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 explains three reasons that fears of a trade war might actually lead to an epic stock market rally.
The Goldilocks Economy Continues
Last week I highlighted three rising economic risks that could potentially end America's second-longest economic expansion in history.
Specifically my concern was that some of the worries that investors have had, including: tariffs, inflation, and rising interest rates, might be showing up in the economic data. My biggest concern of all has been the health of the US labor market, which I see as the cornerstone of what I expect to become the longest economic expansion in US history (in July 2019).
Well, the latest jobs report from the Bureau of Labor Statistics or BLS, has largely put my mind at ease, at least for one more month. Let's take a look at three reasons why this near perfect jobs report likely spells good news for: workers, the economy, and ultimately your portfolio over the medium to long term.
1. No Signs Of Trade Related Job Slowdown Yet
I'm not the only one that has worried that rising trade war fears would lead to slower economic growth. In the Fed's latest minutes, which highlight the Federal Open Market Committee's or FOMC's discussions about interest rate policies, the Fed specifically mentioned trade related uncertainty potentially dragging on the economy.
Many District contacts expressed concern about the possible adverse effects of tariffs and other proposed trade restrictions, both domestically and abroad, on future investment activity; contacts in some Districts indicated that plans for capital spending had been scaled back or postponed as a result of uncertainty over trade policy." – FOMC minutes
The most trade sensitive sector of the economy is manufacturing, as it relies very heavily on a global supply chain for cheap inputs, as well as for export markets.
(Source: Jeff Miller) Note Above 50 indicates growth
However, thus far the worries over trade conflicts have yet to show up in the data. In fact, the latest ISM manufacturing index shows extremely strong and accelerating manufacturing activity. This has translated into continued strong manufacturing hiring, including 36,000 net manufacturing jobs created in June and 285,000 net jobs created in the past 12 months.
In fact, the entire June jobs report was stellar, continuing the trend of "Goldilocks zone" reports we've seen this year. For example, here are the report's highlights:
- +213,000 net jobs created in June
- +37,000 net revisions to April and May's report
- +211,000 average net jobs created over the last three months
- +200,000 average net jobs created over last 12 months
This continues the long-term trend of strong job creation bringing down all measures of unemployment.
(Source: Jeff Miller)
Of course, some will point out that unemployment, both U3 (headline figure) and U6 (broadest measure), increased 0.2% in June, to 4.0% and 7.8%, respectively. However, even that turns out to be a good thing.
2. Labor Force Participation Rate Rising Is Highly Bullish For The Economy
The reason unemployment went up last month was because 601,000 people entered the workforce (started looking for jobs). This implies stronger worker confidence in the labor market, which is now the strongest it has been in almost 20 years. The large number of people entering the workforce pushed up America's labor participation rate 0.2%, to 62.9%.
(Source: St. Louis Federal Reserve)
The labor participation rate or LPR is the percentage of 16 to 64 year olds who are employed or seeking employment. The LPR peaked in early 2000 at 67.3% and has spent 15 years declining to a low of 62.3% in September 2015. A falling LPR is a major drag on the economy because the more people are working the stronger America's consumer spending power is, which accounts for about 70% of US economic growth.
There have been two big reasons for the LPR falling. The first was the Great Recession which left tens of millions feeling hopeless about ever finding a good job again. However, the biggest reason has been the aging of the baby boomers. Each day and average of about 10,000 people hit age 65 and are thus officially considered to be out of the labor market. This is why, despite net job creation becoming positive in 2011, America's LPR continued declining until late 2015. However, now we're seeing strong enough job growth, courtesy of a bolstered economy, that enough people are re-entering the workforce and causing the LPR to actually start rising slowly.
This is likely to serve as a positive for economic growth going forward, assuming the trend continues. Meanwhile, we can't forget that the LPR automatically excludes anyone over the age of 65, whether or not they choose to actually keep working. In fact, according to the AARP, the number of people working in retirement, either part time or full time, has risen to new all-time highs.
For example, according to the most recent Census data (from 2017), 50% of those age 75+ and up were still working full time. And even the very old have got on board the "keep working" bandwagon. For instance, since the Great Recession the employment rate for those 85+ has nearly doubled, to 4.4%.
Of course, the reason that many older workers keep working is due to financial necessity, such as inadequate retirement savings. However, the upside is that continued work has shown to have extremely beneficial effects on one's cognition and overall happiness. In other words, while some keep retirement age workers keep working because they have to, many choose to do so because it beats an inactive retirement that rots your brain.
Whatever the reason for older workers continuing to work, the fact is that a rapidly tightening labor market is becoming far more open to hiring them or allowing them to remain at their current jobs. And in the meantime, greater spending power helps to alleviate one of the biggest secular drags on future economic growth.
However, the best news out of the jobs report was about wages.
3. Slow And Steady Wage Growth Could Help Fed Avoid Making Rate Hike Mistakes
One of the biggest reasons people worry about a future recession is because of the Federal Reserve's continued belief in the NAIRU (Non Accelerating Inflation Rate of Unemployment), also known as the full employment rate. The Fed currently estimates this to be 4.5%. In other words, at a U3 rate of 4.5%, the Fed believes that pretty much everyone who wants a job can get one and a lower employment rate will cause rising inflation.
