This is my 50th article for Seeking Alpha (my first submission was in July of 2015). What a ride it has been as I went from an unwieldy portfolio of 81 (!) different positions spread across 8 (!!) different strategies with sucker yields galore to my current portfolio with a laser focus on a reasonable diversified group of sustainable dividend investments (currently 50 positions in 3 complimentary strategies).
I started my monthly article series for 2 primary reasons:
- To improve my returns through introspection and debate
- To benchmark my returns against others with portfolio goals like mine
On both of these accounts, I feel like the hours that I have spent preparing these articles have been well invested. Regarding my first point, my readers (specifically those who comment) helped me realize that I was chasing sucker yields (though the oil price meltdown of 2015 also helped painfully show the error of my ways) as well as to consolidate my strategies and positions into a more reasonable number (though I still have some work to do in that department). Taking the time to really engage with Seeking Alpha also allowed me to look at my returns in comparison with others to see how I could improve (or sometimes just to commiserate when the ball bounces the wrong way). Thank you from the bottom of my heart (and wallet) for taking the time to read and engage with me.
By no means have I been perfect, as I have lagged the market many times. However, I have improved fairly dramatically across time. I am on the young-ish side and have only been managing this portfolio myself since 2013, but I have 6 years of data, which is enough to run some comparisons. If you look at my first 3 years of self-directed investing, I only managed a pathetic 0.5% annual rate of return (which is really unimpressive given that the S&P 500 returned an annualized 12%); however, in the past 3 years, I have earned an annual rate of return of 7% (versus the S&P 500 returned an annualized 13%). Furthermore, if you throw in my annual dividend rate of ~5% versus the ~2% of S&P 500, my last 3 years performance has me at an annualized 12% versus 15% for the S&P 500. Since mine is a value focused strategy (with few of the tech growth names that have driven the rally, but whose valuations are VERY elevated at the moment), I feel good about eventually eclipsing the S&P 500 across decades long time periods (with some meaningful downturns factored in). I also struggle with how to define an appropriate benchmark to measure myself against. With dividends favored in, over the past 3 years I have meaningfully bested commodities, European equities, emerging market equities, and bonds of basically all types.
What a quarter Q1 2019 was! It was the best quarter in over a decade and best Q1 since the last millennium. The only people who hated the rally were those who got scared out of equities by Q4 2018’s dismal results. However, I think the ‘easy money’ in this rally has now been made and we are likely to return to the mostly sideways conditions of 2018. Dividend payers with reasonable payout ratios will likely reward holders better than growth stocks that will swing up and down. Furthermore, the bond market is still recalibrating from the shock of the Fed’s new dovish stance, so expect cash from the sidelines to go into bonds rather than equities. At this point, corporate buybacks are the strongest buyers in the market.
Personally, I’m going to trim back modestly and consolidate some positions. I want to make sure that I have cash to capture the great deals that were available in late Q1 and Q4 2018, but I also want to make sure that I continue to earn my dividends (so I’m not getting scared out of this market).
March 2019 Review
March 2019 was another solid returner for domestic equities overall, though my portfolio’s return slightly disappointed with only a 0.8% return versus the 1.9% return of the S&P 500. My Q1 2019 returns also lagged with a return of 9.4% versus the 13.7% of the index. However, my 5.2% forward dividend yield on invested capital keeps crushing the less than 2.0% yield of the broader index - so I’m about where I would expect to be after a big run up in asset prices (as my value focused picks tend to lag growth stories during big rallies).
March 2019 rewarded me with realized dividends of $1,095 (versus $1,141 in 2018), for a slight decrease of 4%). However, my Q1 2019 cash payments were up 1% overall and, for the last 12 months, my portfolio delivered $14,105 in cash to me (up 1% from 2018). My realized yield for the trailing twelve months was 4.8% for my full portfolio including cash reserves. I’m also making progress towards my 2019 goal of over $15,000 for the year (a 15% increase over 2018). Fear and greed are hard to balance, but I am happy with where I am overall. My yield-focused strategy still makes the most sense to me as paper gains may come and go but cash is forever!!
Since I write for Seeking Alpha primarily to improve my own investment portfolio, I think it is important that you know my objectives. Please consider this context when you look at any advice I give and form your own opinions based on your needs and desires.
- GOAL: Attractive, risk-adjusted, absolute returns (5-15% annually) over a long-term time frame while minimizing capital loss and extreme drawdowns.
- STRATEGY: 'Enhanced' dividend growth or DGI strategy that focuses on a core of diversified high yielding holdings (ETFs and individual companies -- my general screening criteria: growing companies (YoY EPS growth >0%) with attractive valuations (PEG <1.5 and P/E <20) and strong and safe dividends (yield >4%, payout <90%, and market cap >$500MM)…no tobacco stocks or micro caps), supplemented with return enhancing tools like hedges (derivatives and shorts), commodity exposure, etc., as well as some crazy picks.
