Monthly Review Of DivGro: February 2019

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Includes: ADM, AMGN, BLK, CSCO, CVS, FDX, GILD, IBM, INTC, JPM, KRG, NIE, PEP, QCOM, SBUX, SKT, T, TROW, VYM, WSM, XLNX
by: FerdiS
Summary

In February, I collected $1,739 from 21 holdings in my DivGro portfolio.

This month, I added four new positions and added shares to nine existing positions.

Also, I closed six positions and reduced my holdings in three positions.

dividend growth stocks

Every month, I write a review of my portfolio of dividend growth stocks, DivGro. The goal of these monthly reviews is to share updates I've made to the portfolio and to provide a summary of dividends collected. Additionally, I look at how the month's activities have impacted DivGro's projected annual dividend income (PADI).

In February, I opened four new positions and added shares to nine existing positions. Additionally, I closed six positions and reduced my holdings in three positions. A total of 19 DivGro stocks announced dividend increases in February. The net result of these changes is that PADI increased by about 1.0% in February. Year over year, PADI increased by 42.3%.

As for dividend income, in February I received dividends totaling $1,739 from 21 stocks in my portfolio, a year over year increase of 54%. So far in 2019, I've collected $3,504 in dividends or about 14% of my 2019 goal of $25,200.

DivGro's PADI of $25,390, means I can expect to receive $2,116 in dividend income per month, on average, in perpetuity, assuming the status quo is maintained. But DivGro's PADI should increase over time because I invest in dividend growth stocks. Furthermore, I plan to reinvest dividends until I retire, so DivGro's PADI should continue to grow through dividend growth and through compounding.

Dividend Income

In February, I received a total of $1,739 in dividend income from 21 different stocks:

Here is a list of the dividends I received in February:

  • Apple (AAPL) — income of $73.00
  • AbbVie (ABBV) — income of $214.00
  • Air Products and Chemicals (APD) — income of $17.60
  • CVS Health (CVS) — income of $50.00
  • EPR Properties (EPR) — income of $18.75
  • General Dynamics (GD) — income of $46.50
  • Hormel Foods (HRL) — income of $21.00
  • Lowe's (LOW) — income of $48.00
  • Main Street Capital (MAIN) — income of $146.25
  • National Retail Properties (NNN) — income of $81.00
  • Realty Income (O) — income of $56.38
  • Omega Healthcare Investors (OHI) — income of $165.00
  • Procter & Gamble (PG) — income of $143.44
  • Starbucks (SBUX) — income of $72.00
  • Tanger Factory Outlet Centers (SKT) — income of $70.00
  • Simon Property (SPG) — income of $82.00
  • AT&T (T) — income of $255.00
  • Texas Instruments (TXN) — income of $57.75
  • Verizon Communications (VZ) — income of $60.25
  • Williams-Sonoma (WSM) — income of $43.00
  • Xilinx (XLNX) — income of $18.00

Here is a chart showing DivGro's monthly dividends plotted against projected monthly dividend income (PMDI). It is clear that quarter-ending months are huge outliers:

For this reason, I now create a rolling 12-month average of dividends received (the orange bars) plotted against a rolling 12-month average of PMDI (the blue, staggered line):

While it would be great if dividends were distributed more evenly, I don't want to change my investment decisions based on the timing or frequency of dividend payments.

Dividend Changes

In February, the following stocks announced dividend increases:

  • Aflac (AFL) — increase of 3.85%
  • Cisco Systems (CSCO) — increase of 6.06%
  • Chevron (CVX) — increase of 6.25%
  • Digital Realty Trust (DLR) — increase of 6.93%
  • Eversource Energy (ES) — increase of 5.94%
  • Gilead Sciences (GILD) — increase of 10.53%
  • Home Depot (HD) — increase of 32.04%
  • Intel (INTC) — increase of 5.00%
  • Coca-Cola (KO) — increase of 2.56%
  • Main Street Capital (MAIN) — increase of 2.56%
  • 3M (MMM) — increase of 5.88%
  • NextEra Energy (NEE) — increase of 12.61%
  • Tanger Factory Outlet Centers (SKT) — increase of 1.43%
  • Simon Property (SPG) — increase of 2.50%
  • T Rowe Price (TROW) — increase of 8.57%
  • Union Pacific (UNP) — increase of 10.00%
  • United Parcel Service (UPS) — increase of 5.49%
  • WP Carey (WPC) — increase of 0.49%
  • Xcel Energy (XEL) — increase of 6.58%

As a result of these changes, DivGro's PADI will increase by $284.