Contacts in several Districts reported difficulties finding qualified workers, and, in some cases, firms were coping with labor shortages by increasing salaries and benefits in order to attract or retain workers. Other business contacts facing labor shortages were responding by increasing training for less-qualified workers or by investing in automation. – FOMC minutes
The tight job market, (there are now more open jobs than people looking for work) has the Fed concerned that wage growth might be about to accelerate too quickly and force companies to start raising prices. However, the actual pace of wage growth continues to be trending up, but very slowly and far from levels that will trigger inflation. For example, in June the BLS estimates that average wages, both overall and for non-supervisory (80% of workers) wage growth was 2.7% year-over-year. That's only slightly up from 2017's average of 2.5%.
Normally, a healthy economy sees 3.5% to 4% wage growth and we're still far below that. However, there's something very important to realize about this disappointing level of wage growth. Average wage growth is highly sensitive to older workers (peak earners) retiring and being replaced by lower earning younger workers. This substitution effect is causing the actual wage growth most people are experiencing to appear larger than the BLS figure indicates.
(Source: Atlanta Federal Reserve)
For example, if we use median wages instead, which compensates for this secular demographic trend, then wage growth is actually 3.2%, or about 20%, higher. More importantly that continues a long-term trend of gradually rising wages that have doubled wage growth since bottoming in January of 2010.
I'm a big fan of accelerating wage growth for two reasons. First, it means stronger consumer spending power. But more importantly because as the job market tightens it means that gradually rising labor costs will force companies to invest in labor productivity-boosting technology. This will increase overall productivity and thus allow higher wage growth to not trigger higher inflation. That in turns would allow the Fed to avoid hiking rates too high, too fast and trigger a recession.
Or to put another way, rising wages are the key to America's continuing Goldilocks economic growth rate. One that's between 2% and 3%, and avoids "economic overheating" that the Fed and so many other economists are worried about. This means continued low inflation but faster prosperity growth for an ever-widening number of people.
Growing national prosperity, experienced by tens of millions of previously discouraged workers who had abandoned hope of a finding a job, spells great news for corporate earnings, and dividend growth. In other words, this latest jobs report indicates that, despite all the worries we have over interest rates and rising tariffs, the most important fundamentals of the economy (jobs and wages) remain strong and headed in the right direction. All of which bodes well for the prospects of our diversified dividend growth portfolios.
Economic Growth And Recession Risk
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 and Atlanta 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)
According to a March 2018 report from the San Francisco Fed, an inverted yield curve has “correctly signaled all nine recessions since 1955 and had only one false positive, in the mid-1960s, when an inversion was followed by an economic slowdown but not an official recession.” In other words, if the yield curve goes negative there is probably a 90% chance of a recession starting within the next 17 months or so.
Unfortunately, investors hoping to use the yield curve to time market tops are out of luck. While a yield curve inversion is very accurate at predicting recessions with long lead times, its track record on predicting bear markets is far less impressive.
2/10 Yield Curve Inversion Vs. Bear Market Starts
The lag time between market tops and yield curve inversions is all over the map, ranging from just 2 months in 2000 to nearly 2 years in 2005.
And if we go back to 1956 (using the 1/10 yield curve), we can also see that yield curve inversions are largely useless for timing bear market starts. In fact, on three occasions the forward-looking market has actually peaked before the curve inverted. This means that the yield curve should not be used as a market timing mechanism but rather purely as a good recession risk indicator.
Current 2/10 Yield Curve: 0.29% (down from 0.33% 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 12 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 increasing positive acceleration. As long as this remains the case, the economy is doing fine and recession risk is low.
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 0.87%, 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. Thus far stable and slightly higher inflation expectations remain bullish for economic 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 0.14% recession risk) is under 18%, the economy has never been in a recession. This means that this graph can tell us with about a four-month lead time whether or not the economy is likely to be contracting.
Current Economic Growth Projections
Okay, so the economy is nowhere close to a recession right now. But how fast is it growing? Well, we have two models for that, courtesy of the Atlanta Fed and the New York Fed. The actual figure itself is not nearly as important as its trend over the past few weeks and months.
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 3.8%). 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 2.7% growth in Q3 2018 (up from 2.5% last week).
Current growth estimates still bode 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, the Bureau of Labor Statistics estimated that wage growth is now 2.7% YOY. Median wage growth, a more accurate measure of wage increases, is rising at 3.2%.
