Seeking Alpha

Q3 Portfolio Review

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Includes: AAPL, ABBV, ADM, ADP, ADX, APLE, APO, BCE, BEP, BIP, BLK, BMO, BMY, BNS, BXP.PB, CAT, CMI, CSCO, DIS, ENB, EPD, ETN, FRT.PC, GPC, HD, HQH, IBM, IFN, ITW, IVZ, JNJ, KO, MMM, MRK, MSFT, NNN.PF, NUE, NVS, OXY, PEP, PFE, PG, PPL, PRU, PSB.PY, RDS.A, RDS.B, RMT, RVT, RY, SKT, SPG, T, TD, TU, TXN, UL, UPS, WMT, WPC
by: Dividend Sleuth
Dividend Sleuth
Long only, value, growth at reasonable price, dividend income
Summary

"Don't confuse brains with a bull market."

The portfolio is up 2.76% for the quarter, up 19.19% in 2019, and the current yield is 4.43%.

Q3 additions included twelve new common stock positions, one preferred stock and one closed-end fund.

One common stock position was closed and one preferred stock was sold.

Q4 strategy.

"Don't confuse brains with a bull market"

This quote attributed to Humphrey B. Neill reminds me that the primary driver of the portfolio's growth has been our long bull market. The fifth edition of Neill's book, The Art of Contrary Thinking, is available via a free PDF download. From page 55:

"...the crowd is always wrong at IMPORTANT reversal areas in market trends. ... A probing mind is a contrary mind. ... the overvalued medium is easily overlooked when markets are ebullient and 'everyone' is buying."

Up 2.76% in Q3; 19.19% in 2019; yield is 4.43%

Q3 was a decent quarter. The DJIA and S&P 500 were both up 1.2% for the quarter. During the quarter, I took advantage of some opportunities to diversify the portfolio. At the end of Q2, twelve stocks each represented more than 3% of the portfolio. By September 30, only three stocks accounted for more than 2.5% of the portfolio.

The challenge (always) is to improve the quality of the portfolio with incremental increases in the portfolio's dividend income, which was up 6.09% from June 28 through September 30. The yield increased from 4.24% at the end of Q2 to 4.43% on September 30. The cash position at the end of Q2 was 6.31%. Cash dropped to 2.94% at the end of Q3.

Twelve new common stocks; one preferred; one CEF

These new common stock positions were initiated: Microsoft (MSFT), Walmart (WMT), Automatic Data Processing (ADP), Novartis (NVS), Bank of Montreal (BMO), Genuine Parts (GPC), Caterpillar (CAT), Prudential Financial (PRU), Disney (DIS), Apollo Global Management (APO), TELUS (TU), and Invesco (IVZ).

I added Boston Properties Preferred Series B (BXP.PB) and Tekla Healthcare Investors closed-end fund (HQH).

During Q3, I increased the number of Apple (AAPL) shares by 43%.

Two positions closed: One common and one preferred

I closed my position in Qualcomm (QCOM). At the end of Q2, technology represented 12.63% of the portfolio. By September 30, tech was 10.74%. As I add more ADP shares and as AAPL and MSFT grow (through appreciation or additional shares on dips), technology will move back into the 12.6% range - effectively swapping QCOM for ADP, MSFT and more AAPL.

I sold Arch Capital Group Preferred Series F (ACGLO) for three reasons. I misread one detail. ACGLO is non-cumulative. The unexpected addition of PRU and IVZ gave me adequate exposure to the financial sector. (IVZ was an idea presented to me by my colleague Kirk Spano.) ACGLO appreciated nicely after I bought it and I was able to add BXP.PB, which was consistent with my earlier plan to add preferred shares of some REITs with high credit ratings.

Portfolio as of September 30, 2019

Here's a breakdown of the portfolio by sectors:

Financials comprise 15.91% of portfolio value and 15.95% of income: BlackRock (BLK), Toronto-Dominion Bank (TD), Royal Bank of Canada (RY), Bank of Nova Scotia (BNS), Bank of Montreal (BMO), Prudential Financial (PRU), Apollo Global Management (APO), Invesco.

Real Estate is 13.53% of portfolio value and 17.24% of income: Simon Property Group (SPG), W.P. Carey (WPC), Apple Hospitality REIT (APLE), National Retail Properties Preferred Series F (NNN.PF), Federal Realty Investment Trust Preferred Series C (FRT.PC), PS Business Parks Preferred Series Y (PSB.PY), Boston Properties Preferred Series B.

Industrials comprise 12.38% of portfolio value and 9.00% of income: 3M (MMM), Illinois Tool Works (ITW), Cummins (CMI), United Parcel Service (UPS), Caterpillar (CAT), Eaton (ETN).

