before I can grow and diversify the portfolio enough to accomplish this.

(Source: Morningstar)

The portfolio has become far more diversified by stock style, especially compared to the early days when it was pretty much 100% small cap value. It's still heavily focused on value stocks, but in the coming weeks and months, growth will become a much bigger factor, given my total return focus. That should shift my portfolio more towards core and growth.

Over time, I plan to add some exposure to non-US holdings, mostly Canadian stocks as well as some European ones like LyondellBasell (LYB) and Unilever (UL). Of course, the overall international exposure will be rather limited, because I only own stocks with a history of stable or rising dividends. The variable pay nature of most foreign dividend stocks means they don't fit my needs. Only on rare exception, such as very fast growing names like NetEase will I own a variable pay dividend stock.

Fortunately over time, owning many blue chip multinationals will still mean I'm benefiting from an international dividend empire. For example, CM, RY, and BNS have large overseas and emerging market exposure. Meanwhile, future Dividend Aristocrat additions like Procter & Gamble (PG), Coke (KO), and PepsiCo (PEP) also do a lot of business overseas.

Once we experience a market crash, I'll be able to further diversify by style and market cap when I add numerous growth stocks and blue chips to the portfolio.

(Source: Morningstar)

My portfolio is currently made up of three core sectors, all currently highly rate-sensitive (I'm okay with that, since rate sensitivity is a short-term phenomenon):

  • 38% - REITs - above 25% cap but will come down over time
  • 25% - Pipeline MLPs - at 25% cap (my Exxon stake makes it seem slightly higher than it is), can add more MLPs but balanced with non-MLPs to keep weighting at 25%.
  • 16% - Utilities, approaching 25% cap but unlikely to exceed it.

Utilities will eventually increase a bit, as I plan to add several more, including:

  • NextEra Energy (NEE)
  • Brookfield Renewable Partners (BEP)
  • TerraForm Power (TERP)
  • Atlantica Yield (AY)
  • American Electric Power (AEP)
  • Fortis (FTS)
  • DTE Energy (DTE)
  • Southern Company (SO)

However, since I'm adding in order of highest to lowest total return potential, I won't be adding most of these utilities for many months. That should prevent me from ever hitting 25% exposure.

(Source: Simply Safe Dividends)

As I continue adding fast growing dividend stocks, my average dividend growth rate has been steadily climbing. Since I switched to a focus on total return weighting vs. yield, the average 5 year dividend growth rate is up from 8.9% to 9.4%.

Projected Portfolio Dividends Over Time

Time Frame

Inflation Adjusted Total Annual Portfolio Net Dividends

5 years

$13,981

10 years

$21,512

15 years

$33,099

20 years

$50,927

25 years

$78,357

30 years

$120,563

40 years

$285,417

50 years

$675,685

100 years

$50,242,329

(Sources: Simply Safe Dividends, Dave Ramsey Investment Calculator, Morningstar)

Keep in mind that this table only takes into account organic (stock level) dividend growth. It doesn't consider fresh savings I'm adding over time, nor that I reinvest my dividends. In fact, at my current savings rate, I estimate that within 10 years, I'll hit $100,000 per year in net dividends.

Still, it's an impressive thing to see just how powerful compounding can be, especially since these figures are in today's purchasing power (inflation-adjusted). I use a 11.0% long-term dividend growth estimate and a 2.0% inflation estimate. The 11% is the projected long-term dividend growth from the master watch list, weighted by total return potential, since that is ultimately what my portfolio will end up becoming.

Over time, as I diversify my portfolio, the yield will fall to about 3% to 4%. But the dividend growth rate should rise to about 9% to 10%. Ultimately, the goal is to build a highly diversified, low-risk high-yielding portfolio with strong enough dividend growth to achieve 10% to 11% inflation adjusted total returns.

For perspective, the S&P 500's 20-year median annual dividend growth rate has been 6.2%. So, the goal is to about double the market's yield, with about 3% to 4% faster dividend growth. Since 1871, the S&P 500 has generated annual total returns of 9.1%. The market's historical inflation adjusted total returns has been 7.0%.