I like seeing dividend increases above 7%. HD's increase of 32% is particularly gratifying, while four other increases top my expectations! Four more increases are above 6% and the arithmetic average of this month's dividend increases is 7.1%, which easily beats inflation.

Transactions

Here is a summary of my transactions in February:

  • Archer-Daniels-Midland (ADM) — new position of 200 shares
  • FedEx (FDX) — new position of 15 shares
  • PepsiCo (PEP) — new position of 20 shares

I wrote about these buys in 3 Additions To My DivGro Portfolio.

  • JPMorgan Chase (JPM) — "new" position of 40 shares

I reopened a position in JPM at $104.52 per share after selling 200 shares due to an options assignment. At only 40 shares, the position is much smaller than before.

I'm hoping to buy more shares at a lower price. In fact, I sold two put contracts on JPM with a strike price of $95, expiring 21 June 2019, and collected $291.41 in options income. If JPM trades below $95 per share on or before the expiration date, I should be able to buy 200 JPM shares at an effective cost basis of $93.54 per share.

  • Starbucks (SBUX) — sold 100 shares and reduced position to 100 shares
  • JPMorgan Chase (JPM) — sold 200 shares and closed position
  • Williams-Sonoma (WSM) — sold 200 shares and closed position

The above sells were the result of options assignments. In all three cases, the underlying stocks traded near the strike prices going into options expiration day. I decided not to roll these options forward, choosing instead to have them be assigned.

I owned 200 shares of SBUX and was happy to sell 100 shares at the $70 strike price, for an annualized gain of 56% inclusive of dividend and options income. JPM is a recent acquisition, and my annualized gain is 32%, again inclusive of dividend and options income. My short foray into WSM ownership was less successful, with an annualized gain of only 9% (including dividend and options income).

  • Kite Realty Group (KRG) — sold 600 shares and closed position

According to Simply Safe Dividends, KRG's dividend safety score is 19, which means the REIT's dividend is much less safe than those of most other companies. I decided to close my position and move the funds to safer investments. I closed the position for an annualized gain of 7.2%

  • Xilinx (XLNX) — sold 50 shares and closed position
  • Blackrock (BLK) — added 10 shares and increased position to 35 shares

I closed my XLNX position and added 10 shares of BLK, as mentioned in this article about using average dividend yield for dividend growth stock valuation. BLK's dividend yield more than doubles that of XLNX, and BLK's dividend safety score is higher.

  • Qualcomm (QCOM) — sold -100 shares and closed position

I closed my QCOM position for an annualized gain of 3%. The company's legal troubles don't seem to be going away. I think there are less risky alternatives in the Information Technology sector to invest in.

  • Cisco Systems (CSCO) — sold 100 shares and reduced position to 100 shares

According to Simply Safe Dividends, CSCO's current dividend yield of 2.72% is 12% below its 5-year average of 3.11%, so the stock is possibly overvalued. With the stock trading near a 52-week high (and in fact an 18-year high), I decided it was a good time to trim my position here. My annualized gain is 40%.

  • Intel (INTC) — sold 20 shares and reduced position to 500 shares

My decision to sell 20 INTC shares is mostly to bring the position to a multiple of 100 shares, as I'm now selling covered calls on many of the positions in my portfolio. The trade resulted in an annualized gain of 30%.

  • Vanguard High Dividend Yield ETF (VYM) — sold 100 shares and closed position
  • AGIC Equity & Convertible Income Fund (NIE) — added 450 shares and increased position to 1,000 shares

While reviewing my only exchange-traded and closed-end funds, I noticed that NIE has been performing much better than VYM when accounting for dividends. My annualized gains (unrealized) in NIE is 13%, whereas I closed my VYM position for annualized gains of 7%.