Health Care is 12.12% of portfolio value and 11.64% of income: Johnson & Johnson (JNJ), Merck (MRK), Novartis, Pfizer (PFE), Bristol-Myers Squibb (BMY), AbbVie (ABBV), Tekla Healthcare Investors.

Information Technology comprises 10.74% of portfolio value and 6.38% of income: Microsoft, Apple, Automatic Data Processing, Cisco Systems (CSCO), Texas Instruments (TXN), International Business Machines (IBM).

Energy represents 7.43% of portfolio value and 10.96% of income: Royal Dutch Shell (RDS.B) (NYSE:RDS.A), Occidental Petroleum (OXY), Enterprise Products Partners (EPD), Enbridge Inc. (ENB).

Consumer Staples make up 7.33% of portfolio value and 4.56% of income: Walmart, Procter & Gamble (PG), PepsiCo (PEP), Archer-Daniels-Midland (ADM).

Utilities represent 5.88% of portfolio value and 6.42% of income: PPL Corporation (PPL), Brookfield Infrastructure Partners (BIP), Brookfield Renewable Partners (BEP).

Communication Services comprise 5.42% of portfolio value and 5.60% of income: Walt Disney, TELUS, BCE Inc. (BCE); AT&T (T).

Consumer Discretionary represents 2.19% of portfolio value and 1.52% of income: Genuine Parts Company.

Three closed end dividend funds comprise 3.08% of portfolio value and 6.68% of income: Adams Diversified Equity Fund (ADX), Royce Value Trust (RVT), Royce Micro Cap Trust (RMT).

One closed-end international fund comprises 1.04% of portfolio value and 3.38% of income: The India Fund (IFN).

The portfolio's 46 common and 4 preferred equities are listed in the table below, followed by 5 closed-end funds. Price is the 9/30/19 closing price. %Port is each holding's percentage of the portfolio's market value as of 9/30/19. Div is the annual dividend per share (or distribution per unit). Yld is the dividend yield per share as of the close on 9/30/19. %Inc is the percentage of the portfolio's income contributed by each holding. Buy is the price at which I would consider adding more shares. I've set an alert with Custom Stock Alerts for these targets. S&P is the Standard & Poor's credit rating, where available. CCC is the number of consecutive years of dividend/distribution increases, per Justin Law, the DRIP Investing Resource Center and the Canadian Dividend All-Star list (where available). SSD is the Dividend Safety number assigned to each holding (where available) by Simply Safe Dividends.