I expect gradually rising wage growth to 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. However, I will continue to monitor all macro-economic data for signs that trade uncertainties start weighing on economic and labor market 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:
- Evercore (NYSE:EVR): 10 consecutive years of dividend growth, 13% long-term dividend growth potential
- Nasdaq (NASDAQ:NDAQ): 6 consecutive years of dividend growth, 11% to 12% long-term dividend growth potential
- American Financial Group (NYSE:AFG): 13 consecutive years of dividend growth, 12% long-term dividend growth potential
- Kellogg (K:) 14 consecutive years of dividend growth, 8% long-term dividend growth potential
- Waste Management (NYSE:WM): 15 consecutive years of dividend growth, 11% long-term dividend growth potential
- Republic Services (NYSE:RSG): 15 consecutive years of dividend growth: 11% long-term dividend growth potential
|Ticker||Company||Target Yield (Fair Value)||Current Yield||Potential Long-Term Dividend Growth||Total Return Potential||Sector||Industry|
|(AMGP)||Antero Midstream GP||0.4%||2.2%||26.3%||28.5%||MLP (no K1)||Oil, Gas & Consumable Fuels|
|(AM)||Antero Midstream Partners||3.7%||5.2%||19.9%||25.1%||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%||9.9%||14.0%||23.9%||MLP||Oil, Gas & Consumable Fuels|
|(NBLX)||Noble Midstream Partners||3.6%||3.9%||19.0%||22.9%||MLP||Oil, Gas & Consumable Fuels|
|(EQGP)||EQT GP Holdings||2.5%||4.4%||18.0%||22.4%||MLP||Oil, Gas & Consumable Fuels|
|(SIMO)||Silicon Motion Technology||2.1%||2.4%||20.0%||22.4%||Technology||Semiconductors|
|(NASDAQ:LRCX)||Lam Research||1.2%||2.5%||19.3%||21.8%||Technology||Semiconductor Equipment|
|(COG)||Cabot Oil & Gas||0.3%||1.0%||20.8%||21.8%||Energy||Oil, Gas & Consumable Fuels|
|(LOW)||Lowe's Companies||1.7%||2.0%||19.8%||21.8%||Consumer Cyclical||Home Improvement Stores|
|(HII)||Huntington Ingalls Industries||1.2%||1.3%||20.0%||21.3%||Industrial||Defense|
|(NASDAQ:MKTX)||MarketAxess Holdings||0.8%||0.8%||20.0%||20.8%||Finance||Capital Markets|
|(CNXM)||CNXM Midstream Partners||5.5%||6.7%||14.0%||20.7%||MLP||Oil, Gas & Consumable Fuels|
|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|
|(EQM)||EQT Midstream Partners||3.6%||8.2%||12.0%||20.2%||MLP||Oil, Gas & Consumable Fuels|
|(ETE)||Energy Transfer Equity||5.8%||6.9%||13.0%||19.9%||MLP||Oil, Gas & Consumable Fuels|
|(EOG)||EOG Resources||0.4%||0.6%||19.0%||19.6%||Energy||Oil, Gas & Consumable Fuels|
|(HESM)||Hess Midstream Partners||5.0%||6.7%||13.0%||19.7%||MLP||Oil, Gas & Consumable Fuels|
|(OMP)||Oasis Midstream Partners||5.0%||8.4%||11.0%||19.4%||MLP||Oil, Gas & Consumable Fuels|
|(NYLD)||NRG Yield||6.0%||6.9%||12.0%||18.9%||YieldCo||Renewable Energy|
|(HCKT)||Hackett Group||1.9%||2.1%||16.7%||18.8%||Technology||IT Consulting|
|NTES||NetEase||1.2%||0.8%||17.7%||18.5%||Technology||Internet Software & Service|
|(RCL)||Royal Caribbean Cruises||1.9%||2.3%||16.2%||18.5%||Consumer Cyclical||Hotel, Resorts, Cruise Lines|
|EQIX||Equinix||2.1%||2.0%||16.2%||18.2%||REIT||Data Center REIT|
|(TGE)||Tallgrass Energy LP||4.2%||8.7%||9.0%||17.7%||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%||2.1%||15.4%||17.5%||REIT||Telecom REIT|
|(CMCSA)||Comcast||1.7%||2.3%||15.0%||17.3%||Telecom||Cable & Satellite|
|(PEGI)||Pattern Energy Group||6.7%||8.8%||8.3%||17.1%||YieldCo||Renewable Energy|
|(COR)||CoreSite Realty Corp||3.5%||3.6%||13.5%||17.1%||REIT||Data Center REIT|
|NEP||NextEra Energy Partners||4.1%||3.6%||13.5%||17.1%||YieldCo||Renewable Energy|
|(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|
|(CCI)||Crown Castle||3.9%||3.8%||13.1%||16.9%||REIT||Telecom REIT|
|(ALLE)||Allegion PLC||0.7%||1.1%||15.7%||16.8%||Industrial||Building Products|
