Retirement: The Future-Proof Portfolio For Young Investors, Bought At A Market High, Is Reducing Its Losses

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Includes: ACGPF, ACNFF, ADM, ADP, AMNF, BASFY, CHL, DEO, DGEAF, DIS, DNNGY, ED, ETN, GILD, GLW, HASI, INFY, JNJ, KNYJF, MDT, MMM, NGG, NVO, O, RHHBY, SGAPY, TCEHY, TSM, UN, UNP, VTR, VWDRY, WPC
by: Giesbers Investment Strategy
Summary

The portfolio was started at the 25th of January, more or less on the market high of 2018.

As a result of this bad timing, performance has not been good during the first four-and-a-half months of its existence.

But since we are focused on the long term, there is no need to worry, even if the market would drop some more.

It is interesting to see how performance in the portfolio differs per sector.

On the 25th of January 2018, I started the future-proof portfolio to serve as an example how young investors who are saving for their retirement can choose to distribute their funds. In this portfolio, I am not focusing on dividend yield, but on future-proof companies and growth. Of course, it is a bit of a subjective exercise to determine whether a specific company is future-proof or not. This portfolio serves as an example of my interpretation of this.

Portfolio

Let us first take a look at the current state of the portfolio. Last time we looked, in February, it was down almost 8%, because the moment the stocks were bought was almost exactly at a market high.

Note that I keep track of all these investments in my home currency, the euro. This means that for US investors with the same portfolio, results will look different depending on the euro/dollar exchange rate.

Name Shares Value in € Weight Gain/Loss
Consumer
Unilever (NYSE:UL) 43 2,020.14 4.16% 0.21%
Disney (NYSE:DIS) 22 1,867.90 3.85% -5.71%
Archer Daniels Midland (NYSE:ADM) 57 2,133.91 4.40% 6.87%
Diageo (NYSE:DEO) 69 2,137.57 4.40% 6.46%
Accell (OTCPK:ACGPF) 42 791.28 1.63% -20.67%
Armanino Foods of Distinction (OTCPK:AMNF) 488 1,064.31 2.19% 6.33%
Amsterdam Commodities (OTC:ACNFF) 40 940.00 1.94% -6.19%
Industrial
3M (NYSE:MMM) 10 1,716.51 3.54% -14.94%
BASF (OTCQX:BASFY) 21 1,778.07 3.66% -12.00%
Union Pacific (NYSE:UNP) 18 2,169.92 4.47% 5.23%
Kone (NASDAQ:KONE) 44 1,957.12 4.03% -2.86%
Eaton (NYSE:ETN) 29 1,951.09 4.02% -2.96%
Vestas Wind Systems (OTCPK:VWDRY) 35 1,991.54 4.10% 0.38%
Healthcare
Medtronic (NYSE:MDT) 23 1,984.67 4.09% 0.62%
Roche (OTCQX:RHHBY) 10 1,793.12 3.69% -9.94%
Gilead Sciences (NASDAQ:GILD) 15 893.85 1.84% -10.15%
Johnson & Johnson (NYSE:JNJ) 17 1,755.14 3.62% -10.69%
Novo Nordisk (NYSE:NVO) 43 1,700.54 3.50% -15.09%
Utilities
Consolidated Edison (NYSE:ED) 31 1,918.99 3.95% -4.22%
National Grid (NYSE:NGG) 109 1,023.27 2.11% 2.33%
Ørsted (OTCPK:DNNGY) 21 1,060.71 2.19% 7.33%
Technology
Corning (NYSE:GLW) 72 1,744.43 3.59% -12.68%
TSMC (NYSE:TSM) 54 1,819.74 3.75% -8.90%
Infosys (NASDAQ:INFY) 67 1,059.26 2.18% 5.05%
Automatic Data Processing (NASDAQ:ADP) 20 2,289.41 4.72% 16.15%
Tencent (OTCPK:TCEHY) 20 920.08 1.90% -6.05%
REITs
Realty Income (NYSE:O) 46 2,065.82 4.26% 2.22%
Ventas (NYSE:VTR) 44 2,031.26 4.19% 1.45%
W.P. Carey (NYSE:WPC) 19 1,082.55 2.23% 7.20%
Hannon Armstrong (NYSE:HASI) 56 870.14 1.79% -12.39%
Total 48,532.34 100.00% -2.96%

