Seeking Alpha

Swapping Apple For Apple - October Dividend Portfolio Update

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Includes: AAPL, ABBV, AINV, ALB, AM, AMTD, APLE, ARCC, ARI, ATVI, AVGO, AZSEY, BAC, BAYZF, BEP, BGS, BIP, BMWYY, BNS, BP, BPY, BX, CBAUF, CL, CLDT, CM, COR, CRM, CSCO, CTL, CVS, D, DDAIF, DHT, DIS, DRHKF, EPD, EPR, EQT, ET, FMS, FRO, FSNUF, FTR, GE, GILD, GIS, GM, HD, HON, INTC, JNJ, JPM, KMI, KO, LNXSF, MAIN, MCD, MIC, MMM, MO, MPLX, MS, MSFT, NEP, NKE, NVDA, O, OSAGF, PEB, PEP, PFE, PG, PM, QTS, RDS.B, RY, SCHW, SHE, SHLX, SNH, SO, SPG, STAG, STWD, SXTSY, T, TD, TGT, TNK, TXN, UN, UNH, UNIT, V, VONOY, VZ, WBA, WFC, WRCDF, XOM
by: Stefan Redlich
Stefan Redlich
Growth, dividend investing, long-term horizon, value
Summary

October generated $197 in dividend income, flat Y/Y and up 5% sequentially.

It was a busy month for me, probably too busy, despite only investing net capital of around $800.

All these investments have boosted annual forward income by around $140.

I outline portfolio composition by sector and portfolio weight for every holding.

I am looking forward to the remainder of the year and the big question whether we'll get the "phase one" trade deal or another December sell-off.

It's earnings season and across the board the results have mostly been better than expected, sending markets to all-time highs especially driven by the large gains in Microsoft (MSFT), Apple (AAPL) and UnitedHealth Group (UNH).

Source: financeandmarkets.com

It has gotten pretty quiet on the trade frontier. Trump generated no visible noise and instead celebrated the most recent rally of the markets, while the unusual comment by the Chinese that they are uncertain how binding such a trade deal with Trump will be given his impulsive nature shortly irritated the markets before more earnings surprises and a strong job report reignited the rally.

Portfolio Changes October

It was a busy month for me, probably too busy, despite only investing net capital of around $800. I exited and reshuffled some small positions and marginally trimmed Apple ahead of earnings (a mistake from a total return perspective but what I considered prudent given the large share in my portfolio), started a bunch of new and small positions while at the same time kept on growing existing ones.

I sold shares of German car rental and leasing company Sixt (OTC:SXTSY) and exchanged them for the higher yielding and cheaper preferred stock and thereby increasing annual dividend income by around $5.

Further, I exited Activision Blizzard (ATVI) as it did not really fit my increased dividend focus and also generated negative headlines in Hong Kong. I may get back to the stock if it drops back into $40s again, although it currently does not look like that given the overwhelming success of the new Call of Duty on its launch weekend.

I exited Salesforce (CRM), a stock I only owned because my Tableau shares got converted. While I remain super bullish on Tableau, I have no strong opinion about Salesforce, and given its high valuation, I favored to invest that many into some dividend stocks.

I also sold out my OSRAM (OTCPK:OSAGF) position after the offer by Austrian AMS sent the stock briefly up to €41 which allowed me to realize a minor profit and focus on other companies.

As mentioned above, I also trimmed my Apple holdings by less than a share and invested that money straight back into Apple, Apple Hospitality REIT (APLE) to be precise. The hotel sector has come under enormous pressure due to recessionary concerns, but I am very confident that first of all, there is no recession in sight, and secondly, that Apple's portfolio, which is not in the luxury segment, will continue to generate strong and reliable bookings. As a bonus, the stock is paying out a monthly dividend, and for me as a dividend investor, there is nothing more exciting than getting paid monthly. Next to Main Street Capital Corporation (MAIN) this is my only monthly dividend payer. I am considering to get into Chatham Lodging Trust (CLDT), EPR Properties (EPR) and Realty Income (O).