Thus, the idea is to prove that a high-yield dividend growth portfolio can easily beat the market over time. That is, if the individual holdings are all above average or excellent quality.

Portfolio Statistics

  • Holdings: 50
  • Portfolio Size: $145,408
  • Equity: $124,674
  • Remaining Margin Buying Power: $624,653
  • Margin Used: $21,025
  • Debt/Equity: 0.17
  • Dividends/Interest Ratio: 13.6
  • Distance To Margin Call: 79.1%
  • Current Margin Rate: 3.18%
  • Yield: 6.1%
  • Yield On Cost: 6.2%
  • Yield On Equity Cost (net yield on cash I have invested): 6.6%
  • Cumulative Total Return Since Inception (since September 8, 2017): -5.9%
  • Cumulative Unlevered Total Return Since Inception: -2.6%
  • Year-to-Date Unlevered Total Return: -5.0%
  • Annualized Unlevered Total Return (YTD 2018): -12.7%
  • Unrealized Capital Gains (current holdings): $-3,396 (-2.5%)
  • Cumulative Dividends Received (including accrued dividends): $8,346
  • Annual Dividends: $9,087
  • Annual Interest: $669
  • Annual Net Dividends: $8,418
  • Monthly Average Net Dividends: $702
  • Daily Average Net Dividends (my business empire never sleeps): $23.06

(Source: Simply Safe Dividends)

  • Portfolio Beta (volatility relative to S&P 500): 0.83
  • Projected Long-Term Dividend Growth: 11.0%
  • Projected Annual Unlevered Total Return: 14.5%
  • Projected Net Levered Annual Total Return: 17.4% (assuming long-term average leverage of 25%, 3% average margin rate)
  • Long-Term Net Levered Annual Total Return Goal: 16.0%

10 Worst-Performing Positions

Stock

Loss

Cost Basis

SEP

-22.7%

$40.99

EQM

-21.0%

$68.59

D

-14.7%

$73.83

PEGI

-13.8%

$20.39

IRM

-13.3%

$37.09

MO

-13.0%

$63.77

AQN

-12.8%

$11.10

BPY

-11.9%

$21.73

ENB

-11.0%

$36.54

SKT

-10.1%

$22.64

(Source: Interactive Brokers)

10 Best-Performing Positions

Stock

Gain

Cost Basis

UNIT

23.7%

$16.19

CNXM

16.4%

$16.42

NBLX

15.1%

$44.71

EPD

14.3%

$24.49

NEP

11.2%

$38.91

NRZ

10.3%

$16.36

V

9.2%

$119.09

XOM

8.6%

$74.88

CLDT

8.3%

$18.36

ABBV

7.0%

$98.99

(Source: Interactive Brokers)

Bottom Line: To Get Rich Over Time, Always Stay Humble And Follow Where The Data Leads You

Many commenters have questioned my approach of building a hyper diversified portfolio. Some have argued that I should just stick to my top choices in each sector while others have said I should just use index ETFs as the core of my portfolio.

Both arguments have merit and I will certainly consider using a hybrid of these two options in the future. However, for now, I'm letting this experiment play out to see whether or not the models I'm using work under real life conditions. If they don't, then I'll adapt based on what the data is telling me, which is how I try to live every aspect of my life.

For most investors, however, a core portfolio of solid ETFs with a smattering of favorite stocks is certainly a great long-term strategy. One that I may end up pursuing myself. Just don't forget to let your winners run meaning don't feel pressured to "lock in your gains" too early. Stock trees may not grow to the sky but over several decades they can climb pretty darn high.

Disclosure: I am/we are long EPD, PEGI, CNXM, MPW, MPLX, BREUF, EQM, AM, OHI, T, O, TRSWF, IRM, SKT, BPY, VTR, STOR, BIP, SPG, UNIT, ENB, NRZ, EQGP, TU, CM, AQN, D, AMGP, SEP, QTS, EPR, WPC, NEP, MO, BNS, RY, ABBV, V, HD, LOW, DM, NYLD, SBUX, NBLX, NTES, HII. 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.