Ticker Price %Port Div %Yld %Inc Buy S&P CCC SSD
JNJ 129.38 2.19% 3.80 2.94% 1.45% 115 AAA 57 99
MSFT 139.03 1.77% 2.04 1.47% 0.58% 133 AAA 17 99
AAPL 223.97 1.90% 3.08 1.38% 0.59% 210 AA+ 8 99
WMT 118.68 0.60% 2.10 1.77% 0.24% 104 AA 46 78
ADP 161.42 0.55% 3.16 1.96% 0.24% 154 AA 44 96
MRK 84.18 2.14% 2.20 2.61% 1.26% 72 AA 8 99
PG 124.38 2.32% 2.98 2.40% 1.25% 96 AA- 63 99
MMM 164.40 2.23% 5.76 3.50% 1.76% 154 AA- 61 75
NVS 86.90 0.44% 2.88 3.31% 0.33% 79 AA- 22 61
BLK 445.64 2.27% 13.20 2.96% 1.51% 360 AA- 10 98
PFE 35.93 2.56% 1.44 4.01% 2.31% 33 AA- 9 75
CSCO 49.41 2.01% 1.40 2.83% 1.28% 40 AA- 9 91
TD 58.26 2.27% 2.24 3.84% 1.97% 51 AA- 8 95
RY 81.16 2.27% 3.18 3.91% 2.00% 70 AA- 8 94
RDS.B 59.90 2.33% 3.76 6.28% 3.31% 50 AA- 0 64
PEP 137.10 2.32% 1.60 2.79% 1.46% 114 A+ 47 93
ITW 156.49 2.25% 3.82 2.73% 1.39% 140 A+ 44 81
TXN 129.24 2.30% 3.60 2.79% 1.44% 112 A+ 15 90
CMI 162.67 2.34% 5.24 3.22% 1.70% 125 A+ 14 98
UPS 119.82 2.23% 3.84 3.20% 1.61% 101 A+ 10 69
BMY 50.71 2.49% 1.64 3.23% 0.94% 48 A+ 10 79
BNS 56.85 2.36% 2.72 4.79% 2.55% 46 A+ 8 89
BMO 73.75 1.25% 3.12 4.23% 1.19% 63 A+ 8 94
GPC 99.59 2.19% 3.05 3.06% 1.52% 79 NR 63 69
ADM 41.07 2.09% 1.40 3.41% 1.61% 33 A 44 94
CAT 126.31 1.07% 4.12 3.26% 0.79% 120 A 26 93
IBM 145.42 2.22% 6.48 4.46% 2.23% 125 A 24 65
PRU 89.95 2.45% 4.00 4.45% 2.46% 76 A 11 61
SPG 155.65 2.64% 8.40 5.40% 3.21% 139 A 10 65
DIS 130.32 0.66% 1.76 1.35% 0.20% 115 A 9 99
APO 37.82 1.60% 2.00 5.29% 1.91% 35 A 0 NR
PPL 31.49 2.13% 1.65 5.24% 2.52% 28 A- 18 75
ETN 83.15 2.25% 2.84 3.42% 1.74% 71 A- 10 85
ABBV 75.72 2.57% 4.28 5.65% 3.27% 61 A- 7 50
ENB 35.08 1.19% 2.23 6.36% 1.71% 30 BBB+ 23 57
EPD 28.58 1.45% 1.76 6.16% 2.02% 23 BBB+ 22 89
TU 35.62 1.51% 1.70 4.78% 1.63% 32 BBB+ 15 72
BIP 49.61 1.68% 2.01 4.05% 1.54% 37 BBB+ 12 65
BEP 40.62 2.07% 2.06 5.07% 2.36% 30 BBB+ 10 50
BCE 48.41 1.64% 2.40 4.95% 1.83% 39 BBB+ 10 42
IVZ 16.94 1.44% 1.24 7.32% 2.37% 15 BBB+ 10 41
T 37.84 1.60% 2.04 5.39% 1.95% 29 BBB 35 55
SKT 15.48 1.37% 1.42 9.17% 2.81% 14 BBB 26 52
WPC 89.50 1.52% 4.14 4.63% 1.58% 69 BBB 22 73
OXY 44.47 2.45% 3.16 7.11% 3.93% 41 BBB 16 61
APLE 16.58 1.12% 1.20 7.24% 1.83% 14 NR 0 43
NNN.PF 25.83 1.75% 1.30 5.03% 1.99% 24 BBB+
PSB.PY 26.14 1.77% 1.30 4.97% 1.99% 24 A-
FRT.PC 25.26 1.71% 1.25 4.95% 1.91% 24 A-
BXP.PB 25.12 1.70% 1.31 5.22% 2.01% 24 A-
ADX 15.84 1.00% 2.00 12.63% 2.85% 13
IFN 20.53 1.04% 2.95 14.37% 3.38% 18
HQH 18.34 0.93% 1.80 9.81% 2.06% 17
RMT 8.04 1.02% 0.68 8.46% 1.94% 7
RVT 13.76 1.06% 1.08 7.85% 1.88% 12
Cash 2.94% 1.00%

Q4 Strategy

I have overweight positions in SPG, PFE, ABBV, OXY and PRU. As these appreciate in price, and as their yields moderate, I plan to trim these positions. I'm happy to hold the four preferred stocks. I would be willing to sell these and apply the funds to common stocks on my watch list if compelling opportunities arise.

I made an initial purchase of Unilever (UL) on Monday, October 1, when a limit order filled at $59.70. As of 10/1/2019, UL was 1.02% of the portfolio value.

I plan to add to these positions at my target prices as funds are available: WMT, ADP, NVS, BMY, BMO, CAT and DIS. Coca-Cola (KO) is on my short watchlist, with a target price of $53.00. Realty Income (O) is on the list at $68.00. Those are targets for an initial one-half position.

Others I'm watching include Home Depot (HD) at $220 and Nucor (NUE) at $49.

Conclusion

Thank you for reading. I'm not advocating the purchase or sale of any security. These quarterly updates form a journal of my effort to design and maintain a retirement income portfolio with a relatively safe stream of growing dividends. I seek companies with histories of rising dividends, strong financials and solid future prospects. Your goals and risk tolerance may differ, so please do your own due diligence. If you'd like to receive notices of future article posts, hit the "Follow" button.

Disclosure: I am/we are long JNJ, MSFT, AAPL, WMT, MRK, PG, MMM, NVS, BLK, CSCO, PFE, RY, TD, RDS.B, PEP, ITW, UL, TXN, CMI, UPS, BMY, BNS, BMO, GPC, ADM, CAT, IBM, PRU, SPG, DIS, APO, PPL, ETN, ABBV, ENB, EPD, TU, BIP, BEP, BCE, IVZ, T, SKT, WPC, OXY, APLE, BXP.PB, FRT.PC, NNN.PF, PSB.PY, ADX, IFN, RMT, RVT, HQH. 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 article is for informational purposes only (not a solicitation to buy or sell stocks). I am not a registered investment adviser. Investors should do their own research or consult a financial adviser to determine what investments are appropriate for their individual situation. This article expresses my opinions and I cannot guarantee that the information/results will be accurate. Investing in stocks involves risk and could result in losses.