IRA Dividend Holdings Revealed And 2018 Vs. 2017 Income

by: GrayBeard Retirement
Summary

Dividend growth holdings are revealed.

The DGI beats the S&P 500 in yield plus growth.

2018 income beats 2017 income.

This article introduces the dividend growth stocks in our portfolio. I review asset allocation, portfolio performance and credit ratings, our portfolio goals and plan.

A short review

We plan to retire at age 54 in July 2020 and roam the country in our motorhome for a few years before settling into one location. Our plan consists of different time periods, each with a different investment purpose. They are:

  1. From age 54 to 59.5 we will not yet be able to withdraw from IRA’s and will not have social security income. During this critical time period income will be limited to cash savings and income from a small portfolio. Some or all of this time will be spent traveling the country in our motorhome. This will be the Motorhome Period.
  2. From age 59.5 to 62 we can withdraw from IRAs but will not have social security income. This will be the IRA Period.
  3. From age 62 and older we can withdraw from IRAs and will have social security income. During this potentially long time period the plan must be more dynamic as we respond in to market conditions. This will be the Full Retirement Period.

My earlier articles concentrated on the Motorhome Period (which contains a high yield portfolio) and the permanent portfolio. You can find the December update for this phase here.

This article will summarize the total portfolio, which includes the latter two periods. As noted, the only difference in the IRA Period and the Full Retirement Period is that the latter has social security income whereas the former does not. The investments are the same and includes the high yield portfolio. It does not include cash savings outside the IRA’s that we will spend down during the Motorhome period.

What’s in the portfolio?

Here are the dividend paying holdings in the portfolio:

Ticker

% of portfolio

Yield

% of income

DG CAGR

Credit Rating

KMB

3.33%

3.6%

6.6%

4.8%

A

INTC

3.27%

2.5%

4.6%

6.9%

A+

JNJ

3.10%

2.8%

4.8%

6.3%

AAA

SBUX

2.82%

2.3%

3.5%

24.7%

BBB+

MMM

2.77%

2.8%

4.3%

9.9%

AA-

ABBV

2.25%

4.3%

5.3%

21.1%

A-

XOM

2.12%

4.6%

5.4%

3.9%

AA+

CSCO

2.04%

3.1%

3.4%

16.0%

AA-

CAH

1.99%

4.2%

4.7%

8.8%

BBB+

UTX

1.97%

2.7%

3.0%

3.4%

BBB+

WBA

1.88%

2.5%

2.6%

13.1%

BBB

GPC

1.88%

3.1%

3.2%

6.0%

N/A

ITW

1.51%

3.1%

2.6%

18.5%

A+

ADM

1.49%

3.2%

2.6%

6.2%

A

T

1.47%

6.7%

5.4%

2.0%

BBB

VZ

1.31%

4.3%

3.1%

2.3%

BBB+

NOBL

1.23%

2.3%

1.6%

12.9%

N/A

FLO

1.19%

3.8%

2.5%

7.8%

BBB

AAPL

1.01%

2.0%

1.1%

11.6%

AA+

WMT

0.89%

2.2%

1.1%

2.2%

AA

EMR

0.75%

3.3%

1.4%

1.0%

A

HRL

0.74%

2.0%

0.8%

13.1%

A

GLW

0.68%

2.5%

0.9%

14.5%

BBB+

MO

0.51%

6.4%

1.8%

9.6%

A-

CVX

0.30%

4.0%

0.7%

1.5%

BBB+

PG

0.27%

3.1%

0.5%

2.5%

AA-

SO

0.27%

5.4%

0.8%

3.4%

A-

PM

0.15%

6.6%

0.6%

3.6%

A

VOO

0.12%

2.0%

0.1%

10.0%

N/A

AXP

0.06%

1.6%

0.1%

9.4%

BBB+

EPD

0.70%

6.5%

2.5%

4.3%

BBB+

O

0.39%

4.2%

0.9%

5.1%

A-

OHI

0.37%

7.5%

1.5%

6.6%

BBB-

ENB

0.22%

6.2%

0.8%

12.3%

BBB+

GEL

0.06%

10.6%

0.4%

8.0%*

B+

NWL

0.29%

4.8%

0.8%

10.0%

BBB-

AMAT

0.52%

2.4%

0.7%

32.3%

A-

WHR

0.67%

4.1%

1.5%

8.0%

BBB

Source: Author

The dividend-paying holdings (above) comprise 62% of the portfolio. Unless otherwise noted, the growth rate is the 3-year CAGR because I felt the 1-year growth was inflated due to tax cuts.

Most of these were purchased with the intention of being long-term holds. I prefer not to sell. There are some exceptions. ETFs on the list are intended to be temporary until an opportunity is presented on an individual stock. Genesis Energy LP. (GEL) needs to be sold as we suffered a dividend cut and the credit rating is lower than I’d like to see in our investments. I am considering a sale of Omega Health Investors, INC (OHI) as the skilled nursing industry in Texas is depressed because Texas has one of the lowest, if not the lowest Medicaid reimbursement rates in the country. OHI has significant exposure in Texas and is getting more with the acquisition of MedEquities Realty Trust (MRT). The last three stocks on the list are what I call value trades. I made these purchases because, in each case, the stock is undervalued. I wrote an article reviewing why Whirlpool (WHR) is undervalued. It can be found here. I will sell these positions when they come back to fair valuation.

How does this list measure up?

Some statistics for the group.

Dividend Payers Summary Statistics

S&P 500

Yield

3.43%

2.09%

Growth

7.84%

8.65%

Beta

0.86

1.0

Average Credit Rating

A

BBB+

Source: Author

The growth figure in the table above is an income weighted average for the portfolio. The yield and growth combined give it a “Chowder” number of 11.27. This means that if no changes were made in the portfolio, the income would grow by about 11% year over year. The growth is the only metric where the list does not outperform the S&P 500

The beta is a value weighted average. The credit rating is a strict arithmetic average of all that have ratings. Overall, I am happy with the composition of the dividend payer portion. While the overall credit rating is acceptable, in a few cases I have gone a little lower on the credit scale than desired. That is something I will need to work on without sacrificing income and growth.

Asset Allocation

Dividend paying stocks are not the only investments in the portfolio. I will disclose these holdings in future articles. The following charts depict the total assets in the portfolio with the exception of home equity.

GrayBeard Portfolio Summary

Total Common Stocks

61.6%

Preferred Stocks

2.1%

Fixed Income

24.3%

Gold

7.6%

Cash Short Term Treas ETF

4.4%

Source: Author

Source: Author

Our total common stock allocation is 62%. This is money is not needed for at least 6 years. We do not anticipate higher than a 65% common stock allocation unless some positions experience outsized growth or unless the market offers the opportunity to increase from there at very attractive valuations.

Income by month for 2017 and 2018 looks like this.

Source: Author

Income was higher in 2018 than 2017 for every month except 3, March, October and December. This is a result of changes in the portfolio that increased income but changed the timing. A large position in Nucor (NUE) was sold and we began selling off NOBL and moving some into gold, fixed income, higher yield and or higher growth positions. Year over year income increased quite nicely.

Source: Author

This amounts to an 11.6% increase for 2018 over 2017. The income includes that from fixed income ETF’s and preferred stocks in the overall portfolio but not the 6-month Treasury bills that amount to about 22.5% of the portfolio.

My goal for 2019 is to increase the income by at least 10%. The goal would have been higher, but a major income generator, TransMontaigne Partners, L.P (TLP) is being acquired for $41 per share. Shortly after the announcement, our position in TLP was sold for $41.08. TLP was on pace to deliver over $2,100 of income in 2019. TLP was an outstanding investment for us. It was purchased during the financial crisis for a little under $15 per share. In ten years, our capital almost tripled and we collected nice dividends all along the way. But now that income has to be replaced, no easy task as TLP yielded about 7.7%.

Here are the long-term goals I have for the portfolio:

  1. Increase investment income by 10% each year
  2. Maintain dividend growth plus yield better than S&P 500
  3. Maintain average credit rating of “A” or higher.

Looking into the future

If the income from the portfolio increases at a 10% CAGR, the income will be about $53,000 when we start drawing from it in 2025. The investments in Treasury bills will generate another $8,500 at that time, maybe more. This will give us $61,500 to spend during the IRA period of our retirement. I would like this to be a bit higher. If the market presents an opportunity to turn some of short-term fixed income investments into dividend growth, we just might re-balance to a higher portion of stocks.

Wrapping it all up

In this article I revealed the dividend growth stocks in the portfolio as well as some of the quality and performance metrics. The stocks are performing better than the S&P 500 dividend wise on a yield plus growth basis while maintaining a better average credit rating and lower volatility. I took a look at how this would track forward to the distribution phase and listed some goals for the portfolio.

Disclosure: I am/we are long ALL STOCKS IN THE PORTFOLIO. 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.