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 one (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.
The reason behind owning such a widely diversified portfolio is because I've built this strategy using historical statistical analysis. Statistics requires large sample sizes to have any useful predictive power, and so, the more stocks I own, the more likely the long-term total returns are to approximate the projected returns. As a side benefit, it also creates a highly stable "bunker" portfolio that is likely to easily survive whatever future market storm might come. It also creates a stream of near-daily dividends which will allow me to compound my dividend reinvestment faster.
Note that this experiment has to hit certain performance targets within a fixed time frame:
- Break even within 3 years (Kevin O'Leary Principle: If you don't make money after 3 years, it's a hobby, not a business".)
- Match the market within 4 years.
- Beat the market within 5 years (on an unlevered basis).
- Beat smart beta ETFs that have historically outperformed the S&P 500 (like NOBL) within 6 years.
- Beat all ETFs or smart beta ETFs (like QQQ) within 7 years.
In case the portfolio fails to hit these targets, then I'll adapt it to add what is outperforming it. That means switching to an alternative plan, which tentatively looks like this:
- 25% QQQ (Nasdaq ETF, which I consider a superior index to the S&P 500)
- 25% SCHD (Dividend achiever ETF, which is also superior to the S&P 500)
- 10% non-dividend stocks (such as Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB), Alphabet (GOOG, GOOGL), Netflix (NASDAQ:NFLX), and Berkshire Hathaway (BRK.A, BRK.B))
- 40% individual dividend growth stocks (focused on maximizing long-term total return potential via 20-25 stocks)
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 why investors should celebrate America's strong economic growth and not worry so much about a recession.
Why I Don't Invest In CEFs
Many readers have asked me why I don't invest in closed end funds or CEFs. This is especially true given my fondness for high-yield stocks and MLPs (which make up about 26% of my portfolio). The CEF industry is a tiny asset class represented by 530 different funds.
They are actively managed funds that differ from a mutual fund in that investors can't withdraw capital from the fund. Once an IPO happens the number of shares is fixed and the value of those shares changes from throughout the day based on the supply and demand from investors. In contrast, mutual funds and exchange traded funds or ETFs create or destroy shares based on fund flows (investors putting money in or taking it out).
In theory, CEFs offer income investors everything they could want: high-yield, many pay monthly distributions, and most trade at a discount to NAV (potentially boosting returns). In addition, because the fund manager never has to worry about withdrawals forcing him/her to sell at the worst possible time (like during a crash), it should be theoretically easier for managers to outperform the market.
I'd love to find a CEF that meets my high-yield income growth needs. Unfortunately, thus far, I have yet to find one that doesn't possess one or more of the following deal breaking qualities.
1. Sky High Expense Ratios
CEFs are actively managed and most use some leverage to try to boost income and returns (average of 13% leverage at the end of 2017). However, unlike mutual funds, which have seen their expense ratios falling steadily for years due to the increasing competition from passive index funds, CEFs are a very high margin niche (for their managers) that continues to gouge investors. For example, at the end of 2017, the average active mutual fund had an expense ratio of .59%, but many CEFs charge far more like Kayne Anderson Energy Development (KED).
This MLP focused CEF uses 34% leverage on 35 MLPs to generate 9.2% distributions paid quarterly.
However, in exchange for this high-yield, one has to literally pay through the nose.
Ok that's the most extreme example of a CEF that's overcharging investors. But what about the cheapest MLP CEF? That would be the Neuberger Berman MLP Income (NML). This CEF pays 7% monthly distributions, uses 22% leverage, and owns 30 MLPs.
Now, I'll be the first to admit that many of these MLPs are top notch and I own many of them myself. Others are on my master watchlist, and I plan to add them to my portfolio. But the expense ratio on this, the single cheapest MLP CEF, is still way to high.
And keep in mind that, while I like most of the MLPs, this CEF owns several I consider to be high risk. If I wanted to leverage up high risk MLPs (like ETP) at 25%, I could do so through Interactive Brokers and pay just .75% in annual interest (as a percentage of the position size). That's less than what most CEFs will charge you for leverage that you may not even be comfortable with. And, of course, choosing my own MLPs means I avoid paying exorbitant management fees.
2. Terrible Distribution Policies
The core of my portfolio strategy is: generous, safe, and growing income. I won't own any investment that I'm not confident can maintain its payouts (if they are 10+%) or grow them over time. That's the beauty of MLPs. You gain the benefits of high yields, covered by long-term contracted, commodity insensitive cash flow, AND the distributions rise over time.
Well, not for most CEFs. Here's NML's payout history. Note how it is incredibly stable from the IPO in 2014 through the mid 2016. Remember that it owns many fast growing MLPs who were boosting their distributions at rates of 5% to 20% annually through much of that time.
NML Distribution History
Worst still in 2016, the payout was slashed in half. You know why that is? It's not because most of the MLPs the CEF owned cut their distributions. In fact, only two of the top 10 holdings cut their distributions. The rest continued to grow their payouts at a modest to fast pace. The answer lies in something called return of capital or ROC.
If a CEF doesn't generate enough income or capital gains to pay its distributions, it must dip into its investable assets to cover the shortfall. This is what's known as destructive ROC. It lowers the investable asset base over time, forcing distributions to fall. It also reduces NAV/share which causes the price to follow the payout lower. Destructive ROC is essentially the same as a company generating $1 per year in FCF/share paying a $2 dividend. The $1 overpayment will have to come out of cash reserves, or be funded by debt or additional equity (new shares). However, both options mean rising interest and dividend costs over time which just creates a death spiral of unsustainability that always ends up with a dividend cut.
MLP distributions are technically classified as ROC as well by the IRS due to their pass through structure. This is why the distributions lower your cost basis. As long as an MLPs DCF/unit covers its payout, the ROC is not actually destructive. This is why MLPs like Enterprise Products Partners (EPD) and Magellan Midstream Partners (MMP) have managed to grow their distributions over decades and provide market-crushing total returns.
In order to avoid the pitfall of destructive ROC you need to check what the distributions are made of.
NML Distribution Composition
Of course, the problem is that with any MLP CEF, you will only see 100% ROC. Is that regular ROC or destructive? There's no way to tell until it's too late and the CEF cuts its payout.
But ok so that's an issue with MLPs. But what about non MLP CEFs? Like REITs? There are lots of REIT CEFs around, and since they own leveraged high-yield stocks, surely, they are paying out sustainable distributions right? Well, to answer that, let's take a look at the lowest cost REIT CEF, the Cohen & Steers Total Return Realty Fund (RFI).
This CEF owns 118 REITs, uses no leverage, and is supposed to be an "income only" fund, meaning it doesn't use destructive ROC to pay its monthly 7.7% distribution. But there are a few problems with it. For one, a 36% turnover ratio means it's not tax efficient. Higher turnover also means a higher expense ratio, which is nearly 1%.
RFI Expense Ratio
On the plus side, RFI does own some good dividend growth REITs, which means its distribution should rise over time right?
Actually no. RFI's payout history shows essentially flat monthly distributions for very long stretches, occasionally interspersed with special dividends. During the financial crisis, the CEF did a shadow cut by switching to a quarterly payout that reduced shareholder income. Only recently did the CEF return to monthly distributions.
But guess what? 75% of these distributions are ROC, and while REITs can create minor amounts of ROC, it's not nearly enough to explain this. In other words, once more, we have a CEF that's promising high-yield but instead charging you a lot to just give you back your own money.
REITs and MLPs are both supposed to be about safe and GROWING payout over time. That's what creates your total returns over time. CEFs of either REITs, MLPs, or regular dividend growth corporations don't result in generous, safe, and exponentially rising income. Worse still? Most CEFs, like their open active mutual fund cousins, also drastically underperform the market over time.
3. Pay A Lot For Variable Payouts And Terrible Long-Term Performance
DNI Total Return Price data by YCharts
One of the CEFs a reader mentioned owning and recommending was the Dividend & Income Fund (DNI) which is run by Bexil advisers LLC. As you can see, over past 20 years, this CEF has vastly underperformed the S&P 500.
This quarterly paying levered CEF owns 96 positions, including some quality dividend growth blue chips. It yields 3.8%.
But guess what? The distribution is not rising over time as one would expect from levering up in dividend growth stocks, including dividend aristocrats and kings.
Why is that? Because DNI pays for most of its distributions with capital gains, which are fickle and can't be relied upon for stable income.
So, how much do you have to pay for this CEF which has managed to so badly underperform the market despite owning lots of dividend growth stocks that have beaten the market over time?
Try almost 2% per year. The point is that CEFs are not nearly the easy source of high-yield that investors think. They were invented mainly to benefit active managers. Managers who often use destructive ROC or unsustainable capital gains to pay out temporarily steady but ultimately unsustainable distributions to investors who usually don't bother doing their due diligence.
If you want to own CEFs? If you can find a reasonably priced one with stable, and rising distributions over time that also beats the market then by all means do it. And make sure to let me know what it is because I haven't been able to find a single one that meets those criteria. But whatever you decide to do regarding CEFs, make sure you are VERY careful because if you are looking for generous, safe, and exponentially rising income over time. Because the simple fact is that the vast majority of CEFs are a terrible choice for most dividend-focused investors.
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 12-18 months.
Yield Curve Inversion Date
Recession Start Date
Months To Recession Once Curve Inverts
(Source: St. Louis Federal Reserve, Ben Carlson)
Current 2/10 Yield Curve: 0.38% (down from 0.43% last week)
On June 16th, 2018, the curve fell as low as 0.35%, the lowest since 2007. This was caused by the 2 year soaring due to the Fed signaling 4 rate hikes this year instead of 3. Fortunately, history shows that the actual number isn't significant, and recession risk is low as long as the curve is positive. Now that the market is pricing in more hikes, the yield curve should stabilize barring worries over trade wars causing a flight to safety that drives up 10 year bond prices and lowers the 10 year yield.
Overall, I'm still 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 10 out of 19 economic indicators in the expansion quadrant (indicating accelerating growth), and 9 out of 19 still showing positive (though decelerating) growth, there remains little cause for concern.
Note that nine weeks ago, there were 12 economic indicators in the expansion quadrant. However, the mean coordinate point (economic aggregate) remains about 37% above baseline and showing slight positive acceleration.
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.
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 1.06%, while the probability of a recession starting within nine months is about 24%. While that is up slightly from last quarter, I don't consider it statistically significant. However, I will be watching inflation expectations closely (which drive bond yields) to see if the bond market loses confidence in the country's long-term growth prospects.
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). It uses a four-month running average of leading economic indicators.
(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 0.16% recession risk) is under 18%, the economy has never been in a recession. This means that this graph can tell us with about a two-month lead time whether or not the economy is likely to be contracting.
Current Economic Growth Projections
Note that these are just models and depending on how they weight different leading indicators, the projections can be wildly different. But they can offer us a reasonable estimate of current economic growth (range of 3.0% to 4.8%). More importantly, the projection trends have remained positive all quarter indicating that US economic growth appears to be not just strong but getting stronger over the last few months. The New York model also is set to estimate future growth and is currently estimating 2.8% growth in Q3 2018.
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. Meanwhile, the Bureau of Labor Statistics estimates that wage growth is now 2.7% YOY and 2.8% for non-supervisory positions (80% of workers).
That, in turn, could spur stronger consumer spending (70% of the US economy) and drive stronger corporate investment and earnings/cash flow/dividend growth. In fact, according to the Bureau of Economic Analysis, consumer spending in the last two months grew at 0.5% and 0.6% month over month, respectively. Meanwhile retail sales for last month came in at 5.9% YOY, which was double what economists were expecting.
Since mid-2015, the overall trend in consumer spending has been positive, which should continue to drive strong growth. That's unless a trade war causes massive economic dislocation (rising prices, supply chain disruption, weaker economic growth).
