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))
- 5% into bond CEF Guggenheim Strategic Opportunities Fund (GOF) - only form of bond exposure I plan on right now
- 35% 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 explores just how badly a trade war would hit the US economy and the stock market.
The Problem With Investor Psychology
To paraphrase American Dad "investing is like making love. Easy to do but takes a lifetime to master." This is especially true because of the biggest detriment to achieve our long-term financial goals; human psychology. Specifically the principle of loss aversion, in which studies find that it usually hurts twice as much to lose a dollar as to make a dollar.
This explains why the market frequently swings from periods of wildly bullish euphoria (when stocks are rising), to panicked investor selling during bear markets.
The goal of my articles isn't just to point out great long-term income growth investing opportunities but to help teach my readers to be better investors in general. Above all else that means mastering one's emotions during the inevitable corrections and bear markets that are the cost of doing business when harnessing the wealth compounding power of stocks.
In a recent article on awealthofcommonsense.com, Ben Carlson made a very insightful point. One that made me really think about how even I, someone who has been investing for over 20 years and studies companies and markets for a living, would react during a downturn. The point that Mr. Carlson made was that humans tend not to think in terms of percentages, but absolute dollar amounts.
This means that how one reacts to a bear market might ultimately come down to what stage of your investing life you are in.
For example, Carlson modeled a hypothetical scenario comparing the starting and ending portfolios starting from October 2007 (market top before the financial crisis), for three generations of investors. Each one started off with a different portfolio balance and asset allocation that is appropriate for their stage of life. He then numbers to see how the portfolios of each generation would have changed over the past decade.
The Millennial investor who was just starting off in 2007 had very little to lose. Thus, despite the market's 54% crash during the Great Recession, a modest savings rate offset most of the portfolio losses resulting in a peak portfolio decline (peak to trough) of less than 10%.
In contrast the baby boomer that started off with a much larger portfolio and four times the savings rate suffered far larger losses in both percentage and absolute terms.
The point is that the larger your starting asset base is when a bear market hits, the bigger your overall unrealized losses will be.
This means that one's total returns over time are what's called path dependent. This means that the best time for your portfolio to go through a market crash is early in your investing career. This is when your ratio of savings (new investments)/old investments is highest and thus sets you up for the best long-term returns. It's also why financial advisors recommend changing one's asset allocation (stock/bond mix) over time, to adopt a more conservative (lower volatility) strategy as one's portfolio gets larger.
However, the more important point Carlson made in the article is that even with the right asset allocation for one's age, each consecutive bear market is usually more emotionally painful than the one before.
For example, here's a simulation of the same three hypothetical investors and how their now much larger portfolios will fair in the typical bear market (whenever that comes). Since 1945 the average bear market has lasted 16 months and resulted in an average peak to trough decline of 30%.
As the table shows each of our three generational investors will suffer far less in relative (percentage) terms. The most aggressive investor, with 80% in low cost stock ETFs, is likely to only face a mild decline, akin to a normal market correction. Similarly the more conservative boomer, despite starting with a giant portfolio representing decades of savings and smart index investing, will be fine.
But the trouble is that humans don't think in terms of percentage, we think in terms of dollars. After all, % points don't pay the bills, dollars do. And each of our hypothetical investors is facing some gut wrenching losses. Imagine that you are this hypothetical baby boomer with a starting portfolio of $2.4 million at the start of the next bear market. You are now 10 years older than the last crash, and thus 10 years closer to retirement. How would it feel to check your portfolio and see that you've lost $403,365 at the market bottom (which you wouldn't know is the bottom)?
Heck I'm someone who studies investing and market history for a living, and even I'll admit that on a bad market day when I can lose $2,000 (just over 1%) it doesn't feel great. And during the last correction? I managed to remain bullish and excited (at an intellectual level) when the market plunged 10% in just nine days (second fast correction in US history). But I'll admit that in my gut there was a dark sense of foreboding. A feeling that I was losing a ton of money very fast, and if it continued at this pace then I might end up losing my life savings within just a few weeks. This is an example of recency bias, the belief that what just happened will continue for a long time. Combined with loss aversion it's why most investors just can't help themselves from trying to time the market.
Of course, the sad truth is that letting your emotions determine your investing decisions is a terrible idea. Because of market timing the typical investor has managed to generate just 0.5% inflation adjusted returns over the past 20 years, compared to 5.1% for the S&P 500. Sure that 5.1% return is a far cry from the market's historical 7.0% inflation adjusted return since 1871, but it's also 10 times better than what the typical, emotion driven, investor achieved.
So what does that mean for us? Are we doomed to spend a lifetime working hard, saving, and investing well just to lose it all in the last bear market before our retirement? Well actually no. Because thanks to the wonders of dividend stocks, we all have a fighting chance to do the smart thing during the next downturn, and thus achieve our long-term dreams of a prosperous retirement.
How Dividend Stocks Can Help You Avoid Making Costly Mistakes
I'm a huge fan of Steven Bavaria's "Income factor" approach to investing. While his CEF heavy portfolio is not for me, the man's strategy and mindset is exactly what I and many of my income focused readers need.
Basically the idea is that you need to think of your portfolio as an actual business. A factory where each position is an income generating machine. The portfolio value is what the market says your factory is worth at any given time. But since you are a savvy long-term focused businessman/woman you understand that your business model doesn't have anything to do with your factory's short-term valuation.
The cash flow is what you are after, and as long as each machine is pumping out steady (and hopefully growing) income then you have what you need. Best of all if the market plummets and the cost of new income producing machines falls? Then you can reinvest that income into more machines. This means that when the market is down it's far easier for an income factory investor to stay calm and avoid panic selling. After all, you are not focused on the immediate value of your portfolio, but rather growing your overall income stream over time. And even if your stocks themselves aren't raising their payouts (most CEFs, mREITs, and BDCs don't), as long as your yield is high enough, then the reinvesting of the income is sufficient to keep growing your portfolio income.
Ok so that's great for younger investors who are still working and thus can afford to keep saving and or reinvesting their dividends. But what about retirees who need to live off this income? Well there too a well crafted income portfolio can be just the ticket to ensuring a high and rising standard of living during your golden years.
The common approach to retirement planning is to assume a 4% (sometimes 5%) portfolio drawdown each year. This is based on the 1994 study by William Bengen that found that since 1926 a 60/40 portfolio of stocks and bonds would have been able to sustain at least a 30 year retirement with a failure rate of just 5%.
The reason I love dividend stocks so much is that they are they a great way to retrain your mind to profit from market volatility during the accumulation phase of your investing career. However, they work even better at defending your wealth during retirement.
According to the Bureau of Labor Statistics the average retired household spends $45,756 per year, or roughly $3,800 a month. Factoring the average Social Security benefit ($1,404 per month) a 2017 report by Merrill Lynch estimates the average retirement costs $738,400. Or to put another way, Merrill is projecting that the average retired household needs a $738,400 portfolio in order to follow the 4% rule and live comfortably with minimal risk of outliving its savings.
But what if you don't have nearly $750,000 saved up? Well then you might have no choice but to switch to a 5%, 6%, or even 7% drawdown rule. Sure that might mean you are at high risk of eventually going broke, but it beats starving over the next few years.
Which is where high-yield stocks like REITs, MLPs, YieldCos, and a very VERY select number of bond CEFs can come in. These can create a diversified portfolio that yields a stable (low risk) 5% to 7% and has sufficient dividend growth to match or slightly beat inflation (2% to 3% a year).
Now think of the difference between two retired investors, both who have $425,000 retirement portfolios. In order to pay the bills in retirement both need to withdraw 7% each year. The first just has a collection of low cost index funds, which results in a paltry yield of about 2%. The other has a REIT, MLP, YieldCo, Utility, and Telecom heavy portfolio that yields 7% and generates 2% income growth.
The first retired investor's standard of living is tied to the market's annual performance. There is no "long-term" to save him/her. If the market crashes they either live like a pauper for however long the bear market lasts, or end up consuming far more of their savings than planned. This investor lives in constant fear of a bear market and watches the financial media like a hawk, desperate for any clue to when the "big one" might be coming.
The second investor doesn't worry about the market at all. Why bother? The portfolio is generating all the income he/she needs to live comfortably. And because it's been constructed with quality dividend stocks that will likely maintain and grow their dividends during all economic conditions, price becomes 100% irrelevant to this retiree's standard of living.
In other words the retiree with the high-yield portfolio is living the American dream. They have true freedom from fear of material want and can enjoy a Zen like state of mind. When the next market crash happens this high-yield retiree will be far less likely to panic sell and thus probably save themselves a fortune it took a lifetime to accumulate.
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: 0.34% (down from 0.38% last week)
The yield curve is now at its lowest point in 11 years. This is likely due to the stock market falling over trade war concerns. This is creating a flight to safety driving up 10 year bond prices and lowering the 10 year yield. 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 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 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.
Note that 10 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. As long as this remains the case the economy is doing fine.
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 0.86%, 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 2.8% to 4.7%). More importantly, the consensus growth estimate (from economists) has been trending up 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 2.6% 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:
- Dunkin' Brands Group (DNKN)
- Aon PLC (AON)
- Oshkosh Corp (OSK)
- Americold Realty Trust (COLD)
- Lincoln National Corp (LNC)
- Discover Financial Services (DFS)
- Canadian Utilities LTD (OTCPK:CDUAF)
- Stepan Company (SCL)
- Walmart (WMT)
- 1st Source Corp (SRCE)
- American Express (AXP)
|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%||5.1%||19.9%||25.0%||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%||9.6%||14.0%||23.6%||MLP||Oil, Gas & Consumable Fuels|
|(NBLX)||Noble Midstream Partners||3.6%||3.8%||19.0%||22.8%||MLP||Oil, Gas & Consumable Fuels|
|(SIMO)||Silicon Motion Technology||2.1%||2.3%||20.0%||22.3%||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%||2.6%||19.3%||21.9%||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%||1.4%||20.0%||21.4%||Industrial||Defense|
|(MKTX)||MarketAxess Holdings||0.8%||0.8%||20.0%||20.8%||Finance||Capital Markets|
|DPZ||Domino's Pizza||1.1%||0.8%||19.9%||20.7%||Consumer Discretionary||Restaurants|
|(AMP)||Ameriprise Financial||2.3%||2.5%||18.0%||20.5%||Finance||Asset Management|
|(CNXM)||CNXM Midstream Partners||5.5%||6.2%||14.0%||20.2%||MLP||Oil, Gas & Consumable Fuels|
|(ETE)||Energy Transfer Equity||5.8%||7.1%||13.0%||20.1%||MLP||Oil, Gas & Consumable Fuels|
|(EQM)||EQT Midstream Partners||3.6%||8.1%||12.0%||20.1%||MLP||Oil, Gas & Consumable Fuels|
|(EOG)||EOG Resources||0.4%||0.7%||19.0%||19.7%||Energy||Oil, Gas & Consumable Fuels|
|(OMP)||Oasis Midstream Partners||5.0%||8.5%||11.0%||19.5%||MLP||Oil, Gas & Consumable Fuels|
|(HESM)||Hess Midstream Partners||5.0%||6.4%||13.0%||19.4%||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%||2.2%||16.2%||18.4%||REIT||Data Center REIT|
|(RCL)||Royal Caribbean Cruises||1.9%||2.3%||16.2%||18.5%||Consumer Cyclical||Hotel, Resorts, Cruise Lines|
|(TEGP-OLD)||Tallgrass Energy GP||4.2%||8.4%||9.0%||17.4%||MLP (No K1)||Oil, Gas & Consumable Fuels|
|(LUV)||Southwest Airlines||0.8%||1.3%||16.4%||17.7%||Consumer Cyclical||Airlines|
|(AMT)||American Tower||1.8%||2.1%||15.4%||17.5%||REIT||Telecom REIT|
|(CMCSA)||Comcast||1.7%||2.3%||15.0%||17.3%||Telecom||Cable & Satellite|
|NEP||NextEra Energy Partners||4.1%||3.7%||13.5%||17.2%||YieldCo||Renewable Energy|
|(PEGI)||Pattern Energy Group||6.7%||8.8%||8.3%||17.1%||YieldCo||Renewable Energy|
|(CCI)||Crown Castle||3.9%||4.0%||13.1%||17.1%||REIT||Telecom REIT|
|(COR)||CoreSite Realty Corp||3.5%||3.6%||13.5%||17.1%||REIT||Data Center REIT|
|(HD)||Home Depot||2.1%||2.1%||14.9%||17.0%||Consumer Cyclical||Home Improvement Stores|
|(QSR)||Restaurant Brands International||1.4%||3.0%||14.0%||17.0%||Consumer Cyclical||Restaurant|
|(BUD)||Anheuser-Busch InBev||2.6%||3.5%||13.4%||16.9%||Consumer Defensive||Alcohol|
|(ALLE)||Allegion PLC||0.7%||1.1%||15.7%||16.8%||Industrial||Building Products|
|THO||Thor Industries||1.6%||1.5%||15.0%||16.5%||Consumer Discretionary||Recreational Vehicles|
|(VLP)||Valero Energy Partners||2.8%||5.5%||11.0%||16.5%||MLP||Oil, Gas & Consumable Fuels|
|(HP)||Helmerich & Payne||4.1%||4.5%||12.0%||16.5%||Energy||Oil Service|
|(OTEX)||Open Text||1.5%||1.7%||14.7%||16.4%||Technology||Business Applications|
|(WGP-OLD)||Western Gas Equity Partners||3.6%||6.4%||10.0%||16.4%||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%||6.1%||10.0%||16.1%||MLP||Oil, Gas & Consumable Fuels|
|SPGI||S&P Global||1.3%||1.0%||14.7%||15.7%||Financial||Capital Markets|
|(LECO)||Lincoln Electric Holdings||1.7%||1.8%||13.7%||15.5%||Industrial||Electric Machinery|
|ADP||Automatic Data Processing||2.4%||1.9%||13.6%||15.5%||Industrial||Business Services|
|(AQN)||Algonquin Power & Utilities||4.7%||5.4%||10.0%||15.4%||Utilities||Diversified Utilities|
|(CSL)||Carlisle Companies||1.2%||1.4%||14.0%||15.4%||Industrial||Diversified Industrials|
|(CAKE)||Cheesecake Factory||1.5%||2.1%||13.2%||15.3%||Consumer Cyclical||Restaurants|
|(ANDX)||Andeavor Logistics LP||5.9%||9.4%||6.0%||15.4%||MLP||Oil, Gas & Consumable Fuels|
|TROW||T. Rowe Price||2.6%||2.3%||12.9%||15.2%||Finance||Asset Management|
|SHW||Sherwin-Williams||1.1%||0.9%||14.3%||15.2%||Basic Materials||Specialty Chemicals|
|(OTCQX:IMBBY)||Imperial Brands||5.6%||6.4%||8.8%||15.2%||Consumer Defensive||Tobacco|
|(QTS)||QTS Realty Trust||3.1%||4.2%||11.0%||15.2%||REIT||Data Center REIT|
|(DG)||Dollar General||1.2%||1.2%||13.9%||15.1%||Consumer Discretionary||Retail|
|(BIP)||Brookfield Infrastructure Partners||4.5%||4.9%||10.0%||14.9%||Utility||Diversified Utilities|
|(TSCO)||Tractor Supply Company||1.0%||1.6%||13.2%||14.8%||Consumer Cyclical||Specialty Retail|
|UNH||UnitedHealth Group||1.6%||1.2%||13.6%||14.8%||Healthcare||Health Insurance|
|(ENB)||Enbridge Inc||3.5%||6.8%||8.0%||14.8%||Energy||Oil, Gas & Consumable Fuels|
|(FDX)||Fedex||0.6%||0.9%||13.8%||14.7%||Industrial||Shipping & Logistics|
|(LEG)||Leggett & Platt||3.0%||3.5%||11.0%||14.5%||Consumer Cyclical||Furniture|
|(MDLZ)||Mondelez International||1.7%||2.1%||12.3%||14.4%||Consumer Defensive||Food & Beverage|
|DNKN||Dunkin' Brands Group||2.2%||2.0%||12.4%||14.4%||Consumer Discretionary||Restaurants|
|(ECL)||Ecolab||1.1%||1.2%||13.2%||14.4%||Basic Materials||Specialty Chemicals|
|(MWA)||Mueller Water Products||0.9%||1.7%||12.6%||14.3%||Industrial||Water Infrastructure|
|BDX||Becton, Dickinson & Company||1.7%||1.3%||13.0%||14.3%||Healthcare||Medical Equipment|
|(PSXP)||Phillips 66 Partners||3.1%||5.3%||9.0%||14.3%||MLP||Oil, Gas & Consumable Fuels|
|CONE||CyrusOne||3.3%||3.2%||11.0%||14.2%||REIT||Data Center REIT|
|OKE||ONEOK||5.0%||4.6%||9.6%||14.2%||Energy||Oil, Gas & Consumable Fuels|
|SYY||Sysco||3.0%||2.1%||12.0%||14.1%||Consumer Defensive||Food Distributor|
|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|
|BA||Boeing||2.4%||2.1%||12.0%||14.1%||Industrial||Aerospace & Defense|
|(AON)||Aon PLC||1.1%||1.2%||12.8%||14.0%||Financial||Insurance Brokers|
|(ADM)||Archer-Daniels Midland||2.6%||2.9%||11.0%||13.9%||Consumer Defensive||Farm Products|
|(CMI)||Cummins||2.6%||3.2%||10.7%||13.9%||Industrial||Heavy Trucks & Machinery|
|(MMC)||Marsh & McLennan Companies||2.0%||2.1%||11.7%||13.8%||Finance||Insurance Brokers|
|(FBHS)||Fortune Brands Home & Security||1.1%||1.5%||12.3%||13.8%||Industrial||Building Products|
|GWW||W.W Grainger||2.0%||1.8%||12.0%||13.8%||Industrial||Industrial Distribution|
|(AY)||Atlantica Yield||5.6%||5.7%||8.0%||13.7%||YieldCo||Renewable Energy YieldCo|
|DCI||Donaldson Company||1.6%||1.6%||12.1%||13.7%||Industrial||Filtration Systems|
|(CVS)||CVS Health||1.6%||2.8%||10.9%||13.7%||Healthcare||Pharmacy/Health Insurance|
