Dividend Sensei's Portfolio Update 46: More Concentrated Portfolio Is Off To A Great Start
Summary
- I decided to complete my portfolio consolidation early in order to focus on my top 27 best ideas.
- The new portfolio has 7.3% yield, 14.9% organic dividend growth (last year) and is about 40% undervalued.
- It's extremely heavily weighted into energy and utilities. However, since midstream MLPs were my area of expertise for two years at The Motley Fool, I'm comfortable with this.
- The new concentrated portfolio got off to a strong start with a record 3.6% gain in the past week. While not sustainable, I'm confident the concentrated strategy will do well.
- This week there are 50 great undervalued dividend stocks worth buying, including 27 high-yield ones and 23 dividend aristocrats and kings.
(Source: imgflip)
Note that due to reader requests I've decided to break up my weekly portfolio updates into three parts: commentary, economic update, portfolio summary, stats, & watch lists. This is to avoid excessively long articles and maximize the utility to my readers.
This week's commentary explains how to build a high-yield retirement portfolio that can hopefully ensure that your golden years are actually golden.
The economic update highlights how the strongest economy in six months is set to push the bull market into record territory.
Introduction
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. My situation is that I'm about to turn 32 but consider this portfolio an income-focused retirement one (though in a taxable account so I can use modest amounts of margin).
I'm also working full-time (self-employed) and thus able to continually add to this portfolio. I do not plan to actually tap the portfolio's income stream for 14 to 20 years, when I plan to move my family (and help support my parents) to the promised land of my people (retired dividend investors): Panama City, 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.
Also note that this is a highly sector concentrated portfolio. That's because I received my professional training working at The Motley Fool's energy desk, specializing in midstream MLPs (and also lots of renewable energy YieldCos). Thus my comfort with these high-yield and very fast growing industries. Since moving to Seeking Alpha (and becoming head researcher for Simply Safe Dividends) I've branched out into covering all industries (I look at about 200 companies per year in detail).
The bottom line is that researching dividend stocks are both my greatest passion and my profession. Thus you should only use these updates as sources of ideas, but not mirror them exactly unless your risk profile/time horizon/goals very closely match my own.
Note that this experiment has certain preliminary performance targets (subject to change)
- Break even within 4 years
- Match the market within 5 years.
- Beat the market within 7 years (on an unlevered basis).
- Beat smart beta ETFs that have historically outperformed the S&P 500 (like NOBL) within 9 years.
- Beat all ETFs or smart beta ETFs (like QQQ) within 10 years.
In case the portfolio fails to hit these targets, then I'll consider adapting 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 my top 10 to 15 ideas)
Why care about total returns at all if income is your goal? Because over the long-term if you can achieve greater total returns over time then a far larger more growth oriented portfolio can ultimately be converted into a higher-yielding retirement portfolio that yields greater total income.
Consolidation Finished And More Concentrated Portfolio Is Off To A Great Start
"When it's raining gold, reach for a bucket, not a thimble" - Warren Buffett
This quote from Warren Buffett is ultimately what drove my decision to consolidate my 61 stock portfolio into just my 27 best ideas earlier than expected. Basically the idea is that when you see extremely undervalued opportunities in quality stocks that meet your long-term goals, you need to allocate limited capital as efficiently as possible. Or to put another way, wait for a "fat pitch" and then swing for the fences.
At 61 stocks I owned a lot of very high-quality companies, including some top notch growth stocks that likely would have met my new 13+% long-term total return hurdle. However, my professional training at The Motley Fool was specializing in midstream MLPs, which have been in a four year bear market that makes this industry (one I understand very well) the best place to find: high (and low risk) yield, fast income growth, and mouthwatering valuations. REITs (which I've also focused on a lot since coming to Seeking Alpha) fell hard through February and I managed to grab some great REITs at great prices.
However, I had to make some hard choices in the coming weeks in terms of consolidating into my top ideas. And when I saw that the stocks I planned to keep (my highest conviction buys) were on average 38% undervalued, I realized that I was sitting on a lot of coiled springs. With fundamentals booming the market might very well send my top ideas soaring in the coming weeks and so I decided it made little sense to hold onto good but not great stocks that were destined for the "sale" pile for several weeks for arbitrary reasons (like selling just one to two stocks per week).