There are about 3,000 dividend-paying stocks in America (including special dividends and variable payers). 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.
This week's new additions to the list include:
- Cheesecake Factors (CAKE)
- T. Rowe Price (TROW)
- Tractor Supply Company (TSCO)
- Sysco (SYY)
- W.W. Grainger (GWW)
- TransAlta Renewables (OTC:TRSWF)
- Emera (OTCPK:EMRAF)
- UBS Group (UBS)
- Stryker (SYK)
- UGI Corp. (UGI)
- Target (TGT)
|Ticker||Company||Target Yield (Fair Value)||Current Yield||Potential Long-Term Dividend Growth||Total Return Potential||Sector||Industry|
|(AMGP)||Antero Midstream GP||0.4%||2.4%||26.3%||28.7%||MLP (no K1)||Oil, Gas & Consumable Fuels|
|(AM)||Antero Midstream Partners||3.7%||5.1%||19.9%||25.0%||MLP||Oil, Gas & Consumable Fuels|
|(DM)||Dominion Midstream Partners||3.3%||10.3%||14.0%||24.3%||MLP||Oil, Gas & Consumable Fuels|
|(PXD)||Pioneer Natural Resources||0.1%||0.3%||23.6%||23.9%||Energy||Oil, Gas & Consumable Fuels|
|(NBLX)||Noble Midstream Partners||3.6%||3.9%||19.0%||22.9%||MLP||Oil, Gas & Consumable Fuels|
|(SIMO)||Silicon Motion Technology||2.1%||2.4%||20.0%||22.4%||Technology||Semiconductors|
|(EQGP)||EQT GP Holdings||2.5%||4.2%||18.0%||22.2%||MLP||Oil, Gas & Consumable Fuels|
|(COG)||Cabot Oil & Gas||0.3%||1.0%||20.8%||21.8%||Energy||Oil, Gas & Consumable Fuels|
|(LRCX)||Lam Research||1.2%||2.5%||19.3%||21.8%||Technology||Semiconductor Equipment|
|(LOW)||Lowe's Companies||1.7%||1.7%||19.8%||21.5%||Consumer Cyclical||Home Improvement Stores|
|(HII)||Huntington Ingalls Industries||1.2%||1.3%||20.0%||21.3%||Industrial||Defense|
|(MKTX)||MarketAxess Holdings||0.8%||0.8%||20.0%||20.8%||Finance||Capital Markets|
|(NYSE:DPZ)||Domino's Pizza||1.1%||0.8%||19.9%||20.7%||Consumer Discretionary||Restaurants|
|(CNXM)||CNXM Midstream Partners||5.5%||6.5%||14.0%||20.5%||MLP||Oil, Gas & Consumable Fuels|
|(AMP)||Ameriprise Financial||2.3%||2.4%||18.0%||20.4%||Finance||Asset Management|
|(OMP)||Oasis Midstream Partners||5.0%||9.2%||11.0%||20.2%||MLP||Oil, Gas & Consumable Fuels|
|(ETE)||Energy Transfer Equity||5.8%||7.2%||13.0%||20.2%||MLP||Oil, Gas & Consumable Fuels|
|(EOG)||EOG Resources||0.4%||0.7%||19.0%||19.7%||Energy||Oil, Gas & Consumable Fuels|
|(EQM)||EQT Midstream Partners||3.6%||7.7%||12.0%||19.7%||MLP||Oil, Gas & Consumable Fuels|
|(HESM)||Hess Midstream Partners||5.0%||6.5%||13.0%||19.5%||MLP||Oil, Gas & Consumable Fuels|
|(NYLD)||NRG Yield||6.0%||6.9%||12.0%||18.9%||YieldCo||Renewable Energy|
|(NTES)||NetEase||1.2%||1.2%||17.7%||18.9%||Technology||Internet Software & Service|
|(HCKT)||Hackett Group||1.9%||2.1%||16.7%||18.8%||Technology||IT Consulting|
|(EQIX)||Equinix||2.1%||2.3%||16.2%||18.5%||REIT||Data Center REIT|
|(RCL)||Royal Caribbean Cruises||1.9%||2.1%||16.2%||18.3%||Consumer Cyclical||Hotel, Resorts, Cruise Lines|
|(TEGP-OLD)||Tallgrass Energy GP||4.2%||9.0%||9.0%||18.0%||MLP (No K1)||Oil, Gas & Consumable Fuels|
|(LUV)||Southwest Airlines||0.8%||1.2%||16.4%||17.6%||Consumer Cyclical||Airlines|
|(AMT)||American Tower||1.8%||2.2%||15.4%||17.6%||REIT||Telecom REIT|
|(NYSE:NEP)||NextEra Energy Partners||4.1%||3.9%||13.5%||17.4%||YieldCo||Renewable Energy|
|(CCI)||Crown Castle||3.9%||4.2%||13.1%||17.3%||REIT||Telecom REIT|
|(CMCSA)||Comcast||1.7%||2.2%||15.0%||17.2%||Telecom||Cable & Satellite|
|(COR)||CoreSite Realty Corp||3.5%||3.6%||13.5%||17.1%||REIT||Data Center REIT|
|(PEGI)||Pattern Energy Group||6.7%||8.7%||8.3%||17.0%||YieldCo||Renewable Energy|
|(QSR)||Restaurant Brands International||1.4%||3.0%||14.0%||17.0%||Consumer Cyclical||Restaurant|
|(HD)||Home Depot||2.1%||2.1%||14.9%||17.0%||Consumer Cyclical||Home Improvement Stores|
|(BUD)||Anheuser-Busch InBev||2.6%||3.5%||13.4%||16.9%||Consumer Defensive||Alcohol|
|(ALLE)||Allegion PLC||0.7%||1.0%||15.7%||16.7%||Industrial||Building Products|
|(NYSE:THO)||Thor Industries||1.6%||1.5%||15.0%||16.5%||Consumer Discretionary||Recreational Vehicles|
|(HP)||Helmerich & Payne||4.1%||4.4%||12.0%||16.4%||Energy||Oil Service|