- BALANCE: Blend of ETFs (domestic and international) and individual companies (where there is a compelling reason to own). Seek to not overweight any one sector unless there is a compelling reason to do so (although the nature of these investments leads me to be overweight in traditional dividend paying sectors like financials, REITS, and energy).
Note: I violate these guidelines constantly, so please call me out on it!
Portfolio Composition as of March 31, 2019
|Security||Type||Div Yield||Market Value||Last Month Value||Gain/Loss(%)|
|Oppenheimer Ultra Dividend Revenue ETF (RDIV)||ETF||3.9%||$15,156||$14,984||1.1%|
|SPDR S&P 500 High Dividend ETF (SPYD)||ETF||4.3%||$15,136||$15,100||0.2%|
|Fst Tst Dow Jns Glbl Sel Dvd Idx ETF (FGD)||ETF||5.4%||$11,655||$11,915||-2.2%|
|SPDR S&P Emerging Markets Dividend ETF (EDIV)||ETF||3.2%||$9,630||$9,682||-0.5%|
|PowerShares S&P 500 High Div Low Volatility ETF (SPHD)||ETF||4.0%||$8,492||$8,396||1.1%|
|SPDR S&P International Dividend ETF (DWX)||ETF||4.7%||$7,798||$7,744||0.7%|
|FlexShares International Quality Dividend Defensive (IQDE)||ETF||4.8%||$6,633||$6,660||-0.4%|
|UBS ETRACS 2x US High Div, Low Vol ETN (HDLV)||ETN||10.5%||$5,636||$5,400||4.4%|
|iShares Nasdaq Biotechnology ETF (IBB)||ETF||0.2%||$5,590||$5,637||-0.8%|
|Invesco S&P International Developed High Dividend Low Volatility ETF (IDHD)||ETF||4.6%||$5,534||$5,532||0.0%|
|Schwab U.S. Dividend Equity ETF (SCHD)||ETF||2.8%||$5,228||$5,183||0.9%|
|iShares Evolved U.S. Innovative Healthcare ETF (IEIH)||ETF||2.0%||$5,199||$5,224||-0.5%|
|VictoryShares Emerging Market High Div Volatility Wtd ETF (CEY)||ETF||5.1%||$4,820||$4,874||-1.1%|
|iShares MSCI China Small Cap ETF (ECNS)||ETF||5.5%||$4,553||$4,447||2.4%|
|Horizons NASDAQ 100 Covered Call ETF (QYLD)||ETF||11.4%||$4,540||$4,482||1.3%|
|iShares Asia/Pacific Dividend ETF (DVYA)||ETF||5.7%||$4,309||$4,412||-2.3%|
|iShares MSCI Australia ETF (EWA)||ETF||5.5%||$4,304||$4,256||1.1%|
|IQ 50 Percent Hedged FTSE Europe ETF (HFXE)||ETF||3.9%||$3,798||$3,772||0.7%|
|Global X MSCI Portugal ETF (PGAL)||ETF||4.3%||$3,245||$3,242||0.1%|
|iShares International Select Dividend ETF (IDV)||ETF||5.4%||$3,086||$3,130||-1.4%|
|iShares MSCI Malaysia ETF (EWM)||ETF||3.7%||$2,994||$3,056||-2.0%|
|Global X MSCI China Comm Services ETF (CHIC)||ETF||0.2%||$2,558||$2,623||-2.5%|
|Franklin LibertyQ International Hedged ETF (FLQH)||ETF||5.2%||$2,484||$2,433||2.1%|
|Invesco S&P Emerging Markets Low Volatility ETF (EELV)||ETF||5.2%||$2,405||$2,375||1.3%|
|Tanger Factory Outlet REIT (SKT)||REIT||6.7%||$10,490||$10,795||-2.8%|
|Blackstone Mortgage Trust (BXMT)||REIT||7.2%||$10,368||$10,344||0.2%|
|Royal Dutch Shell (RDSB)||Company||5.9%||$9,593||$9,542||0.5%|
|New Residential Investment (NRZ)||REIT||11.8%||$8,692||$8,502||2.2%|
|Iron Mountain (IRM)||REIT||6.9%||$7,092||$7,084||0.1%|
|Sabra Health Care REIT (SBRA)||REIT||9.2%||$6,542||$6,088||7.5%|
|General Mills (GIS)||Company||3.8%||$5,175||$4,713||9.8%|
|Cardinal Health (CAH)||Company||4.0%||$4,815||$5,434||-11.4%|
|KKR Real Estate Finance Trust (KREF)||REIT||8.6%||$4,004||$4,074||-1.7%|
|Kinder Morgan (KMI)||Company||4.0%||$3,682||$3,525||4.4%|
|Ford Motors (F)||Company||6.8%||$3,512||$3,508||0.1%|
|Gilead Sciences (GILD)||Company||4.0%||$3,251||$3,182||2.1%|
|Teva Pharmaceutical Industries (TEVA)||Company||0.0%||$1,568||$1,683||-6.8%|
|VARIOUS POSITIONS OF <$1,000 VALUE||VARIOUS||2.0%||$2,515||$2,489||1.0%|
|FIXED INCOME TOTAL||5.1%||$25,890||$25,892||0.0%|
|Goldman Sachs (GS) - Pref D (GS+D)||Pref||5.2%||$5,772||$5,625||2.6%|
|Bank of America Corporation (BAC) - Pref L (BML+L)||Pref||4.8%||$4,200||$4,326||-2.9%|
|Goldman Sachs (GS) - Pref A (GS+C)||Pref||5.1%||$3,924||$3,914||0.3%|