  • Amgen (AMGN) — added 25 shares and increased position to 50 shares
  • CVS Health (CVS) — added 50 shares and increased position to 150 shares
  • Gilead Sciences (GILD) — added 100 shares and increased position to 200 shares

I wanted to boost my exposure to the Health Care sector a bit, and the above stocks all are trading at favorable levels and higher than average yields. AMGN yields 3.03%, CVS yields 3.44%, and GILD yields 3.82%. I think these stocks all have market-beating total return potential.

  • International Business Machines (IBM) — added 20 shares and increased position to 30 shares

I restored my position in IBM after selling 20 shares in December to harvest tax losses. I'm happy to say my average cost basis now is a more comfortable $142.12. I'm curious to see how IBM's acquisition of Red Hat will impact future earnings.

  • Tanger Factory Outlet Centers (SKT) — added 100 shares and increased position to 300 shares
  • AT&T (T) — added 100 shares and increased position to 600 shares
  • T Rowe Price (TROW) — added 100 shares and increased position to 200 shares

Finally, I added 100 shares each to three stocks trading at higher than average yields. SKT yields 6.82% and has a dividend safety score of 65 (Safe); T yields 6.62% and has a dividend safety score of 55 (Borderline Safe); and TROW yields 3.02% and has a dividend safety score of 98 (Very Safe).

Markets

Here is a summary of various market indicators, showing the changes from the end of January to the end of February:

DOW30

S&P

500

NASDAQ

Composite

10-YR

BOND

CBOE

VIX

Jan 31, 2019

24,999.67

2,704.10

7,281.74

2.635%

16.57

Feb 28, 2019

25,916.00

2,784.49

7,532.53

2.711%

14.78

In February, the DOW 30 increased by 3.7%, the S&P 500 increased by 3.0%, and the NASDAQ increased by 3.4%. The yield on the benchmark 10-year Treasury note rose to 2.711%, while CBOE's measure of market volatility, the VIX, decreased by 10.8%.

Portfolio Statistics

Based on the total capital invested and the portfolio's current market value, DivGro has delivered a simple return of about 43% since inception. In comparison, DivGro's IRR (internal rate of return) is 13.8%. (IRR takes into account the timing and size of deposits since inception, so it is a better measure of portfolio performance).

I track the yield on cost (YoC) for individual stocks, as well as an average YoC for my portfolio. DivGro's average YoC increased from 3.93% last month to 3.98% this month.

Another interesting statistic is percentage payback, which relates dividend income to the amount of capital invested. DivGro's average percentage payback is 13.1%, up from last month's 12.8%.

Finally, DivGro's projected annual yield is at 4.81%, up from last month's value of 4.78%. I calculate the projected annual yield by dividing PADI ($25,390) by the total amount invested.

The following chart shows DivGro's market value breakdown. Dividends are plotted at the base of the chart so we can see them grow over time:

Looking Ahead

I'm looking forward to March, as quarter-ending months usually are record-setting dividend income months. I'm curious to see if March 2019 brings another monthly record for DivGro. The current monthly record is the $2,730 in dividend income I collected in December 2018.

Please see my Performance page for various visuals summarizing DivGro's performance.

Thanks for reading and take care, everybody!

Disclosure: I am/we are long AAPL, ABBV, ADM, AFL, AMGN, APD, AVGO, BA, BLK, CB, CMCSA, CMI, CSCO, CVS, CVX, D, DGX, DIS, DLR, EPR, ES, EXR, FDX, FRT, GD, HD, HON, HRL, IBM, INTC, IP, IRM, ITW, JNJ, JPM, KO, LMT, LOW, MAIN, MCD, MDT, MMM, MO, MSFT, NEE, NNN, O, OHI, PEP, PFE, PG, PM, ROST, RTN, SBUX, SKT, SPG, SWK, T, TJX, TROW, TRV, TXN, UNH, UNP, UPS, V, VLO, VZ, WBA, WEC, WPC, XOM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.