|(WGP-OLD)||Western Gas Equity Partners||3.6%||6.4%||10.0%||16.4%||MLP||Oil, Gas & Consumable Fuels|
|(OTEX)||Open Text||1.5%||1.7%||14.7%||16.4%||Technology||Business Applications|
|(VLP)||Valero Energy Partners||2.8%||5.2%||11.0%||16.2%||MLP||Oil, Gas & Consumable Fuels|
|(CDW)||CDW Corp||1.0%||1.0%||15.1%||16.1%||Technology||IT Distributor|
|(SHLX)||Shell Midstream Partners||3.2%||6.0%||10.0%||16.0%||MLP||Oil, Gas & Consumable Fuels|
|(NYSE:SPGI)||S&P Global||1.3%||1.0%||14.7%||15.7%||Financial||Capital Markets|
|(NASDAQ:ADP)||Automatic Data Processing||2.4%||1.8%||13.6%||15.4%||Industrial||Business Services|
|(AQN)||Algonquin Power & Utilities||4.7%||5.4%||10.0%||15.4%||Utilities||Diversified Utilities|
|(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|
|(OTCQX:IMBBY)||Imperial Brands||5.6%||6.5%||8.8%||15.3%||Consumer Defensive||Tobacco|
|(ANDX)||Andeavor Logistics LP||5.9%||9.3%||6.0%||15.3%||MLP||Oil, Gas & Consumable Fuels|
|(CAKE)||Cheesecake Factory||1.5%||2.0%||13.2%||15.2%||Consumer Cyclical||Restaurants|
|(NYSE:SHW)||Sherwin-Williams||1.1%||0.9%||14.3%||15.2%||Basic Materials||Specialty Chemicals|
|(NASDAQ:TROW)||T. Rowe Price||2.6%||2.2%||12.9%||15.1%||Finance||Asset Management|
|(QTS)||QTS Realty Trust||3.1%||4.1%||11.0%||15.1%||REIT||Data Center REIT|
|(DG)||Dollar General||1.2%||1.2%||13.9%||15.1%||Consumer Discretionary||Retail|
|(TSCO)||Tractor Supply Company||1.0%||1.7%||13.2%||14.9%||Consumer Cyclical||Specialty Retail|
|(BIP)||Brookfield Infrastructure Partners||4.5%||4.9%||10.0%||14.9%||Utility||Diversified Utilities|
|(NYSE: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|
|(FDX)||FedEx||0.6%||0.8%||13.8%||14.6%||Industrial||Shipping & Logistics|
|(MDLZ)||Mondelez International||1.7%||2.2%||12.3%||14.5%||Consumer Defensive||Food & Beverage|
|(LEG)||Leggett & Platt||3.0%||3.4%||11.0%||14.4%||Consumer Cyclical||Furniture|
|(ECL)||Ecolab||1.1%||1.1%||13.2%||14.3%||Basic Materials||Specialty Chemicals|
|(NYSE:BDX)||Becton, Dickinson & Company||1.7%||1.3%||13.0%||14.3%||Healthcare||Medical Equipment|
|(NYSE:OKE)||ONEOK||5.0%||4.7%||9.6%||14.3%||Energy||Oil, Gas & Consumable Fuels|
|(MWA)||Mueller Water Products||0.9%||1.7%||12.6%||14.3%||Industrial||Water Infrastructure|
|(PSXP)||Phillips 66 Partners||3.1%||5.3%||9.0%||14.3%||MLP||Oil, Gas & Consumable Fuels|
|(NASDAQ:CONE)||CyrusOne||3.3%||3.2%||11.0%||14.2%||REIT||Data Center REIT|
|(NYSE:SYY)||Sysco||3.0%||2.2%||12.0%||14.2%||Consumer Defensive||Food Distributor|
|(APTS)||Preferred Apartment Communities||6.7%||7.1%||7.0%||14.1%||REIT||Apartment REIT|
|(NASDAQ:TXRH)||Texas Roadhouse||1.8%||1.5%||12.6%||14.1%||Consumer Cyclical||Restaurants|
|(ROST)||Ross Stores||1.0%||1.1%||13.0%||14.1%||Consumer Cyclical||Retail|
|(NYSE:BA)||Boeing||2.4%||1.9%||12.0%||13.9%||Industrial||Aerospace & Defense|
|(ADM)||Archer-Daniels Midland||2.6%||2.9%||11.0%||13.9%||Consumer Defensive||Farm Products|
|(KMI)||Kinder Morgan||4.1%||4.8%||9.0%||13.8%||Energy||Oil, Gas & Consumable Fuels|
|(CVS)||CVS Health||1.6%||2.9%||10.9%||13.8%||Healthcare||Pharmacy/Health Insurance|
|(MMC)||Marsh & McLennan Companies||2.0%||2.0%||11.7%||13.7%||Finance||Insurance Brokers|
|(AY)||Atlantica Yield||5.6%||5.7%||8.0%||13.7%||YieldCo||Renewable Energy YieldCo|
|(CMI)||Cummins||2.6%||3.0%||10.7%||13.7%||Industrial||Heavy Trucks & Machinery|
|(FBHS)||Fortune Brands Home & Security||1.1%||1.4%||12.3%||13.7%||Industrial||Building Products|
|(NYSE:GWW)||W.W Grainger||2.0%||1.7%||12.0%||13.7%||Industrial||Industrial Distribution|
|(NYSE:DCI)||Donaldson Company||1.6%||1.5%||12.1%||13.6%||Industrial||Filtration Systems|
|(MSA)||MSA Safety Incorporated||2.3%||1.6%||12.0%||13.6%||Industrial||Safety Equipment|
|(OZRK)||Bank of the Ozarks||1.5%||1.6%||12.0%||13.6%||Financial||Banking|
|(WBA)||Walgreens Boots Alliance||1.9%||2.4%||11.1%||13.5%||Consumer Defensive||Pharmacy|
|(BEP)||Brookfield Renewable Partners||5.6%||6.5%||7.0%||13.5%||YieldCo||Renewable Energy|