Compared with a couple of months ago, when the portfolio was almost 8% in the red numbers, things are starting to look better again. Note that I did not include dividend payments in this gain/loss calculation. The portfolio currently yields almost 3%, so these dividend payments can be expected to be a significant part of the gain/loss in the future. In fact, the results of this portfolio become a bit brighter when we include dividend payments in the equation:

Name Shares Value in € Dividend Weight Gain/Loss
Consumer
Unilever 43 2,020.14 32.07 4.16% 1.80%
Disney 22 1,867.90 - 3.85% -5.71%
Archer Daniels Midland 57 2,133.91 15.52 4.40% 7.65%
Diageo 69 2,137.57 19.75 4.40% 7.44%
Accell 42 791.28 21.00 1.63% -18.57%
Armanino Foods of Distinction 488 1,064.31 9.07 2.19% 7.24%
Amsterdam Commodities 40 940.00 28.00 1.94% -3.39%
Industrial
3M 10 1,716.51 11.06 3.54% -14.39%
BASF 21 1,778.07 65.10 3.66% -8.78%
Union Pacific 18 2,169.92 10.68 4.47% 5.75%
Kone 44 1,957.12 72.60 4.03% 0.74%
Eaton 29 1,951.09 31.78 4.02% -1.38%
Vestas Wind Systems 35 1,991.54 43.36 4.10% 2.56%
Healthcare
Medtronic 23 1,984.67 8.60 4.09% 1.05%
Roche 10 1,793.12 70.94 3.69% -6.38%
Gilead Sciences 15 893.85 6.95 1.84% -9.46%
Johnson & Johnson 17 1,755.14 11.61 3.62% -10.10%
Novo Nordisk 43 1,700.54 28.03 3.50% -13.69%
Utilities
Consolidated Edison 31 1,918.99 17.88 3.95% -3.33%
National Grid 109 1,023.27 - 2.11% 2.33%
Ørsted 21 1,060.71 25.37 2.19% 9.90%
Technology
Corning 72 1,744.43 10.54 3.59% -12.15%
TSM 54 1,819.74 - 3.75% -8.90%
Infosys 67 1,059.26 - 2.18% 5.05%
Automatic Data Processing 20 2,289.41 10.24 4.72% 16.67%
Tencent 20 920.08 - 1.90% -6.05%
REITs
Realty Income 46 2,065.82 32.95 4.26% 3.85%
Ventas 44 2,031.26 28.03 4.19% 2.85%
W.P. Carey 19 1,082.55 15.68 2.23% 8.76%
Hannon Armstrong 56 870.14 14.90 1.79% -10.89%
Total 48,532.34 641.71 100.00% -1.67%

The total amount of dividend which the portfolio has received since its inception at the 25th of January this year is 641.71 euros. Because the portfolio is yielding 3%, I would expect a total of about 1,450 euros of dividend income for an entire year. Because the portfolio was bought on January 25th, this number will be a bit lower. Note that I did not include any dividend taxes in this calculation, so in reality this figure might be about 15-25% less. I did not do this since dividend taxes depend on your home country and they depend on if you are able to subtract them from your taxes, a possible in the Netherlands where I am situated. Some foreign dividend taxes can be very high, take the Swiss dividend tax for instance which is a staggering 35%. In theory, it is possible to get a part of this money back depending on the tax treaties between your country and the country where the dividend tax has been paid. But to be honest, in practice this takes a lot of effort and might not be worth the hassle for a relatively small sum of money.

I will briefly discuss the sectors and see how their performance has been during the past months:

Consumers stocks: These stocks have performed relatively well, with the notable exception of Disney and Accell. More about Accell in the dividend section.

Industrial stocks: These have not been performing well, though most of the stocks did not move much; the average is dragged down by BASF and 3M. With regard to 3M, a lot has been written recently on Seeking Alpha, I would recommend the article of Chuck Carnevale.

Healthcare stocks: Healthcare has performed terribly bad. The only stock in the green is Medtronic; the rest of the sector in my portfolio is down 6-14%.

Utilities: This is a rare bright spot in the portfolio. Con Ed ended up being slightly in the red, but this was compensated by the performance of National Grid and Ørsted.

Technology stocks: This is a mixed bag. Corning, TSMC and Tencent did not perform well but might have been overvalued at the moment I bought them. On the other hand, Automatic Data Processing was certainly not undervalued at that moment and performed wonderfully!

REITs: Solid performance by all except Hannon Armstrong, which is interesting regarding the rising interest rate environment. Has it been priced in already?

