Seeking Alpha

5%+ Dividend Yield Portfolio: Defensive Positioning Paying Off (Sept. 2019 Review)

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Includes: ABBV, AGN, BP, BXMT, CAH, CAJ, CHIC, DVYA, ECNS, EELV, EWA, EWM, FGD, GILD, GSK, HDAW, HDLV, IBB, IBM, IDHD, IDV, IEIH, IGLB, ING, IQDE, IRM, KMI, KREF, LYB, NRZ, OXY, PACW, PBCT, PFE, PGAL, QYLD, RIG, SBRA, SKT, SPHD, SPLB, SPYD, T, XSHD
by: Dividend Disco
Dividend Disco
Value, dividend investing, ETF investing
Summary

Reversing recent disappointments, I creamed the market with a 4.5% return in September, despite my large cash cushion.

My July dividends were up 32% increase from a year ago and my YTD dividends are up over 15%.

My dividend yields continue achieve around 5% (versus the 2% mark for the S&P 500).

Not doing a lot of trading until my free Schwab trades kick in on October 8.

Musings

September was full of mixed signals. On one hand, the S&P 500 retested its all-time high (and I had a killer +4.5% month). On the other hand, the wall of worry for this long economic expansion has never seemed more daunting (trade wars, impeachment, earnings recession, etc).

As a pleasant change for those of us in the value/dividend space, September 2019 was the first time (in a long time) that value stocks really soared.

Source: S&P Dow Jones Indices

Personally, I expect defensive position outperformance to continue through this next phase of the market, which is why I have spent the summer pruning my portfolio to be more defensive. The market is always in a tentative position, but I feel that fear is starting to replace greed as the primary motivator of market participants. However, I do not expect total doom and gloom (at least not immediately) - so I am staying 80%+ invested (albeit in more defensive positions).

September 2019 Review

September 2019 was a solid one in the markets (despite swirling political headlines). For the month, the S&P 500 posted a 1.8% result which I crushed with a 4.5% gain. YTD, I am up 10.0% vs the 20.5% gains for the index (before dividends are considered). However, my 5.8% forward dividend yield on invested capital keeps crushing the less than 1.8% yield of the index.

As for cash yield, September 2019 rewarded me with realized dividends of $1,450 (versus $1,097 in 2018 - a meaty 32% increase - and my third monthly 30%+ YoY increase in a row). For the last 12 months, my portfolio delivered $16,206 in cash to me (up 15% from my 2018 total). My realized yield for the trailing twelve months was 5.2% for my full portfolio including cash reserves. I’m also quite confident about achieving 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!!

Background

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 September 30, 2019

Security Type Div Yield Market Value Last Month Value Monthly Gain/Loss (%)
FUNDS 5.6% $112,103 $108,559 3.3%
SPDR S&P 500 High Dividend ETF (SPYD) ETF 4.7% $22,788 $21,630 5.4%
Fst Tst Dow Jns Glbl Sel Dvd Idx ETF (FGD) ETF 6.6% $11,463 $10,885 5.3%
Invesco S&P Emerging Markets Low Volatility ETF (EELV) ETF 5.9% $9,096 $9,108 -0.1%
PowerShares S&P 500 High Div Low Volatility ETF (SPHD) ETF 4.3% $8,526 $8,102 5.2%
FlexShares Intl Quality Dividend Defensive (IQDE) ETF 5.3% $6,360 $6,300 0.9%
UBS ETRACS 2x US High Div, Low Vol ETN (HDLV) ETN 11.8% $5,609 $5,113 9.7%
Invesco S&P Intl Devd High Div Low Vol ETF (IDHD) ETF 4.3% $5,540 $5,490 0.9%
Xtrackers MSCI World ex US Div Yld Hdgd ETF (HDAW) ETF 5.0% $4,852 $4,738 2.4%
iShares Evolved U.S. Innovative Healthcare ETF (IEIH) ETF 1.4% $4,842 $4,912 -1.4%
Invesco S&P SmallCap High Div Low Vol ETF (XSHD) ETF 5.3% $4,806 $4,471 7.5%
Horizons NASDAQ 100 Covered Call ETF (QYLD) ETF 10.9% $4,520 $4,532 -0.3%
iShares MSCI Australia ETF (EWA) ETF 5.5% $4,450 $4,336 2.6%
iShares Asia/Pacific Dividend ETF (DVYA) ETF 6.4% $4,293 $4,196 2.3%
iShares MSCI China Small Cap ETF (ECNS) ETF 6.2% $3,870 $3,859 0.3%
iShares International Select Dividend ETF (IDV) ETF 6.3% $3,074 $2,948 4.3%
Global X MSCI Portugal ETF (PGAL) ETF 7.9% $3,036 $2,963 2.5%
iShares MSCI Malaysia ETF (EWM) ETF 3.7% $2,785 $2,792 -0.3%
Global X MSCI China Comm Services ETF (CHIC) ETF 0.5% $2,194 $2,184 0.5%
COMPANIES 6.4% $145,945 $136,787 6.7%
Abbvie (ABBV) Company 5.7% $18,930 $16,435 15.2%
Iron Mountain (IRM) REIT 7.6% $12,956 $12,740 1.7%
AT&T (T) Company 5.5% $11,352 $10,578 7.3%
Blackstone Mortgage Trust (BXMT) REIT 6.9% $10,755 $10,440 3.0%
Royal Dutch Shell (RDSB) Company 6.3% $8,985 $8,364 7.4%
Sabra Health Care REIT (SBRA) REIT 7.9% $7,715 $7,264 6.2%
New Residential Investment (NRZ) REIT 12.8% $8,060 $7,232 11.4%
Tanger Factory Outlet REIT (SKT) REIT 9.1% $7,740 $7,070 9.5%
Occidental Petroleum (OXY) Company 7.0% $4,447 $4,348 2.3%
Cardinal Health (CAH) Company 4.1% $4,719 $4,313 9.4%
GlaxoSmithKline (GSK) Company 4.8% $4,268 $4,158 2.6%
LyondellBasell (LYB) Company 4.7% $4,474 $3,869 15.6%
KKR Real Estate Finance Trust (KREF) REIT 8.8% $3,906 $3,782 3.3%
Kinder Morgan (KMI) Company 4.8% $3,792 $3,730 1.7%
BP (BP) Company 6.4% $3,799 $3,695 2.8%
Pfizer (PFE) Company 4.0% $3,593 $3,555 1.1%
PacWest Bancorp (PACW) Company 6.6% $3,634 $3,408 6.6%
IBM (IBM) Company 4.5% $3,636 $3,388 7.3%
Gilead Sciences (GILD) Company 4.0% $3,169 $3,177 -0.3%
People's United Financial (PBCT) Company 4.5% $3,127 $2,874 8.8%
ING (ING) Company 7.3% $3,135 $2,865 9.4%
Canon (CAJ) Company 5.4% $2,670 $2,590 3.1%
Allergan (AGN) Company 1.8% $2,524 $2,396 5.4%
Transocean (RIG) Company 0.0% $1,341 $1,365 -1.8%
VARIOUS POSITIONS OF <$1,000 VALUE VARIOUS 2.0% $3,219 $3,151 2.2%
FIXED INCOME TOTAL 4.0% $9,672 $9,770 -1.0%
iShares Long-Term Corporate Bond ETF (IGLB) ETF 4.1% $6,663 $6,765 -1.5%
SPDR Long Term Corporate Bond ETF (SPLB) ETF 3.8% $3,009 $3,005 0.1%
SCHWAB ROBO-ADVISOR TOTAL 2.0% $13,006 $12,729 2.2%
TOTAL 5.8% $280,726 $267,845
TOTAL + CASH $50,684 4.9% $331,411 $317,267 4.5%

Portfolio Moves in September 2019

New Positions

SHARE BUY– SPDR Portfolio Long Term Corporate Bond ETF (SPLB): Bought 100 shares of this corporate bond ETF at $30.05 on September 5.

  • Reasoning: I am just parking cash here because the 3.8% yield (with only a 0.07% fee and no trading cost) is better than the net ~2% I get on a money market fund.

Exited Positions

SHARE SALE– iShares Nasdaq Biotechnology ETF (IBB): Sold my whole position (50 shares) of this biotech ETF at $104.55 on September 19.

  • Reasoning: While I still deeply believe in the power of biotechnology investing, IBB has too high a fee level (0.47%) so I am switching to XBI (even though neither ETF is ‘on theme’ for a dividend focused portfolio).

Final Thoughts

It was a quiet trading month for me as I continued to sell non-core positions and build defensive positions. While my strategy is the same, I am positioning for choppy waters in a way that helps me sleep better at night.

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 will separate my thoughts into two buckets: ‘Likely Signal’ for front of mind topics and ‘Probably Noise’ for things in the press that don’t bother me much at this point with regards to how it might impact equity markets.

Likely Signal:

  • Elevated U.S. valuations versus low corporate growth expectations (the 2019 ‘earnings recession’ is the largest block in my personal ‘wall of worry’)
  • Repeated and persistent yield curve inversions (I wasn’t worried the first few times, but now the signal is becoming undeniable)
  • Slowing corporate buybacks slowing (aka the last solid source of ‘bid’ in the markets)
  • Rising worldwide protectionist entrenchment (aka trade wars) makes conflicts permanent (at least for a while)
  • World economies continue to sag (though I think there are buying opportunities here)

Probably Noise:

  • Fed rate changes (given all the instability, the Fed will probably continue to cut rates, but I am losing confidence in the Fed’s ability to stabilize equity markets)
  • Anything 2020 politics (it’s just too early and governance has a way of moderating firebrands)

Comments encouraged.

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.