Dividend Growth Portfolio Overview

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Includes: AAPL, ABBV, AMGN, AMZN, AVGO, BA, BEP, BIP, BLK, BMY, BRK.B, CMCSA, CSCO, CSX, D, DEO, DIS, DLR, DPZ, ENB, FDX, GOOGL, GTX, HD, HON, INTC, ITW, IVZ, JNJ, KO, LOW, MA, MDT, MKC, MMM, MO, MSFT, NKE, NNN, NVDA, NVO, O, PEP, PFE, QCOM, REZI, SBRA, SBUX, STOR, STZ, T, TXN, UPS, UTX, V, VER, VTR, VZ, WPC
by: Nicholas Ward
Summary

I discuss my portfolio management goals and strategies.

I highlight all 60 of my holdings, cost basis, gain/loss %, and portfolio weighting.

I talk about why I do what I do, retirement plans, and the idea of leaving a long-lasting legacy.

Every month I write re-cap articles highlighting all of the trades that I made during the prior month and the growth of my passive income stream (in case you missed July's update, here's the link). Long ago, before I was a contributor and before I was even buying and selling stocks, I loved to read those types of articles. Getting insight into various dividend growth managers' mindsets when it came to their portfolio construction, monitoring process, and ultimately their maintenance was valuable to me as I formulated my own strategy. These are fun articles to write because it allows readers/the community here at Seeking Alpha to follow along with regard to my progress towards financial freedom.

They’re also fairly easy to write because they don’t require a lot of research and/or work on graphics other than the monthly income tracker. And, as I’ve said before, tallying up my monthly dividends and adding them into that spreadsheet is one of my favorite things to do because it shows tangible improvement as I strive towards my financial goals. When work is enjoyable, is it really work at all? I don’t think so. So, putting that graphic together every month is no problem at all for me.

Now, what isn’t quite as fun is tallying up my cost basis after portfolio rebalancing and/or reinvestments and looking up individual stock gain/loss percentages. While it’s certainly good to know these things, neither of them plays much of a role in my thought process when it comes to making portfolio management decisions. This is why I don’t write portfolio overview pieces nearly as often as I do portfolio update pieces. Yet, recently I’ve had followers (new and old) ask me privately about my holdings, so I decided to spend some time this weekend working on this portfolio break-down to give readers a chance to get better acquainted with my portfolio.

Portfolio’s Goal:

When I think about what I want my portfolio to achieve, it’s fairly simple: I want it to produce a reliably increasing passive income stream that ultimately results in financial freedom.

When my dividend income stream is large enough to cover my lifestyle’s expenses and offers a buffer to potentially cover abnormal and/or unforeseen expenses, then my wife and I will have arrived at the financial promised land.

But, the idea here is a bit more grandiose than that.

Speaking of the promised land, I spend a lot of time thinking about my mortality. Impermanence and eternity are difficult subjects to comprehend. I know that worldly things like dividend income streams aren’t going to be all that important to me when I’m gone, but I do think about my legacy from time to time and finances play a role there.

Legacy too is a difficult subject to come to terms with. Meaning and fulfillment in life are oftentimes hard to grasp. I’m still a relatively young man, but I’ve lived long enough to see how priorities change and former glory fades away. For instance, I won a national championship in high school. At the time, I couldn’t have imagined anything better. I walked around town and went on recruiting visits like I was something to be reckoned with. Well… 10 years later, a few locals in the running scene remember it and the race comes up in conversation every now and then, but for the most part, it doesn’t really seem to matter anymore.

I imagine that’s the case with most worldly achievements. I would love to write a great novel that people will be reading 100 years from now, but at the end of the day, I’ve come to realize that family is probably what matters most and I want others to benefit from the success that I achieve in my life. Love is the foundation of most good stories that I’m aware of. Some would say that love is the only reason worth living. So, with that in mind, it’s comforting to know that the work that I’m doing now will not only benefit my wife and I, but also future generations of wards and potential charitable opportunities, because I wholeheartedly expect the majority of the companies that I own today to be paying increasing dividends well after I’m dead and gone. I expect that my portfolio will be the gift that keeps on giving. And, due to the nature of a well-built DGI portfolio, those gifts should continue to grow over time (at a rate that exceeds inflation). It’s nice to know that my portfolio has the potential to be much more than a way to simply bankroll my retirement.

The fact that I won’t have to sell off my assets and watch anxiously as the fruits of my life’s labors diminish during the twilight of my life is one of the most attractive aspects of dividend growth investing. Having savings to draw upon when one is finished working is great. But, having a collection of assets that works for you instead of you having to work for them is much better.