|(BUD)||Anheuser-Busch InBev||2.6%||3.3%||13.4%||16.7%||Consumer Defensive||Alcohol|
|(VLP)||Valero Energy Partners||2.8%||5.5%||11.0%||16.5%||MLP||Oil, Gas & Consumable Fuels|
|THO||Thor Industries||1.6%||1.5%||15.0%||16.5%||Consumer Discretionary||Recreational Vehicles|
|(HP)||Helmerich & Payne||4.1%||4.3%||12.0%||16.3%||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%||6.3%||10.0%||16.3%||MLP||Oil, Gas & Consumable Fuels|
|(SHLX)||Shell Midstream Partners||3.2%||6.1%||10.0%||16.1%||MLP||Oil, Gas & Consumable Fuels|
|(CDW)||CDW Corp||1.0%||1.0%||15.1%||16.1%||Technology||IT Distributor|
|SPGI||S&P Global||1.3%||1.0%||14.7%||15.7%||Financial||Capital Markets|
|ADP||Automatic Data Processing||2.4%||2.1%||13.6%||15.7%||Industrial||Business Services|
|(ANDX)||Andeavor Logistics LP||5.9%||9.6%||6.0%||15.6%||MLP||Oil, Gas & Consumable Fuels|
|(LECO)||Lincoln Electric Holdings||1.7%||1.8%||13.7%||15.5%||Industrial||Electric Machinery|
|(CSL)||Carlisle Companies||1.2%||1.3%||14.0%||15.3%||Industrial||Diversified Industrials|
|TROW||T. Rowe Price||2.6%||2.4%||12.9%||15.3%||Finance||Asset Management|
|(CAKE)||Cheesecake Factory||1.5%||2.0%||13.2%||15.2%||Consumer Cyclical||Restaurants|
|(AQN)||Algonquin Power & Utilities||4.7%||5.2%||10.0%||15.2%||Utilities||Diversified Utilities|
|SHW||Sherwin-Williams||1.1%||0.8%||14.3%||15.1%||Basic Materials||Specialty Chemicals|
|(DG)||Dollar General||1.2%||1.2%||13.9%||15.1%||Consumer Discretionary||Retail|
|UNH||UnitedHealth Group||1.6%||1.4%||13.6%||15.0%||Healthcare||Health Insurance|
|(QTS)||QTS Realty Trust||3.1%||3.9%||11.0%||14.9%||REIT||Data Center REIT|
|(FDX)||FedEx||0.6%||1.1%||13.8%||14.9%||Industrial||Shipping & Logistics|
|EVR||Evercore||2.0%||1.9%||13.0%||14.9%||Finance||Investment Banking & Brokerage|
|(OTCQX:IMBBY)||Imperial Brands||5.6%||6.1%||8.8%||14.9%||Consumer Defensive||Tobacco|
|(TSCO)||Tractor Supply Company||1.0%||1.6%||13.2%||14.8%||Consumer Cyclical||Specialty Retail|
|(PSXP)||Phillips 66 Partners||3.1%||5.7%||9.0%||14.7%||MLP||Oil, Gas & Consumable Fuels|
|(BIP)||Brookfield Infrastructure Partners||4.5%||4.6%||10.0%||14.6%||Utility||Diversified Utilities|
|DNKN||Dunkin' Brands Group||2.2%||2.0%||12.4%||14.4%||Consumer Discretionary||Restaurants|
|(MDLZ)||Mondelez International||1.7%||2.1%||12.3%||14.4%||Consumer Defensive||Food & Beverage|
|(LEG)||Leggett & Platt||3.0%||3.4%||11.0%||14.4%||Consumer Cyclical||Furniture|
|(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|
|(AY)||Atlantica Yield||5.6%||6.1%||8.0%||14.1%||YieldCo||Renewable Energy YieldCo|
|BDX||Becton, Dickinson & Company||1.7%||1.2%||13.0%||14.2%||Healthcare||Medical Equipment|
|OKE||ONEOK||5.0%||4.5%||9.6%||14.1%||Energy||Oil, Gas & Consumable Fuels|
|TXRH||Texas Roadhouse||1.8%||1.5%||12.6%||14.1%||Consumer Cyclical||Restaurants|
|(ENB)||Enbridge Inc||3.5%||6.0%||8.0%||14.0%||Energy||Oil, Gas & Consumable Fuels|
|SYY||Sysco||3.0%||2.1%||12.0%||14.1%||Consumer Defensive||Food Distributor|
|(ROST)||Ross Stores||1.0%||1.0%||13.0%||14.0%||Consumer Cyclical||Retail|
|BA||Boeing||2.4%||2.0%||12.0%||14.0%||Industrial||Aerospace & Defense|
|(CMI)||Cummins||2.6%||3.3%||10.7%||14.0%||Industrial||Heavy Trucks & Machinery|
|CONE||CyrusOne||3.3%||3.0%||11.0%||14.0%||REIT||Data Center REIT|
|(CVS)||CVS Health||1.6%||3.0%||10.9%||13.9%||Healthcare||Pharmacy/Health Insurance|
|(AON)||Aon PLC||1.1%||1.1%||12.8%||13.9%||Financial||Insurance Brokers|
|(WBA)||Walgreens Boots Alliance||1.9%||2.8%||11.1%||13.9%||Consumer Defensive||Pharmacy|
|(ADM)||Archer-Daniels Midland||2.6%||2.9%||11.0%||13.9%||Consumer Defensive||Farm Products|
|GWW||W.W Grainger||2.0%||1.8%||12.0%||13.8%||Industrial||Industrial Distribution|
|DCI||Donaldson Company||1.6%||1.7%||12.1%||13.8%||Industrial||Filtration Systems|
|(FBHS)||Fortune Brands Home & Security||1.1%||1.5%||12.3%||13.8%||Industrial||Building Products|