|(APTS)||Preferred Apartment Communities||6.7%||6.7%||7.0%||13.7%||REIT||Apartment REIT|
|(OZRK)||Bank of the Ozarks||1.5%||1.7%||12.0%||13.7%||Financial||Banking|
|(KMI)||Kinder Morgan||4.1%||4.7%||9.0%||13.7%||Energy||Oil, Gas & Consumable Fuels|
|(MSA)||MSA Safety Incorporated||2.3%||1.6%||12.0%||13.6%||Industrial||Safety Equipment|
|(BEP)||Brookfield Renewable Partners||5.6%||6.5%||7.0%||13.5%||YieldCo||Renewable Energy|
|(WBA)||Walgreens Boots Alliance||1.9%||2.4%||11.1%||13.5%||Consumer Defensive||Pharmacy|
|(APOG)||Apogee Enterprises||1.1%||1.5%||12.0%||13.5%||Industrial||Building Products|
|(SEP)||Spectra Energy Partners||6.0%||9.4%||4.0%||13.4%||MLP||Oil, Gas & Consumable Fuels|
|(OSK)||Oshkosh Corp||1.3%||1.4%||12.0%||13.4%||Industrial||Construction Machinery|
|(COLD)||Americold Realty Trust||3.0%||3.4%||10.0%||13.4%||REIT||Industrial REIT|
|(TTC)||Toro Company||1.3%||1.4%||12.0%||13.4%||Industrial||Agricultural Equipment|
|(INGR)||Ingredion||2.0%||2.2%||11.0%||13.2%||Consumer Defensive||Agricultural Products|
|(APD)||Air Products & Chemicals||2.4%||2.8%||10.4%||13.2%||Industrial||Industrial Gas|
|(WHR)||Whirlpool||2.2%||3.2%||10.0%||13.2%||Consumer Discretionary||Home Appliances|
|(TJX)||TJX Companies||1.2%||2.1%||11.1%||13.2%||Consumer Cyclical||Retail|
|(CCL)||Carnival||2.6%||3.4%||10.0%||13.4%||Consumer Discretionary||Cruise Line|
|(ETN)||Eaton Corp||3.1%||3.5%||9.7%||13.2%||Industrial||Diversified Industrials|
|(PFG)||Principal Financial Group||2.9%||3.8%||9.4%||13.2%||Financial||Insurance|
|CAT||Caterpillar||3.0%||2.3%||10.9%||13.2%||Industrial||Farm & Construction Equipment|
|(BLL)||Ball Corp||0.8%||1.1%||12.0%||13.1%||Basic Materials||Metal & Glass Containers|
|(ROP)||Roper Technologies||0.6%||0.6%||12.5%||13.1%||Industrial||Industrial Tech|
|(TERP)||TerraForm Power||6.0%||6.4%||6.5%||12.9%||YieldCo||Renewable Energy|
|GD||General Dynamics||2.1%||2.0%||11.0%||13.0%||Industrial||Aerospace & Defense|
|SEIC||SEI Investments||1.1%||0.9%||12.0%||12.9%||Financial||Asset Management|
|MCO||Moody's||1.4%||1.0%||11.8%||12.8%||Finance||Financial Exchanges & Data|
|(HUBB)||Hubbell Incorporated||2.3%||2.9%||10.0%||12.9%||Industrial||Electronic Components|
|(WSFS)||WSFS Finance||0.7%||0.8%||12.0%||12.8%||Finance||Thrift & Mortgage Finance|
|(VFC)||V.F Corp||2.0%||2.3%||10.5%||12.8%||Consumer Cyclical||Apparel|
|(TSN)||Tyson Foods||1.1%||1.7%||11.0%||12.7%||Consumer Defensive||Food & Beverage|
|(AOS)||A. O. Smith||1.1%||1.2%||11.5%||12.7%||Industrial||Building Products|
|(CASY)||Casey's General Stores||0.9%||1.0%||11.7%||12.7%||Consumer Defensive||Grocery Stores|
|(TRP)||TransCanada||3.9%||5.0%||7.7%||12.7%||Energy||Oil, Gas & Consumable Fuels|
|(FLO)||Flowers Food||2.8%||3.5%||9.0%||12.5%||Consumer Defensive||Food & Beverage|
|(MRT)||MedEquities Trust||7.4%||7.9%||4.6%||12.5%||REIT||Medical REIT|
|(MPLX)||MPLX||4.4%||7.1%||5.6%||12.7%||MLP||Oil, Gas & Consumable Fuels|
|ORI||Old Republic International||4.3%||3.9%||8.6%||12.5%||Finance||Insurance|
|(LNC)||Lincoln National Corp||1.6%||2.0%||10.4%||12.4%||Financial||Life Insurance|
|(DFS)||Discover Financial Services||1.8%||1.9%||10.5%||12.4%||Finance||Consumer Finance|
|(ITW)||Illinois Tool Works||2.1%||2.2%||10.2%||12.4%||Industrial||Diversified Industrials|
|(EPR)||EPR Properties||6.1%||6.6%||5.8%||12.4%||REIT||Specialized REIT|
|(EPD)||Enterprise Products Partners||5.6%||6.2%||6.2%||12.4%||MLP||Oil, Gas & Consumable Fuels|