Thus I ripped off the bandaid by consolidating my portfolio into my top ideas (netting $4K in realized cap gains in the process) and boosted my portfolio stats significantly in the three fundamental areas I care most about:
- yield: 7.3%
- organic dividend growth rate (last year): 14.9%
- valuation: about 40% undervalued
Thanks to a great week in REITS (half the sector reported earnings with most beating expectations) and an even better one in MLPs, my more concentrated portfolio saw its best week ever ($5,700 gain or 3.6%). While that was partially due to luck and is certainly not sustainable, I'm confident that my new more focused approach will help me continue my very strong recovery since the correction lows of February. Specifically, I'm up six straight months in August and in 5 of those months beating the S&P 500.
Now my goal isn't capital gains per se, it's maximum sustainable income and growth. However, it's always nice to see one's investment thesis play out as expected, which with contrarian value investing can take awhile. But once sector rotation starts in earnest, it is a thing of beauty to behold.
Note that for now I still see plenty of great opportunities in what I own, but in the future I'll expand my portfolio, including into other sectors, as the market offers up "fat pitches" which are just too good to pass up. However, for most sectors that might not be until the bear market which may be for a few more years.
Buys/Sells This Week
Due to the volume of selling/buying this week I'm forgoing my usual dollar figures. Note that my selling of these stocks does not indicate they are bad long-term investments. Merely that I had better investing opportunities (based on yield + growth + valuation) that I want to take advantage of based on my personal long-term investing goals.
Sells Of The Week:
- NetEase (NTES)
- Canadian Imperial Bank of Commerce (CM)
- Apple (AAPL)
- Starbucks (SBUX)
- Cabot Oil & Gas (COG)
- Pioneer Natural Resources (PXD)
- Visa (V)
- MarketAxess Holdings (MKTX)
- Royal Bank of Canada (RY)
- Lowe's (LOW)
- Home Depot (HD)
- Lam Research (LRXC)
- NVIDIA (NVDA)
- Silicon Motion Tech (SIMO)
- Huntington Ingalls (HII)
- Exxon Mobil (XOM)
- Ventas (VTR)
- Bank of Nova Scotia (BNS)
- Telus (TU)
- STORE Capital (STOR)
- InterDigital (IDCC)
- Realty Income (O)
- Altria (MO)
- Main Street Capital (MAIN)
- Tanger Factory Outlet Centers (SKT)
- Enterprise Products Partners (EPD)
- Chatham Lodging Trust (CLDT)
- W.P Carey (WPC)
- Hannon Armstrong Sustainable Infrastructure Capital (HASI)
- Medical Properties Trust (MPW)
- TransAlta Renewables (OTC:TRSWF)
- AT&T (T)
Most of these companies have: great management, strong growth prospects, and are firing on all cylinders. However, I have to put my money to work where I think it will best meet my long-term goals which is why I consolidated into just 27 stocks.
Buys Of The Week:
- AbbVie (ABBV) - actually quadrupled my position at $91 per share in my all time favorite biotech (and technically a dividend aristocrat). Most of my lower yielding starter positions went into this one.
- Antero Midstream (AM)
- Antero Midstream GP (AMGP)
- Brookfield Infrastructure Partners (BIP) - I consider this potentially the best dividend stock in the world over the next 50 years
- Brookfield Property Partners (BEP) - Brookfield is the Berkshire (BRK.B) of real estate/infrastructure/utilities, Tanger, Ventas, W.P Carey, Realty Income, And STORE Capital went here
- EQT Midstream Partners (EQM)
- EQT GP Holdings (EQGP) - GP of EQM and a growth superstar, at the time also my biggest loser so managed to lower cost basis significantly
- NextEra Energy Partners (NEP) - with weekly cash
- Noble Midstream Partners (NBLX) - my Exxon money when into this growth superstar
- NRG Yield (NYLD): TransAlta and AT&T went into this one as did Chatham Lodging
- Oasis Midstream Partners (OMP): Another fast growing midstream MLP supporting booming production of its parent. Specifically a Bakken and soon to be Permian play. Just boosted guidance to 20% payout growth over next 2 years, and 1.5 distribution coverage by 2019.
