5%+ Dividend Yield Portfolio: Ignore The Political Circus (September 2018 Review)

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Includes: ABBV, BAC, BXMT, DDJP, DVYA, DWX, E, ECNS, EDIV, EWA, EWM, F, FGD, FLQH, GDX, GIS, GS, GSK, HDLV, HYND, HYZD, IBB, IBM, IDHD, IEIH, IRM, KMI, KREF, NRZ, OHI, QQQC-OLD, QYLD, RDIV, REK, RIG, SBRA, SCHD, SH, SKT, SPHD, SPYD, T, TEVA, VTR
by: Dividend Disco
Summary

Political headlines were a circus this month, but the market ground on (so focus on what really matters).

Sep 2018 was decent for domestic stocks (the S&P 500 was +0.6%), but weakness in foreign stocks dropped me to a -0.5% capital loss.

However, it was another solid month of dividends with 2018 pacing a >10% improvement over 2017.

My dividend yield of 5% firmly crushed the pathetic 1.7% of the S&P 500.

Outlook

If you mix your politics with your investment decisions, you’re making a big mistake.

- Warren Buffett

Politics dominates the headlines these days (even in the financial press)… and how could it not with the circus on display. However, allowing your political views to shade your investment decisions is a sure loser. In fact, even following the political headlines too closely, even when they touch on the economy (e.g. the many threatened or real government shutdowns that have yet to meaningfully effect the economy), is sure to cause you to miss out.

Fear can take many forms and be amplified by many simultaneous sources, but learning to filter out the noise and focus on the fundamentals is one of the best things you can do to preserve your long-term profit potential in the stock market. In calendar 2018 alone, we investors have been subjected to a constant barrage of negative doomsday headlines that sound real enough, but only stood to cause you to miss out (if you followed their advice).


Source: Ben Carlson

I suppose it is just human nature to excessively worry about the future (especially when politics are involved), but just remember that stock market crashes generally correspond with recessions… and we are no where near a recession. So feel free to complain or gloat about the state of our politics, but please don’t trade based on what you see/hear/believe about politics. Since the political world is always seemingly in crisis, the only thing you guarantee is that you’ll miss out on the next market high. Remember that the U.S. markets increased ~30% in 1998 during the impeachment proceedings for Bill Clinton. But that is just one of the numerous examples cited in a great article by Ben Carlson.

September 2018 Review

September 2018 was my first negative split for the year as I returned -0.5% versus the +0.6% for the S&P 500. However, my 5.0% dividend yield on invested capital crushed the 1.7% yield of the broader index.

September 2018 rewarded me with realized dividends of $1,097 (versus $1,093 in 2017)… a slight 0.9% increase, but I’ll take it. Furthermore, for the 12 months ending August 2018, my portfolio delivered $14,308 in cash to me (an increase of 10.4% from 2017). My realized yield for the past 12 months was 5.0% for my full portfolio including cash reserves. My 2018 goal was to increase dividends by ~5% to $13,500 for the year, so I feel good that I am on track to beat this goal. Fear and greed are hard to balance, but I am happy with where I am overall. My yield focused strategy still makes the most sense to me as paper gains may come and go but cash is forever!

Background

Since I write for Seeking Alpha primarily to improve my own investment portfolio, I think it is important that you know my objectives. Please consider this context when you look at any advice I give and form your own opinions based on your needs and desires.

  • GOAL: Attractive, risk-adjusted, absolute returns (5-15% annually) over a long-term time frame while minimizing capital loss and extreme drawdowns.
  • STRATEGY: 'Enhanced' dividend growth or DGI strategy that focuses on a core of diversified holdings (ETFs and individual companies -- my general screening criteria: growing companies (YoY EPS growth >0%) with attractive valuations (PEG <1.5 and P/E <20) and strong and safe dividends (yield >4%, payout <90%, and market cap >$500MM)… no tobacco stocks or micro caps), supplemented with return enhancing tools like hedges (derivatives and shorts), commodity exposure, etc., as well as some crazy picks.
  • BALANCE: Blend of ETFs (domestic and international) and individual companies (where there is a compelling reason to own). Seek to not overweight any one sector unless there is a compelling reason to do so (although the nature of these investments leads me to be overweight in traditional dividend paying sectors like financials, REITS, and energy).

Note: I violate these guidelines constantly, so please call me out on it!