|TRNO||Terreno Realty||2.9%||2.4%||10.0%||12.4%||REIT||Industrial REIT|
|(GIS)||General Mills||3.1%||4.3%||8.0%||12.3%||Consumer Defensive||Food & Beverage|
|(MKC)||McCormick & Company||2.0%||2.0%||10.3%||12.3%||Consumer Defensive||Food & Beverage|
|(IFF)||International Flavors & Fragrances||1.9%||2.2%||10.0%||12.2%||Basic Materials||Specialty Chemicals|
|(MDP)||Meredith Corp||3.7%||4.2%||8.0%||12.2%||Consumer Discretionary||Publishing|
|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|
|(IRM)||Iron Mountain||6.0%||6.7%||5.3%||12.0%||REIT||Storage REIT|
|CORR||CorEnergy Infrastructure Trust||8.2%||8.1%||4.0%||12.1%||REIT||Infrastructure REIT|
|(CE)||Celanese Corp||1.7%||2.0%||10.1%||12.1%||Basic Materials||Specialty Chemicals|
|(SJM)||J.M Smuckers||2.3%||2.9%||9.0%||11.9%||Consumer Defensive||Food & Beverage|
|(GIL)||Gildan Activewear||0.9%||1.6%||10.4%||12.0%||Consumer Discretionary||Apparel|
|(FDS)||FactSet Research Systems||1.2%||1.2%||10.7%||11.9%||Finance||Capital Markets|
|(PG)||Procter & Gamble||3.1%||3.7%||8.2%||11.9%||Consumer Defensive||Household & Personal Products|
|(BNS)||Bank of Nova Scotia||3.8%||4.6%||7.4%||12.0%||Finance||Banking|
|CFR||Cullen/Frost Bankers||2.8%||2.4%||9.5%||11.9%||Finance||Regional Banks|
|(SPG)||Simon Property Group||3.2%||4.6%||7.3%||11.9%||REIT||Retail REIT|
|RTN||Raytheon||2.3%||1.8%||10.0%||11.8%||Industrial||Aerospace & Defense|
|NSA||National Storage Affiliates||4.5%||3.8%||8.0%||11.8%||REIT||Storage REIT|
|(CNI)||Canadian National Railway||1.6%||1.8%||10.0%||11.8%||Industrial||Railroads|
|LANC||Lancaster Colony Corp||1.9%||1.7%||10.0%||11.7%||Consumer Defensive||Food & Beverage|
|(HON)||Honeywell International||2.0%||2.1%||9.6%||11.7%||Industrial||Diversified Industrials|
|(CLX)||Clorox||2.7%||2.9%||8.6%||11.5%||Consumer Defensive||Household & Personal Products|
|FUN||Cedar Fair||5.5%||5.6%||6.0%||11.6%||Consumer Discretionary (Uses K1)||Amusement Parks|
|(MPW)||Medical Properties Trust||6.6%||7.1%||4.4%||11.5%||REIT||Hospital REIT|
|WDFC||WD-40 Company||1.8%||1.5%||10.0%||11.5%||Consumer Defensive||Household & Personal Products|
|AXP||American Express||1.5%||1.4%||10.0%||11.4%||Finance||Consumer Finance|
|(NBHC)||National Bank Holdings Corp||1.0%||1.4%||10.0%||11.4%||Finance||Regional Bank|
|(OTCPK:CDUAF)||Canadian Utilities LTD||3.0%||4.4%||7.0%||11.4%||Utilities||Diversified Utilities|
|(D)||Dominion Energy||3.7%||5.0%||6.4%||11.4%||Utilities||Diversified Utilities|
|(HSY)||Hershey||2.3%||2.8%||8.5%||11.3%||Consumer Defensive||Food & Beverage|
|(KO)||Coca Cola||3.2%||3.6%||7.7%||11.3%||Consumer Defensive||Food & Beverage|
|(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|
|(KMB)||Kimberly-Clark||3.1%||3.9%||7.3%||11.2%||Consumer Defensive||Household & Personal Products|
|(SRE)||Sempra Energy||2.8%||3.1%||8.1%||11.2%||Utilities||Diversified Utilities|
|(UPS)||UPS||2.9%||3.3%||8.0%||11.3%||Industrial||Air Freight & Logistics|
|(SCL)||Stepan Company||1.2%||1.2%||10.0%||11.2%||Basic Materials||Specialty Chemicals|
|(SKT)||Tanger Factory Outlet Centers||4.7%||5.8%||5.3%||11.1%||REIT||Retail REIT|
|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|
|STAG||STAG Industrial||5.9%||5.2%||5.8%||11.0%||REIT||Industrial REIT|
|(HEP)||Holly Energy Partners||8.0%||9.1%||2.0%||11.1%||MLP||Oil, Gas & Consumable Fuels|
|DLR||Digital Realty Trust||4.7%||3.7%||7.1%||10.8%||REIT||Data Center REIT|