|(OZRK)||Bank of the Ozarks||1.5%||1.7%||12.0%||13.7%||Financial||Banking|
|(MMC)||Marsh & McLennan Companies||2.0%||2.0%||11.7%||13.7%||Finance||Insurance Brokers|
|(KMI)||Kinder Morgan||4.1%||4.5%||9.0%||13.5%||Energy||Oil, Gas & Consumable Fuels|
|(MSA)||MSA Safety Incorporated||2.3%||1.6%||12.0%||13.6%||Industrial||Safety Equipment|
|(CCL)||Carnival||2.6%||3.5%||10.0%||13.5%||Consumer Discretionary||Cruise Line|
|(NDAQ)||Nasdaq||1.8%||2.0%||11.5%||13.5%||Finance||Financial Exchanges & Data|
|CAT||Caterpillar||3.0%||2.5%||10.9%||13.4%||Industrial||Farm & Construction Equipment|
|(BEP)||Brookfield Renewable Partners||5.6%||6.4%||7.0%||13.4%||YieldCo||Renewable Energy|
|(COLD)||Americold Realty Trust||3.0%||3.4%||10.0%||13.4%||REIT||Industrial REIT|
|(OSK)||Oshkosh Corp||1.3%||1.4%||12.0%||13.4%||Industrial||Construction Machinery|
|(TTC)||Toro Company||1.3%||1.3%||12.0%||13.3%||Industrial||Agricultural Equipment|
|AFG||American Financial Group||1.5%||1.3%||12.0%||13.3%||Finance||Multi-Line Insurance|
|(APOG)||Apogee Enterprises||1.1%||1.3%||12.0%||13.3%||Industrial||Building Products|
|(PFG)||Principal Financial Group||2.9%||3.9%||9.4%||13.3%||Financial||Insurance|
|(AAN)||Aaron's||0.3%||0.3%||13.0%||13.3%||Consumer Discretionary||Home Furnishing Retail|
|(APD)||Air Products & Chemicals||2.4%||2.8%||10.4%||13.2%||Industrial||Industrial Gas|
|(ETN)||Eaton Corp||3.1%||3.5%||9.7%||13.2%||Industrial||Diversified Industrials|
|(INGR)||Ingredion||2.0%||2.1%||11.0%||13.1%||Consumer Defensive||Agricultural Products|
|RSG||Republic Services||2.7%||2.0%||11.1%||13.1%||Industrial||Environment & Facilities Services|
|(ROP)||Roper Technologies||0.6%||0.6%||12.5%||13.1%||Industrial||Industrial Tech|
|(BLL)||Ball Corp||0.8%||1.1%||12.0%||13.1%||Basic Materials||Metal & Glass Containers|
|(WHR)||Whirlpool||2.2%||3.0%||10.0%||13.0%||Consumer Discretionary||Home Appliances|
|SU||Suncor Energy||2.9%||2.7%||10.3%||13.0%||Energy||Oil, Gas & Consumable Fuels|
|WM||Waste Management||2.9%||1.7%||11.3%||13.0%||Industrial||Environment & Facilities Services|
|(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|
|APTS||Preferred Apartment Communities||6.7%||5.9%||7.0%||12.9%||REIT||Apartment REIT|
|(MPLX)||MPLX||4.4%||7.3%||5.6%||12.9%||MLP||Oil, Gas & Consumable Fuels|
|(HUBB)||Hubbell Incorporated||2.3%||2.8%||10.0%||12.8%||Industrial||Electronic Components|
|MCO||Moody's||1.4%||1.0%||11.8%||12.8%||Finance||Financial Exchanges & Data|
|(WSFS)||WSFS Finance||0.7%||0.8%||12.0%||12.8%||Finance||Thrift & Mortgage Finance|
|(CASY)||Casey's General Stores||0.9%||1.1%||11.7%||12.8%||Consumer Defensive||Grocery Stores|
|(TSN)||Tyson Foods||1.1%||1.8%||11.0%||12.8%||Consumer Defensive||Food & Beverage|
|(VFC)||V.F Corp||2.0%||2.3%||10.5%||12.8%||Consumer Cyclical||Apparel|
|(TJX)||TJX Companies||1.2%||1.6%||11.1%||12.7%||Consumer Cyclical||Retail|
|(TRP)||TransCanada||3.9%||4.9%||7.7%||12.6%||Energy||Oil, Gas & Consumable Fuels|
|(AOS)||A. O. Smith||1.1%||1.2%||11.5%||12.7%||Industrial||Building Products|
|(SEP)||Spectra Energy Partners||6.0%||8.5%||4.0%||12.5%||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%||2.1%||10.4%||12.5%||Financial||Life Insurance|
|(DFS)||Discover Financial Services||1.8%||2.0%||10.5%||12.5%||Finance||Consumer Finance|
|(EPD)||Enterprise Products Partners||5.6%||6.2%||6.2%||12.4%||MLP||Oil, Gas & Consumable Fuels|
|(ITW)||Illinois Tool Works||2.1%||2.2%||10.2%||12.4%||Industrial||Diversified Industrials|
|(FLO)||Flowers Food||2.8%||3.4%||9.0%||12.4%||Consumer Defensive||Food & Beverage|
|(GIS)||General Mills||3.1%||4.4%||8.0%||12.4%||Consumer Defensive||Food & Beverage|
|(EPR)||EPR Properties||6.1%||6.5%||5.8%||12.3%||REIT||Specialized REIT|
|TRNO||Terreno Realty||2.9%||2.3%||10.0%||12.3%||REIT||Industrial REIT|