|(APOG)||Apogee Enterprises||1.1%||1.4%||12.0%||13.4%||Industrial||Building Products|
|(SEP)||Spectra Energy Partners||6.0%||9.4%||4.0%||13.4%||MLP||Oil, Gas & Consumable Fuels|
|(TTC)||Toro Company||1.3%||1.3%||12.0%||13.3%||Industrial||Agricultural Equipment|
|(TJX)||TJX Companies||1.2%||2.1%||11.1%||13.2%||Consumer Cyclical||Retail|
|(BLL)||Ball Corp||0.8%||1.1%||12.0%||13.1%||Basic Materials||Metal & Glass Containers|
|(INGR)||Ingredion||2.0%||2.1%||11.0%||13.1%||Consumer Defensive||Agricultural Products|
|(PFG)||Principal Financial Group||2.9%||3.7%||9.4%||13.1%||Financial||Insurance|
|(TERP)||TerraForm Power||6.0%||6.6%||6.5%||13.1%||YieldCo||Renewable Energy|
|(APD)||Air Products & Chemicals||2.4%||2.7%||10.4%||13.1%||Industrial||Industrial Gas|
|(ROP)||Roper Technologies||0.6%||0.6%||12.5%||13.1%||Industrial||Industrial Tech|
|(CCL)||Carnival||2.6%||3.1%||10.0%||13.1%||Consumer Discretionary||Cruise Line|
|(ETN)||Eaton Corp||3.1%||3.3%||9.7%||13.0%||Industrial||Diversified Industrials|
|(WHR)||Whirlpool||2.2%||3.0%||10.0%||13.0%||Consumer Discretionary||Home Appliances|
|CAT||Caterpillar||3.0%||2.1%||10.9%||13.0%||Industrial||Farm & Construction Equipment|
|SEIC||SEI Investments||1.1%||0.9%||12.0%||12.9%||Financial||Asset Management|
|GD||General Dynamics||2.1%||1.9%||11.0%||12.9%||Industrial||Aerospace & Defense|
|(TRP)||TransCanada||3.9%||5.2%||7.7%||12.9%||Energy||Oil, Gas & Consumable Fuels|
|(WSFS)||WSFS Finance||0.7%||0.8%||12.0%||12.8%||Finance||Thrift & Mortgage Finance|
|MCO||Moody's||1.4%||1.0%||11.8%||12.8%||Finance||Financial Exchanges & Data|
|(CASY)||Casey's General Stores||0.9%||1.0%||11.7%||12.7%||Consumer Defensive||Grocery Stores|
|(HUBB)||Hubbell Incorporated||2.3%||2.7%||10.0%||12.7%||Industrial||Electronic Components|
|(VFC)||V.F Corp||2.0%||2.2%||10.5%||12.7%||Consumer Cyclical||Apparel|
|(TSN)||Tyson Foods||1.1%||1.7%||11.0%||12.7%||Consumer Defensive||Food & Beverage|
|(MPLX)||MPLX||4.4%||7.1%||5.6%||12.7%||MLP||Oil, Gas & Consumable Fuels|
|(AOS)||A. O. Smith||1.1%||1.1%||11.5%||12.6%||Industrial||Building Products|
|(MRT)||MedEquities Trust||7.4%||8.0%||4.6%||12.6%||REIT||Medical REIT|
|(EPR)||EPR Properties||6.1%||6.7%||5.8%||12.5%||REIT||Specialized REIT|
|(FLO)||Flowers Food||2.8%||3.5%||9.0%||12.5%||Consumer Defensive||Food & Beverage|
|(IRM)||Iron Mountain||6.0%||7.1%||5.3%||12.4%||REIT||Storage REIT|
|TRNO||Terreno Realty||2.9%||2.3%||10.0%||12.3%||REIT||Industrial REIT|
|(GIS)||General Mills||3.1%||4.3%||8.0%||12.3%||Consumer Defensive||Food & Beverage|
|ORI||Old Republic International||4.3%||3.7%||8.6%||12.3%||Finance||Insurance|
|(EPD)||Enterprise Products Partners||5.6%||6.1%||6.2%||12.3%||MLP||Oil, Gas & Consumable Fuels|
|(ITW)||Illinois Tool Works||2.1%||2.1%||10.2%||12.3%||Industrial||Diversified Industrials|
|(MKC)||McCormick & Company||2.0%||2.0%||10.3%||12.3%||Consumer Defensive||Food & Beverage|
|(MDP)||Meredith Corp||3.7%||4.2%||8.0%||12.2%||Consumer Discretionary||Publishing|
|(IFF)||International Flavors & Fragrances||1.9%||2.2%||10.0%||12.2%||Basic Materials||Specialty Chemicals|
|CORR||CorEnergy Infrastructure Trust||8.2%||8.1%||4.0%||12.1%||REIT||Infrastructure REIT|
|JKHY||Jack Henry & Associates||1.4%||1.1%||11.0%||12.1%||Technology||Data Processing & Outsourcing Solutions|
|MGRC||McGrath RentCorp||2.9%||2.1%||10.0%||12.1%||Industrial||Business Services|
|(SPG)||Simon Property Group||3.2%||4.7%||7.3%||12.0%||REIT||Retail REIT|
|(SJM)||J.M. Smucker||2.3%||3.0%||9.0%||12.0%||Consumer Defensive||Food & Beverage|
|(CE)||Celanese Corp||1.7%||1.8%||10.1%||11.9%||Basic Materials||Specialty Chemicals|
|(BNS)||Bank of Nova Scotia||3.8%||4.5%||7.4%||11.9%||Finance||Banking|
|(PG)||Procter & Gamble||3.1%||3.7%||8.2%||11.9%||Consumer Defensive||Household & Personal Products|
|(FDS)||FactSet Research Systems||1.2%||1.2%||10.7%||11.9%||Finance||Capital Markets|
|(GIL)||Gildan Activewear||0.9%||1.5%||10.4%||11.9%||Consumer Discretionary||Apparel|
|CFR||Cullen/Frost Bankers||2.8%||2.4%||9.5%||11.9%||Finance||Regional Banks|