|Morgan Stanley (MS) - Pref A (MS+A)||Pref||5.2%||$3,870||$3,906||-0.9%|
|Goldman Sachs (GS) - Pref A (GS+A)||Pref||5.0%||$3,804||$3,742||1.7%|
|WisdomTree BofA Mrl Lynch HYBd ZrDr ETF (HYZD)||ETF||5.4%||$2,325||$2,342||-0.7%|
|WisdomTree BofA Mrl Lynch HYBd NgtDr ETF (HYND)||ETF||5.3%||$1,995||$2,037||-2.1%|
|SCHWAB ROBO-ADVISOR TOTAL||2.0%||$12,690||$12,658||0.3%|
|TOTAL + CASH||$18,986||4.9%||$327,892||$325,405||0.8%|
Portfolio Moves in March 2019
SHARE BUY – Gilead Sciences (GILD): Bought 50 shares of this biotech company at $63.55 on Mar 6.
- Reasoning: I love the strong yield and low payout ratio…but the company has had a brutal few years and might be a value trap.
SHARE BUY – Invesco S&P Emerging Markets Low Volatility ETF (EELV): Bought 100 shares of this low volatility emerging markets ETF at $23.75 on Mar 7.
- Reasoning: I really like the factor focus, valuation, and 5.2% dividend yield in an emerging market ETF.
SHARE BUY – iShares International Select Dividend ETF (IDV): Bought 100 shares of this international dividend ETF at $31.25 on Mar 7.
- Reasoning: I still can’t get enough of these international dividend ETFs, the valuations are compelling as well as the 5.4% dividend yield).
SHARE SALE – Omega Healthcare Investors (OHI): Sold all 200 of my shares in this healthcare REIT at $36.05 on Mar 7.
- Reasoning: I love this sector, but I decided to cash in my chips (for a healthy gain) and wait for another attractive entry point (maybe $30ish).
SHARE SALE – Eni (E): Sold all 100 of my shares in this Italian oil company at $35.55 on Mar 18.
- Reasoning: This holding was a leftover from before I started blogging and I was ready to take my loss and move on as the growth prospects are likely to stay poor for a while (RDS or BP are much better plays in my opinion).
Thank you (again) to all of my readers (and especially those who comment). Your insights and engagement are what make this endeavor worthwhile to me. I hope that you also get something out of my stories of wins and losses (I promise plenty more of both in the future). If there is anything that you would prefer me to focus on, please let me know.
With a hat tip to Jeff Miller at NewArc Investments whose ‘Weighing the Week Ahead’ is the single most valuable thing I read every week, I’m going to start concluding with some snap takes on what is on my mind. I will separate my thoughts into two buckets: ‘Could Be Signal’ for front of mind topics and ‘Probably Just Noise’ for things in the press that don’t bother me much at this point with regards to how it might impact equity markets.
Could Be Signal:
- Elevated U.S. valuations plus low expectations for Q1 2019 earnings reports (misses are likely to get brutalized, but upside remains for those that beat…the ratio between the two will likely guide market performance during earnings season )
- Most equity fund flows negative with corporate buybacks as the only major bidders
- Disappointment from trade talks with a probability of a cease fire rather than a settlement
Probably Just Noise:
- Yield curve inversion (too much Fed action with too little duration of the actual inversion to worry yet)
- Anything 2020 politics (it’s just too early and governance has a way of moderating firebrands)
- Anything immigration related (an issue to be sure, just not a market moving one)
Disclosure: I am/we are long ALL POSITIONS AS MENTIONED. 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: The author is an amateur who has a history of getting calls both right and wrong with zero predictive power. Trade at your own risk and never rely solely on this author's opinion. Also, as I have no knowledge of your circumstances, goals, and/or portfolio concentration, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended.