Millennial Dividend Investor Portfolio Update - February 2019

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Includes: BF.A, BX, BXRBF, CDPYF, DEO, GIS, IMBBF, LAND, MHGVY, MO, NRDEF, PEP, RFNDF, RSHPF, UL
by: Millennial Dividend Investor
Summary

My portfolio has been returning 6.4% for February YTD, but underperforming the S&P 500.

The residential REIT sector has performed very well and was the main driver for the portfolio.

The recovery of the British pound has helped boost the returns of some of my British positions.

Introduction

Two years ago I started reading Seeking Alpha and got intrigued by building a passive income stream by investing into dividend-paying stocks. While being a Chartered Accountant taught me how to read company reports, I’m not a “hardcore” trader that needs to see a result within a certain time period. I have time on my side and try to invest in business I understand.

I always enjoy seeing other contributors sharing their progress in reaching retirement goals, so I decided to do the same, forcing myself to track my portfolio more thoroughly than I otherwise would and questioning whether my current approach makes sense.

Current Situation

I’m 26 years old, working as an accountant and living in Ireland. Because of the mostly American audience on Seeking Alpha, some issues I describe might not apply to you, especially regarding withholding tax, but I hope you can still find interest in the portfolio.

Ireland’s tax laws feature the Personal Retirement and Savings Account (PRSA) which, similar to IRAs or 401k in the USA, allow to deduct contributions to the account from taxable income and not incur any tax on capital gains until the retiree draws down from his account. Being under 30, I can get tax relief on contributions equalling 15% of my earnings. Investments in this account are in global index funds.

As my portfolio is in USD, my returns might differ from a US investor’s return based on the exchange rates. I will, therefore, report both the performances incl. & excl. of exchange rate movements.

It is the portfolio in my regular investment account I want to share with Seeking Alpha and see if I’m able to beat the performance of my retirement account. I know even if I succeed with that, I’ll never make up the hefty 40% tax relief on contributions, but it should still be fun!

I try to do regular contributions to the portfolio but the primary focus is maximising contributions into my PRSA, so the contribution here might differ from month to month.

Portfolio Strategy

Loving the concept of dividend growth, I will only invest into dividend-paying stocks. I invest a large part of the portfolio into REITs, but I try to balance high yield/slow growth with lower yield/higher growth stocks.

I’m aware that I have a concentration risk as my 5 largest positions make up ~ 48% of my total portfolio. I’ll be directing future contributions towards other holdings to reduce the percentage share of the largest holdings.

In terms of companies to invest in I look for two things:

  • A stable business model/product/market I understand and where I have confidence in the future prospects
  • Growing FCF

Since my assumed holding period is 30 years+ before I retire, I try to buy at fair prices, but not necessarily postponing the buy hoping to catch another drop. The main ratio I look at to make my buy decision is the dividend yield which I want to be in the upper third of the 10-year range.

While this approach might not work for everyone, looking at a 30-year holding period I’d rather miss the ideal entry point than miss out on a home run such as Mastercard (NYSE:MA) or Visa (NYSE:V) by waiting for lower entry points.

Dividends are not automatically being reinvested but I will manually decide where to reinvest.

While understanding the risk of margin debt, I am willing to use margin debt (not more than 15% of my portfolio value & only if the cash is available in my saving accounts) if I see opportunities presenting.

I am at the upper end of my target range after I invested further money into the US & Canadian REITs during the December/January drop. So at the moment any dividends or added contribution will go towards reducing the margin debt.

Holdings

My portfolio consists of the following holdings:

Missing in this overview is the financial sector which I describe separately.

Performance Feb-YTD

Since it is already mid-March, I checked the February YTD performance of my portfolio and then will update monthly going forward.