|(IFF)||International Flavors & Fragrances||1.9%||2.2%||10.0%||12.2%||Basic Materials||Specialty Chemicals|
|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|
|MKC||McCormick & Company||2.0%||1.7%||10.3%||12.0%||Consumer Defensive||Food & Beverage|
|(CE)||Celanese Corp||1.7%||1.9%||10.1%||12.0%||Basic Materials||Specialty Chemicals|
|(GIL)||Gildan Activewear||0.9%||1.6%||10.4%||12.0%||Consumer Discretionary||Apparel|
|(MDP)||Meredith Corp||3.7%||3.9%||8.0%||11.9%||Consumer Discretionary||Publishing|
|(MRT)||MedEquities Trust||7.4%||7.4%||4.6%||12.0%||REIT||Medical REIT|
|(FDS)||FactSet Research Systems||1.2%||1.3%||10.7%||12.0%||Finance||Capital Markets|
|(BNS)||Bank of Nova Scotia||3.8%||4.6%||7.4%||12.0%||Finance||Banking|
|CFR||Cullen/Frost Bankers||2.8%||2.5%||9.5%||12.0%||Finance||Regional Banks|
|(IRM)||Iron Mountain||6.0%||6.6%||5.3%||11.9%||REIT||Storage REIT|
|CORR||CorEnergy Infrastructure Trust||8.2%||7.9%||4.0%||11.9%||REIT||Infrastructure REIT|
|(SPG)||Simon Property Group||3.2%||4.5%||7.3%||11.8%||REIT||Retail REIT|
|(PG)||Procter & Gamble||3.1%||3.6%||8.2%||11.8%||Consumer Defensive||Household & Personal Products|
|(SJM)||J.M Smuckers||2.3%||2.8%||9.0%||11.8%||Consumer Defensive||Food & Beverage|
|RTN||Raytheon||2.3%||1.8%||10.0%||11.8%||Industrial||Aerospace & Defense|
|(CNI)||Canadian National Railway||1.6%||1.7%||10.0%||11.7%||Industrial||Railroads|
|LANC||Lancaster Colony Corp||1.9%||1.7%||10.0%||11.7%||Consumer Defensive||Food & Beverage|
|(HON)||Honeywell International||2.0%||2.0%||9.6%||11.6%||Industrial||Diversified Industrials|
|NSA||National Storage Affiliates||4.5%||3.7%||8.0%||11.7%||REIT||Storage REIT|
|FUN||Cedar Fair||5.5%||5.5%||6.0%||11.5%||Consumer Discretionary (Uses K1)||Amusement Parks|
|(MMP)||Magellan Midstream Partners||4.3%||5.5%||6.0%||11.5%||MLP||Oil, Gas & Consumable Fuels|
|(CLX)||Clorox||2.7%||2.8%||8.6%||11.4%||Consumer Defensive||Household & Personal Products|
|(NBHC)||National Bank Holdings Corp||1.0%||1.4%||10.0%||11.4%||Finance||Regional Bank|
|WDFC||WD-40 Company||1.8%||1.4%||10.0%||11.4%||Consumer Defensive||Household & Personal Products|
|(UPS)||UPS||2.9%||3.4%||8.0%||11.4%||Industrial||Air Freight & Logistics|
|AXP||American Express||1.5%||1.4%||10.0%||11.4%||Finance||Consumer Finance|
|(MPW)||Medical Properties Trust||6.6%||6.9%||4.4%||11.3%||REIT||Hospital REIT|
|(CSFL)||CenterState Bank||0.6%||1.3%||10.0%||11.3%||Finance||Regional Bank|
|(HEP)||Holly Energy Partners||8.0%||9.3%||2.0%||11.3%||MLP||Oil, Gas & Consumable Fuels|
|(HSY)||Hershey||2.3%||2.7%||8.5%||11.2%||Consumer Defensive||Food & Beverage|
|(OTCPK:CDUAF)||Canadian Utilities LTD||3.0%||4.3%||7.0%||11.3%||Utilities||Diversified Utilities|
|(UL)||Unilever||3.2%||3.4%||7.8%||11.2%||Consumer Defensive||Household & Personal Products|
|(KO)||Coca Cola||3.2%||3.5%||7.7%||11.2%||Consumer Defensive||Food & Beverage|
|(D)||Dominion Energy||3.7%||4.8%||6.4%||11.2%||Utilities||Diversified Utilities|
|(SRE)||Sempra Energy||2.8%||3.0%||8.1%||11.1%||Utilities||Diversified Utilities|
|SCL||Stepan Company||1.2%||1.1%||10.0%||11.1%||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|
|(KMB)||Kimberly-Clark||3.1%||3.7%||7.3%||11.0%||Consumer Defensive||Household & Personal Products|
|(XOM)||Exxon Mobil||3.4%||4.0%||7.0%||11.0%||Energy||Oil, Gas & Consumable Fuels|
|STAG||STAG Industrial||5.9%||5.1%||5.8%||10.9%||REIT||Industrial REIT|
|(GPC)||Genuine Parts Company||2.7%||3.2%||7.6%||10.8%||Industrial||Auto Parts|
|KIM||Kimco Realty Corp||7.0%||6.6%||4.1%||10.7%||REIT||Retail REIT|
|(PPG)||PPG Industries||1.5%||1.7%||9.0%||10.7%||Basic Materials||Specialty Chemicals|
|(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|
|BMO||Bank of Montreal||4.0%||3.7%||6.9%||10.6%||Finance||Banking|