|BMO||Bank of Montreal||4.0%||3.9%||6.9%||10.8%||Finance||Banking|
|(PPG)||PPG Industries||1.5%||1.7%||9.0%||10.7%||Basic Materials||Specialty Chemicals|
|(GPC)||Genuine Parts Company||2.7%||3.1%||7.6%||10.7%||Industrial||Auto Parts|
|(PM)||Philip Morris International||5.0%||5.7%||5.0%||10.7%||Consumer Defensive||Tobacco|
|(BAC)||Bank of America||1.3%||1.7%||9.0%||10.7%||Finance||Banking|
|(CSCO)||Cisco Systems||2.4%||3.1%||7.6%||10.7%||Technology||Communications Equipment|
|NEE||NextEra Energy||3.0%||2.7%||7.9%||10.6%||Utilities||Diversified Utilities|
|(BPMP)||BP Midstream Partners||4.5%||5.3%||5.5%||10.8%||MLP||Oil, Gas & Consumable Fuels|
|CVX||Chevron||3.9%||3.7%||7.0%||10.7%||Energy||Oil, Gas & Consumable Fuels|
|(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|
|(BAM)||Brookfield Asset Management||1.5%||1.5%||9.0%||10.5%||Finance||Asset Management|
|(PEP)||Pepsi||3.0%||3.4%||7.0%||10.4%||Consumer Defensive||Food & Beverage|
|SYK||Stryker Corp||1.4%||1.1%||9.3%||10.4%||Healthcare||Healthcare Equipment|
|KIM||Kimco Realty Corp||7.0%||6.4%||4.1%||10.5%||REIT||Retail REIT|
|(CP)||Canadian Pacific Railway||0.9%||1.0%||9.4%||10.4%||Industrial||Railroads|
|(PCAR)||PACCAR||1.5%||1.8%||8.5%||10.3%||Industrial||Construction Machinery & Heavy Trucks|
|(MAN)||ManpowerGroup||1.6%||2.3%||8.0%||10.3%||Industrial||Human Resources & Employment Services|
|(CL)||Colgate-Palmolive||2.4%||2.6%||7.6%||10.2%||Consumer Defensive||Household & Personal Products|
|BMI||Badger Meter||1.3%||1.2%||9.0%||10.2%||Technology||Electronic Components|
|(RY)||Royal Bank of Canada||3.8%||4.0%||6.2%||10.2%||Finance||Banking|
|(HRL)||Hormel Foods||2.0%||2.1%||8.0%||10.1%||Consumer Defensive||Food & Beverage|
|UGI||UGI Corp||2.3%||2.0%||8.0%||10.0%||Utility||Gas Utility|
|USB||US Bancorp||2.5%||2.4%||7.5%||9.9%||Finance||Regional Bank|
|CTRE||CareTrust REIT||5.0%||4.9%||5.0%||9.9%||REIT||Senior Housing REIT|
|SXT||Sentient Technologies Corp||2.0%||1.8%||8.0%||9.8%||Basic Materials||Specialty Chemicals|
|O||Realty Income||5.1%||4.9%||4.9%||9.8%||REIT||Retail REIT|
|EMR||Emerson Electric||3.0%||2.8%||7.0%||9.8%||Industrial||Electrical Components|
|WMT||Walmart||2.7%||2.4%||7.3%||9.7%||Consumer Defensive||Grocery Stores|
|SRCE||1st Source Corp||2.1%||1.7%||8.0%||9.7%||Financial||Regional Bank|
|MAA||Mid-America Apartment Communities||4.1%||3.7%||5.9%||9.6%||REIT||Apartment REIT|
|NHI||National Health Investors||5.8%||5.4%||4.2%||9.6%||REIT||Medical REIT|
|MAIN||Main Street Capital||8.0%||7.6%||2.0%||9.6%||Finance||BDC|
|AVB||AvalonBay Communities||3.9%||3.4%||6.1%||9.5%||REIT||Apartment REIT|
|CPT||Camden Property Trust||3.9%||3.3%||6.1%||9.4%||REIT||Apartment REIT|
|WPC||W.P Carey||6.7%||6.1%||3.3%||9.4%||REIT||Diversified REIT|
|LTC||LTC Properties||6.0%||5.4%||4.0%||9.4%||REIT||Healthcare REIT|
|ARE||Alexandria Real Estate Equities||3.5%||2.9%||6.5%||9.4%||REIT||Medical Office REIT|
|FRT||Federal Realty Trust||4.0%||3.2%||6.0%||9.2%||REIT||Retail REIT|
|NNN||National Retail Properties||5.5%||4.4%||4.5%||8.9%||REIT||Retail REIT|
|EXR||Extra Space Storage||4.3%||3.1%||5.7%||8.8%||REIT||Storage REIT|
|PSA||Public Storage||4.9%||3.6%||5.1%||8.7%||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 275 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
Pioneer Natural Resources was the new stock of the week. EQT Midstream was the double down stock the week (to lower cost basis).
Plan For The Next Week
This week's new stock is Cabot Oil & Gas (COG). This fast growing gas producer that's 100% focused on the Marcellus shale formation. Cabot is one of the lowest cost gas producers and able to generate 100% internal rates of return at gas prices of just $2 per thousand cubic feet (gas is now $2.92). The company is growing production at about 20% per year which is likely to continue for at least three years if not far longer. While Cabot's 1% yield isn't exciting today its torrid growth rate should allow for about 21% dividend growth over the long-term resulting in about 22% total return potential.
The double down stock for this week is once more EQT Midstream Partners. This is my single biggest conviction buy right now. In fact there are four reasons why I think EQM is likely to generate close to 20% total returns over the next decade. The stock is trading at 5.8 times forward cash flow right now due to a large pessimism overhang involving EQT Corp's (EQT) midstream reorganization. But once that is over with (Q3 2018) then this coiled spring should be set to soar. So I'm happy to lower my cost basis in this low risk hypergrowth MLP up to a 10% portfolio position if the market allows it, to profit from the coming rally.
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
- Pioneer Natural Resources (PXD) - Stable outlook
My focus is on now on more diversification to crash-proof my portfolio against the next recession. This is why I'm buying one new stock per week (starter position). However, I've also lowering my cost basis in existing positions to take advantage of some of the best quality high-yield bargains you can find today.
My portfolio began with five stocks, all medium- to high-risk, in two sectors. Right now, I'm up to 55 stocks, mostly low- to medium-risk, in 10 sectors. By next week, I'll be up to 56 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.
- 28% - 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)
- Canadian Utilities LTD (OTCPK:CDUAF)
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 9.9%. With this week's giant purchase of EQT Midstream that figure should rise well into the double digits.
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: 55
- Portfolio Size: $162,300 (all time record high)
- Equity: $140,619
- Remaining Margin Buying Power: $710,994
- Margin Used: $22,027
- Debt/Equity: 0.16
- Dividends/Margin Interest Ratio: 12.7
- Distance To Margin Call: 80.2%
- Current Margin Rate: 3.43%
- Yield: 5.9%
- 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): -0.5%
- Cumulative Unlevered Total Return Since Inception: 3.3%
- Year-to-Date Unlevered Total Return: 0.4%
- Annualized Unlevered Total Return (YTD 2018): 0.9%
- Unrealized Capital Gains (current holdings): $3,401 (+2.1%)
- Cumulative Dividends Received (including accrued dividends): $8,890
- Annual Dividends: $9,627
- Annual Interest: $756
- Annual Net Dividends: $8,871
- Monthly Average Net Dividends: $739
- Daily Average Net Dividends (my business empire never sleeps): $24.31
- 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: Dividend Stocks Could Be Just The Thing To Help You Master Your Emotions And Achieve Your Long-Term Dreams
We're all human which means that it's always going to hurt when we lose money in the short-term. The larger our portfolios get the more we're at risk of making stupid emotional decisions. However, given that a prosperous retirement requires a portfolio of at least $400,000 in size, there is no way to become financially independent without learning to accept enormous paper losses during inevitable market corrections and crashes.
Dividend investing is a great way to refocus one's efforts away from the day to day noise of wild short-term market swings and to what really matters; having enough safe, passive income during retirement. Because with enough practice, almost anyone can learn to retrain their mind to think not like a trader, but a long-term business owner. This is why I've devoted my life to helping my readers and I build our income factories, so we can all achieve the American dream of living a comfortable life on our terms, purely off passive income.
To paraphrase Dragon's Den (UK): "short-term prices are vanity, long-term total returns are sanity, but safe and growing income is reality."
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, PXD. 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.