Name Sector Closing Value Dividend Income Capital Gain excl. FX Capital Gain incl. FX Total Gain incl. FX
Capreit REIT € 3,327.31 11.02 € 14.0% 18.2% 18.6%
Blackstone Financial € 500.08 8.00 € 14.0% 13.9% 15.7%
Irish Residential Properties REIT € 4,680.00 - € 15.6% 15.6% 15.6%
W.P. Carey REIT € 715.87 8.42 € 14.6% 15.0% 16.3%
Imperial Brands Tobacco € 1,379.52 - € 6.0% 12.4% 12.4%
Realty Income REIT € 731.16 3.99 € 10.5% 11.6% 12.2%
Mowi / Marine Harvest Food € 713.74 - € 8.3% 11.3% 11.3%
Diageo Distillers & Vintners € 1,771.28 - € 4.5% 10.9% 10.9%
Nordea Financial € 1,079.87 - € 10.0% 10.0% 10.0%
General Mills Food € 539.78 - € 7.6% 8.3% 8.3%
Royal Dutch Shell Energy € 3,358.87 - € 8.2% 8.2% 8.2%
Rural Funds Group REIT € 1,008.57 11.18 € 6.0% 7.5% 8.7%
PepsiCo Consumer Staples € 3,667.64 24.78 € 5.5% 6.5% 7.2%
Chatham Lodging Trust REIT € 1,056.14 4.91 € 4.9% 5.8% 6.3%
AT&T Communication € 520.92 - € 5.0% 5.7% 5.7%
Dominion Energy Utility € 1,044.37 - € 4.2% 5.3% 5.3%
McDonald's Restaurant € 1,781.59 - € 3.6% 5.3% 5.3%
Iron Mountain REIT € 1,716.28 10.46 € 4.8% 4.6% 5.2%
Raytheon Aero & Defence € 985.84 - € 3.7% 3.7% 3.7%
Brown-Forman Distillers & Vintners € 1,042.40 - € 2.7% 2.7% 2.7%
Enbridge Energy € 1,010.23 - € 2.9% 2.2% 2.2%
Northview Apartment REIT REIT € 1,837.47 - € 2.3% 1.7% 1.7%
Hays Professional Services € 1,012.95 - € 1.3% 1.6% 1.6%
Unilever Consumer Staples € 6,421.27 - € 0.3% 0.3% 0.3%
Gladstone Land REIT € 1,937.85 - € -1.3% -1.9% -1.9%
Bendigo & Adelaide Bank Financial € 1,140.71 - € -9.1% -5.9% -5.9%
44,981.71 € 82.76 € 6.2%

Overall, my portfolio returned 6.2% for January and February. While I am generally satisfied with that performance, the S&P 500 returned 11.1% over the same period, so my portfolio has underperformed the market.

REITs

REITs make up 40% of the portfolio value. I’m intrigued by the historical performance of the sector and my simple thinking is that the requirement for real estate will not disappear anytime soon. I steer clear of companies in the mall and SNF sectors since I’m not comfortable with these areas and focus on residential REITs and add smaller positions in specialized REITs as diversification.

Most of my REIT positions performed admirably (especially Canadian Apartment Properties REIT (OTC:CDPYF) and its Irish Subsidiary Irish Residential Properties REIT (OTC:RSHPF), which I recommended here) but Gladstone Land (NASDAQ:LAND) turned out to be one of only two holdings in the red. Their latest earnings were somewhat disappointing but the need for farmland to feed the population will not disappear in the future. The same logic applies to Australian Rural Funds Group (OTC:RFNDF), which gained 6% excl. FX, so I’m very happy to be invested in this sector.

Tobacco

The best performing sector was Tobacco where I only have one holding. More than half of Imperial Brands' (OTCQX:IMBBF) gains came from the British pound strengthening. My total position in tobacco was too small though to move the needle for the whole portfolio. Imperial Brands just reiterated their focus to push their vaping brand “Blu,” just before the FDA in the USA announced increased scrutiny to vaping products. Imperial Brands has a great dividend but I won’t invest any additional money. I might consider adding Altria (MO) when fresh funds are available.

Distillers & Vintners

My Distillers & Vintners position also benefited from the recovery of the British pound with Diageo (DEO) gaining 10%. Brown-Forman (BF.A) showed a 2.7% gain. This is a sector I’m very confident in and I’m planning to further invest in this sector.

Food

Food sector benefited from the strong results of Mowi (OTCPK:MHGVY) (former Marine Harvest) and the recovery in General Mills (GIS). Unfortunately, I only have small positions in these, so the overall effect on my portfolio was negligible.

Consumer Staples

Main reason for my underperformance was my large allocation to the consumer staples sectors. While PepsiCo (PEP) performed well, Unilever’s (UL) stagnant performance slowed total portfolio performance. Unilever is my oldest holding and I got lucky buying before Kraft’s (KHC) failed takeover move, so the total value of my Unilever position ballooned. I am concerned about the large allocation to it, but I like its strong position in emerging markets and I am confident for the next 10 years for Unilever.

Financial

The only outright negative sector was Financial. While Blackstone (NYSE:BX) and Finnish bank Nordea (OTCPK:NRDEF) did well, Australian lender Bendigo and Adelaide Bank (OTC:BXRBF) was a major drag. I had a large position of which I already liquidated half in February and sold the other half in March.

I wrote a rather positive article back in August 2018, but although the banks' cash earnings were good for the half year ended December 2018, the slowing interest rate hikes in the USA and signals from the Reserve Bank of Australia made me reconsider my position and I will update my recommendation in a future article.

Dividends

In terms of dividend income received, the first two months of the year are always slow, I’m looking forward to March, where dividends should pick up speed!

Closing

I am curious to see how the year will play out for my portfolio. With a conservative stance with large positions in residential REITs and consumer staples I hope it will do well in a recession.

There will be monthly updates to track the future performance. Any comments, recommendations or critical questions are most welcome!

Disclosure: I am/we are long ENB. 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: I am long ENB, WPC, RDS.B, IRM, RFNDF, LAND, O, RSHPF, CDPYF, NPRUF, CLDT, RTN, HAS, MCD, PEP, DEO, BF.A, MHGVY, GIS, IMBBF, UL, T, D, HAYPF,