My Dividend Growth Portfolio: Q1 2019 Summary

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Includes: AAPL, ABBV, ABT, ADM, AFL, AMP, AVGO, BA, BAC, BDX, BP, C, CAH, CAT, CCL, CSCO, CVS, CVX, D, DIS, DLR, DUK, EMR, EPD, ETN, FB, GD, GIS, GOOG, IBM, JNJ, JPM, K, KHC, KMB, KMI, KO, LMT, LVS, MCD, MDT, MMM, MMP, MO, NEE, NKE, NSC, O, OHI, PEP, PFE, PG, PK, PM, QCOM, RCL, RDS.B, RTN, SBUX, SO, T, TGT, TROW, TXN, UNP, UTX, V, VFC, VLO, VTR, VZ, WEC, WFC, WMT, WPC, XOM
by: Khen Elazar
Summary

In 2015, I started publishing quarterly updates regarding my dividend growth portfolio.

I believe that someone who writes about financial assets should share his main holdings with his readers.

In this article, I will share my portfolio, changes in the past 3 months and stocks that are currently on my wish list.

Introduction

It's time to summarize another quarter. The last quarter was one of the best quarters in the past decades. The S&P 500 is up by over 13% and the gains were very consistent with low volatility. My portfolio returns were similar to the broader over the first quarter, and I did it with a lower beta. While it's not my ultimate benchmark, I still compare my performance to the S&P 500 as it shows an alternative way of investing.

My main goal is to achieve a growing stream of dividends, which will give me some more financial freedom. In Q1 2019, my dividend income rose by 25.2% QoQ. The future income for 2019 is forecasted to be similar. I hope to eventually achieve a 25% dividend income growth in 2019. In order to achieve it, I will need to add more funds to the portfolio, 6%-7% overall dividend growth and reinvesting received dividends. This is an ambitious goal, but I believe I can achieve it.

There are many reasons to believe that next quarter will be volatile. I expected the first quarter to be more volatile, but sort-term predictions are far from being certain. Next quarter we can expect higher volatility due to the Brexit conclusions. In addition, we see the trade negotiations between the United States and China, and progress or failure will have an effect on the market.

I believe that eventually it will be decided by the health of the economy. Investors should take into account the possibility of a slowdown. We saw many companies offering lower guidance, and some weak economic data mainly in Asia and Europe. The Fed has become more dovish due to the economic data, and investors should expect no rate hikes for the rest of the year. It may all affect the market in the short and medium term.

When we look forward into the short-term future, we should ignore the noise. Nobody knows what the markets will do in the coming month or year, but it will probably be much higher in a decade. While I monitor the markets, and follow the short-term events like the elections, rate hikes and trade tensions, I see it as a long journey.

My plan for the next quarter is to keep executing my investment thesis. I will keep allocating funds to my portfolio monthly. I will invest in stocks I believe are cheap or fairly valued. I will try to achieve higher dividend income and high total return. I see no reason to amend my investment thesis at the moment, as it has worked for me over the past several years. So far, I see any sign for volatility as an opportunity that allows me to buy future income for cheaper prices. I wish you all a great quarter.

Image result for growth photo coins (Source: Freepik)

Investment Allocation

In Q4 2016, I liquidated my Lending Club position as well as a short-term deposit I had. Since then, I put my emphasis on my three accounts: the brokerage account, the pension fund, and my medium-term account. While I manage my own portfolio in the brokerage account, I use the services of two investment firms to manage my other two accounts.

My dividend growth portfolio was more than 83% of my assets. In order to try to balance it, I allocated more funds to my other accounts. I want to balance it to hedge myself against possible failures in my strategy. Being overconfident in the financial world can lead to devastating results. Therefore, I am making some effort to allocate my funds and make sure that my assets stay diversified.

I want to get my dividend growth portfolio closer to the 75% figure. While I try to get it to 75%, I will have no problem with any figure between 75%-80%. As my dividend growth portfolio grows and becomes more diversified, I will feel more comfortable with it accounting for even more than 80%. Yet in the future I believe that when I buy a house as an investment or to live in, it will lower the percentage of the dividend growth portfolio in my assets.

My dividend growth portfolio is very well-diversified and contains a collection of 72 blue-chip companies. While I am proud of my achievements as a young investor, I must stay humble and diversify my investments wisely.

(Source: graph made by author)

My Goals

At the end of 2018, I have set my goals for 2019. I have already set my goals for 2019. On the financial side, I hope to achieve significant growth in my net worth, and my dividend income. I believe that as long as I keep executing my strategy, I will be able to achieve these goals. The 25% dividend growth is close to the 2018 dividend growth of 27%, and the strong Q1 increased my net worth significantly.

I am also on track to achieve personal goals in 2019. I am doing well in a great MBA program, and I already have a trip to Germany planned later this year. I hope that I can read more books to gain some more knowledge. This way I will become an even better investor.

By setting goals you can organize your time better. I highly recommend it to everyone. It allows you to see your progress during the year. Just set some goals that are challenging but achievable, and make sure they are quantifiable.

Sector Allocation

As my brokerage account is my largest asset, I keep allocating money there according to my optimal sector allocation. As I am still accumulating, I don't mind buying stocks from sectors I am over-allocated to. I don't want to totally ignore my optimal allocation. Over the past quarter, I tried to buy some consumer staples and energy stocks.

Over this quarter, I haven't changed my optimal allocation at all. It seems to work for me well. The real estate sector has performed well, so I probably won't add to this sector unless a great opportunity arises. In the coming quarter, I will probably invest more in consumer staples, industrials and information technology.

I usually write articles regarding companies that I find attractive. I bought shares in some of them, while others are still on my radar. In Q2, I will try to add some more dividend growth companies. I hope that the volatility in the Nasdaq index will increase so I may have an opportunity to buy some tech companies for better prices. However, I have been hoping for it for a very long time, and so far without success.

Optimal Allocation

Current Allocation

Sector

20.0%

19.3%

Consumer Staples

12.5%

12.3%

Health Care

12.5%

11.4%

Industrials

12.5%

12.3%

Financials

10.0%

10.7%

Consumer Discretionary

10.0%

10.1%

Energy and Materials

8.0%

7.3%

Information Technology

7.5%

9.2%

REITs

4.0%

4.1%

Telecommunications

3.0%

3.3%

Utilities

My Portfolio

The following table shows the current holdings in my brokerage account. All the companies below are part of my dividend growth portfolio. Alphabet and Facebook don't pay dividends. However, they both enjoy steady growth in their free cash flow. This metric is the base of any dividend payment. As a long-term investor, I don't mind waiting until they are ready to share some of this wealth with their investors. Alphabet and Facebook have already started buyback programs. I hope that both will offer dividends in the years to come. You can read my articles about investment in Google or Facebook for the future dividends here and here.

