2018 Second Quarter Portfolio Review - Passive Portfolio Management A Success

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Includes: ABBV, ARCC, BEP, CBRL, CSCO, D, DLR, DUK, EPD, ET, FEI, GIS, IBM, JNJ, KMB, LMT, MAIN, MCD, MMP, MO, MSFT, O, OHI, PEP, PFE, PG, PM, QCOM, RDS.B, SKT, SO, T, TGT, TPZ, UTG, VFC, VTR, VZ, WEC, WPC
by: Bob Wells
Summary

The Second Quarter proved a strong one for dividend growth.

Limited changes were made to further prepare for the distribution stage of investing.

For the second year, Required Minimum Distributions will be made without the need to sell shares of IRA holdings.

How much do you need?

When do you need it?

How sure are you that it will be there?

The above mantra from Chowder represents his most often repeated advise when it comes to portfolio construction.

How it is applied depends in large part on how many years before the investor starts to draw dollars from the portfolio for income. We had originally planned to starting drawing dividend income earlier but major health problems prevented that from happening. Instead, the focus quickly shifted to structuring the portfolio in order that it be managed passively by my wife with the assistance of my oldest daughter. A passive management portfolio business plan was developed and implemented with my admission for a lung transplant in December of last year. A taxable account was set up as well as instructions for monthly payment of after-tax dividends to our checking account should something happen to me.

Now over six months later, I pleased to report that I'm doing just fine along with our accounts.

Next year, again if all goes as planned, will represent the first year that we will be using after-tax Required Minimum Distributions (RMDs) for income. We are hoping to begin travel again at that time. Just three years ago, we were planning withdraws for more overseas travel when I was suddenly diagnosed with a terminal lung disease that restricted travel and required among other things preparation for a lung transplant.

Going back to Chowder's mantra, I learned firsthand the importance of knowing both:

How much do you need? AND

How much will you or your spouse need if there is only one? I'm sure many of you have portfolio business plans; however, unless you have a "passive management" portfolio plan, there's still work to be done.

When do you need it?

Perhaps a better way to express this as we age is... When is the earliest we might need it?

How sure are you that it will be there?

Perhaps again as we age, we need to look at it just a bit differently. Something like:

How sure are you that it will be there and remain there?

As we get ready for our first Required Minimum Distributions, we are continuing to make changes in both positions and their size.

I'm pleased to announce that for the 2nd Quarter of 2018, my portfolio income increased by over 14.5% when compared to the same quarter for 2017. During the same period, my wife enjoyed even stronger dividend growth with an increase of over 18.9%.

If you have followed me in the past, you know that our focus is the safe and steady growth of our income. We are putting the final touches on a portfolio that stresses both defense and simplicity.

We believe when finalized this portfolio can be managed "passively" with very little effort.

During this period, please note that no new money was added to either account. We made our first Required Minimum Distributions (RMDs) last year, dividends have been collected to make those payments. Dividends in excess of that amount have been re-invested.

We opened our first ever taxable investment account at the end of last year. RMDs were taxed and the remaining dollars transferred to this account for investment. I am currently invested in mostly low yield/high growth stocks in this account. We are currently collecting dividends and distributions and will be again able to make RMDs without the need to sell shares of stocks from the portfolio.

From December of 2017 to June of 2018, our portfolios were "passively managed" with no stocks bought or sold.

Here are the changes made since our last review available here:

Positions Increased and Reduced

The following Core positions received small increases this quarter:

Philip Morris (PM), International Business Machines (IBM)

I re-balanced Target (TGT) and V.F. Corporation (NYSE:VFC) to fund the above increases. I expect that during the first month of the next quarter, the remaining funds will be used to build the remaining core positions to full size or greater.

Below are the holdings making up our portfolio as of the end of this quarter. Most were purchased at fair value or better between 2011 and today. I have included credit ratings for each holding. On further review, you may find many of our holdings are not currently available at fair value. Please do your own due diligence.

I have listed both my wife's positions in bold in addition to the ones I own exclusively and whose performance I traditionally track. I did this in part to give readers a better idea of what now makes up our entire family portfolio.

I consider a full position to be any holding at or above the average for the portfolio. I have placed an asterisk next to core positions which are currently undersized.

The first six positions below are each double-sized ones. Each of these are under 5% of the portfolio's value. I have included a column for the most recently announced DGR to enable quick comparisons to 5-year rates.

Positions are listed in order of their current weight. Master Limited Partnerships (MLPs) and Business Development Corporations (BDCs) and CEFs with the exception of MAIN all represent less than full positions with most half sized or less.

Stock

Ticker

Current

Yield %

5-Year

DGR

MR

DGR

Dominion BBB+

D

4.0

7.3

7.9

Southern A-

(NYSE: SO)

5.2

3.5

3.7

AT&T BBB

(NYSE: T)

6.2

2.2

2.04

Verizon BBB+

(NYSE: VZ)

5.2

2.2

2.2

AbbVie Inc. A-

(NYSE: ABBV)

4.1

15.5

35.21

Altria A-

(NYSE: MO)

4.9

6.1

8.2

Philip Morris A

(NYSE: PM)

5.7

8.8

6.54

Johnson & Johnson AAA

(NYSE: JNJ)

3.0

7.1

6.67

W.P. Carey BBB

(NYSE: WPC)

6.1

11.4

2.0

Realty Income BBB+

O

4.6

6.06

6.0

Cisco Systems AA-

CSCO

3.1

17.1

13.8

Ventas BBB+

(NYSE: VTR)

5.5

7.6

1.94

Pfizer AA

(NYSE: PFE)

3.8

6.25

7.8

Omega Healthcare Investors BBB-

(NYSE: OHI)

7.6

8.8

6.7

Lockheed Martin A-

(NYSE: LMT)

2.7

12.4

9.9

Microsoft AAA

(NASDAQ: MSFT)

1.7

13.9

7.7

Qualcomm A+

(NASDAQ: QCOM)

4.4

18.3

8.77

Target A

(NYSE: TGT)

3.4

3.2

3.33

Cracker Barrel Value Line 2

(NASDAQ: CBRL)

2.9

3.

4.55

Pepsi A

PEP

3.4

7.9

7.12

V.F. Corporation

VFC

2.3

9.5

15.5

Royal Dutch Shell A+

(NYSE: RDS.B)

6.0

Welltower BBB

(NYSE: HCN)

5.6

3.9

2.0

Procter & Gamble AA-

(NYSE: PG)

3.7

5.4

4.0

General Mills BBB+

GIS

4.4

8.9

2.08

Kimberly-Clark A

KMB

3.8

3.1

3.09

Main BBB

(NYSE: MAIN)

6.0

5.5

2.7

+spec

Digital Realty BBB

(NYSE: DLR)

3.6

5.0

8.6

Tanger Factory Outlet Centers BBB+

SKT

6.0

2.2

5.4

Wisconsin Energy A-

(NYSE: WEC)

3.4

13.7

5.0

*McDonald's BBB+

(NYSE: MCD)

2.6

7.5

5.62

*Duke A-

(NYSE: DUK)

4.1

2.5

3.6

*IBM

Magellan Midstream Partners BBB+

(NYSE: MMP)

5.4

14.6

7.6

Energy Transfer Partners BBB-

ETP

11.9

19.3

2.73

Enterprise Products Partners BBB+

EPD

6.1

5.7

5.0

Tortoise Power & Energy Infrastructure Fund

TPZ

7.2

First Trust MLP

FEI

9.0

Ares Capital BBB

ARCC

9.0

Reaves Utility

UTG

6.0

Brookfield Renewable Partners

BEP

6.4

As always, I look forward to your feedback and discussion concerning the actions I have taken and those being considered.

Disclosure: I am/we are long ALL STOCKS MENTIONED.

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.