All in all, we can see the Industrial and the Healthcare stocks underperforming, while the REITs, Consumer stocks and Utilities are showing better performance. This seems to be in line with a market which has still not recovered from a correction. As a comparison: the S&P 500 is now 2.44% below the level of the 25th of January. Since this index also includes dividends, we can see that the future-proof portfolio for young investors slightly outperformed the S&P 500. But please note that outperformance is not a goal of this portfolio.

Dividend increases/decreases

There were 10 companies which changed their dividend during the last couple of months, mostly increases, but also two cuts. Let us look at the numbers and see how they add up.

Previous yearly dividend New yearly dividend Increase
Unilever 1.43 1.55 8.01%
Armanino 0.08 0.09 12.50%
Amsterdam Commodities 1.15 1.10 -4.35%
Accell 0.72 0.50 -30.56%
BASF 3.00 3.10 3.33%
Johnson & Johnson 3.36 3.60 7.14%
Infosys 0.35 0.63 77.79%
Tencent 0.08 0.11 43.30%
Automatic Data Processing 2.52 2.76 9.52%
WP Carey 4.04 4.06 0.50%

Unilever: Though the dividend increase was not as high as last year's, this looks very healthy. The dividend increase was more or less as expected. Since Unilever moved its home base to the Netherlands, some turbulence must be expected, but nothing to be worried about.

Armanino: This was a pleasant surprise; Armanino increased its quarterly dividend from $0.02 to $0.025. This small and little-known company is proving to be a dividend growth machine.

Amsterdam Commodities: The dividend was decreased slightly, but there is no reason to worry. Do not forget that its dividend the previous year was higher than expected. Also, the company has a history of slightly irregular dividend payouts, which is quite common among European companies.

Accell: This decrease on the other hand is nothing short of a drama. The company's results were bad, and it reduced its yearly dividend to €0.50. This bike producer also generated some negative publicity regarding its contracts with dealerships. The company announced that it is focusing more on direct sales using a more "omni-channel" approach (source is in Dutch). We should keep an eye on this company to make sure the situation does not deteriorate any further and that its strategy will succeed.

BASF: Our German friends provide us with a modest increase, which is still better than nothing I guess.

Johnson & Johnson: Nice increase of this dividend growth juggernaut. If it is able to increase the dividend the coming years with the same percentage, I am a very happy investor.

Infosys: A gigantic increase, partly provided by a special dividend. Excluding the special dividend, the dividend increase would be about 30%. Thanks, I'll gladly take it!

Tencent: This is another huge increase, but coming from a very low base. In total, the company still pays out a negligible dividend, yielding only 0.23%. We need many more increases like this to make Tencent a real dividend stock.

Automatic Data Processing: This is an unexpected surprise, since normally ADP only increases its dividend once a year! The company announced that, because of the new tax regulations, normal dividend increase at the end of the year will continue as well.

W.P. Carey: This looks like a very small increase, which it is. But do not forget that the company increases its dividend every quarter, which means that we can expect a yearly dividend increase of about 2% at this speed. Still not much though.

Watchlist and future strategy

The watchlist stayed more or less the same as last time, with some companies deleted and Singapore Telecommunications (OTCPK:SGAPY) added after recommendations by some helpful readers.

Stock Sector Country Currency Price Yearly dividend
Essity (OTCPK:ESSYY) Consumer SE SEK 216.8 2.66%
China Mobile (NYSE:CHL) (ADR) Telecom CN USD 45.55 4.29%
Jardine Matheson (OTCPK:JMHLY) Consumer SG USD 62.41 2.54%
NTT Docomo (OTCPK:DCMYY) (ADR) Telecom JP USD 25.60 2.94%
Singtel Telecom SG SGD 3.23 5.09%

I will buy new positions during the month of June or July. Usual suspects to add to my portfolio are Singtel and China Mobile. I might also increase my position in stocks which are already in my portfolio but dropped a lot. 3M comes to mind here as a candidate. This month I will do some research on this.

For the future, this portfolio will try to replicate a dividend investor's strategy saving for his or her retirement. I will start adding positions to this portfolio of €3,000 every half year. This equates to €500 per month, which should be an amount of money a young investor could easily save if they want to make some serious work of their stock investing. When it comes to investing for your (early) retirement, the most important ground rule is to live well below your means. For people who do that, this portfolio can serve as an interesting example on how investments into future-proof corporations can grow on the longer term.

Thank you for reading! If you have any ideas about my model portfolio or my watchlist, please let me know in the comment section below!

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Disclosure: I am/we are long ALL STOCKS 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.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.