Welcome to my monthly update for my dividend growth portfolio. This article series covers my investing journey as a father of two towards my eventual retirement. Any specific stocks or amounts are particular to my self-directed 401k plan.
The goal of my portfolio is to generate a perpetually growing income stream for my wife and I during our golden years. The aim is to live off dividends without touching the principal. Dividend growth stocks and ETFs are the chosen vehicle to meet that goal. Now 34, I have approximately 25 years before I can (safely) touch any of this money.
For anyone interested in seeing changes in real time, I have my portfolio and dividends tracked on Dividend Derek. I also have a trimmed version that you can freely take for yourself if you wish, found here.
I've received some questions in the past, so you can save off a copy by selecting "File" -> "Make A Copy."
I introduced a change log as a quick reference to highlight relevant non-data changes. Things like dividends collected, dividend increases, and charts will all change each month regardless.
- Added a section regarding contributions
- Added a new monthly dividend progress line chart
- Updated target portfolio to 15% growth, 25% high yield
August was a slightly down month for the S&P and my own portfolio. There's been a lot of "noise" coming from all directions on many topics. There were a few dip days and while I'm not a really "buy the dip" kind of guy, some names were hit particularly harder than others.
More importantly, my dividend income continues to grow month after month whether it is by dividend reinvestment, organic dividend increases or new purchases.
I ended the month with a balance of $321,861 which was down from $329,729 month over month (-2.3%).
- I want my dividend growth holdings to have an average dividend growth rate of at least 7% (currently 8.6%).
- By the end of 2019, I want to have a projected dividend income of at least $10,000 (accomplished in July. Was $9,000 and accomplished in April. Originally $7,900 at start of 2019).
- I want to suffer no dividend cuts. (Annaly (NLY) cut in April)
These are the general guidelines I will review to see if something is worthy of adding to my dividend portfolio or whether I will add to an existing position.
This is the first round of questions to review during an initial filtering process of investments.
- What is the opportunity here?
- Am I excited about the business?
- What are expected returns?
- What are the risks and downside?
- How does this fit into my portfolio?
- Is the opportunity here better than an ETF?
- There needs to be something materially different that isn't readily duplicated with another product. This could be a yield that I can't easily get or some major upside potential / limited downside that can be defined. This could be historically low P/E as an example.
- How long is their dividend growth streak?
- Chowder rule > 10%. High yield investments may get a pass on this. Like mentioned above, I want some additional "kicker" that can provide additional upside with less risk.
- I want to see steady earnings growth over time; this will generally remove commodity-based companies.
- I like cash cows. Good profit margins (> 10%) are appreciated, though not required. A company with a moat should be analyzed to see how easily its moat can be disrupted.
- I like to see shareholder-friendly management. This manifests in a healthy and rising dividend and a willingness to buy back shares. Often buybacks aren't always done at opportune times. Additionally, they are frequently established to just buy back stock options for employees. A good metric to investigate is the "total shareholder yield." This aggregates net dividends, buybacks and debt reduction.
- Perhaps most importantly, the valuation needs to be right per F.A.S.T. Graphs. The stock should be trading at fair value or better for an appropriate timeline (13+ years, if possible). With a longer time frame, I can see how shares fared during the Great Recession, and this also removes some of the recency bias that can come from only analyzing valuation during this extended bull market.
- I will also use Simply Safe Dividends and the information provided by Brian on his site. Among a plethora of information available, he has a dividend scorecard where companies are ranked in terms of dividend safety, growth and yield. I aim to pick companies that are in the 80+ safety range.
Here are my guidelines when I may consider a stock sale.
- Dividend cut.
- Company degradation - This could be things like deteriorating balance sheets, loss of competitive advantage and loss of credit ratings. These factors may come to light before a dividend cut manifests. This may also appear in a streak of less-than-expected dividend increases. The dividend increase is the more visible outward sign of a company's success. A paltry increase or two may underscore problems below the surface.
- Wild overvaluation - This becomes a bigger factor if there is something at a fair valuation that I wish to purchase with the proceeds. I will admit that several things I have sold have continued to defy financial gravity, so I am more becoming of the mind of just ignoring overvaluation if the underlying business continues to operate well. Think "Selling into Strength".
- I may put in a limit order to sell, tailing a stock upwards until financial gravity kicks in.
