5%+ Dividend Yield Portfolio: Playing Offense, Not Running Scared (October 2018 Review)

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

Summary

October 2018 was hard on the markets (the S&P 500 was -7.8%), but my defensive dividend focus limited my losses to just a -4.1% decline.

It was also 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.

Taking advantage of price weakness, I bought 6 stocks in October.

Outlook

‘Well that was unpleasant,’ says basically any market participant of October 2018. With all major markets in/flirting with correction territory, there was no place to hide from a decline. However, not all declines were of equal magnitude as a 2X4 was taken to the formerly high-flying tech stocks but defensive stocks and REITs performed much better.

October 2018 was an opportunity for my portfolio to shine as my holdings only fell -4.1% versus the -7.8% for the S&P 500. However, seeing your holdings move lower is not fun for anyone (even if my decline was far less than most). But paper losses and realized losses are two entirely different things.

Stock investing is like a roller coaster. You don’t get hurt unless you jump off.

- Anonymous

Well, my friend anonymous is a bit more cocksure than I am, but there is a kernel of truth in the statement as only the people who sold while in the red actually lost any money. As for me, I sold nothing in October, but instead deployed half of my trading cash reserves to pick up quality assets that were suddenly cheaper.

Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down.

- Warren Buffett

I picked up additional positions in 6 different stocks that I had been eyeing for months now -- but was not willing to pay the (until recently) higher prices. Unfortunately, I did not pick up any of these positions at their October bottoms; however, I paid a better price than I would have a month ago. While everyone would love to buy a stock at its bottom; in practice, waiting for one will never give you the confidence to be a buyer. I believe that successful investing is much more about getting the broad strokes correct, rather than sweating the minutia (that you likely have very little predictive ability or control over).

Furthermore, acting offensively while others are being defensive either takes great courage or a good system. I would love to tell you that I have above average bravery, but the reality is that I have a system that automates my buying and selling based on limit orders (instead of my passions of the moment). I simply enter good-till-cancelled limit orders at prices that I want to pay/receive on securities that I want to own/sell, then I wait for the market to gyrate into these prices. Is my system perfect? Definitely no, but it seems to work best for me.

October 2018 Review

October 2018 was tough all around, but my portfolio only fell -4.1% versus the -7.8% for the S&P 500. This brings my 2018 total to -0.4% (so essentially flat) versus a <2% gain for the S&P 500. However, my 5.0% dividend yield on invested capital crushed the 1.7% yield of the broader index, so I’m going to declare myself leading the markets at this point.

October 2018 rewarded me with realized dividends of $1,061 (versus $915 in 2017) - a robust 16% increase. Furthermore, for the 12 months ending October 2018, my portfolio delivered $13,944 in cash to me (an increase of 7.6% from 2017). My realized yield for the past 12 months was 4.9% 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 October 31, 2018