|DLR||Digital Realty Trust||4.7%||3.5%||7.1%||10.6%||REIT||Data Center REIT|
|CVX||Chevron||3.9%||3.6%||7.0%||10.6%||Energy||Oil, Gas & Consumable Fuels|
|(PM)||Philip Morris International||5.0%||5.5%||5.0%||10.5%||Consumer Defensive||Tobacco|
|NEE||NextEra Energy||3.0%||2.6%||7.9%||10.5%||Utilities||Diversified Utilities|
|(CP)||Canadian Pacific Railway||0.9%||1.1%||9.4%||10.5%||Industrial||Railroads|
|(BPMP)||BP Midstream Partners||4.5%||5.0%||5.5%||10.5%||MLP||Oil, Gas & Consumable Fuels|
|(JNJ)||Johnson & Johnson||2.8%||2.9%||7.6%||10.5%||Healthcare||Diversified Medical|
|(BAM)||Brookfield Asset Management||1.5%||1.5%||9.0%||10.5%||Finance||Asset Management|
|(TAP)||Molson Coors Brewing Company||2.0%||2.3%||8.1%||10.4%||Consumer Defensive||Alcohol|
|SYK||Stryker Corp||1.4%||1.1%||9.3%||10.4%||Healthcare||Healthcare Equipment|
|(PEP)||Pepsi||3.0%||3.4%||7.0%||10.4%||Consumer Defensive||Food & Beverage|
|(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|
|(RY)||Royal Bank of Canada||3.8%||3.9%||6.2%||10.1%||Finance||Banking|
|(CL)||Colgate-Palmolive||2.4%||2.6%||7.6%||10.2%||Consumer Defensive||Household & Personal Products|
|RPM||RPM International||2.3%||2.1%||8.0%||10.1%||Basic Materials||Specialty Chemicals|
|BMI||Badger Meter||1.3%||1.1%||9.0%||10.1%||Technology||Electronic Components|
|(HRL)||Hormel Foods||2.0%||2.0%||8.0%||10.0%||Consumer Defensive||Food & Beverage|
|UGI||UGI Corp||2.3%||1.9%||8.0%||9.9%||Utility||Gas Utility|
|USB||US Bancorp||2.5%||2.4%||7.5%||9.9%||Finance||Regional Bank|
|SXT||Sentient Technologies Corp||2.0%||1.8%||8.0%||9.8%||Basic Materials||Specialty Chemicals|
|EMR||Emerson Electric||3.0%||2.8%||7.0%||9.8%||Industrial||Electrical Components|
|WMT||Walmart||2.7%||2.5%||7.3%||9.8%||Consumer Defensive||Grocery Stores|
|SRCE||1st Source Corp||2.1%||1.7%||8.0%||9.7%||Financial||Regional Bank|
|CTRE||CareTrust REIT||5.0%||4.7%||5.0%||9.7%||REIT||Senior Housing REIT|
|O||Realty Income||5.1%||4.7%||4.9%||9.6%||REIT||Retail REIT|
|MAA||Mid-America Apartment Communities||4.1%||3.7%||5.9%||9.6%||REIT||Apartment REIT|
|NHI||National Health Investors||5.8%||5.3%||4.2%||9.5%||REIT||Medical REIT|
|AVB||AvalonBay Communities||3.9%||3.4%||6.1%||9.5%||REIT||Apartment REIT|
|CPT||Camden Property Trust||3.9%||3.4%||6.1%||9.5%||REIT||Apartment REIT|
|ARE||Alexandria Real Estate Equities||3.5%||2.9%||6.5%||9.4%||REIT||Medical Office REIT|
|MAIN||Main Street Capital||8.0%||7.4%||2.0%||9.4%||Finance||BDC|
|WPC||W.P Carey||6.7%||6.0%||3.3%||9.3%||REIT||Diversified REIT|
|LTC||LTC Properties||6.0%||5.2%||4.0%||9.2%||REIT||Healthcare REIT|
|FRT||Federal Realty Trust||4.0%||3.2%||6.0%||9.2%||REIT||Retail REIT|
|EXR||Extra Space Storage||4.3%||3.4%||5.7%||9.1%||REIT||Storage REIT|
|NNN||National Retail Properties||5.5%||4.2%||4.5%||8.7%||REIT||Retail REIT|
|PSA||Public Storage||4.9%||3.4%||5.1%||8.5%||REIT||Storage REIT|
|ESS||Essex Property Trust||4.2%||3.1%||5.2%||8.3%||REIT||Apartment REIT|
|RDS.B||Royal Dutch Shell||7.0%||5.2%||3.0%||8.2%||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 287 companies. If you weight by total return potential (as I plan to do), then the portfolio looks like this:
- Yield: 3.1%
- Projected Dividend Growth: 11.4%
- Total Return Potential: 14.5%
Note that those figures include even stocks that are too overvalued to buy today. In reality, the yield and total return potential should be higher if you avoid overpaying.
Buys/Sells This Week
- Bought $500 Lam Research Corp (LRCX) -starter position
- Bought $1,300 EQT Midstream Partners (EQM)
Lam Research was the new stock of the week. EQT Midstream was the double down stock the week (to lower cost basis). The purpose of the new stock of the week is to put it on my radar and give me something to double down on if the price were to fall significantly lower.
Plan For The Next Week
The new stock of the week is MarketAxess Holdings (MKTX). MarketAxess specializes in electronic trading platforms for bonds. It commands 18% market share in bonds, and 86% in its core specialty of high grade bonds. The company benefits from rising amounts of debt issuances, and thanks to robust growth in FCF was able to boost its dividend 27% in early 2018 and 25% CAGR over the past five years. Analysts are expecting about 20% dividend growth over the next decade and thanks to a low payout ratio (FCF payout ratio of 10%) I consider that a reasonable projection.
The double down stock of the week remains EQM which is likely to generate close to 20% total returns over the next decade. The stock continues trading at under six times forward cash flow right now due to a large pessimism overhang involving EQT Corp.'s (EQT) midstream reorganization. I'm willing to potentially take both all the way to a 10% stake in my portfolio, with EQM getting top priority due to its superior valuation. As long as either EQM or EQGP is -5% or more from my average cost basis they will have top priority in terms of weekly double down purchases.
The Portfolio Today
Note that due to reader requests for larger screen shots, going forward this image will only show my top 46 positions. However, given that this will represent about 90% to 95% of my capital, I consider it a good representation of the portfolio.
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
- Cabot Oil & Gas (COG) - Stable outlook
- Lam Research (LRCX) - 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, my primary focus is on 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 57 stocks, mostly low- to medium-risk, in 10 sectors. By next week, I'll be up to 58 holdings in 10 sectors. The goal by year-end is around 80 stocks in 10 to 11 sectors. However, that goal will change if the 2/10 yield curve inverts and I'm forced to move to recession preparation mode. That would entail splitting my weekly cash between double down stocks and paying down margin in order to be at zero margin by the time the next recession hits.
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. In addition, because of how I weight my positions, the top 25 holdings will command the vast majority of my financial resources.
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'm currently doubling down so aggressively on my highest conviction buys it will take me a few years before I can balance out my portfolio income. Fortunately, my top two income sources are both low risk stocks, and PEGI is a medium risk stock.
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). It also remains highly focused on hard assets and high-yield stocks, because of my dedication to buying the best undervalued high total return potential stocks. Today that means mostly MLPs and midstream stocks.
In the future I plan to add more utilities to help build up the defensive side of my portfolio. The utilities I'll be buying include:
- NextEra Energy (NEE)
- 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 coincides with the low probability of a recession starting within the next two years.
(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 11.3%. My ongoing purchases of EQT Midstream will continue increasing this figure for the next few weeks. After that continued additions of fast growing and undervalued MLPs will continue boosting the growth rate to a peak of 13% to 15%.
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: 57
- Portfolio Size: $173,803 (all time record high)
- Equity: $149,454 (all time record high)
- Remaining Margin Buying Power: $756,927
- Margin Used: $24,349
- Debt/Equity: 0.16
- Leverage Ratio: 16%
- Dividends/Margin Interest Ratio: 12.3
- Distance To Margin Call: 79.7%
- 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 Time Weighted Total Return Since Inception (since September 8, 2017): 1.1%
- Cumulative Unlevered Total Return Since Inception: 5.3%
- Year-to-Date Unlevered Total Return: 2.2%
- Annualized Unlevered Total Return (YTD 2018): 4.4%
- Unrealized Capital Gains (current holdings): $5,067 (+3.0%)
- Cumulative Dividends Received (including accrued dividends): $9,579
- Annual Dividends: $10,270
- Annual Interest: $835
- Annual Net Dividends: $9,435
- Monthly Average Net Dividends: $786
- Daily Average Net Dividends (my business empire never sleeps): $25.85
- Portfolio Beta (volatility relative to S&P 500): 0.85
- Projected Long-Term Dividend Growth: 11.4%
- Projected Annual Unlevered Total Return: 14.5%
- Projected Net Levered Annual Total Return: 17.4% (assuming long-term average leverage of 25%, 3% average margin rate)
- Long-Term Net Levered Annual Total Return Goal: 16.0%
10 Worst-Performing Positions
(Source: Interactive Brokers)
10 Best-Performing Positions
(Source: Interactive Brokers)
Bottom Line: While Economic Risks Remain For Now The Data Is Firmly Bullish
Don't get me wrong, I'm not minimizing the risks of escalating trade conflicts or the Federal Reserve's terrible track record for hiking the economy into recession. However, the best we can do is follow the data as it comes in and make logical, disciplined, and wise decisions based on the best information we have.
For now, that information remains almost entirely bullish with no indications that any of the risks the market is worried about are actually harming the economy. That may change over the coming months and if it does I'll make sure to let you know in these updates (especially the economic growth/recession risk section).
I'll also continue to adapt my own weekly investing strategy to the data. That doesn't mean market timing by any means. Rather I'll simply shift my capital allocation strategy as conditions require to optimize the chances of reaching my long-term financial goals.
In the coming weeks I'll wargame a future recession and bear market, using historical analysis to give you an idea of how bad things are likely to get. I'll also highlight the top sectors to own during and in preparation for a recession, including the best individual stocks in each sector worth buying at that 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, PXD, COG, LRCX. 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.