- I may write an out-of-the-money covered call.
- I just don't want to own it. When I pull this card, I will more fully explain my reasoning. Part of the beauty of owning individual companies is choosing where I put my money. I can opt to not support companies, products, management, etc. that I do not agree with. An example of this could be companies with management issues or criminal/unethical business practices.
- Based on known information, capital is better passively invested or focused into better ideas.
One tactic I've used is buying shares prior to the ex-dividend date after the company has announced its yearly increase (this also works for ETFs). The increase in amount gives a quick, "at a glance" look into how management thinks the company is operating. A large increase can be confirmation from management that the business is running quite well. Sometimes, the reverse can be true too - being snubbed with a "bad raise" can be a red flag that things are not as they seem and it's time to research what's up. I've front-run a dividend increase several times already with Altria Group, Starbucks (SBUX), Corning (GLW), Prudential Financial (PRU), Home Depot (HD), Johnson & Johnson (JNJ) and Illinois Tool Works (ITW).
Most importantly, this was not done to chase dividends but to strategically add to a position that was worthy of being added to. Trees don't grow to the sky, and neither do dividend yields. A quality company that has a nice dividend increase should see its stock price rise by a similar amount over the course of the year, readjusting to the new and higher dividend amount. By jumping the gun, you can speed up the compounding process.
If this sounds interesting to you, you should check out my weekly article, where I give the full list of these companies.
At the end of 2018, I turned off my dividend reinvestment as I wanted a continual cash flow coming in. As time goes on that continues to evolve. Analyzing my data, I came up with a simple metric for determining whether to turn it on or off. If the current share price is below my cost basis, I may turn it on. I would do this if as my cash is above my target (5% and it currently is). This is not universal, and I have reinvestment on for some other names.
To keep track of this, I just added some basic conditional formatting to my spreadsheet. I'll highlight cells green if I have an opportunity to lower my cost basis.
I can quickly cross reference this with my upcoming dividend calendar for my dividend alerts. Additionally, I added an extra column on my spreadsheet for whether it's on or off. I may look to add this as an extra feature on CSA.
The important note is that I always want cash on hand after the Q4 2018 meltdown left me with minimal ammo to take advantage of the sales.
With that said, here is the current state of where reinvestment is on. I created another table on my sheet to just capture this information, so I can see at a glance how I stand. You'll note that reinvestment is on for some generational ideas like Mastercard (MA), Visa (V) and my favorite dividend ETF (SCHD).
Here's the table of my basis and current share prices. This month I turned the DRIP back on for MO and ticked it on for Prudential and Walgreens as well.
|Name||Ticker||My Basis||Current Share Price||Reinvest On?|
|Global X US SuperDividend||DIV||$23.25||$23.04||Yes|
|Global X MSCI SuperDividend||EFAS||$16.06||$15.11||Yes|
|Annaly Capital Management||NLY||$9.76||$8.39||Yes|
|Schwab US Dividend ETF||SCHD||$51.34||$54.79||Yes|
|Global X MSCI SuperDividend Emerging||SDEM||$13.94||$12.74||Yes|
|Global X SuperDividend® ETF||SDIV||$17.97||$16.63||Yes|
|Tanger Factory Outlets||SKT||$21.37||$15.62||Yes|
|Simon Property Group||SPG||$169.80||$153.99||Yes|
|Global X SuperDividend REIT||SRET||$14.91||$14.50||Yes|
- None this month
- Annaly Capital Management in April
I did change my contribution to be traditional 401k based from Roth. I could use more cash in my paycheck and in truth I have trouble believing at this point that my tax rate will be higher in retirement. I'm open to more suggestions in this arena.