Security Type Div Yield Market Value Last Month Value Gain/Loss(%)
FUNDS 4.3% $111,067 $117,652 -5.6%
SPDR S&P 500 High Dividend ETF (SPYD) ETF 4.2% $14,572 $15,006 -2.9%
Fst Tst Dow Jns Glbl Sel Dvd Idx ETF (FGD) ETF 4.5% $11,805 $12,550 -5.9%
Oppenheimer Ultra Dividend Revenue ETF (RDIV) ETF 5.1% $11,103 $11,568 -4.0%
SPDR S&P Emerging Markets Dividend ETF (EDIV) ETF 3.4% $8,739 $9,356 -6.6%
PowerShares S&P 500 High Div Low Volatility ETF (SPHD) ETF 3.9% $8,050 $8,282 -2.8%
SPDR S&P International Dividend ETF (DWX) ETF 4.3% $7,318 $7,773 -5.9%
Invesco S&P International Developed High Dividend Low Volatility ETF (IDHD) ETF 5.0% $5,256 $5,492 -4.3%
iShares Nasdaq Biotechnology ETF (IBB) ETF 0.3% $5,204 $6,097 -14.7%
Schwab U.S. Dividend Equity ETF (SCHD) ETF 2.6% $4,987 $5,300 -5.9%
iShares Evolved U.S. Innovative Healthcare ETF (IEIH) ETF 2.0% $4,970 $5,270 -5.7%
UBS ETRACS 2x US High Div, Low Vol ETN (HDLV) ETN 11.2% $4,908 $5,180 -5.3%
FlexShares International Quality Dividend Defensive (IQDE) ETF 5.5% $4,260 $4,355 -2.2%
iShares Asia/Pacific Dividend ETF (DVYA) ETF 5.7% $4,177 $4,395 -5.0%
iShares MSCI Australia ETF (EWA) ETF 4.5% $4,120 $4,424 -6.9%
iShares MSCI Malaysia ETF (EWM) ETF 6.6% $3,024 $3,235 -6.5%
Franklin LibertyQ International Hedged ETF (FLQH) ETF 1.3% $2,384 $2,541 -6.2%
Global X NASDAQ China Technology ETF (QQQC) ETF 2.6% $2,233 $2,669 -16.3%
iShares MSCI China Small Cap ETF (ECNS) ETF 3.6% $2,065 $2,308 -10.5%
Market Vectors Gold Miners ETF (GDX) ETF 1.0% $1,893 $1,852 2.2%
COMPANIES 6.3% $131,644 $139,163 -5.4%
AbbVie (ABBV) Company 4.7% $19,463 $22,998 -15.4%
Omega Healthcare Investors (OHI) REIT 7.9% $13,340 $13,108 1.8%
Tanger Factory Outlet REIT (SKT) REIT 6.1% $11,130 $11,179 -0.4%
Blackstone Mortgage Trust (BXMT) REIT 7.4% $10,122 $10,053 0.7%
Royal Dutch Shell (NYSE:RDS.B) Company 5.8% $9,857 $10,640 -7.4%
New Residential Investment (NRZ) REIT 11.3% $9,190 $9,159 0.3%
Ventas REIT (VTR) REIT 5.4% $8,706 $8,157 6.7%
Sabra Health Care REIT (SBRA) REIT 8.2% $7,274 $7,768 -6.4%
Iron Mountain (IRM) REIT 7.7% $6,122 $6,904 -11.3%
General Mills (GIS) Company 4.3% $4,380 $4,292 2.1%
KKR Real Estate Finance Trust (KREF) REIT 8.6% $4,016 $4,027 -0.3%
GlaxoSmithKline (GSK) Company 5.4% $3,906 $4,017 -2.8%
Ford Motors (F) Company 6.3% $3,820 $3,700 3.2%
Eni (E) Company 5.4% $3,534 $3,766 -6.2%
Transocean (RIG) Company 0.0% $3,303 $4,185 -21.1%
Kinder Morgan (KMI) Company 4.8% $3,132 $3,262 -4.0%
AT&T (T) Company 6.6% $3,068 $3,358 -8.6%
IBM (IBM) Company 5.4% $2,886 $3,780 -23.7%
Teva Pharmaceutical Industries (TEVA) Company 0.0% $1,998 $2,154 -7.2%
VARIOUS POSITIONS OF <$1,000 VALUE VARIOUS 2.0% $2,398 $2,655 -9.7%
FIXED INCOME TOTAL 4.4% $17,703 $18,471 -4.2%
Bank of America Corporation (BAC) - Pref L (BML+L) Pref 4.2% $4,574 $4,890 -6.5%
Goldman Sachs (GS) - Pref D (GS+D) Pref 4.6% $4,328 $4,466 -3.1%
Goldman Sachs (GS) - Pref A (GS+A) Pref 4.2% $4,306 $4,540 -5.2%
WisdomTree BofA Mrl Lynch HYBd ZrDr ETF (HYZD) ETF 4.9% $2,371 $2,421 -2.1%
WisdomTree BofA Mrl Lynch HYBd NgtDr ETF (HYND) ETF 4.9% $2,124 $2,154 -1.4%
SHORTS TOTAL 0.0% $10,520 $9,970 5.5%
ProShares Short S&P500 (SH) ETF 0.0% $7,318 $6,830 7.1%
ProShares Short Real Estate (REK) ETF 0.0% $3,202 $3,140 2.0%
SCHWAB ROBO-ADVISOR TOTAL 2.0% $12,169 $13,023 -6.6%
TOTAL 5.0% $283,102 $298,279
TOTAL + CASH $18,054 4.7% $301,156 $316,332 -4.1%

Portfolio Moves in October 2018

New Positions

SHARE BUY– Goldman Sachs Preferred D (GS+D): Bought an additional 100 shares of this investment bank at $22.25 on Oct 1.

  • Reasoning: Solid yield (4.8%) from a floating rate preferred stock I already owned made this a good choice for me.

SHARE BUY– KKR Real Estate Finance Trust Inc (KREF): Bought an additional 100 shares of this mortgage REIT at $20.05 on Oct 4.

  • Reasoning: High yield (8.6%) from a mostly floating rate mortgage REIT stock I already owned made this a good choice for me.

SHARE BUY– Tanger Factory Outlet Centers Inc (SKT): Bought an additional 200 shares of this outlet mall REIT at $21.55 on Oct 4.

  • Reasoning: Terrific yield (6.1%) from a non-mall REIT stock I already owned made this a good choice for me (but is a contrarian play in the eyes of many).

SHARE BUY– FlexShares International Quality Dividend Defensive Index Fund (IQDE): Bought 200 shares of this international dividend ETF at $21.75 on Oct 11.

  • Reasoning: Featuring defensive holdings and a solid 5.5% yield, I continue to punish myself with foreign stocks because the yields and valuations are outstanding.

SHARE BUY– iShares Evolved U.S. Innovative Healthcare ETF (IEIH): Bought an additional 100 shares of this mortgage REIT at $25.25 on Oct 23.

  • Reasoning: A volatility driven purchase on an ETF that I already owned made sense to me to capitalize on the discounts in the market.

SHARE BUY– AbbVie Inc (ABBV): Bought an additional 50 shares of this pharma company at $81.55 on Oct 24.

  • Reasoning: Nice yield (4.7%) from the maker of Humira, but the threat of biosimilars is putting significant downward pressure on the stock (so I hope this doesn’t turn into a value trap).

Exited Positions

None

Final Thoughts

Take a breath - you can’t unring the bell of a terrible October 2018. But you can make sure that you are prepared for the future. Were you a buyer this month and a seller last month? If you were, then you have an excellent system. If you did the opposite, then you need to re-evaluate how you make trades. If you just held steady through both, then 5 years from now you will not even remember the volatility of this October (so you’re probably best of all!). If market volatility causes you to reconsider your holdings, then you are holding the wrong things. No one can predict the market’s exact moves in detail with any accuracy, so you should believe in your holdings in good markets and challenging ones. Having a good strategy and 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 STOCKS 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.