Basically the way I did this consolidation is:
- I ordered my portfolio by yield
- highlighted my 27 highest conviction stocks
- consolidated all the slower growing (but high quality) stocks into something with: higher yield, faster growth, better valuation, and the same or better risk profile.
As as a result I managed to: boost my income, accelerate my organic income growth rate, make my portfolio more undervalued (tighter coiled spring), and remain focused on low risk stocks (20 of the 27 holdings).
Plan For The Next Week
This week I'm putting all my cash to work in Antero GP Holdings (AMGP). This is the K-1 less GP of Antero Midstream and is the single fastest growing income stock in America. Management is guiding for 62% CAGR payout growth through 2022. More importantly that guidance is backed by Antero Resources (AR)'s ambitious growth plans. This is why AMGP is one of my highest conviction buys and why I intend to boost my portfolio's income growth rate by building a 10% position over the coming months. Of course that's assuming the price doesn't rise too much by then.
Dividend Stock Watchlists
Feedback from readers indicates that a master watchlist or MWL of 300+ stocks is a bit overwhelming. Thus I'll adapt the MWL into three shorter and hopefully more useful watchlist.
- Top 25 low/medium risk high-yield stocks (includes K1 issuing MLPs and LPs)
- Top 25 High-yield low/medium risk dividend stocks (no K1s)
- Fast Growing Dividend Aristocrats (10+% long-term total return potential)
As always I'll bold the stocks that are at fair value or better and thus potentially worth buying today.
Top 25 High-Yield Dividend Stocks (Includes K1 Issuers)
| Ticker | Company | Target Yield (Fair Value) | Current Yield | Potential Long-Term Dividend Growth | Total Return Potential | Sector | Industry |
| (PEGI) | Pattern Energy Group | 6.7% | 9.2% | 8.3% | 17.5% | YieldCo | Renewable Energy |
| (ANDX) | Andeavor Logistics LP | 5.9% | 8.9% | 6.0% | 14.9% | MLP | Oil, Gas & Consumable Fuels |
| GLOP | GasLog Partners | 8.8% | 8.7% | 3.0% | 11.7% | MLP (no K1) | Oil, Gas & Consumable Fuels |
| (HEP) | Holly Energy Partners | 8.0% | 8.6% | 2.0% | 10.6% | MLP | Oil, Gas & Consumable Fuels |
| (DM) | Dominion Midstream Partners | 3.3% | 8.9% | 14.0% | 22.9% | MLP | Oil, Gas & Consumable Fuels |
| (EQM) | EQT Midstream Partners | 3.6% | 8.5% | 12.0% | 20.5% | MLP | Oil, Gas & Consumable Fuels |
| (TGE) | Tallgrass Energy LP | 4.2% | 8.3% | 7.0% | 15.3% | Midstream c-Corp (No K1) | Oil, Gas & Consumable Fuels |
| (SEP) | Spectra Energy Partners | 6.0% | 8.1% | 4.0% | 12.1% | MLP | Oil, Gas & Consumable Fuels |
| CORR | CorEnergy Infrastructure Trust | 8.2% | 7.9% | 4.0% | 11.9% | REIT | Infrastructure REIT |
| (OTC:TRSWF) | Transalta Renewables | 4.0% | 7.6% | 6.0% | 13.6% | Utility | YieldCo |
| (MRT) | MedEquities Trust | 7.4% | 7.5% | 4.6% | 12.1% | REIT | Medical REIT |
| (OMP) | Oasis Midstream Partners | 5.0% | 7.4% | 11.0% | 18.4% | MLP | Oil, Gas & Consumable Fuels |
| (TERP) | TerraForm Power | 6.0% | 7.3% | 6.5% | 13.8% | YieldCo | Renewable Energy |
| (FUN) | Cedar Fair | 5.5% | 7.1% | 6.0% | 13.1% | Consumer Discretionary (Uses K1) | Amusement Parks |
| MAIN | Main Street Capital | 8.0% | 7.1% | 2.0% | 9.1% | Finance | BDC |
| (MPW) | Medical Properties Trust | 6.6% | 6.9% | 4.4% | 11.3% | REIT | Hospital REIT |
| (NYLD) | NRG Yield | 6.0% | 7.0% | 12.0% | 19.0% | YieldCo | Renewable Energy |
| (MPLX) | MPLX | 4.4% | 6.8% | 5.6% | 12.4% | MLP | Oil, Gas & Consumable Fuels |
| (IRM) | Iron Mountain | 6.0% | 6.6% | 5.3% | 11.9% | REIT | Storage REIT |
| KIM | Kimco Realty Corp | 7.0% | 6.6% | 4.1% | 10.7% | REIT | Retail REIT |
| (BEP) | Brookfield Renewable Partners | 5.6% | 6.5% | 9.0% | 15.5% | YieldCo (K1) | Renewable Energy |
| (ETE) | Energy Transfer Equity | 5.8% | 6.4% | 13.0% | 19.4% | MLP | Oil, Gas & Consumable Fuels |
| (SHLX) | Shell Midstream Partners | 3.2% | 6.7% | 10.0% | 16.7% | MLP | Oil, Gas & Consumable Fuels |
| (CNXM) | CNXM Midstream Partners | 5.5% | 6.6% | 14.0% | 20.6% | MLP | Oil, Gas & Consumable Fuels |
| (EPR) | EPR Properties | 6.1% | 6.3% | 5.8% | 12.1% | REIT | Specialized REIT |
(Sources: Gurufocus, FastGraphs, Gordon Dividend Growth Model, Simply Safe Dividends)
Top 25 High-Yield Dividend Growth Stocks (Without K1s)
| Ticker | Company | Target Yield (Fair Value) | Current Yield | Potential Long-Term Dividend Growth | Total Return Potential | Sector | Industry |
| PEGI | Pattern Energy Group | 6.7% | 9.2% | 8.3% | 17.5% | YieldCo | Renewable Energy |
| GLOP | GasLog Partners | 8.8% | 8.7% | 3.0% | 11.7% | MLP (no K1) | Oil, Gas & Consumable Fuels |
| TGE | Tallgrass Energy LP | 4.2% | 8.1% | 7.0% | 15.1% | Midstream c-Corp (No K1) | Oil, Gas & Consumable Fuels |
| CORR | CorEnergy Infrastructure Trust | 8.2% | 7.9% | 4.0% | 11.9% | REIT | Infrastructure REIT |
| TRSWF | Transalta Renewables | 4.0% | 7.6% | 6.0% | 13.6% | Utility | YieldCo |
| MRT | MedEquities Trust | 7.4% | 7.5% | 4.6% | 12.1% | REIT | Medical REIT |
| TERP | TerraForm Power | 6.0% | 7.3% | 6.5% | 13.8% | YieldCo | Renewable Energy |
| MAIN | Main Street Capital | 8.0% | 7.0% | 2.0% | 9.0% | Finance | BDC |
| MPW | Medical Properties Trust | 6.6% | 6.9% | 4.4% | 11.3% | REIT | Hospital REIT |
| NYLD | NRG Yield | 6.0% | 7.0% | 12.0% | 19.0% | YieldCo | Renewable Energy |
| IRM | Iron Mountain | 6.0% | 6.6% | 5.3% | 11.9% | REIT | Storage REIT |
| KIM | Kimco Realty Corp | 7.0% | 6.6% | 4.1% | 10.7% | REIT | Retail REIT |
| EPR | EPR Properties | 6.1% | 6.3% | 5.8% | 12.1% | REIT | Specialized REIT |
| WPC | W.P Carey | 6.7% | 6.2% | 3.3% | 9.5% | REIT | Diversified REIT |
| (AY) | Atlantica Yield | 5.6% | 6.2% | 8.0% | 14.2% | YieldCo | Renewable Energy YieldCo |
| (T) | AT&T | 4.9% | 6.2% | 5.1% | 11.3% | Telecom | Wireless/Internet |
| (OTCQX:IMBBY) | Imperial Brands | 5.6% | 6.1% | 8.8% | 14.9% | Consumer Defensive | Tobacco |
| APTS | Preferred Apartment Communities | 6.7% | 6.0% | 7.0% | 13.0% | REIT | Apartment REIT |
| (ENB) | Enbridge Inc | 3.5% | 5.9% | 8.0% | 13.9% | Midstream c-Corp (No K1) | Oil, Gas & Consumable Fuels |
| (SKT) | Tanger Factory Outlet Centers | 4.7% | 5.8% | 5.3% | 11.1% | REIT | Retail REIT |
| RDS.B | Royal Dutch Shell | 7.0% | 5.5% | 3.0% | 8.5% | Energy | Oil, Gas & Consumable Fuels |
| VTR | Ventas | 5.8% | 5.4% | 4.2% | 9.6% | REIT | Healthcare REIT |
| LTC | LTC Properties | 6.0% | 5.4% | 4.0% | 9.4% | REIT | Healthcare REIT |
| NHI | National Health Investors | 5.8% | 5.3% | 4.2% | 9.5% | REIT | Medical REIT |
| (PM) | Philip Morris International | 5.0% | 5.3% | 5.0% | 10.3% | Consumer Defensive | Tobacco |
(Sources: Gurufocus, FastGraphs, Gordon Dividend Growth Model, Simply Safe Dividends)
Fast Growing Dividend Aristocrats
| Ticker | Company | Target Yield (Fair Value) | Current Yield | Potential Long-Term Dividend Growth | Total Return Potential | Sector | Industry |
| (LOW) | Lowe's Companies | 1.7% | 2.0% | 19.8% | 21.8% | Consumer Cyclical | Home Improvement Stores |
| (ABBV) | AbbVie | 3.5% | 4.0% | 15.2% | 19.2% | Healthcare | Biotechnology |
| (DOV) | Dover | 2.2% | 2.3% | 15.0% | 17.3% | Industrial | Diversified Industrials |
| CTAS | Cintas | 1.1% | 0.8% | 15.1% | 15.9% | Industrial | Business Services |
| 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 |
| TROW | T. Rowe Price | 2.6% | 2.4% | 12.9% | 15.3% | Finance | Asset Management |
| SHW | Sherwin-Williams | 1.1% | 0.8% | 14.3% | 15.1% | Basic Materials | Specialty Chemicals |
| (LEG) | Leggett & Platt | 3.0% | 3.5% | 11.0% | 14.5% | Consumer Cyclical | Furniture |
| BDX | Becton, Dickinson & Company | 1.7% | 1.2% | 13.0% | 14.2% | Healthcare | Medical Equipment |
| SYY | Sysco | 3.0% | 2.1% | 12.0% | 14.1% | Consumer Defensive | Food Distributor |
| (WBA) | Walgreens Boots Alliance | 1.9% | 2.6% | 11.1% | 13.7% | Consumer Defensive | Pharmacy |
| (ADM) | Archer-Daniels Midland | 2.6% | 2.7% | 11.0% | 13.7% | Consumer Defensive | Farm Products |
| GWW | W.W Grainger | 2.0% | 1.6% | 12.0% | 13.6% | Industrial | Industrial Distribution |
| (APD) | Air Products & Chemicals | 2.4% | 2.8% | 10.4% | 13.2% | Industrial | Industrial Gas |
| (ITW) | Illinois Tool Works | 2.1% | 2.9% | 10.2% | 13.1% | Industrial | Diversified Industrials |
| (ROP) | Roper Technologies | 0.6% | 0.6% | 12.5% | 13.1% | Industrial | Industrial Tech |
| (AOS) | A. O. Smith | 1.1% | 1.2% | 11.5% | 12.7% | Industrial | Building Products |
| (VFC) | V.F Corp | 2.0% | 2.0% | 10.5% | 12.5% | Consumer Cyclical | Apparel |
| (MMM) | 3M | 2.5% | 2.6% | 9.8% | 12.4% | Industrial | Diversified Industrials |
| MKC | McCormick & Company | 2.0% | 1.7% | 10.3% | 12.0% | Consumer Defensive | Food & Beverage |
| (PG) | Procter & Gamble | 3.1% | 3.5% | 8.2% | 11.7% | Consumer Defensive | Household & Personal Products |
| (T) | AT&T | 4.9% | 6.2% | 5.1% | 11.3% | Telecom | Wireless/Internet |
| (CLX) | Clorox | 2.7% | 2.7% | 8.6% | 11.3% | Consumer Defensive | Household & Personal Products |
| MCD | McDonald's | 3.1% | 2.6% | 8.6% | 11.2% | Consumer Cyclical | Restaurants |
| BF.B | Brown-Forman | 1.4% | 1.2% | 10.0% | 11.2% | Consumer Defensive | Alcohol |
| (XOM) | Exxon Mobil | 3.4% | 4.1% | 7.0% | 11.1% | Energy | Oil, Gas & Consumable Fuels |
| (KO) | Coca Cola | 3.2% | 3.3% | 7.7% | 11.0% | Consumer Defensive | Food & Beverage |
| (KMB) | Kimberly-Clark | 3.1% | 3.4% | 7.3% | 10.7% | Consumer Defensive | Household & Personal Products |
| (PPG) | PPG Industries | 1.5% | 1.6% | 9.0% | 10.6% | Basic Materials | Specialty Chemicals |
| CVX | Chevron | 3.9% | 3.6% | 7.0% | 10.6% | Energy | Oil, Gas & Consumable Fuels |
| PNR | Pentair | 2.0% | 1.6% | 9% | 10.6% | Industrial | Water Infrastructure |
| GPC | Genuine Parts Company | 2.7% | 2.9% | 7.6% | 10.5% | Industrial | Auto Parts |
| JNJ | Johnson & Johnson | 2.8% | 2.7% | 7.6% | 10.3% | Healthcare | Diversified Medical |
| AFL | Aflac | 2.4% | 2.2% | 8.0% | 10.2% | Finance | Insurance |
| (PEP) | Pepsi | 3.0% | 3.2% | 7.0% | 10.2% | Consumer Defensive | Food & Beverage |
| (CL) | Colgate-Palmolive | 2.4% | 2.5% | 7.6% | 10.1% | Consumer Defensive | Household & Personal Products |
| (HRL) | Hormel Foods | 2.0% | 2.0% | 8.0% | 10.0% | Consumer Defensive | Food & Beverage |
| (MDT) | Medtronic | 2.2% | 2.2% | 7.8% | 10.0% | Healthcare | Medical Products |
| TGT | Target | 3.3% | 3.1% | 6.7% | 9.8% | Consumer Cyclical | Retail |
| EMR | Emerson Electric | 3.0% | 2.7% | 7.0% | 9.7% | Industrial | Electrical Components |
| WMT | Walmart | 2.7% | 2.3% | 7.3% | 9.6% | Consumer Defensive | Grocery Stores |
| FRT | Federal Realty Trust | 4.0% | 3.1% | 6.0% | 9.1% | REIT | Retail REIT |
(Sources: Gurufocus, FastGraphs, Gordon Dividend Growth Model, Simply Safe Dividends)
The Portfolio Today
(Source: Morningstar)
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 5%.
- High risk: Dividend safe and predictable for one year, max portfolio size 2.5% (sole exception is HCLP due to its "special opportunity status")
Safety Outlooks
- 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.
High-Risk Stocks
- Uniti Group (NASDAQ:UNIT) - Negative outlook (WIN revenue diversification plan in doubt)
- Hi-Crush Partners (HCL) - Positive outlook (sensational long-term cash flow growth potential)
- Omega Healthcare Investors (NYSE:OHI) - Stable outlook (confidence in management executing on turnaround plan)
Medium-Risk Stocks
- Pattern Energy Group (PEGI): Will be upgraded when the payout ratio declines under 85% - positive outlook
- EPR Properties (EPR): Due to exposure to cinemas - positive outlook
- Energy Transfer Partners (ETP): - Positive outlook (turnaround is going well and ETE merger would make it low risk stock)
- Dominion Midstream Partners (DM) - Negative outlook (liquidity trap for now, Potential roll up coming)
Low-Risk Stocks
- Brookfield Property Partners (NYSE:BPY) - Stable outlook
- Simon Property Group (SPG) - Stable outlook
- Enbridge (ENB) - Stable outlook
- Brookfield Infrastructure Partners (BIP) - Positive outlook
- Dominion Energy (D)- Stable outlook
- Iron Mountain (IRM) - Stable outlook
- Spectra Energy Partners (SEP) - Stable outlook
- NextEra Energy Partners (NYSEMKT:NEP) - Positive outlook
- AbbVie (ABBV) - Stable outlook
- EQT Midstream Partners (EQM) - Stable outlook
- EQT GP Holdings (EQGP) - Stable outlook
- MPLX (MPLX) - Stable outlook
- Noble Midstream Partners (NBLX) - Stable outlook
- Antero Midstream Partners (AM) - Stable outlook
- Antero Midstream GP (AMGP) - Stable outlook
- CNX Midstream Partners (CNXM) - Stable outlook
- Oasis Midstream Partners (OMP) - Stable outlook
- QTS Realty (QTS): Stable outlook
- NRG Yield (NYLD): Stable outlook
My portfolio began with five stocks, all medium- to high-risk, in two sectors. Right now, I'm in 27 stocks, mostly low- to medium-risk, in four sectors. Eventually I'll expand into all sectors, but for now limited capital must be allocated with care, into the best opportunities you know of. Thus the stronger focus on the most undervalued income growth opportunites in each week.
Top 10 Income Sources
(Source: Simply Safe Dividends)
While income diversification is important (in case of a dividend cut), I'm also balancing that with concentrated positions in my highest conviction names.
(Source: Morningstar)
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. That being said I'm fundamentally a value focused investor and so will always be overweight in that investing style.
(Source: Morningstar)
My portfolio is VERY concentrated in energy, because that's where the best overall opportunities are in terms of: safe yield, fast payout growth, and valuation. Keep in mind that my expertise is in midstream MLPs so I feel very comfortable with this kind of concentration. Meanwhile I remain heavily exposed to utilities (mostly renewable YieldCos) and REITs. With the exception of HCLP everything I own has very stable and recession resistant cash flow. So I expect very few if any payout cuts during the next recession.
Sector Concentration
(Source: Simply Safe Dividends)
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:
(Source: Simply Safe Dividends)
Note that the five and 10 year dividend growth figures are artificially low because my tracking software doesn't average in anything that hasn't existed for those time periods. Many of my holdings have IPOed in the last few years and so the one year growth rate is the most accurate. These figures are purely organic growth rates and assumes no dividend reinvestment.
In the coming months I expect to boost that significantly thanks to building a 10% stake in AMGP, the fastest growing income stock in America.
Market conditions permitting I'll also build up a 10% stake in NEP, which is likely to grow its payout at 15% annually for the next decade at least.
Projected Portfolio Dividends Over Time
(Source: Simply Safe Dividends) - Note assumes no dividend reinvestment, just organic growth that slows gradually over time (constant holdings)
Even assuming no dividend reinvestment (I do that manually) and that I never sell anything I own (if growth slows and I find better opportunities) this portfolio would become an income powerhouse. And even if I were to not add to the portfolio at all with fresh savings within 20 years I would have achieved my goal of financial independence.
Over the long-term my goal is about 5% portfolio yield, with about 10% long-term dividend growth over time. In order to maintain that I may have to recycle some holdings when they no longer meet my needs.
For perspective, the S&P 500 yields 1.8% and its 20-year median annual dividend growth rate has been 6.2%. So, the goal is to about triple the market's yield, with about 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%. Even assuming no valuation multiple expansion (my deeply undervalued porfolio always remains so) this portfolio should easily be capable of about 15% total returns over time. Factoring in multiple expansion (already starting to happen) the returns could be even greater.
Portfolio Statistics
- Holdings: 27
- Portfolio Size: $202,018 (all time record high)
- Equity: $162,895 (all time record high)
- Remaining Margin Buying Power: $749,700
- Margin Used: $41,106
- Debt/Equity: 0.25
- Leverage Ratio: 25%
- Dividends/Margin Interest Ratio: 10.5
- Distance To Margin Call (How Much Portfolio Would Need To Fall): 70.6%
- Current Margin Rate: 3.41%
- Yield: 7.3%
- Yield On Cost: 7.4%
- Net Yield On Invested Capital: 8.7%
- Time Weighted Total Return Since Inception (since September 8, 2017): 4.1%
- Unlevered Total Return Since Inception: 7.9%
- Year-to-Date Unlevered Total Return: 5.0%
- Annualized 2018 Unlevered Total Return: 8.9%
- Unrealized Capital Gains (current holdings): $3,884 (+2.0%)
- Cumulative Dividends Received (including accrued dividends): $11,576
- Annual Dividends: $14,668
- Annual Interest: $1,402
- Annual Net Dividends: $13,266
- Monthly Average Net Dividends: $1,106
- Daily Average Net Dividends (my business empire never sleeps): $36.35
(Source: Simply Safe Dividends)
- Portfolio Beta (volatility relative to S&P 500): 1.19
- Projected Long-Term Dividend Growth: 9% to 10%
- Projected Annual Unlevered Total Return: 14% to 15%
- 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
| Stock | Loss | Cost Basis |
| HCLP | -12.5% | $15.25 |
| AQN | -9.3% | $11.10 |
| EQM | -7.5% | $55.47 |
| PEGI | -6.2% | $19.51 |
| IRM | -3.6% | $37.09 |
| EQGP | -3.2% | $22.85 |
| D | -2.3% | $73.83 |
| NYLD | -1.9% | $18.65 |
| ENB | -1.6% | $36.54 |
| BPY | -1.5% | $20.56 |
(Source: Interactive Brokers)
10 Best-Performing Positions
| Stock | Gain | Cost Basis |
| QTS | 28.0% | $34.38 |
| CNXM | 24.2% | $16.42 |
| EPR | 22.2% | $56.31 |
| ETP | 16.2% | $20.82 |
| SPG | 14.4% | $155.79 |
| UNIT | 12.9% | $16.19 |
| OHI | 9.8% | $28.04 |
| NBLX | 7.9% | $49.77 |
| MPLX | 7.4% | $34.53 |
| NEP | 6.3% | $44.32 |
(Source: Interactive Brokers)
Bottom Line: Investing Is Never Done In A Vacuum
Let me be very clear that nothing I sold is necessarily a condemnation of a particular company. For example, my selling Visa or NVIDIA is not an indication that I consider either company to be overvalued or not a great long-term investment.
However, investing is not done in a vacuum and with limited resources I have to put my money to work in the best opportunities I know of, that meet my specific long-term investing needs. This is why I consolidated the portfolio into its current form, because it best suits my particular personality/risk profile/time horizon.
In the future I will most assuredly find other "fat pitches" that are great opportunities and will allocate my capital there. And at some point, depending on price and slower growth rates, I might even sell some of my current holdings to reinvest (hopefully at large profit) into much better opportunities. But rest assured that if and when that happens, you'll read about it here, in my weekly portfolio updates.
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.
This article was written by
Adam Galas is a co-founder of Wide Moat Research ("WMR"), a subscription-based publisher of financial information, serving over 5,000 investors around the world. WMR has a team of experienced multi-disciplined analysts covering all dividend categories, including REITs, MLPs, BDCs, and traditional C-Corps.
The WMR brands include: (1) The Intelligent REIT Investor (newsletter), (2) The Intelligent Dividend Investor (newsletter), (3) iREIT on Alpha (Seeking Alpha), and (4) The Dividend Kings (Seeking Alpha).
I'm a proud Army veteran and have seven years of experience as an analyst/investment writer for Dividend Kings, iREIT, The Intelligent Dividend Investor, The Motley Fool, Simply Safe Dividends, Seeking Alpha, and the Adam Mesh Trading Group. I'm proud to be one of the founders of The Dividend Kings, joining forces with Brad Thomas, Chuck Carnevale, and other leading income writers to offer the best premium service on Seeking Alpha's Market Place.
My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams and enrich their lives.
With 24 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and safe and dependable income streams in all economic and market conditions.
Analyst’s Disclosure: I am/we are long eqm, omp, NYLD, bpy, abbv, etp, bip, am, nep, hclp, pegi, sep, epr, eqgp, d, cnxm, ohi, mplx, irm, qts, amgp, unit, enb, spg, aqn, nblx, DM. 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.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.