To help me achieve my basic goal of a passive income stream that results in financial freedom, I’ve created a short list of goals that keep me focused and should help me to reach financial freedom in a fairly timely fashion. They go as such:

  1. I want to beat the S&P 500 on an annual basis.
  2. I want my portfolio to have a dividend yield that is greater than the S&P 500’s.
  3. I want my portfolio’s dividend growth rate to exceed that of the S&P 500.

I started investing in 2012 and thus far, I’ve been able to meet those goals. I’ve beaten the S&P 500 five out of the seven years since, from a total return perspective (and overall, during that seven-year period). Admittedly, I don’t have a very long sample size, though I have found that my investing style/stock selection system tends to lead to low beta, which allows me to out-perform during sluggish/bearish market conditions (for instance, during 2015 when the S&P was up ~1.4%, my portfolio posted gains of more than 7%).

I know that critics will say that I haven’t invested through a true bear market yet. That’s true, but I also can’t do much about that. I’ve seen the broader average experience strong, double-digit dips, though in 2008/2009 I was a first year at the University of Virginia and the stock market was the furthest thing from my mind. Only time will tell how my portfolio will hold up during a true recession, but if I had to guess, I’d say that the low beta nature of my holdings will remain intact and I expect to out-perform the broader markets on a relative basis.

During bull market periods, I’ve proven the ability to keep up with/slightly out-perform the broader markets, not because I’m chasing growth or taking outsized risks with regard to high beta names, but instead, because I capitalize on irrational weakness in the markets when I see it and therefore, get to benefit from mean reversion once the market realizes and corrects its follies.

Buying low and either holding long term, or selling high, is a proven way to make money in the markets. It’s a relatively simple strategy, yet it does require discipline and a bit of intestinal fortitude to be a contrarian. One risks reaching out and catching falling knives when he or she is buying into weakness, yet personally, I take solace in the fact that the dividend growth stocks that I typically target will at least be paying me while I wait for them to turn around.

Over the years, I’ve also developed a evaluation system that I feel comfortable with that has allowed me to formulate price targets that oftentimes coincide with support levels. Rarely have I pinned down the bottom of a dip exactly (though I’ve been darn close a couple of times), but more often than not, I’m buying at levels that offer wide margins of safety that tends to generate strong returns over time.

My portfolio’s dividend yield usually hovers in the 2.25-2.50% range (today, the S&P 500 only yields 1.9%). And, I’ve generated double-digit dividend growth on an annual basis since beginning my dividend growth journey and I expect that trend to continue for the foreseeable future. These results are much more predictable and easier to manage than the total return results. And ultimately, they’re probably more important.

Current Holdings

As of 8/19/19, I own shares of 60 companies.

Core Dividend Growth

43.71%
Company name Ticker Cost basis Gain/loss% Portfolio Weighting
Apple AAPL $103.78 99% 8.71%
Walt Disney DIS $94.94 42.40% 7.05%
Microsoft MSFT $47.73 185.20% 3.30%
United Parcel Service UPS $104.21 10.60% 2.56%
Cisco CSCO $30.20 55.50% 2.46%
Johnson and Johnson JNJ $113.52 15.70% 1.82%
BlackRock BLK $418.93 0.10% 1.71%
Qualcomm QCOM $61.60 19.00% 1.71%
Coca-Cola KO $39.78 29.40% 1.59%
PepsiCo PEP $90.68 45.30% 1.55%
Honeywell HON $128.65 28.30% 1.50%
Amgen AMGN $130.50 56.30% 1.34%
Texas Instruments TXN $95.19 29.00% 1.11%
Illinois Tool Works ITW $130.90 14.80% 0.99%
Pfizer PFE $31.94 8.50% 0.98%
Intel INTC $30.55 52.20% 0.95%
Novo Nordisk NVO $37.74 36.90% 0.95%
Medtronic MDT $73.94 39.00% 0.79%
Diageo DEO $107.91 55.40% 0.72%
United Technologies UTX $111.84 11.80% 0.57%
3M Company MMM $148.84 8.50% 0.48%
McCormick MKC $71.43 137.90% 0.46%
CSX CSX $71.27 -8.70% 0.41%
High Yield 17.56%
AT&T T $37.75 -7.40% 4.32%
W.P. Carey WPC $63.32 40.00% 2.41%
Altria MO $51.46 -9.70% 2.22%
Store Capital STOR $20.46 78.80% 0.89%
Ventas VTR $52.72 38.80% 0.85%
National Retail Properties NNN $37.54 46.20% 0.80%
Dominion Energy D $63.65 20.80% 0.75%
Brookfield Renewables BEP $32.81 10.60% 0.74%
Brookfield Infrastructure BIP $41.87 7.00% 0.73%
AbbVie ABBV $67.05 -3.90% 0.73%
Digital Realty DLR $49.87 148.00% 0.70%
Reality Income O $51.09 42.50% 0.66%
Verizon VZ $44.42 27.50% 0.64%
Enbridge ENB $31.07 8.20% 0.41%
Invesco IVZ $23.72 -34.00% 0.36%
VEREIT VER $12.04 -20.10% 0.29%
Sabra Healthcare SBRA $27.18 -20.70% 0.06%

High Dividend Growth

20%
Starbucks SBUX $48.10 100.70% 3.55%
Visa V $71.01 139.50% 3.23%
Boeing BA $126.32 180.00% 3.00%
Broadcom AVGO $231.38 18.30% 2.42%
Nike NKE $58.75 36.60% 1.77%
Comcast CMCSA $34.49 25.20% 1.76%
FedEx FDX $196.93 -20.80% 1.45%
MasterCard MA $74.15 270.00% 1.31%
Dominoes Pizza DPZ $250.35 -6.20% 0.53%
Home Depot HD $184.52 10.40% 0.51%
Lowe's LOW $95.77 -1.90% 0.47%
Non-Dividend 8.57%
Alphabet GOOGL $840.34 40.32% 5.35%
Berkshire Hathaway BRK.B $121.27 64.69% 1.59%
Amazon AMZN $849.74 111.00% 1.63%

Special Circumstances

3.54%
Bristol Myers Squibb BMY $48.38 -2.90% 2.43%
Constellation Brands STZ $172.19 15.40% 0.54%
NVIDIA NVDA $110.55 44.30% 0.54%
Resideo Technologies REZI $18.51 -20.70% 0.02%
Garret Motion GTX $11.51 -0.50% 0.01%
Cash 6.62%
Most Recent Update: 8/18/19

You get the cheap and the expensive. You get the best balance sheets and the worst. You get proven and unproven management teams. You get leaders and laggards. You get darlings and dogs. You get low yields, medium yields, high yields, and sometimes, no yields. I know that some believe this is a good thing because buying ETFs removes a lot of the decision-making from the process. Since humans are all flawed beings, simplifying the process may actually reduce risk overall. We’re prone to mistakes and irrational, emotionally-driven decisions and ETFs help to combat these potentially harmful urges. Yet, even so, I maintain a level of high conviction with regard to my ability to stay even-keeled and not fall prey to fear and/or greed. In short, I trust myself and I don’t like blindly buying baskets.I suppose one answer is diversification. I think it is extremely important to stay diversified (thus, my 60 holdings). When thinking about buying ETFs, it’s nice to know that I’ll be receiving a big basket of stocks. Spreading risk around is important when it comes to capital preservation. Recently, I wrote an article about trimming back on my largest holding, Apple, because I was concerned with its increased weight and the single stock risk that it posed to me. But, what bothers me most about ETFs (yes, even more than the fees) is that you get the good with the bad. All of my holdings are individual stocks. In the past I’ve owned ETFs, mutual funds, absolute return funds (heck, my former financial adviser put me into all sorts of funds that I didn’t understand). Though generally speaking, I like to avoid funds because of the fees that they charge. ETFs are getting cheaper and cheaper so this is becoming less and less of a concern, though when I think about unnecessary fees I think about compounding opportunities being lost. A dividend growth portfolio is all about slow and steady compounding over time, so why would I want to take an action that might slow that process down?

Instead, I prefer to create my own baskets of stocks by picking and choosing my favorite individual companies from various sectors and industries.

Sector Breakdown

Basic Materials 0%
Communication Services 8.19%
Consumer Cyclical 18.89%
Consumer Defensive 7.77%
Technology 32.39%
Energy 0.41%
Financial Services 3.03%
Industrials 13.38%
Healthcare 8.90%
Real Estate 6.53%
Utilities 0.91%

I’ve written hundreds of thousands of words here at Seeking Alpha (and elsewhere) talking about the importance of value investing within the dividend growth genre. Because I focus a lot of value when making purchases, this basket building process can take a long time. This is probably the worst part about not owning ETFs; sometimes the market forces me to be underweight certain areas of the market for very long periods of time. Sometimes, it takes months, or even years, for names that I would love to have exposure to to go on sale. Yet, I’m also not in any sort of hurry. Taking what the market gives me in terms of value within the pool of high-quality stocks that I follow is a big part of my management strategy. I never want to chase momentum or chase yield and focusing primarily on value keeps me grounded and disciplined.

As you can see on the graphic above, nearly all my holdings pay a dividend. Yet, I do have the “Non-Dividend” category and the “Special Circumstances” category as well.

There are only 3 names in the “Non-Dividend” category. Simply put, these companies were too good for me to ignore. They don’t add to my compounding process, which is hard for me to stomach, but I think that both Alphabet (GOOGL) (NASDAQ:GOOG) and Amazon (AMZN) offer some of the best exposure to secular growth in the technology space in the world and as a self-taught value investor who learned about equities from resources like Benjamin Graham’s “The Intelligent Investor” and Warren Buffett’s letters to Berkshire Hathaway (BRK.B) (NYSE:BRK.A) shareholders, it only made sense to own a position in Berkshire stock. And, although BRK.B doesn’t pay a dividend, I do get the added benefit of a discount on my GEICO car insurance as a shareholder, so I suppose in a way, I do receive added shareholder returns.

The “Special Circumstances” category is made up of two things: dividend stocks that I view more as trades rather than long-term DGI holdings and very small positions that have spun off from my other holdings in recent years. I like to maintain a few trades (right now, Bristol-Myers makes up the majority of the funds that I’ve dedicated towards such short-term pursuits). Having some money dedicated towards short-term trades keeps me on my toes and also helps me to avoid temptation to trade elsewhere in my portfolio.

I know that some scoff at the idea of managing a portfolio of 60 holdings. Some say that it’s impossible to do so. Many DGI investors that I’ve spoken to prefer to own just 5-10 holdings, focusing on their highest conviction ideas. But others own 100s of stocks. Honestly, I don’t think there’s a right or wrong answer here. It all comes down to goals, time, energy, passion and risk aversion.

My “building baskets” strategy calls for a large amount of holdings. While I’m confident in my ability to target high-quality companies and sectors/industries that will do well over the long term, I’m also willing to admit that I too am flawed and spreading risk out amongst a variety of high-quality companies in attractive areas of the market helps me to avoid making mistakes.

Also, it’s not all that difficult to monitor these many holdings when so many of the companies that I own are slow-moving and relatively predictable. Earnings season requires a lot of reading (reports and conference calls), though that’s also an enjoyable process for me. I like to watch as companies compete and evolve. I like the strategic nature of management commentary and the question and answer sessions with analysts. And, outside of earnings season, it’s fairly easy for me to keep track of my holdings. Every morning I wake up and check share price movements. I scan my portfolio, looking for abnormal volatility. Any stocks that are moving at a rate that is +/- 1% relative to the S&P requires a quick news check. With resources such as Seeking Alpha, it’s not difficult to figure out what is causing the excess volatility. And, oftentimes, the best response to short-term moves is doing nothing. So really, I do a quick read, file it away into my mind, and go back to the research that I had planned for that day.

I should note that I manage money and write about my portfolio full-time. Over the years, I developed a strong passion for the markets and I will say that this life might not be for everyone. If your passion is teaching or being a dentist or walking dogs (or whatever), then by all means, do that. We all only have one life to live and I think we should live it pursuing activities that we enjoy. But, since I do enjoy this process so much I think it’s a great life for me.

My success in the markets allowed me to make the transition into managing money full-time a few years ago (prior to that, I was managing a local vineyard and selling real estate on the side). I love the competitive nature of the markets and the fact that every day is different. Right out of college I accepted a desk job at an insurance firm, but quickly realized I wasn’t cut out for that sort of thing and kindly issued my resignation. Managing money full-time also allows me the flexibility to set my own schedule. I work 7 days a week, but it also means that I can coach at the local high school and dedicate time to my art and my family on a daily basis. My life is definitely not “normal” in the grand scheme of things and it was a bit of a risk to bet on myself and my ability to continue to generate strong returns and be able to create compelling content on a daily basis, but I don’t regret the decision at all.

I say all of this because I think it’s important for readers to get to know the contributors they follow a bit. I always find myself liking books more if I relate to the author when I read his or her little biography inside of the front cover. Obviously, this isn’t much of an introduction (and long-term readers probably didn’t learn anything new about me here) but please feel free to ask any questions about me, my life, my portfolio, my management strategy, my subscription service, or really anything else that you might be wondering about (I can’t promise that I’ll answer them all, but I do think pieces like this have a lot of potential to generate interesting discussion in the comment section).

Best wishes all!

Disclosure: I am/we are long AAPL, DIS, MSFT, UPS, CSCO, JNJ, BLK, QCOM, PEP, HON, KO, PFE, AMGN, TXN, ITW, INTC, NVO, MDT, DEO, UTX, MMM, MKC, CSX, T, MO, WPC, STOR, NNN, D, VTR, ABBV, O, BEP, BIP, VZ, DLR, IVZ, ENB, VER, SBRA, SBUX, BA, V, AVGO, NKE, CMCSA, FDX, MA, DPZ, HD, LOW, GOOGL, BRK.B, AMZN, BMY, STZ, NVDA, REZI, GTX. 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.