Portfolio Composition as of September 30, 2018

Security Type Div Yield Market Value Last Month Value Gain/Loss(%)
FUNDS 4.0% $110,767 $111,768 -0.9%
SPDR S&P 500 High Dividend ETF (SPYD) ETF 3.9% $15,006 $15,296 -1.9%
Fst Tst Dow Jns Glbl Sel Dvd Idx ETF (FGD) ETF 4.4% $12,550 $12,550 0.0%
Oppenheimer Ultra Dividend Revenue ETF (RDIV) ETF 4.0% $11,568 $11,772 -1.7%
SPDR S&P Emerging Markets Dividend ETF (EDIV) ETF 3.5% $9,356 $9,396 -0.4%
PowerShares S&P 500 High Div Low Volatility ETF (SPHD) ETF 3.8% $8,282 $8,338 -0.7%
SPDR S&P International Dividend ETF (DWX) ETF 4.5% $7,773 $7,861 -1.1%
iShares Nasdaq Biotechnology ETF (IBB) ETF 0.3% $6,097 $6,110 -0.2%
Invesco S&P International Developed High Dividend Low Volatility ETF (IDHD) ETF 5.0% $5,492 $5,515 -0.4%
Schwab U.S. Dividend Equity ETF (SCHD) ETF 2.6% $5,300 $5,271 0.6%
UBS ETRACS 2x US High Div, Low Vol ETN (HDLV) ETN 10.9% $5,180 $5,360 -3.4%
iShares MSCI Australia ETF (EWA) ETF 4.4% $4,424 $4,498 -1.6%
iShares Asia/Pacific Dividend ETF (DVYA) ETF 5.5% $4,395 $4,433 -0.9%
iShares MSCI Malaysia ETF (EWM) ETF 6.5% $3,235 $3,251 -0.5%
iShares Evolved U.S. Innovative Healthcare ETF (IEIH) ETF 2.0% $2,740 $2,725 0.5%
Global X NASDAQ China Technology ETF (QQQC-OLD) ETF 2.6% $2,669 $2,628 1.6%
Franklin LibertyQ International Hedged ETF (FLQH) ETF 1.3% $2,541 $2,543 -0.1%
iShares MSCI China Small Cap ETF (ECNS) ETF 3.5% $2,308 $2,367 -2.5%
Market Vectors Gold Miners ETF (GDX) ETF 1.0% $1,852 $1,855 -0.2%
COMPANIES 6.0% $128,756 $130,573 -1.4%
Abbvie (ABBV) Company 4.1% $18,916 $19,196 -1.5%
Omega Healthcare Investors (OHI) REIT 8.1% $13,108 $13,220 -0.8%
Royal Dutch Shell (RDSB) Company 5.3% $10,640 $10,107 5.3%
Blackstone Mortgage Trust (BXMT) REIT 7.4% $10,053 $10,218 -1.6%
New Residential Investment (NRZ) REIT 11.2% $9,159 $9,545 -4.0%
Ventas REIT (VTR) REIT 5.8% $8,157 $8,981 -9.2%
Sabra Health Care REIT (SBRA) REIT 7.8% $7,768 $7,923 -2.0%
Iron Mountain (IRM) REIT 6.8% $6,904 $7,220 -4.4%
Tanger Factory Outlet REIT (SKT) REIT 6.1% $6,864 $7,218 -4.9%
General Mills (GIS) Company 4.6% $4,292 $4,601 -6.7%
Transocean (RIG) Company 0.0% $4,185 $3,633 15.2%
GlaxoSmithKline (GSK) Company 5.4% $4,017 $4,050 -0.8%
IBM (IBM) Company 4.2% $3,780 $3,662 3.2%
Eni (E) Company 5.1% $3,766 $3,715 1.4%
Ford Motors (F) Company 6.5% $3,700 $3,792 -2.4%
AT&T (T) Company 6.0% $3,358 $3,194 5.1%
Kinder Morgan (KMI) Company 4.5% $3,262 $3,257 0.2%
Teva Pharmaceutical Industries (TEVA) Company 0.0% $2,154 $2,291 -6.0%
KKR Real Estate Finance Trust (KREF) REIT 8.1% $2,017 $2,120 -4.9%
VARIOUS POSITIONS OF <$1,000 VALUE VARIOUS 2.0% $2,655 $2,630 0.9%
FIXED INCOME TOTAL 4.4% $16,241 $16,405 -1.0%
Bank of America Corporation (BAC) - Pref L (BML+L) Pref 4.2% $4,890 $4,820 1.5%
Goldman Sachs (GS) - Pref A (GS+A) Pref 4.2% $4,540 $4,720 -3.8%
WisdomTree BofA Mrl Lynch HYBd ZrDr ETF (HYZD) ETF 4.9% $2,421 $2,407 0.6%
Goldman Sachs (GS) - Pref D (GS+D) Pref 4.6% $2,236 $2,343 -4.6%
WisdomTree BofA Mrl Lynch HYBd NgtDr ETF (HYND) ETF 4.9% $2,154 $2,115 1.8%
SHORTS TOTAL 0.0% $9,970 $9,913 0.6%
ProShares Short S&P500 (SH) ETF 0.0% $6,830 $6,875 -0.7%
ProShares Short Real Estate (REK) ETF 0.0% $3,140 $3,038 3.4%
SCHWAB ROBO-ADVISOR TOTAL 2.0% $13,023 $13,022 0.0%
TOTAL 4.7% $278,756 $281,680
TOTAL + CASH $36,521 4.2% $315,277 $317,104 -0.5%

Portfolio Moves in September 2018

New Positions

SHARE BUY– Invesco S&P International Developed High Dividend Low Volatility ETF (IDHD): Bought 200 shares of this international dividend ETF at $27.55 on Sep 4.

  • Reasoning: Featuring defensive holdings and a 5.0% yield, I continue to punish myself with foreign stocks because the yields and valuations are outstanding.

Exited Positions

SHARE SALE– WisdomTree Dynamic Currency Hedged Japan Equity Fund (DDJP): Sold all 100 shares of this Japan ETF at $28.92 on Sep 18.

  • Reasoning: After a decent run, I am focusing on more defensive ETFs with higher yield.

SHARE SALE– Horizons NASDAQ 100 Covered Call ETF (QYLD): Sold all 100 shares of this covered call ETF at $25.05 on Sep 10.

  • Reasoning: While I have enjoyed the 9%+ dividend yield, I think this ETF will perform poorly in the event of future volatility.

Final Thoughts

Politics and investment decisions make poor bedfellows and I hope that your investment strategy is fundamentally (and not headline) driven. Macro investing is hard enough without trying to figure out the potential impact of a supreme court nomination process (for example). Staying the course is the only proven moneymaker (and I think volatile situations make this even more true), so don’t lose your head when those around you are losing theirs.

Comments encouraged.

Disclosure: I am/we are long ALL POSITIONS AS 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.

Additional disclosure: The author is an amateur who has a history of getting calls both right and wrong with zero predictive power. Trade at your own risk and never rely solely on this author's opinion. Also, as I have no knowledge of your circumstances, goals, and/or portfolio concentration, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended.