Q3 Portfolio Review

by: Dividend Sleuth


The portfolio expanded from 30 equities to 49.

A strategy for managing a large number of equities.

How important is sector representation?

Portfolio yield and performance.

The portfolio expanded from 30 equities to 49

This is the third quarter review of my retirement income portfolio. It was a very active quarter that included a final pension rollover to my IRA. About half of the rollover funds have been deployed. Some existing positions were trimmed to take profit and to diversify. In recent weeks, I've written articles about the 19 new positions, so this review will be a brief summary.

Here's a summary of the top 10 positions:

1. Johnson & Johnson (JNJ) is, by design, the largest position in the portfolio, and the oldest. The cost basis is $58.41. It's one of only two companies with a credit rating of AAA from S&P. In Q3, I trimmed JNJ by 13%.

2. Brookfield Renewable Partners (BEP) is a global utility partnership specializing in hydroelectric power. It is headquartered in Toronto, domiciled in Bermuda and reports in US dollars. BEP is designed to avoid unrelated business income, thus avoiding some tax issues for US investors holding BEP in IRAs. I added BEP to the portfolio in Q1 2018. I see BEP as a top 20 position but not a top 2 position. Eventually, I will trim this position by about 10%, but not while the yield is 6.5%.

3. BCE Inc (BCE) is Canada's largest communications company. Canadian companies held in US IRAs are exempt from Canada's 15% tax on dividends. At some point, I will reduce the size of this position by about 10%, but in the meantime, I will enjoy the 5.75% yield.

4. W.P. Carey (WPC) is my favorite real estate investment trust. I like their diversity by property type (industrial, office, retail, warehouse, self-storage, etc.) and by geography (two-thirds North America, one-third Europe). I've held WPC almost as long as JNJ. I'm comfortable with it being a top 5 holding.

5. Royal Bank of Canada (RY) is Canada's largest bank. It has 450 US branches in six southeastern states, serving almost one million US customers. Canadian banks are strong and effectively regulated. RY has an S&P credit rating of AA-.

6. AT&T (T) is an old telephone name, but it has taken on debt aggressively to transform itself through acquisitions. This profile is from the company website: "At AT&T, we’re bringing it all together. We provide premium content, direct to consumer distribution and high-speed networks to people and businesses. That’s why we’re investing to be the premier integrated media and communications company." In spite of my concerns about debt, I added T to the portfolio in Q2 2018. It is now the 6th largest position in the portfolio. At some point, it's likely that I will trim this position by about 20%, but not while the dividend yield is near 6%. T is in the newly reconstituted communication services sector.

7. 3M (MMM) was added to the portfolio in 2014, when I thought it was overvalued at $132. Until recently, it was the only industrial company in the portfolio. I keep MMM in the top 10 due to its history of innovation, its AA- S&P credit rating and its record of 60 consecutive years of dividend increases.

8. Procter & Gamble (PG) was added to the portfolio in 2015. It's the only consumer staples stock in the top 10 because of its AA- S&P credit rating, its 62 consecutive years of dividend increases, its global footprint and its ability to operate relatively effectively in a difficult sector

9. Toronto-Dominion Bank (TD) is Canada's second largest bank. Among Canadian banks, it has the largest US customer base at 7 million and almost 1,500 US branches. TD has an S&P credit rating of AA-. I established the current position in Q3 2018.

10. Brookfield Infrastructure Partners (BIP) is, according to its website, "one of the largest owners and operators of critical and diverse global infrastructure networks which facilitate the movement and storage of energy, water, freight, passengers and data." BIP and BEP are part of the Brookfield Asset Management (BAM) family. BIP was added to the portfolio in Q3 2018 as part of the portfolio expansion project. I'm happy to have BIP in the top 10.

In the tables that follow, Equities in bold are new positions this quarter. %Port is each holding's percentage of the portfolio's market value. Price is the closing price on 9/28/18. Div is the annual dividend or distribution. Yield is the dividend yield as of quarter end. 1st is the year of the initial purchase. %Inc is the percentage of the portfolio's income contributed by each holding. S&P is the Standard & Poor's credit rating, where available. CCC is the number of consecutive years of dividend increases as maintained by the DRiP Investing Resource Center and Justin Law. Beta is a measure of the holding's volatility, from Finviz, where available.

Positions 1-10:

Equity %Port Price Div Yield 1st %Inc S&P CCC Beta
JNJ 2.50% 138.17 3.60 2.61% 09 1.63% AAA 56 0.73
BEP 2.46% 30.19 1.97 6.49% 18 3.99% BBB+ 9
BCE 2.42% 40.53 2.33 5.75% 17 3.48% BBB+ 9 0.38
WPC 2.33% 64.31 4.10 6.38% 09 3.71% BBB 21 0.77
RY 2.32% 80.19 3.03 3.77% 16 2.19% AA- 7 1.15
T 2.31% 33.59 2.00 5.95% 18 3.44% BBB 34 0.39
MMM 2.29% 210.71 5.44 2.58% 14 1.48% AA- 60 1.15
PG 2.26% 83.22 2.87 3.45% 15 1.95% AA- 62 0.57
TD 2.20% 60.80 2.07 3.40% 18 1.87% AA- 7 0.80
BIP 2.16% 39.87 1.88 4.72% 18 2.55% BBB+ 11

Here's a summary of portfolio positions 11-20:

11. Bank of Nova Scotia (BNS) was my first Canadian bank holding several years ago. I was happy to re-establish a position in Q3 2018 as part of my portfolio expansion project. BNS is Canada's third largest bank. Scotiabank has extensive operations in Latin America. BNS has an S&P credit rating of A+ and an attractive 4.4% dividend yield.

12. PPL Corporation (PPL) is a regulated utility with operations in Pennsylvania, Kentucky (and a slice of Virginia) and the United Kingdom. It offers what dividend investors like to see from a utility: steady performance and a nice yield, currently 5.60%. Generally, I've been pleased with management. They've avoided some of the pitfalls that Southern Company (SO) and Duke Energy (DUK) have encountered.

13. Enterprise Products Partners (EPD) is a pipeline master limited partnership that I've owned on three different occasions. This time I intend to "let it ride." Management is shareholder-friendly, very matter-of-fact and maneuvers the partnership's assets to make the best use of their various businesses. EPD has raised the distribution for 21 consecutive years and the current yield is 5.95%

14. Simon Property Group (SPG) is a retail REIT that specializes in upscale malls. Much of the recent investor REIT conversations have been about the impact of online shopping. In this atmosphere, I like Simon's high quality properties. Management is seasoned and committed to both dividend growth and a strong balance sheet (an S&P credit rating of A).

15. Tanger Factory Outlet Centers (SKT) is a retail REIT that has been a "disrupter" by pioneering what I call the factory outlet campus concept and developed it into a highly profitable "channel" for manufacturers and distributors of apparel and other items. They focus on shops with a smaller number of square feet rather than "big box" stores. Their typical customer continues to be a mid-40s female. Many of their locations are at "destination" locations, where a trip to Tanger is part of a vacation experience. Dividends have been raised for 24 consecutive years. The current yield is 6.12%. It has seasoned management and it's one of the few REITs that has been buying back shares. In light of the impact of the new disrupter of online shopping, SKT has become a widely debated REIT on SA. Brad Thomas is a bull. Brad Kenagy, Rida Mowra and Justin Lin are bears.

16. Microsoft (MSFT) and JNJ are the only two companies with the highest credit rating awarded by S&P: AAA. I've held MSFT since 2015 and this technology powerhouse has made all the right moves under the leadership of Chief Executive Officer Satya Nadella. The 5-year dividend growth rate is 13.9%. MSFT has the second lowest yield in the portfolio at 1.61%. I'm content with the low yield because of the financial strength and growth MSFT brings to the portfolio.

17. Realty Income (O) is perhaps the most familiar and most widely held REIT among SA dividend investors. According to the FTSE Nareit All REITs Index, O is the largest REIT in the retail free standing sub-sector. Recently, S&P raised the credit rating from BBB+ to A-. Realty Income is a Dividend Champion with 25 consecutive years of increases.

18. Kimberly-Clark (KMB) operates in the consumer staples sector by selling a broad range of personal products in more than 175 countries. It has raised the dividend for 46 consecutive years. The 5-year dividend growth rate is 6.5%. The yield at the end of Q3 was 3.52%.

19. AbbVie (ABBV) was added to the portfolio in Q3. I held shares of the predecessor company prior to the spinoff of ABBV from Abbott Labs (ABT) on January 1, 2013. The recent expansion project gave me an opportunity to add this biopharmaceutical company to the portfolio. The yield is 4.06%. The dividend history of young ABBV is a growth story: $1.60 in 2013; $1.68 in 2014; $2.02 in 2015; $2.28 in 2016; and $2.56 in 2017. The dividend was raised to $.71 for the first quarterly payment in 2018, and again to $.96 for the second and third quarterly payments. So, the indicated dividend for 2018 will be $3.59 and the annual run rate is $3.84.

20. Apple (AAPL) was added to the portfolio in 2016 at what I thought was an outrageously high price of $104.78. AAPL has the lowest current yield in the portfolio at 1.29%. I've taken some profits in AAPL by trimming the holding to what I consider a core position. I expect it to move up in rank via relative price appreciation from the current #20 spot. Apple's 5-year dividend growth rate is 26.6%.

Positions 11-20:

Equity %Port Price Div Yield 1st %Inc S&P CCC Beta
BNS 2.16% 59.64 2.62 4.40% 18 2.37% A+ 7 0.98
PPL 2.12% 29.26 1.64 5.60% 16 2.97% A- 17 0.54
EPD 2.08% 28.73 1.71 5.95% 18 3.09% BBB+ . 21 0.83
SPG 2.08% 176.75 8.00 4.53% 17 2.35% A 9 0.55
SKT 2.07% 22.89 1.40 6.12% 17 3.17% BBB+ 25 0.49
MSFT 2.07% 114.37 1.84 1.61% 15 0.83% AAA 16 1.03
O 2.06% 56.89 2.65 4.65% 16 2.39% A- 25 0.21
KMB 2.06% 113.62 4.00 3.52% 17 1.81% A 46 0.70
ABBV 2.05% 94.60 3.84 4.06% 18 2.08% A- 6 1.58
AAPL 2.04% 225.74 2.92 1.29% 16 0.66% AA+ 7 1.28

Here's a summary of portfolio positions 21-30:

21. National Retail Properties (NNN) is the second largest retail REIT in the free standing sub-sector, with slightly less than half the market capitalization of #1 Realty Income. However, it's dividend streak is 4 years longer at 29 consecutive years of dividend increases. I've always considered NNN one of the best, most conservatively managed REITs. NNN seems to have a slightly more dedicated investor following than Realty Income because NNN tends to have a slightly lower yield than O. At quarter end, NNN's yield was 4.46%, or 19 basis points lower than O's 4.65% yield.

22. PepsiCo (PEP) operates in the consumer staples sector. According to adbrands.net, PepsiCo is the second largest global producer of non-alcoholic drinks, behind #1 Coca-Cola (KO) and ahead of #3 Nestlé (which is #1 in bottled water). In 2017, 53% of PepsiCo's revenue came from food products such as Frito-Lay and Quaker Oats. I like this diversification and I've been pleased with outgoing CEO Indra Nooyi's focus on "better for you" food products. (Ramon Laguarta succeeds Nooyi as CEO on October 3, 2018.) I see my current PEP stake as a core holding and on price weakness I would be happy to elevate PEP to a top 10 position.

23. Pfizer (NYSE:PFE) is a biopharmaceutical company in the healthcare sector. It has an S&P credit rating of AA. On October 1, 2018, PFE announced that Chief Operating Officer Albert Bourla, 56, will succeed Ian Read as CEO on January 1, 2019. Since Read became CEO in 2010, the dividend has grown by 70%. Since 2011, four strategic imperatives have transformed the company: "(1) innovate and lead; (2) maximize value; (3) earn greater respect; and (4) own our culture." The company believes its strong pipeline has the potential for 25-30 approvals through 2022 and up to 15 could be blockbusters. Read will become the Executive Chairman of the Board of Directors.

24. Ventas (VTR) is the second largest healthcare REIT, after #1 Welltower (HCN). Debra Cafaro has been CEO since 1999 and she has led VTR through almost two decades of strong growth. VTR gets 32% of its net operating income from its senior housing operating portfolio, which uses the 2007 RIDEA law to provide enhanced rents (a type of profit sharing). 24% of NOI is from senior housing triple-net leases; 19% is from medical office buildings; 7% is from life sciences and innovation centers; 7% from skilled nursing facilities; 6% from health systems; and 4% from loans. Ventas' 5-year dividend growth rate is 7.6%, but the most recent increase was 1.94%.

25. Texas Instruments (TXN) is one of my favorite holdings in the information technology sector. TXN has a very shareholder-friendly goal: return all free cash flow to shareholders via dividends and share repurchases. The 5-year dividend growth rate is 24.5%.

26. Merck & Company (MRK) says their corporate vision is about "innovative medicines, vaccines, and animal health products." And, "We are committed to being the premier, research-intensive biopharmaceutical company..." I like MRK's S&P credit of AA. Their 5-year dividend growth rate is an uninspiring 2.3%.

27. Apple Hospitality REIT (APLE) is the 5th largest REIT in the lodging/resorts sub-sector. They own 241 properties in "urban, high‐end suburban and developing markets throughout 34 states." The portfolio is 52% Marriott family brands and 48% Hilton family brands. It has paid a monthly dividend of ten cents since inception in 2015. APLE has a conservative balance sheet, with debt representing 25% of total capitalization. I re-established a position in APLE during Q3 2018.

28. Canadian Utilities (OTCPK:CDUAF) is a world-wide group of companies headquartered in Calgary, Alberta. It has assets of approximately $20 billion (Canadian dollars), with investments in modular facilities; electric generation, transmission and distribution; natural gas transmission, distribution and storage; and retail energy sales. CDAUF (ticker symbol CU on the Toronto Exchange) has raised the dividend for 46 consecutive years, making it #1 on the Canadian Dividend All-Star List. I made my initial purchase of CDAUF in Q3 2018.

29. Cisco Systems (CSCO) has been in the portfolio since February 2016. I bought this information technology company at $24.49 the day after it announced an increase in the quarterly dividend from $.21 to $.26, which jumped the yield to 4.25%. CSCO has essentially doubled since that purchase.

30. Enbridge, Inc. (ENB) was added to the portfolio in Q3 2018. It is headquartered in Calgary, Alberta and it has regional/divisional offices in Canada and the US. It is listed on the Toronto and New York exchanges under the ticker symbol ENB. The company is a c-corporation, not a master limited partnership. There are no K-1 forms. Dividends are exempt from Canadian tax if held in a US individual retirement account. Enbridge describes itself as a global energy infrastructure leader, transporting, generating and distributing energy.

Positions 21-30:

Equity %Port Price Div Yield 1st %Inc S&P CCC Beta
NNN 2.03% 44.82 2.00 4.46% 17 2.26% BBB+ 29 0.29
PEP 2.02% 111.80 3.71 3.32% 17 1.68% A+ 46 0.68
PFE 1.99% 44.07 1.36 3.09% 16 1.54% AA 8 0.88
VTR 1.97% 54.38 3.16 5.81% 16 2.86% BBB+ 8 0.15
TXN 1.94% 107.29 3.08 2.87% 16 1.39% A+ 14 1.26
MRK 1.92% 70.93 1.92 2.71% 15 1.30% AA 7 0.78
APLE 1.88% 17.36 1.20 6.91% 18 3.26% NR 0
CDUAF 1.84% 23.99 1.21 5.06% 18 2.33% A- 46
CSCO 1.76% 48.65 1.32 2.71% 16 1.19% AA- 8 1.09
ENB 1.75% 32.30 2.07 6.40% 18 2.81% BBB+ 22 0.55

Here's a summary of portfolio positions 31-40:

31. Walmart (WMT) was added to the portfolio in October, 2015 at $57.80. WMT is in the consumer staples section because of their major presence in the grocery business. The company has raised the dividend for 45 consecutive years. The 5-year dividend growth rate is 5.4%. The S&P credit rating is AA. WMT is growing online sales by 40%.

32. Exxon Mobil (XOM) describes itself as "the largest publicly traded international oil and gas company" and "one of the world’s largest integrated refiners, marketers of petroleum products and chemical manufacturers." It has grown the dividend for 36 consecutive years and the 5-year dividend growth rate is 7.0%. It has a rare AA+ credit rating from S&P.

33. Automatic Data Processing (NASDAQ:ADP) is a global payroll and human resource management company in the information technology sector. It has an S&P credit rating of AA, has increased the dividend for 43 consecutive years and has a 5-year dividend growth rate of 10.6%. I believe the company has just begun to monetize the vast amount of real-time data it possesses about the economy and job trends as it serves 700,000 clients in 140 countries.

34. The Clorox Company (CLX) "is a leading multinational manufacturer and marketer of consumer and professional products with approximately 8,700 employees worldwide and fiscal year 2018 sales of $6.1 billion. Clorox markets some of the most trusted and recognized consumer brand names...." It operates in the consumer staples sector. It has raised the dividend 41 consecutive years and the 5-year dividend growth rate is 5.8%.

35. Qualcomm (QCOM) is a leader in wireless technology. Their website greets you with three words: "Inventors, Dreamers, Doers." Their goal is to "invent mobile technology breakthroughs." The big story of 2018 was the Chinese government's blocking QCOM's purchase of NXP Semiconductors (NXPI), which led to an accelerated $16 billion share repurchase initiative. QCOM is in the information technology sector and has increased the dividend for 16 consecutive years. The 5-year dividend growth rate is 18.3%.

36. Royal Dutch Shell (RDS.B) is strengthening its position as a leading energy company by embracing low-carbon energy as well as oil and gas. Management is creating a simpler company with higher, more predictable returns and growing free cash flow per share. The company's "ambition" is three-fold: thrive in energy transition; execute a world-class investment case, and sustain a "strong societal license to operate." Management is focused on cutting operational expenses and returning capital to shareholders. I initiated a position in Q3 2018 at $65.22 when I became convinced the company will follow through on its intention to return to regular dividend increases.

37. Eaton Corp. plc (ETN) is an industrial company that specializes in "power management technologies that are more reliable, efficient and safe." ETN's 5-year dividend growth rate is 9.6%. I initiated a position in Q3 2018 at $79.15. The company is 107 years old and in 2017 sales were $20.4 billion.

38. Helmerich & Payne (HP) operates in the energy sector and describes itself as "the leading U.S. unconventional driller, and our drilling experience spans the globe. Our company currently owns and operates land rigs across North America, South America, the Middle East and Africa, with offshore rigs in the Gulf of Mexico." The company has managed to increase its dividend for 46 consecutive years. HP made some very aggressive dividend increases just prior to the recession in the oil industry, and recent increases have been very small. I initiated a position in Q3 2018 at $61.88.

39. NW Natural (NWN) is a utility holding company headquartered in Portland, Oregon for its 159-year-old regulated natural gas distribution company, NW Natural Gas Company and NW Natural Water Company. Their service area is Oregon and southwest Washington. The company claims "one of the most modern pipeline systems in the nation," and operates gas storage facilities. NW Natural Water serves customers in Idaho and is expanding into the Pacific Northwest. Its 5-year dividend growth rate is just 1.0%, but NWN has raised the dividend for 62 consecutive years.

40. WEC Energy (WEC) is my favorite utility that doesn't bear the name "Brookfield." WEC is extremely well managed and the market rarely lets its price slip to the point that the dividend reaches 4.0%. Its service area includes Wisconsin and parts of Michigan, Minnesota and Illinois. Their acquisition of Integrys a few years ago expanded their portfolio from electricity to include natural gas.

Positions 31:40:

Equity %Port Price Div Yield 1st %Inc S&P CCC Beta
WMT 1.70% 93.92 2.08 2.21% 15 0.94% AA 45 0.54
XOM 1.54% 85.02 3.28 3.86% 17 1.48% AA+ 36 0.92
ADP 1.36% 150.66 2.76 1.83% 16 0.62% AA 43 0.92
CLX 1.36% 150.40 3.84 2.55% 18 0.87% A- 41 0.37
QCOM 1.30% 72.03 2.48 3.44% 18 1.12% A 16 1.51
RDS.B 1.28% 70.93 3.76 5.30% 18 1.70% A+ 0
ETN 1.25% 86.72 2.64 3.04% 18 0.96% A 9 1.38
HP 1.24% 68.75 2.84 4.13% 18 1.28% BBB+ 46
NWN 1.21% 66.90 1.89 2.83% 18 0.85% A+ 62 0.33
WEC 1.21% 66.76 2.21 3.31% 18 1.00% A- 15 0.07

Here's a summary of portfolio positions 41-49:

41. Toyota Motor Corporation (TM) manufactures automobiles that are sold in 160 countries. I initiated a position in Q3 2018 at $124.26 as part of my portfolio expansion project because I have owned and driven their products, and I am amazed at their global reach. I hold shares in a taxable account because I can claim a credit against the Japanese dividend tax, which is 10% for US investors. TM has an S&P credit rating of AA- and it operates in the consumer discretionary sector.

42. BlackRock (BLK) operates in the financials sector. Its website states that it "is entrusted to manage more money than any other investment firm." BLK has an S&P credit rating of AA- and its 5-year dividend growth rate is 10.8%. I initiated a position in Q3 2018 at $479.11.

43. United Parcel Service (UPS) operates in the industrials sector as the world's largest package shipping company. FedEx Corp. (FDX) is second. FDX has a lower dividend and a higher dividend growth rate (at 27.2%). UPS has a 5-year dividend growth rate of 7.8%. I initiated a position in Q3 2018 at $116.51.

44. Manulife Financial Corporation (MFC) is a Canadian insurance and financial services company that has operations in Canada, the US (as John Hancock) and Asia. After converting from a mutual insurance company to a publicly-traded shareholder corporation in 1999, the company expanded rapidly and was hit hard by the Great Recession of 2007-09. It has spent the past 5 years establishing a more solid footing. I established a position in Q3 2018 at $17.70.

45. International Business Machines (IBM) is a global technology company with 2017 sales of $79.1 billion and operating pre-tax income of $12.9 billion. I have had mixed feelings about IBM for several years and I re-established a position in Q3 2018 at $147.72. I'm watching to see what's next after CEO Ginni Rometty, whether Watson is for real, whether the strategic imperatives will bring the long-awaited turnaround and whether IBM's blockchain will be an industry leader. In the meantime, IBM's dividend yield is over 4.0% and it has raised the dividend for 23 consecutive years.

46. Fortis (FTS) is a Canadian utility with operations in Canada, the US and the Caribbean. FTS has raised the dividend for 44 consecutive years. The 5-year dividend growth rate is 6.3%. I initiated a position in Q3 2018 at US$32.72.

47. Main Street Capital (MAIN) operates in the financials sector and provides long-term debt and equity capital to lower middle market companies and debt capital to middle market companies. It's the only business development company in the portfolio. I owned shares of MAIN a few years ago and I've followed its fortunes with varying degrees of seriousness. As part of the portfolio expansion project, I re-established a position in MAIN in Q3 2018 at $32.41.

48. Cummins, Inc. (CMI) operates in the industrials sector as a "global power leader" with 2017 sales of $20.4 billion. Historically, CMI has been a manufacturer of diesel engines. CMI is fully embracing "electrification." When you click on the "Products" tab of the company website, you are given four choices: Engines, Generators, Components and Electrified Power. I've owned shares of CMI in the past. I've always admired their management team, and I re-established a position in Q3 2018 at $139.11. CMI has an S&P credit rating of A+.

49. Illinois Tool Works (ITW) has long been one of my favorite companies in the industrials sector. It tends to trade at a premium valuation, but I took advantage of softness in the sector and re-established a position in ITW in Q3 2018 at $139.29 as part of my portfolio expansion project. ITW believes its business model is its competitive advantage, which focuses on the 20% of customers that provide 80% of sales; working "from the customer back" to the company office (i.e., the customer is the starting place); and a decentralized, entrepreneurial culture. ITW has an S&P credit rating of A+ and it has raised the dividend for 44 consecutive years.

Positions 41-49:

Equity %Port Price Div Yield 1st %Inc S&P CCC Beta
TM 1.12% 124.38 3.99 3.20% 18 0.90% AA- 1 0.76
BLK 1.11% 471.27 12.53 2.66% 18 0.74% AA- 9 1.61
UPS 1.06% 116.76 3.64 3.12% 18 0.82% A+ 9 1.13
MFC 0.97% 17.89 0.68 3.80% 18 0.92% A 5
IBM 0.96% 151.20 6.28 4.15% 18 0.99% A+ 23 0.89
FTS 0.95% 32.85 1.31 3.99% 18 0.95% A- 44 0.19
MAIN 0.94% 38.53 2.34 6.07% 18 1.43% BBB 8 0.87
CMI 0.92% 146.08 4.56 3.12% 18 0.72% A+ 13 1.24
ITW 0.89% 141.12 4.00 2.83% 18 0.63% A+ 44 1.24

A strategy for managing a large number of equities

The aforementioned pension rollover accompanied retirement from my primary employment, so I have more time to study the market and to monitor the companies in the portfolio.

Seeking Alpha helps me keep up with company news events and developments. I scan recent articles and news items about the portfolio companies. If a stock is nearing an attractive point for adding some shares, I will pay more attention to news/articles about that company.

I listen to quarterly earnings calls by portfolio companies. Fortunately, they are archived at company websites so I can listen to a replay of the webcast at my leisure rather than in "real time." When possible, I will have the earnings call transcript in front of me while I listen - for clarification and greater retention. I keep a digital file on each company and I keep an electronic copy of the transcript. When possible, I color highlight the text.

I maintain a rather extensive Excel spreadsheet for tracking portfolio data. The computer automatically adjusts yield, gain (or loss), price/earnings ratio, payout ratio, income data, and much other information when I update price, earnings or dividend information. It would be impossible for me to attempt to manage a 49-company portfolio without the spreadsheet.

I use Chuck Carnevale's F.A.S.T. Graphs; BetterInvesting.org; Brian Bollinger's Simply Safe Dividends; Dividend Derek's Custom Stock Alerts; The DRiP Investing Resource Center; Dividend Growth Investing & Retirement; George Fisher's Guiding Mast Investments; Kirk Spano's Margin of Safety Investing; Standard & Poor's Global Ratings; Finviz; Fidelity Investments; and X-Rates Currency Calculator among many other resources.

How important is sector representation?

I monitor the sectors in the portfolio because I believe the portfolio should reflect some diversification by industry. Portfolios that were heavily overweight in the energy sector ran into difficulty when a severe recession hit the oil industry a few years ago. During this bull market that began in March 2009, we have experienced many "sector rotations," where one or more sectors move into or out of investor favor.

In my opinion, this has prolonged the bull market by providing "rolling corrections" by sector, which has reduced the need for broad market corrections. It has given us nice opportunities to add to positions by sectors.

My spreadsheet automatically calculates the percentages that are shown below as I update information about price and the number of shares held. The "sector" section of the spreadsheet gives me a "check and balance" point of accountability. Left to my own preferences, I would automatically gravitate toward a portfolio dominated by real estate investment trusts, for example.

Sector S&P Value Inc Yield
Real Estate 2.65% 14.41% 20.00% 4.94%
Utilities 2.83% 11.95% 14.65% 4.90%
Info Technology 20.99% 11.43% 6.82% 2.39%
Financials 13.31% 9.70% 9.52% 3.93%
Consumer Staples 6.71% 9.39% 7.24% 2.96%
Health Care 15.05% 8.47% 6.55% 3.09%
Energy 6.00% 7.90% 10.37% 5.06%
Industrials 9.70% 6.42% 4.61% 3.44%
Communication Serv 10.03% 4.73% 6.92% 5.85%
Cons Discretionary 10.30% 1.12% 0.90% 3.20%
Materials 2.43%
Dividend Funds 6.17% 8.06%
International Funds 2.12% 3.63%
Cash 6.18% 0.72%

Portfolio yield and performance

When I update price information, my spreadsheet automatically updates the yield for each security and the aggregate portfolio yield as well as the overall portfolio gain (or loss).

As of September 28, the portfolio yield was 4.00%. The year-to-date gain was 5.13%. The gain since 12/31/2015 has been 43.58%.

The cash position at the end of Q3 2018 was 6.18%.

In addition to the individual equities listed above, the portfolio also includes five closed end funds that represent 4.61% of the portfolio market value and contribute 8.13% of the portfolio income. The five CEFs are:

  1. Adams Diversified Equity Fund (ADX),
  2. Ellsworth Growth and Income Fund (NYSEMKT:ECF),
  3. The India Fund (IFN),
  4. Royce Micro Cap Trust (RMT), and
  5. Royce Value Trust (RVT).

The portfolio also includes seven exchange traded funds that represent 3.68% of the portfolio market value and contribute 2.51% of the portfolio income. The seven ETFs are:

  1. Vanguard Total Stock Market Index Fund (VTI),
  2. Vanguard FTSE Developed Markets Index Fund (VEA),
  3. Vanguard FTSE Emerging Markets Index Fund (VWO),
  4. Vanguard High Dividend Yield Index Fund (VYM),
  5. Vanguard International High Dividend Yield Index Fund (VYMI),
  6. Vanguard Mid-Cap Value Index Fund (VOE), and
  7. Vanguard Small-Cap Value Index Fund (VBR).


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