As you can see I only have a little over $2,000 left to contribute for the year which I'll achieve by mid-October. Starting now I must be more cognizant of putting money to work with this looming. Last year I was unable to really capture the December correction with limited cash available.
|Name||Ticker||Percent of Portfolio||CCC Status||S&P Credit Rating|
|Global X US SuperDividend||(DIV)||0.70%|
|Global X MSCI SuperDividend||(EFAS)||1.38%||Challenger||A|
|First Global Dow Jones Global Dividend Index||(FGD)||1.36%|
|iShares International Select Dividend ETF||(IDV)||0.91%|
|Illinois Tool Works||(ITW)||2.90%||Champion||A+|
|Johnson & Johnson||(JNJ)||2.30%||Champion||AAA|
|Kraft Heinz Company||(KHC)||0.84%||None||BBB|
|Global X MLP ETF||(MLPA)||0.75%|
|Annaly Capital Management||(NLY)||0.78%||None|
|Invesco CEF Income ETF||(PCEF)||0.68%|
|iShares mREIT ETF||(REM)||1.24%|
|Schwab US Dividend ETF||(SCHD)||3.38%|
|Global X MSCI SuperDividend Emerging||(SDEM)||1.16%|
|Global X SuperDividend® ETF||(SDIV)||2.54%|
|Tanger Factory Outlets||(SKT)||1.98%||Contender||BBB|
|Simon Property Group||(SPG)||1.88%||Contender||A|
|SPDR S&P High Dividend||(SPYD)||1.13%|
|Global X SuperDividend REIT||(SRET)||0.89%|
|Stanley Black & Decker||(SWK)||2.46%||Champion||A|
|T. Rowe Price||(TROW)||1.50%||Champion||A+|
|United Technologies Corporation||(UTX)||1.87%||Contender||A-|
Here are the values behind the "CCC Status" category:
- King: 50+ years
- Champion/Aristocrat: 25+ years
- Contender: 10-24 years
- Challenger: 5+ years
Here's my updated list of performance of my holdings versus their benchmark since I've first owned shares.
|Ticker||Owned Since||Versus S&P||Benchmark||Versus Benchmark|
Versus S&P: This is a measure of the alpha generated (or not) versus the S&P 500 as a benchmark. This is calculated using the stock return calculator here, and it uses the "Owned Since" column as the starting date. This may not reflect actual results, as multiple purchases would change the figure. I can also set the benchmark at the individual ticker level. This table is how shares have performed since I first purchased them. I can compare versus both the S&P and another benchmark for each holding. It's supported by the stock return calculator (there is also API access available for use in spreadsheets) that I built.
The next column allows flexibility to define what my benchmark can be. For example, look at the REITs - I've set their benchmark to be VNQ for an apples-to-apples comparison. A utility could be compared to XLU for example. I need to flesh out what high yield ETF I want to be the benchmark for my high yielding ETFs.
In past editions, I highlighted just how quick these results can change. My former holding of Ventas (VTR) went from a major laggard of both VNQ and the S&P to beating both of them within a few months. I managed to also sell my shares at the top. ABT was one of the hottest stocks I owned and around the time I trimmed it, it was beating the S&P by 82%.
I've begun calculating a few aggregate statistics for my portfolio. I created a few metrics to look at the portfolio.
|YOC (Divi Companies)||4.96%|
|Yield (Divi Companies)||3.88%|
|Yield w/Cash Drag||3.29%|
Projected Income - the sum of all known dividends for all holdings
Cash Ratio - percentage of cash in the portfolio
Total Value - self-explanatory
For these next batch, the numerator in each calculation is my "Projected Income".
YOC (Divi Companies) = "Projected Income" / ("sum of invested capital" - (cash + cost of all non-dividend-paying companies)). This is my yield based on what I put in, this is separate from current market valuations.
Yield (Divi Companies) = "Projected Income" / ("Portfolio Value" - (cash + value of all non-dividend-paying companies)). Said another way, this is the yield from all my dividend-paying companies.
Portfolio Yield = "Projected Income" / ("Portfolio Value" - Cash). This is the yield based on all my invested money and their respective prices today. This would be the headline figure advertising the portfolio.
Yield w/Cash Drag = "Projected Income" / ("Portfolio Value"). All in, this is the yield given my expected income divided by the full portfolio value.
I picked up another 10 shares of MMM during the month on the 14th @ $160.70. This added another $57 of yearly dividend income. This was only my second purchase of 3M, the first being the first time it came back under $200 last May. Reinvestment is also enabled to lower my cost basis.
I added another 23 shares of Prudential on the 15th @ $80 via a limit buy order to lock in a 5% yield on this tranche. This rounded me up to 100 shares and I also re-enabled reinvestment. This added another $92 of yearly dividend income. This was an existing holding and the reason I added more was quite simple - see the image from the stock dropping off a cliff.
Chatham Lodging Trust
I put in a speculative buy limit order on Chatham that triggered on the 23rd (along with Cisco and Wells Fargo). I picked up 100 shares @ $16.5 via a limit to lock in an 8% yield. This is a high yield play and one of the few that pays a monthly dividend. In a similar vein to Apple Hospitality, I'm currently allocating 0.5% of my portfolio to it and I'm willing to double it down the road. This'll add $132 of annual income.
Added 50 shares @ $46.65 to jump back into this name and lock in a 3% yield. I had both sold shares and had a lot called away earlier this year. I didn't quite catch the peak (you never will) but back in the mid 40's seems like a much better value than in the mid 50's. Added $70 of yearly dividends for now. Cisco also has a massive cash hoard that they will continue to deploy to shareholders.
Bought 50 shares at $44.30 via a limit order to start a new position in Wells Fargo with a starting 4.6% yield. That'll add $102 in annual income. I've been on the sidelines for about the past 18 months after having previously sold my shares. I did miss the first dividend after the 13.3% increase but at the time it was announced shares were pushed back up to the $47-49 range. That said, I did gain over a year benefit by waiting until a lower starting price.
I initially sold in February of 2018 primarily because of the issues surrounding the fake account scandal. I also did not believe Tim Sloan - a lifer at Wells - was the man to properly lead them forward given him being an insider to the situation. That said, I sold my shares $58.42 which locked in a hefty profit. My new starting cost basis is also $5 a share lower than my previous basis ($48-49 range over multiple purchases). Shares had previously peaked in the mid $60s just a few weeks prior.
The catalysts I see going forward that can propel this stock to new highs are:
- Hiring a CEO!
- Having the asset cap lifted by the Federal Reserve
- Continued buybacks and rapidly growing dividend will attract more investors
In aggregate, here's what happened:
Charts And Graphs
I created a new chart for this month to show my dividend journey progress. It is my average monthly dividend and it is a rolling average based on the current and prior two months. What this does is smooth out the wild month to month variations but also provides more data points than strictly using quarterly figures to plot.
That said, there is a very clear trend up and to the right. Even after deviating from that course in the middle of 2018, I've regained the trend. I added a linear trendline along with showing R^2 value to show how closely the trend line fits the data (0.943 means it fits extremely well). The next step will be to use this data to project forward.
I'm working through the math behind it but there is a trend of about $125 ($1,500/year) in new monthly dividend income accrued per year. What I ultimately like about the chart is that it takes a step back from focusing on an individual month and puts the whole journey into perspective. It gives me something firmer to point to and eventually I need to figure out where my summit aka retirement is.
|Month beginning||Average Monthly Amount||Notes|
This table is using the approximate values seen above and projected out several years. By the end of 2019 I should be at about a monthly level of $750 and $875 by the end of 2020.
August was a stellar month and three of the past four months have seen dividends over $800 per month. The $832 was also substantially higher than the $536 in 2018.
- My monthly ETF suite (EFAS, PCEF, SDEM, SDIV and SRET) provided $138.
- This was my first time receiving the DIV dividend.
- Compared to prior quarter in May, there was a boost from ABBV, SKT and SPG
- Here's the table of who paid me during the month.
Dividends By Position Size
The bubble graph maps expected yearly dividends (y-axis) by the percentage in my portfolio (x-axis). The third data point, yield on cost, is represented by the size of the bubble.
The bubble for MO shifted far to the left - it used to be in a small cluster alongside T. Remember as the share price increases or drops that will meander as a percent of my portfolio. Additionally, AT&T has been in a nice uptrend as it continues to push new highs.
On a monthly level, the $832 in August was 55% higher than the $536 last year. To the right of that figure, the 20.66% is a rolling comparison to 2018 (a total of $5,723 versus $4,743). This rolling figure helps smooth out the monthly variances.
This table is my forward-looking 12-month dividend view. This is where I sum up what I would earn in the next 12 months based on the shares I own and the currently declared dividend rates.
This year has seen a monumental shift in projected dividend income. I've gone from having a lower projected figure in January 2019 than I had in January 2018. This was a consequence of selling some dividend stocks in late 2018 and adding either low or no dividend paying companies. From that point, I've pivoted back and have seen my income vault well over $10,000 in July. I'm sitting at $10,898 and potentially can cross $11,000 this month. My next stop is $12,000 (average $1,000/month). That figure is possible this year, but it will require a meaningful correction to help boost yields.
Now, the year-over-year growth is up 64% and up 62% YTD. I saw a 4.6% month over month increase.
I created a target portfolio that captures my need for a lot of various dividend sources while also having allocation to growth. This is how I would like to allocate money across different equity (not asset) classes. I'm an equity guy and things like commodities, currencies or bonds don't really interest me.
I first allocated 15% to growth stocks (was 20%). This scratches my itch for having shares in Berkshire and the FANGs of the world. I'm also optimistic that at least some will be the dividend growers of the future.
Next is 25% (was 20%) allocated to high-yielding stocks. I use these as the income portion of my dividend machine. Dividends may be directly reinvested if current prices are right or they will be harvested and tactically allocated to the best investment idea at the time. It also helps me shore up my "balance sheet" by having more cash being generated alongside my regular 401(K) contributions.
The main portion of the portfolio at 55% is core dividend growth. This is where I am to pick names that I expect to surpass the high yielders decades down the road. I would consider names like Apple, Nike or Home Depot to be generational winners.
Lastly, the remaining 5% is allocated to cash. I think any "active" investor must have cash on the sidelines at all times for opportunities that present themselves. Frequently these opportunities may only last a day and with no cash available either leads to a missed opportunity or a need to scramble to sell something else. This will help prevent FOMO.
Another way to view the core portfolio would be through a Venn diagram across the three equity categories.
For illustrative purposes, I specifically have the circles overlapping most of the area to highlight the focus on dividend growth stocks.
The changes I've made during the year have gotten me where I'm looking to be. There are some slight deltas but I'm happy with it.
The classifications are subjective, but I try to be logically consistent here is how I grouped them. One example of the subjective nature is Altria is pegged as a dividend growth stock, but AT&T is high yield. Their current yields are about the same, but the growth rate of T's dividend is barely beating the rate of inflation, if at all.
Income By Sector
I have about 1/3 of my dividends coming from different ETFs, leaving 2/3 spread across the remaining sectors. Individual REITs are the big standout from a specific sector standpoint.
About 20% of my overall invested money is in ETFs. The rest is split appropriately across the rest of the sectors. Technology is a close second with 19% allocation.
Champion, Contender, Challenger View
I picked up two contenders (CSCO and WFC) this month and one "none" with CLDT.
Things Coming Up
I have a few possible buys in the ETF space this month. SPYD, SCHD and REM are on my shortlist as they all go ex-dividend later this month. I may jump in and snag some shares prior to the dividend payments.
Here's a screenshot from my ex-dividend alerting tool that I built. I may be able to lower my cost basis for SPYD and REM, not so much for SCHD.
In terms of dividend increases I am waiting for ITW to announce their increase this month.
I like to run this screener to get some idea generation going and I've included it in case it helps anyone out. Here are the filters I start with:
- $10 billion+ in size
- US companies
- Positive dividend yield
- Forward P/E under 20 (I also remove this filter to allow REITs to show up)
- Sorted by their 52-week lows
Right off the bat I see many existing holdings; NLY, MO, SPG, GLW, JNJ, and MMM.
I wrapped up August with $832 in dividends which brings the yearly total to $5,723. I collected 55% more dividends than August of 2018. Year to date, I've collected 20.6% more than 2018.
I made 5 purchases in August and added $480 of projected income over the next year. Year to date, my projected income has grown 62% to $10,898. I finished with 44 dividend paying holdings.
MO had a 5% dividend increase this month which is lower than my 7% target.
Thanks for reading, I hope you've enjoyed reading it as much as I've enjoyed writing it. I encourage you to "follow me" if you don't already!
Disclosure: I am/we are long AAPL, ABBV, AMZN, APLE, BRK.B, CLDT, CSCO, CVS, DIS, DIV, EFAS, FB, FGD, GLW, GOOG, HD, IDV, IRM, ITW, JNJ, JPM, KHC, KWEB, MA, MDT, MLPA, MMM, MO, NKE, NLY, PCEF, PRU, REM, SBUX, SCHD, SDEM, SDIV, SKT, SPG, SPYD, SQ, SRET, SWK, T, TROW, TRV, UTX, V, WBA, WFC. 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.