Portfolio Review: Changes On The Leader Board

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Includes: JNJ, MMM, PEP, PG, XOM
by: Dividend Sleuth
Summary

A review of changes in the top 10 portfolio positions.

Finding value in blue chips, industrials and dividend stocks.

The portfolio income is up 12.99%.

The portfolio yield has grown from 4.00% to 4.52%.

A review of changes in the top 10 portfolio positions

During the first 3 quarters of 2018, several high-yielding holdings made it into my top 10 portfolio positions by market value. Five of the top 10 had BBB+ or BB S&P credit ratings: Brookfield Renewable Partners (BEP), with a yield of 6.49% at 9/28/18, BCE Inc. (BCE) yielded 5.78% and Brookfield Infrastructure Partners (BIP) yielded 4.72%. My longtime favorite WP Carey (WPC) yielded 6.38% and AT&T (T) yielded 5.95% at 9/28/18.

One of my goals for Q4 2018 was to strengthen the portfolio's safety as I move from the accumulation phase of life to the distribution phase. Some stalwart blue chip dividend stocks in the portfolio appeared to me to be attractively valued, so I began considering which positions to increase.

I asked myself a familiar question: What are my top priority stocks for the long term? My answer hasn't wavered much through the years. Johnson & Johnson (JNJ) has always been my favorite, followed closely by Procter & Gamble (PG), 3M (MMM) and PepsiCo (PEP). JNJ already was my largest holding. PG and MMM were in the top 10, as was Royal Bank of Canada (RY).

Between September 30 and December 3, I added shares of these and some other high-quality portfolio favorites, including Exxon Mobil (XOM), PEP, Cummins (CMI), Cisco (CSCO), BlackRock (BLK) and Pfizer (PFE).

So, after additional shares, these higher credit stocks were added, the 5 high-yielders slipped from the top 10, along with Toronto-Dominion Bank (TD), which moved from the 9th largest holding to 11th.

Here is a side-by-side comparison of the portfolio's top 10 positions by market value on September 28, compared with the top 10 positions on December 3.

9/28 Company S&P %Port 12/3 S&P %Port
1 JNJ AAA 2.50% 1 XOM AA+ 2.94%
2 BEP BBB+ 2.46% 2 JNJ AAA 2.91%
3 BCE BBB+ 2.42% 3 MMM AA- 2.91%
4 WPC BBB 2.33% 4 PG AA- 2.87%
5 RY AA- 2.32% 5 PEP A+ 2.86%
6 T BBB 2.31% 6 CMI A+ 2.76%
7 MMM AA- 2.29% 7 CSCO AA- 2.71%
8 PG AA- 2.26% 8 BLK AA- 2.68%
9 TD AA- 2.20% 9 RY AA- 2.67%
10 BIP BBB+ 2.16% 10 PFE AA 2.66%
Total 23.24% 27.97%

Value in blue chips, industrials and dividend stocks

Exxon was the 30th largest holding at the end of Q3. In October, I added shares at $81.18 and $77.14. PepsiCo was the 22nd largest position on 9/28/18. I added shares in October at $106.62. At quarter end, Cummins was the 45th largest holding. I made two purchases in October, at $143.00 and $132.76. Cisco was the 27th largest holding on 9/28/18. I added shares in early December at $48.64. At the end of Q3, BlackRock was the 40th largest holding. I made several purchases in October and November, lowering the cost basis to just under $440.00. At quarter end, Pfizer was 23rd largest position. I added more shares in early December at $45.89.

In November, I added shares of Royal Bank of Canada, Toronto-Dominion and Bank of Nova Scotia (BNS). As of December 3, RY was the 9th largest holding (included in the table above), while TD and BNS were the 11th and 12th largest holdings, respectively. Purchases made prior to November 1 were described in my October 29 article, "This Is A Great Time To Build A Dividend Portfolio."

(Graph from F.A.S.T. Graphs)

One of the positions that grew in the first two months of Q4 was Exxon Mobil. XOM has raised the dividend for 36 consecutive years since 1983, according to Justin Law and the DRiP Investing Resource Center. Exxon has a S&P credit rating of AA+.

The portfolio income is up 12.99%

At the end of Q3, the portfolio cash position was over 6%. I still had some cash remaining after a rollover into my IRA. By December 3, most of those funds had been deployed.

I made a strategic decision in late October (described in the October 29 article, linked above) to close my positions in Apple (AAPL) at $220.48, Microsoft (MSFT) at $108.73, Automatic Data Products (NASDAQ:ADP) at $140.93 and Walmart (WMT) at $99.01.

I believe the long term trajectory of each of these stocks is up, but I made a "rite of passage" decision as I prepare to receive retirement income distributions from the portfolio.

I invested those proceeds into some of the stocks mentioned in this article, such as Exxon, as well as Eaton (ETN), Enbridge Inc (ENB), Qualcomm (QCOM) and Royal Dutch Shell (RDS.B).

The portfolio yield has grown from 4.00% to 4.52%

The yield grew through the deployment of idle cash and by funds generated by the sale of the lower-yielding stocks mentioned above.

AbbVie's (ABBV) yield on December 3 was 4.57%, an increase from 4.06% on September 28. This was due to an 11.45% increase in the quarterly dividend, from $.96 to $1.07.

Texas Instruments' (TXN) yield on December 3 was 3.04%, an increase from 2.87% on September 28. This was due to a 5.7% pullback in price. I added some shares when the TXN price dipped into the upper $90s in October.

Conclusion

I'll present a quarterly review of the portfolio in January.

I'm not advocating the purchase or sale of any security. My articles generally offer ideas for stocks to study. These articles form a journal of my effort to design and maintain a retirement income portfolio with a relatively safe stream of growing dividends. I seek companies with histories of rising dividends, strong financials and solid future prospects. Your goals and risk tolerance may differ, so please do your own due diligence.

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Disclosure: I am/we are long JNJ, XOM, PFE, PG, MMM, BLK, CSCO, RY, TD, PEP, ITW, IBM, TXN, CMI, UPS, BNS, RDS.B, KMB, QCOM, SPG, MFC, CDUAF, FTS, PPL, ETN, ABBV, NNN, O, SKT, ENB, EPD, BIP, BEP, VTR, BCE, T, WPC, MAIN, BPR, APLE, ADX, IFN, RMT, RVT. 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.