Sector Company Ticker % of portfolio %of income
Information Technology Apple Inc. (AAPL) 1.74% 0.81%
Health Care AbbVie Inc. (ABBV) 0.98% 1.59%
Health Care Abbott Laboratories (ABT) 2.44% 1.19%
Consumer Staples Archer Daniels Midland (ADM) 0.71% 0.70%
Financials Aflac Incorporated (AFL) 2.44% 1.61%
Financials Ameriprise Financial (AMP) 0.63% 0.54%
Industrials The Boeing Company (BA) 1.40% 0.92%
Financials Bank of America Corporation (BAC) 2.02% 1.34%
Health Care Becton, Dickinson and Company (BDX) 0.91% 0.34%
Energy BP plc (BP) 1.33% 2.29%
Financials Citigroup (C) 0.95% 0.84%
Health Care Cardinal Health Inc (CAH) 1.18% 1.42%
Industrials Caterpillar (CAT) 2.23% 1.73%
Consumer Discretionary Carnival Corporation (CCL) 0.31% 0.37%
Information Technology Cisco Systems, Inc (CSCO) 0.82% 0.65%
Health Care CVS Health Corp (CVS) 0.33% 0.37%
Energy Chevron Corporation (CVX) 1.88% 2.21%
Utilities Dominion Energy, Inc. (D) 0.33% 0.48%
Consumer Discretionary The Walt Disney Company (DIS) 2.71% 1.31%
REIT Digital Realty Trust, Inc (DLR) 1.89% 2.09%
Utilities Duke Energy Corporation (DUK) 0.55% 0.69%
Industrials Emerson Electric Co. (EMR) 1.96% 1.71%
Energy Enterprise Products Partners (EPD) 0.36% 0.65%
Industrials Eaton Corp PLC (ETN) 0.89% 0.95%
Information Technology Facebook, Inc (FB) 1.22% 0.00%
Industrials General Dynamics Corporation (GD) 0.21% 0.15%
Consumer Staples General Mills, Inc. (GIS) 1.26% 1.46%
Information Technology Alphabet Inc. (GOOG) 1.43% 0.00%
Information Technology International Business Machines Corporation (IBM) 1.03% 1.40%
Health Care Johnson & Johnson (JNJ) 4.27% 3.35%
Financials JPMorgan Chase (JPM) 1.55% 1.49%
Consumer Staples Kellogg Company (K) 0.42% 0.50%
Consumer Staples Kimberly-Clark Corporation (KMB) 2.27% 2.30%
Energy Kinder Morgan, Inc. (KMI) 1.22% 1.49%
Consumer Staples The Coca-Cola Company (KO) 2.00% 2.08%
Industrials Lockheed Martin Corporation (LMT) 0.37% 0.33%
Consumer Discretionary Las Vegas Sands Corp. (LVS) 0.37% 0.57%
Consumer Discretionary McDonald's Corporation (MCD) 3.48% 2.59%
Health Care Medtronic plc (MDT) 1.67% 1.12%
Industrials 3M Company (MMM) 0.76% 0.64%
Energy Magellan Midstream Partners (MMP) 1.48% 2.97%
Consumer Staples Altria Group Inc (MO) 2.10% 3.57%
Utilities NextEra Energy, Inc. (NEE) 0.47% 0.37%
Consumer Discretionary Nike (NKE) 1.03% 0.33%
Industrials Norfolk Southern Corporation (NSC) 2.17% 1.21%
REIT Realty Income Corp (O) 2.25% 2.52%
REIT Omega Healthcare Investors Inc (OHI) 2.80% 5.89%
Consumer Staples PepsiCo, Inc (PEP) 2.99% 2.84%
Health Care Pfizer Inc. (PFE) 0.52% 0.54%
Consumer Staples The Procter & Gamble Company (PG) 1.91% 1.60%
REIT Park Hotels & Resorts Inc. (PK) 0.38% 0.67%
Consumer Staples Philip Morris International Inc (PM) 3.24% 5.08%
Information Technology Qualcomm Incorporated (QCOM) 0.70% 0.92%
Consumer Discretionary Royal Caribbean Cruises Ltd (RCL) 0.49% 0.36%
Energy Royal Dutch Shell plc (RDS.B) 0.78% 1.40%
Consumer Discretionary Starbucks Corporation (SBUX) 0.91% 0.54%
Utilities The Southern Company (SO) 0.95% 1.34%
Telecom AT&T Inc (T) 1.91% 3.79%
Consumer Staples Target Corporation (TGT) 1.37% 1.33%
Financials T. Rowe Price Group (TROW) 0.61% 0.56%
Information Technology Texas Instruments Incorporated (TXN) 0.39% 0.34%
Industrials Union Pacific Corporation (UNP) 1.43% 0.92%
Financials Visa Inc (V) 1.91% 0.37%
Consumer Discretionary V.F. Corporation (VFC) 1.43% 1.02%
Energy Valero Energy Corporation (VLO) 0.52% 0.67%
REIT Ventas, Inc. (VTR) 0.78% 1.18%
Telecom Verizon Communications Inc (VZ) 2.17% 2.69%
Utilities Wisconsin Energy Corp (WEC) 0.97% 0.88%
Financials Wells Fargo & Co (WFC) 2.15% 2.44%
Consumer Staples Wal-Mart Stores, Inc (WMT) 0.95% 0.63%
REIT W. P. Carey Inc. (WPC) 1.10% 1.76%
Energy Exxon Mobil Corporation (XOM) 2.47% 3.05%

I currently own 72 companies in my portfolio. I started four new positions in this quarter and made one sell. I started new positions with EPD, BA, ADM, and TXN. I sold my position in United Technologies (UTX). I also added to existing positions. I am not worried at all about the number of positions I hold. These blue-chip companies don't need me to follow them daily. In fact, I wouldn't mind holding them even if the stock market is closed for a decade.

Acquisitions Made in Q1 2019

I bought shares in two sectors over the course of this quarter. This is the sixth quarter in a row in which I bought shares of companies in the consumer staples sector. In this quarter, I added to my position in Archer Daniels Midland and PepsiCo. The strong fundamentals and attractive dividend yield made them attractive to me.

In the industrial sector, I purchased shares in Eaton. I took advantage of the low share price and the dividend raise, and I would love to add more when the price is around $80. Boeing enjoyed improved fundamentals in 2018, but the recent crashes increased the level of uncertainty. I don't believe it will affect the company in the long term, and may add if the share prices gets closer to $300.

Sales Made in Q1 2019

Over the past quarter, I have sold one stock. I sell when a company cuts its dividend, and that's exactly what happened during the quarter. I did sell my position in Kraft Heinz (KHC). The company failed me when it recorded a massive loss and cut its quarterly payout. It is a sign that the management cannot fulfill its long-term goals, and I see it as a failure, and therefore I sold my position.

What Am I Looking For?

When I look at my portfolio, I see a great collection of companies. Every year I feel more confident about some companies, and less confident about others. Two years ago, I was concerned with BP, and last year I became more concerned with OHI and UTX. That's why diversification is a key. I am always looking for the weaker links in my portfolio, and I try to measure the effect of a possible dividend cut on my dividend income.

In Q2, I will keep following Omega Healthcare Investors closely. While the dividend seems adequately covered now, it should be monitored closely. So far, the talented management team managed to lead the company well, and the 2018 annual report included several positive signs. I am looking forward to seeing how this situation will develop. Some investors may suggest that AT&T and Las Vegas Sands are unsafe, but I disagree.

You probably recognize the chart below, as it is part of my stock analysis. Using this chart contributes to my analysis thesis. I keep looking for Type 2 stocks mostly, as they offer the best combination of growth and income. I will look for these Type 2 stocks in the consumer staples, industrials and information technology sectors.

In the past quarter, I bought companies that are Type 2 like Eaton, Archer Daniels Midland and PepsiCo. In the next quarter I will look to add more type 2 stocks, and type 1 and 3 if they are attractive enough.

https://static.seekingalpha.com/uploads/2019/1/1/20475971-1546344218102207.png

(Source: graph created by author)

Stocks to Consider

These stocks have all passed my initial screening and should be thoroughly analyzed before I decide to add more or initiate a new position. In the consumer staples sector, I am looking to add more to my position in Archer Daniels Midland. I will gladly add to my position if the share price remains around $40, and hopefully goes lower.

In the IT sector, I am still looking for an opportunity to buy Microsoft (NASDAQ:MSFT). I will also consider buying shares in Texas Instruments if the share price gets closer to $100. I have been waiting for these two for over a year, and I still didn't have the opportunity to buy Microsoft. I am also looking at Broadcom (AVGO) as a prospect for my dividend growth portfolio.

I will also be happy to add to companies in the Industrial sector. I am looking forward to adding to Eaton around $80 and Boeing around $300. Lockheed Martin, General Dynamics and Raytheon (RTN) are also attractive options right now in the defense industry.

Conclusion

Q4 2018 was a very volatile quarter, and Q1 2019 was perfect for investors. The indices and my portfolio achieved double digits gains. More important, I managed to increase my dividend income. I am looking forward to making the best out of the coming quarter as well. I will keep executing my investment thesis, as I invest in companies monthly. Hopefully, I will be able to achieve my goals and get closer to my long-term objectives.

The macro events will be having limited effects on the market in the long term. The geopolitical arena is very complicated right now as the United Kingdom is negotiating with the European Union, and China is negotiating with the United States. Investors should hope for low volatility, but make sure their portfolio is ready to deal with a trade war and weakening economic data. I will try to take advantage of any short-term volatility and try to purchase some stocks that are expensive at the moment.

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