|NSA||National Storage Affiliates||4.5%||3.8%||8.0%||11.8%||REIT||Storage REIT|
|LANC||Lancaster Colony Corp||1.9%||1.8%||10.0%||11.8%||Consumer Defensive||Food & Beverage|
|RTN||Raytheon||2.3%||1.7%||10.0%||11.7%||Industrial||Aerospace & Defense|
|(CNI)||Canadian National Railway||1.6%||1.7%||10.0%||11.7%||Industrial||Railroads|
|(MPW)||Medical Properties Trust||6.6%||7.2%||4.4%||11.6%||REIT||Hospital REIT|
|(HON)||Honeywell International||2.0%||2.0%||9.6%||11.6%||Industrial||Diversified Industrials|
|(CLX)||Clorox||2.7%||3.0%||8.6%||11.6%||Consumer Defensive||Household & Personal Products|
|(SKT)||Tanger Factory Outlet Centers||4.7%||6.2%||5.3%||11.5%||REIT||Retail REIT|
|FUN||Cedar Fair||5.5%||5.4%||6.0%||11.4%||Consumer Discretionary (Uses K1)||Amusement Parks|
|(D)||Dominion Energy||3.7%||5.0%||6.4%||11.4%||Utilities||Diversified Utilities|
|WDFC||WD-40 Company||1.8%||1.4%||10.0%||11.4%||Consumer Defensive||Household & Personal Products|
|(NBHC)||National Bank Holdings Corp||1.0%||1.4%||10.0%||11.4%||Finance||Regional Bank|
|(MMP)||Magellan Midstream Partners||4.3%||5.4%||6.0%||11.4%||MLP||Oil, Gas & Consumable Fuels|
|(CSFL)||CenterState Bank||0.6%||1.3%||10.0%||11.3%||Finance||Regional Bank|
|(SRE)||Sempra Energy||2.8%||3.2%||8.1%||11.3%||Utilities||Diversified Utilities|
|(HSY)||Hershey||2.3%||2.8%||8.5%||11.3%||Consumer Defensive||Food & Beverage|
|(KO)||Coca Cola||3.2%||3.5%||7.7%||11.2%||Consumer Defensive||Food & Beverage|
|(KMB)||Kimberly-Clark||3.1%||3.9%||7.3%||11.2%||Consumer Defensive||Household & Personal Products|
|STAG||STAG Industrial||5.9%||5.3%||5.8%||11.1%||REIT||Industrial REIT|
|(UPS)||UPS||2.9%||3.1%||8.0%||11.1%||Industrial||Air Freight & Logistics|
|PF||Pinnacle Foods||2.4%||2.0%||9.1%||11.1%||Consumer Defensive||Food & Beverage|
|(UL)||Unilever||3.2%||3.3%||7.8%||11.1%||Consumer Defensive||Household & Personal Products|
|(XOM)||Exxon Mobil||3.4%||4.1%||7.0%||11.1%||Energy||Oil, Gas & Consumable Fuels|
|DLR||Digital Realty Trust||4.7%||3.8%||7.1%||10.9%||REIT||Data Center REIT|
|KIM||Kimco Realty Corp||7.0%||6.8%||4.1%||10.9%||REIT||Retail REIT|
|(HEP)||Holly Energy Partners||8.0%||8.8%||2.0%||10.8%||MLP||Oil, Gas & Consumable Fuels|
|BMO||Bank of Montreal||4.0%||3.8%||6.9%||10.7%||Finance||Banking|
|(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|
|(BAC)||Bank of America||1.3%||1.6%||9.0%||10.6%||Finance||Banking|
|(GPC)||Genuine Parts Company||2.7%||3.0%||7.6%||10.6%||Industrial||Auto Parts|
|CVX||Chevron||3.9%||3.6%||7.0%||10.6%||Energy||Oil, Gas & Consumable Fuels|
|(CSCO)||Cisco Systems||2.4%||3.0%||7.6%||10.6%||Technology||Communications Equipment|
|(PM)||Philip Morris International||5.0%||5.6%||5.0%||10.6%||Consumer Defensive||Tobacco|
|(JNJ)||Johnson & Johnson||2.8%||2.9%||7.6%||10.5%||Healthcare||Diversified Medical|
|(TAP)||Molson Coors Brewing Company||2.0%||2.4%||8.1%||10.5%||Consumer Defensive||Alcohol|
|(RPM)||RPM International||2.3%||2.5%||8.0%||10.5%||Basic Materials||Specialty Chemicals|
|(BPMP)||BP Midstream Partners||4.5%||5.0%||5.5%||10.5%||MLP||Oil, Gas & Consumable Fuels|
|(PEP)||Pepsi||3.0%||3.4%||7.0%||10.4%||Consumer Defensive||Food & Beverage|
|BAM||Brookfield Asset Management||1.5%||1.4%||9.0%||10.4%||Finance||Asset Management|
|SYK||Stryker Corp||1.4%||1.1%||9.3%||10.4%||Healthcare||Healthcare Equipment|
|(CP)||Canadian Pacific Railway||0.9%||0.9%||9.4%||10.3%||Industrial||Railroads|
|(PCAR)||PACCAR||1.5%||1.8%||8.5%||10.3%||Industrial||Construction Machinery & Heavy Trucks|
|(CL)||Colgate-Palmolive||2.4%||2.6%||7.6%||10.2%||Consumer Defensive||Household & Personal Products|
|(MAN)||ManpowerGroup||1.6%||2.2%||8.0%||10.2%||Industrial||Human Resources & Employment Services|
|(RY)||Royal Bank of Canada||3.8%||3.9%||6.2%||10.1%||Finance||Banking|
|BMI||Badger Meter||1.3%||1.1%||9.0%||10.1%||Technology||Electronic Components|
|UGI||UGI Corp||2.3%||2.1%||8.0%||10.1%||Utility||Gas Utility|
|(HRL)||Hormel Foods||2.0%||2.1%||8.0%||10.1%||Consumer Defensive||Food & Beverage|
|O||Realty Income||5.1%||5.0%||4.9%||9.9%||REIT||Retail REIT|
|CTRE||CareTrust REIT||5.0%||4.9%||5.0%||9.9%||REIT||Senior Housing REIT|
|SXT||Sentient Technologies Corp||2.0%||1.9%||8.0%||9.9%||Basic Materials||Specialty Chemicals|
|USB||US Bancorp||2.5%||2.3%||7.5%||9.8%||Finance||Regional Bank|
|MAA||Mid-America Apartment Communities||4.1%||3.8%||5.9%||9.7%||REIT||Apartment REIT|
|EMR||Emerson Electric||3.0%||2.7%||7.0%||9.7%||Industrial||Electrical Components|
|AVB||AvalonBay Communities||3.9%||3.5%||6.1%||9.6%||REIT||Apartment REIT|
|NHI||National Health Investors||5.8%||5.4%||4.2%||9.6%||REIT||Medical REIT|
|CPT||Camden Property Trust||3.9%||3.4%||6.1%||9.5%||REIT||Apartment REIT|
|MAIN||Main Street Capital||8.0%||7.4%||2.0%||9.4%||Finance||BDC|
|LTC||LTC Properties||6.0%||5.4%||4.0%||9.4%||REIT||Healthcare REIT|
|WPC||W.P Carey||6.7%||6.1%||3.3%||9.4%||REIT||Diversified REIT|
|FRT||Federal Realty Trust||4.0%||3.3%||6.0%||9.3%||REIT||Retail REIT|
|ARE||Alexandria Real Estate Equities||3.5%||2.8%||6.5%||9.3%||REIT||Medical Office REIT|
|NNN||National Retail Properties||5.5%||4.5%||4.5%||9.0%||REIT||Retail REIT|
|EXR||Extra Space Storage||4.3%||3.2%||5.7%||8.9%||REIT||Storage REIT|
|PSA||Public Storage||4.9%||3.7%||5.1%||8.8%||REIT||Storage REIT|
|ESS||Essex Property Trust||4.2%||3.2%||5.2%||8.4%||REIT||Apartment REIT|
|RDS.B||Royal Dutch Shell||7.0%||5.3%||3.0%||8.3%||Energy||Oil, Gas & Consumable Fuels|
(Source: Management guidance, F.A.S.T. Graphs, GuruFocus, Simply Safe Dividends, Google Finance)
Note that the average yield, dividend growth, and total return potential are based on equal weighting of all 264 companies. If you weight by total return potential (as I plan to do), then the portfolio looks like this:
- Yield: 3.2%
- Projected Dividend Growth: 11.4%
- Total Return Potential: 14.6%
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
NVIDIA was the new stock of the week. Spectra Energy Partners was my double down stock but a proxy for Enbridge which is buying it out in an all-stock deal.
Plan For The Next Week
The new stock of the week is Pioneer Natural Resources (PXD). This is a one of the fastest growing oil companies in America and a pure play on the Permian Basin. The Permian is America's super shale formation with up to 90 billion barrels of recoverable oil left. Pioneer owns 750,000 gross acres of key Permian land which gives it 20,000 potential drilling locations. Management plans to grow production by 20% per year through 2026 bringing oil production up from 260,000 bpd today to about 1.3 million. Management's plans are highly achievable, and the company plans to fund this growth purely from operating cash flow (not debt). Along the way, the token dividend is set to soar (PXD increased it 300% for this year). The bottom line is that Pioneer Natural Resources is poised to become one of the fastest growing companies in America and represents a great way for income investors to cash in on the miracle that is the Permian oil bonanza.
The double down stock of the week (to lower cost basis) will be EQT Midstream Partners (EQM) on which I'm down about 13% on my average cost basis. EQM is the MLP created by EQT Corp (EQT), America's largest natural gas producer. EQT is the king of the Marcellus/Utica shale which is expected to see strong gas production through 2050. EQM just bought Rice Midstream, covers its 7.7% yield with a distribution coverage of 1.42 (anything over 1.1 is safe). Management's long-term plan is: for 15% to 20% distribution growth through 2020, a debt/EBITDA ratio of 3.5 (industry average 4.4), an investment grade credit rating, long-term distribution coverage of 1.15, and no equity issuances through at least the end of 2020.
The Portfolio Today
Dividend Risk Ratings
- Low risk: High dividend safety and predictable growth for 5+ years, max portfolio size 10% (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%.
- 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.
- Uniti Group (NASDAQ:UNIT) - Negative outlook (turnaround outlook iffy)
- New Residential Investment Corp. (NYSE:NRZ) - Positive outlook
- Omega Healthcare Investors (NYSE:OHI) - Due to ongoing downturn in the SNF industry, stable outlook (confidence in turnaround plan)
- Pattern Energy Group: Will be upgraded when the payout ratio declines under 85% - positive outlook
- QTS Realty: Stable outlook
- Medical Properties Trust: Due to long-term uncertainty surrounding medical REITs - positive outlook
- EPR Properties: Due to exposure to cinemas (declining over time) - positive outlook
- Chatham Lodging Trust (NYSE:CLDT): Due to volatility of hotel cash flow - stable outlook
- NRG Yield: Stable outlook
- NetEase: Negative Outlook (medium risk due to variable dividend policy, gaming division is struggling)
- Enterprise Products Partners: Stable outlook
- AT&T - Stable outlook
- Tanger Factory Outlet Centers - Negative outlook
- Brookfield Property Partners (NYSE:BPY) - Stable outlook
- TransAlta Renewables (OTC:TRSWF) - Stable outlook
- Simon Property Group - Stable outlook
- Enbridge - Stable outlook
- Realty Income (NYSE:O) - Stable outlook
- Brookfield Infrastructure Partners - Positive outlook
- Dominion Energy - Stable outlook
- STORE Capital (NYSE:STOR) - Stable outlook
- Canadian Imperial Bank of Commerce (NYSE:CM) - Stable outlook
- Telus - Stable outlook
- Ventas - Stable outlook
- Iron Mountain - Stable outlook
- Spectra Energy Partners - Stable outlook
- W.P. Carey - Stable outlook
- NextEra Energy Partners (NYSEMKT:NEP) - Positive outlook
- Altria - Stable outlook
- Royal Bank Of Canada - Stable outlook
- Bank of Nova Scotia - Stable outlook
- Exxon Mobil - Stable outlook
- AbbVie - Stable outlook
- EQT Midstream Partners - Stable outlook
- EQT GP Holdings - Stable outlook
- MPLX - Stable outlook
- Visa - Stable outlook
- Home Depot - Stable outlook
- Lowe's - Stable outlook
- Noble Midstream Partners - Stable outlook
- Starbucks - Stable outlook
- Antero Midstream Partners - Stable outlook
- Antero Midstream GP - Stable outlook
- CNX Midstream Partners - Stable outlook
- Dominion Midstream Partners - Negative outlook (liquidity trap for now)
- Huntington Ingalls Industries - Stable outlook
- Apple - Stable outlook
- Silicon Motion Technology Corp. (SIMO) - Stable outlook
- InterDigital - Stable outlook
- NVIDIA (NVDA) - Positive outlook
My focus is on now 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 54 stocks, mostly low- to medium-risk, in 10 sectors. By next week, I'll be up to 55 holdings in 10 sectors. The goal by year-end is around 80 stocks in 10 to 11 sectors.
My current long-term goal (subject to change) is to own 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 Income Sources
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.
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 and Unilever. 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 in 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 PG, KO, and 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.
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):
- 37% - REITs - above 25% max target allocation but will come down over time.
- 27% - Energy - above 25% max target allocation but that's where the bargains and best opportunities are, my highest conviction sector
- 15% - Utilities, approaching 25% max target allocation but unlikely to exceed it.
Utilities will eventually increase a bit, as I plan to add several more, including:
- NextEra Energy Partners
- Brookfield Renewable Partners
- TerraForm Power
- Atlantica Yield
- American Electric Power (NYSE:AEP)
- DTE Energy (NYSE:DTE)
- Southern Company (NYSE:SO)
- AES Corp (AES)
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. I do plan to double down on Dominion Energy in the coming months for as long as it remains incredibly undervalued. I don't know how much I'll end up buying but it probably won't be enough to push my utility exposure to above 25%.
(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 versus yield, the average 5-year dividend growth rate is up from 8.9% to 9.8%.
Projected Portfolio Dividends Over Time
Inflation Adjusted Total Annual Portfolio Dividends
(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 an 11.4% long-term dividend growth estimate and a 2.0% inflation estimate. The 11.4% is the projected long-term dividend growth from the master watchlist, 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 3-4%. But the dividend growth rate should rise to about 9-10%. Ultimately, the goal is to build a highly diversified, low-risk, high-yielding portfolio with strong enough dividend growth to achieve 10-11% 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 3-4% faster dividend growth. Since 1871, the S&P 500 has generated annual total returns of 9.1%. The market's historical inflation adjusted total return 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.
- Holdings: 54
- Portfolio Size: $159,801 (all time record high)
- Equity: $138,242
- Remaining Margin Buying Power: $698,908
- Margin Used: $21,952
- Debt/Equity: 0.16
- Dividends/Margin Interest Ratio: 12.7
- Distance To Margin Call: 80.2%
- Current Margin Rate: 3.43%
- Yield: 6.0%
- Yield On Cost: 6.1%
- Yield On Equity Cost (net yield on cash I have invested): 6.5%
- Cumulative Total Return Since Inception (since September 8, 2017): -1.5%
- Cumulative Unlevered Total Return Since Inception: 1.2%
- Year-to-Date Unlevered Total Return: -0.7%
- Annualized Unlevered Total Return (YTD 2018): -1.5%
- Unrealized Capital Gains (current holdings): $1,969 (+1.3%)
- Cumulative Dividends Received (including accrued dividends): $8,827
- Annual Dividends: $9,577
- Annual Interest: $753
- Annual Net Dividends: $8,824
- Monthly Average Net Dividends: $735
- Daily Average Net Dividends (my business empire never sleeps): $24.18
- Portfolio Beta (volatility relative to S&P 500): 0.86
- Projected Long-Term Dividend Growth: 11.4%
- Projected Annual Unlevered Total Return: 14.6%
- Projected Net Levered Annual Total Return: 17.5% (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
(Source: Interactive Brokers)
10 Best-Performing Positions
(Source: Interactive Brokers)
Bottom Line: Make Sure You Understand The Downsides To Any Potential Investment Before Risking Your Hard Earned Money
I'm not saying that every CEF is a necessarily a terrible investment. However, thus far, I have yet to find one that meets my specific goals of generating: generous, stable, and growing income. Rather I've only found high cost funds that usually represent an expensive way to gain leveraged exposure to quality dividend stocks that investors would be better off buying on their own.
If diversification is your goal, then sector ETFs usually offer a far superior choice. That's thanks to their: much smaller expenses, lower turnover, and superior long-term total returns.
If you do decide that the higher-yields of CEFs are worth it, then I recommend doing your due diligence to make sure that those mouthwatering payouts are actually sustainable, and not set to decline drastically over time.
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, AAPL, SIMO, NVDA. 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.
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