Sand In May Shoes - July Update

by: Brian Soule

July was a relatively flat month for the markets and for the Sand in Shoes portfolio even more so.

I added shares to one of my existing positions as the stock approached my original cost basis.

There were three dividend increases announced during the month of July, though as usual, the first month of the quarter was a slow month for dividend collections.

As the year moves on, I am continuing to stack coins in my IRA. I have been fortunate in the two-plus years that I've been writing these articles that I have not suffered a dividend cut yet, and nearly all of my stocks continue to raise their dividends regularly (annually, mostly). Some stocks are raising their dividends with more oomph than others, but I will take any kind of increase gratefully.

July Dividends

As I mentioned, the first month of the quarter is kind of a slow one for dividend payments in my portfolio. Still, this July was the highest such month so far for me, coming in at $152.65. Next month, on the other hand, will be a new record - but I'm getting ahead of myself.

All graphs and charts created by author unless otherwise specified

This was the first dividend I collected from Eastman Chemical Co. (EMN), despite purchasing the stock clear back in March.

July Performance

In July, the S&P 500 was up an underwhelming 1.3% as the market tried to figure out what the Fed was going to do at its July 31 meeting. It was even more underwhelming for my portfolio, as I notched a 0.04% increase, counting dividends and distributions.

Still, it was a positive month, and for the year I am still up over 14%, all the while continuing to grow my cash income and keeping my risk profile in a place where I am comfortable.

Individual Stocks

Apple Inc. (AAPL) had an excellent month, up 7.6% since the end of June, which pushed its dividend yield down to a portfolio low of 1.4%. The other big gainer in the portfolio was Bank of America (BAC), rising 5.8% for the month.

The biggest loser of the month was AbbVie Inc. (ABBV), down another 8.4% after the initial bounce up to $72.72 at the end of June after I bought in at $69/share. Johnson & Johnson (JNJ) and Genuine Parts Company (GPC) were down 6.5% and 6.2% respectively.

The portfolio yield remains steady at 3.5% (up slightly actually, from 3.52% to 3.53%, due to my purchase this month plus a few dividend hikes).

Projected Dividends

Projected dividends for the year are now $3,350.20, up about $25 from June's total. As we get further on in the calendar year, this number gets harder to change and doesn't change very much when it does. The fun part will be further on in the article, when we look at the forward-looking twelve months.

Sector Diversification

If you read my last update, you might remember that I changed my target weighting from equal weight for all sectors to a little bit closer to a market weight approach.

Below, I have listed my new target weightings and the current weighting of the portfolio. Most of the sectors are pretty close to in-line, except I am very overweight in materials stocks and fairly underweight in both technology and communication services.

I added a consumer discretionary stock in July, which bumped my weighting up from 7.3% of the portfolio to 8.8%, so I brought that much closer to the target, though there is still some adjusting to do there. I plan on "fixing" the other weightings in much the same way, adding shares of companies in sectors that I am underweight, and in extreme examples, maybe trimming some of my winners in sectors where I am overweight. Air Products and Chemicals Inc. (APD) is getting close to the point where I might take some of my winnings of the table, but we're not there yet.

Current Weight Target Weight
Consumer Discretionary 8.8% 10.0%
Consumer Staples 8.9% 8.0%
Energy 7.0% 7.5%
Financials 9.8% 10.0%
Health Care 10.9% 12.0%
Industrials 9.1% 8.5%
Materials 13.3% 5.0%
REIT 9.7% 7.5%
Technology 8.2% 15.0%
Communication Services 6.4% 9.0%
Utilities 7.9% 7.5%
100% 100%

Asset Allocation

These are virtually unchanged from the end of June, but I did hear on the radio the other day that emerging markets are sitting near nine-year lows. This kind of confirms that, as my international equity percentage slipped to 8.7% from 8.9%, while my large-cap exposure rose the 0.2% the international fund lost. I might consider swapping some of my S&P 500 ETF for my International Equity ETF to bring these closer to target, but I haven't done the homework on that yet.

Sales and Purchases in July

On July 10th, I sold $1,500 worth of my S&P 500 index fund in order to make my most recent stock purchase. I added 42 shares of Leggett & Platt Inc. (LEG) on July 10th for $37.88 per share. This exactly tripled my position from the meager 21 shares I purchased last December. If my memory serves me right, I purchased those 21 shares with cash on hand from dividends and distributions, so they were kind of a bonus. These 42 are more of a conviction, since I sold something else to buy them.

This month, I also added, with cash on hand, $465.70 of a bond ETF. This was once again slightly more than the fixed-income distributions for the month, so I am slowly (very slowly) growing the fixed-income portion of my portfolio.

Forward-Looking Dividends

As mentioned last month and as expected, both of my bank stocks raised their dividend by the indicated amounts: BAC by 20% and Citigroup Inc. (C) by 13%. I'm not getting that kind of dividend growth from very many of my other stocks (a few, yes), so I am still inclined to hold both bank stocks.

The other raise was by Magellan Midstream Partners LP (MMP), and it was another quarterly increase of 0.7%. The new payout of $4.05 represents a roughly 6% increase over the second quarter of 2018.

For the next twelve months, assuming no new purchases and no dividend hikes (or cuts), I project an income of $3,550.45, a $64.68 increase from last month. Of course, every month I expect I'll be purchasing something or will have one, or both, of my stocks raise their dividend, but this is a good baseline.

The trend line steepened slightly this month, but I will need to pick up the pace a bit to reach my goal.

Final Thoughts

Last month, I indicated that I would be more inclined to purchase stocks which had a yield of at least 3.5% or which would soon yield that with their next dividend increase. In July, I managed to do just that, purchasing LEG at $37.88 per share when it was yielding 4.22%.

By purchasing LEG, I also purchased a stock in a sector where I was underweight (consumer discretionary). I was underweight more in other sectors, but I definitely needed to add to the consumer discretionary space to bring that closer to target.

I continue to add to my fixed-income investments. I am confident this will pay me big dividends (no pun intended) down the road, and while I would love to be adding new and exciting stocks instead, the very slowly growing payout I'm receiving from this one particular ETF I've been adding to has been satisfying to watch. Perhaps one day I'll chronicle that when I get more history behind it.

I am starting to wonder if the line graph for the "Dividends by Month" chart will still be useful when 2020 rolls around or if I should switch how I show this data. I have seen another author use a bar graph, and I am considering seeing how that looks for my portfolio. Any thoughts would be appreciated.

I do hope you all enjoyed reading this update, and I hope you have all reached similar progress towards your goals, whatever those may be. Remember to click "Follow" if you haven't already, and best of luck to all!

Disclosure: I am/we are long AAPL, ABBV, AMGN, APD, BAC, BLK, C, CSCO, CVS, ED, EMN, GPC, HD, HRL, IFF, ITW, JNJ, LEG, MMM, MMP, O, OHI, PEP, PPL, SO, T, VZ, WMT, WRK, XOM. 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.