I also opened positions in the following stocks:

  • TD Ameritrade (AMTD): The American e-broker sector was burning after Interactive Brokers (NASDAQ:IBKR) came out and announced zero commissions. Charles Schwab (SCHW) was following shortly after and TD Ameritrade as well within less than 48 hours. By that time its stock dropped from $47 to as low as $32 and that offered a very attractive risk-return profile for me to start a small position with a YoC of around 3.5%.
  • Simon Property Group (SPG): Beaten down on concerns over the "mall-apocalypse," this stock offered an almost 6% yield and Dividend Sensei's excellent article made strong and convincing arguments to start a small position.
  • MPLX (MPLX): The MLP sector is getting decimated with even the most profitable companies like Enterprise Products (EPD) and Energy Transfer (ET) trading sideways for months and years. Flat prices would already be a major improvement for MPLX, but its price is creeping downwards almost every single day. Its latest earnings where it reported 1.7 times coverage of the distribution have done nothing while the distribution and yield continues to climb quarter after quarter. I have patience and meanwhile will collect big income, despite its small position, and see where it goes over the next 3-5 years.
  • Antero Midstream Corporation (AM): Yes, the MLP sector looks very attractive to me especially companies like MPLX and AM with good coverage but whose stock prices get punished day in and out. At a YoC of 18%, I will either quickly recoup my investment or the distribution will be eliminated and I will write off the position at $1. This is high risk and high return but does not impact the portfolio at all given its small size. It is simply a small speculative bet which I sometimes like to do. I have done similar bets in the past, sometimes they work like with the shippers where Frontline (FRO), DHT Holdings (DHT) and even Teekay Tankers (TNK) despite having had unrealized losses of 50% and more have now turned green. Sometimes they don't work as can be seen with Hi-Crush Inc. (NYSE:HCR) or Frontier Communications (FTR).

Apart from that, I continued my monthly savings plan in Wells Fargo (WFC), Home Depot (HD), AT&T (NYSE:T), McDonald's (MCD), Johnson & Johnson (NYSE:JNJ), Visa (V) and the Commonwealth Bank of Australia (OTCPK:CBAUF). On top of that, I bought more of beaten down food stock B&G Foods (BGS), Altria (MO) - even though I personally consider Altria to be at the crossroads, but at an 8% yield back then, the risk-return-profile was too enticing to pass - BP (BP) and Gilead Sciences (GILD).

That's surely a lot of transactions within one month but fees are super low and I stick to my decisions. I have also been thinking about expanding my savings plans and instead of investing around €50 per position, scaling it down to €25 and thereby being able to double the number of stocks running on autopilot investments. What do you think about that?

All these investments have boosted annual forward income by around $140 with the biggest contributions naturally stemming from BGS, MPLX, APLE and AM, of which I consider APLE the safest. The remaining three could either be cut or eliminated, but I am bullish that they will at least remain stable, and given the small size of these positions, apart from BGS, the worst thing that could happen is lose like $400, but in a more optimistic scenario, I will just collect the distributions as the years go by. That strategy or approach is certainly not for everyone, but if you are like me and want to spice it up a bit with manageable risk, you can easily boost your income for the time being as shown below:

All net purchases and sales in October can be found below:

Dividend Income: What happened on the dividend side?

My dividend income from 19 corporations amounted to $197, up 5% sequentially and flat Y/Y. The latter is mainly caused by the fact that Uniti Group (UNIT) absolutely slashed its dividend in the meantime by 90% as well as positions in Pebblebrook Hotel Trust (PEB), Realty Income and Nike (NKE) I had exited in between.

Sequential growth is what really counts and there the recent purchases and dividend increases of Altria, Bank of Nova Scotia (NYSE:BNS), CIBC (CM) and JPMorgan Chase (JPM) are bearing fruit. Altria and JPMorgan are also interesting candidates for my monthly savings plan, especially because they pay in the January/April/July/October schedule where I am always lacking income.

All dividends break down as follows (note that I changed some graphics and also added some new ones):

Here is a look at my favorite chart: the net dividend income development by month over time between 2015 and 2019, where you can easily see the development of my dividend income as well as the average annual dividend in a given year:

Next, I have scattered all the individual dividend payments I have ever received and colored them by year, rearranging the years side by side rather than horizontally as in previous updates:

This view looks very cluttered at first, but it is very rich in information. It shows every single dividend payment I have received since I started my journey in 2015 in the shape of circle colored differently by year and sized based upon their contribution. The view is broken down by month and by year (not by year and by month!) and thus allows to better see the development over time. For every year of a certain month, a white rectangle indicates the average monthly dividend. The area where dividends fall below that average is filled dark red whereas the area above is colored dark green. Personally, I absolutely love this redesigned view of my old "bubbles chart" as it is much clearer to identify developments and trends in my dividend income.

Now, zooming in on October only and arranging the view differently in the shape of a whisker plot shows the range of dividend income by individual stock over the years. This allows to easily spot dividend growth and dividend cuts, as for instance, the whisker around UNIT is very tall with a blue circle of 2018 at the maximum and a pink 2019 circle showing the massive dividend cut.

It remains fascinating to watch how all these metrics develop over time. Right now, as I am still in the early stages, these metrics are not that impressive, but the growth is truly striking, and all these instruments help me measure it and provide meaning to it. Now that I have entered the fourth year of my road to financial independence, it is really motivating and encouraging to see how these bubbles are increasing in size and quantity and (slowly) moving up the scale.

Speaking in terms of meaning, another way to express the monthly dividend income is in terms of Gifted Working Time (GWT). I am assuming an average hourly rate of $25 here. In 2018, I generated 121 hours in GWT, equaling slightly more than $3,000 in annual net dividends. For this year, I am targeting a 15% increase. This results in $3,450 in targeted annual net dividends or 138 hours in GWT.

What this shows is as follows:

  1. All time (blue area) - Around 350 hours, or 43.8 days, of active work have been replaced with passive income since the start of my dividend journey. Assuming a five-day workweek, that equals two entire months of vacation funded via dividends.
  2. YTD (green bars) - Around 117.4 hours, or 14.7 days, of active work have been replaced with passive income in 2019 already. That equals almost three full weeks of work.
  3. Highlighted in pink is the accumulated YTD total at the end of the current reporting month (October 31) across each year.

Upcoming November Dividends

The snapshot below is taken from my Dividend Calendar & Dashboard Tool (make sure to follow instructions) and shows expected gross dividend payments for November spearheaded by that big quarterly dividend from AT&T.

My dividend portfolio composition (excludes non-dividend paying companies)

Although I have a lot of individual positions which many of my readers regularly point out, it should be noted that the Top 30 already account for 73% of the entire portfolio, whereas the bottom 38 stocks make up only 10%.

I could certainly also purchase an index, but I am not going to do that since I want to be able to manage my own money, I don't want to pay a fee to somebody else, and I am very happy about constructing my own index. It is a lot of fun, and I am learning something every day as this portfolio always keeps me on the edge and on high alert in case individual holdings suddenly tumble and create lucrative buying opportunities, which I could never exploit in a similar way by simply buying an index fund or dividend ETF. For instance, I have been buying AT&T all the way down to $28, and now that the stock is turning around, I am getting the rewards. A pure index strategy wouldn't have allowed me to deliberately overweight this stock by cost-averaging down all the time.

At end of October, my portfolio is composed as follows:

Company Name Ticker % Market Value Market Value (€)
Apple Inc. (AAPL) 7.76% 7,971
AT&T Inc. (T) 6.08% 6,242
Visa Inc Class A (V) 5.43% 5,579
McDonald's Corp. (MCD) 4.08% 4,190
Cisco Systems, Inc. (CSCO) 4.02% 4,135
Commonwealth Bank of Australia (CBAUF) 2.80% 2,880
Royal Dutch Shell Plc Class B (RDS.B) 2.77% 2,845
Johnson & Johnson (JNJ) 2.63% 2,705
AbbVie Inc. (ABBV) 2.49% 2,562
Altria Group Inc. (MO) 2.43% 2,502
Wells Fargo & Co. (WFC) 2.39% 2,452
Southern Co. (SO) 2.33% 2,397
Main Street Capital Corporation (MAIN) 2.27% 2,336
Microsoft Corporation (MSFT) 2.16% 2,219
Gilead Sciences, Inc. (GILD) 2.14% 2,200
Siemens Healthineers (OTC:SEMHF) 1.86% 1,915
Bank of Nova Scotia (BNS) 1.66% 1,704
3M Co. (MMM) 1.48% 1,523
Texas Instruments Incorporated (TXN) 1.44% 1,480
Procter & Gamble Co. (PG) 1.40% 1,434
PepsiCo, Inc. (PEP) 1.39% 1,431
Toronto-Dominion Bank (TD) 1.30% 1,335
Daimler (OTCPK:OTCPK:DDAIF) 1.28% 1,318
Philip Morris International Inc. (PM) 1.26% 1,294
Bank of America Corp. (BAC) 1.25% 1,281
Honeywell International Inc. (HON) 1.23% 1,262
Canadian Imperial Bank of Commerce (CM) 1.20% 1,231
Dominion Energy Inc. (D) 1.16% 1,193
Wirecard AG (OTCPK:WRCDF) 1.14% 1,170
Verizon Communications Inc. (VZ) 1.13% 1,166
BP plc (BP) 1.05% 1,074
Unilever NV ADR (UN) 1.02% 1,053
Intel Corporation (INTC) 0.99% 1,012
Morgan Stanley (MS) 0.95% 975
BASF (OTCQX:BASFY) 0.94% 967
Target Corporation (TGT) 0.94% 965
QTS Realty Trust Inc Class A (QTS) 0.94% 963
Blackstone Group LP (BX) 0.94% 961
The Coca-Cola Co. (KO) 0.93% 957
JPMorgan Chase & Co. (JPM) 0.89% 916
Bayerische Motoren Werke AG Preference Shares (OTCPK:OTCPK:BMWYY) 0.82% 840
Ares Capital Corporation (ARCC) 0.81% 828
Sixt (SXTSY) 0.79% 816
B&G Foods, Inc. (BGS) 0.79% 816
Allianz SE (OTCQX:OTCPK:AZSEY) 0.77% 787
Royal Bank of Canada (RY) 0.71% 727
Nvidia Corporation (NVDA) 0.71% 726
General Motors Company (GM) 0.66% 680
NextEra Energy Partners LP (NEP) 0.64% 661
Walt Disney Co. (DIS) 0.58% 594
STAG Industrial Inc. (STAG) 0.54% 553
CVS Health Corp. (CVS) 0.47% 482
Pfizer Inc. (PFE) 0.47% 481
Enterprise Products Partners L.P. (EPD) 0.46% 470
Kinder Morgan Inc. (KMI) 0.45% 459
General Mills, Inc. (GIS) 0.45% 458
Shell Midstream Partners LP (SHLX) 0.42% 435
CoreSite Realty Corp. (COR) 0.42% 430
Bayer AG (OTCPK:BAYZF) 0.41% 421
Apollo Investment (AINV) 0.40% 413
Senior Housing Properties Trust (SNH) 0.38% 388
Exxon Mobil Corporation (XOM) 0.36% 368
Starwood Property Trust, Inc. (STWD) 0.34% 349
Colgate-Palmolive Company (CL) 0.29% 299
Drillisch (OTC:DRHKF) 0.28% 285
Home Depot (HD) 0.27% 277
Fresenius SE (OTCQX:FSNUF) 0.27% 276
Brookfield Infrastructure Partners L.P. (BIP) 0.26% 270
Broadcom Inc. (AVGO) 0.26% 266
Lanxess AG (OTCPK:LNXSF) 0.25% 259
Teekay Tankers Ltd. (TNK) 0.25% 259
BP (BP) 0.25% 257
Walgreens Boots Alliance Inc. (WBA) 0.25% 257
Energy Transfer Partners (ETE) 0.24% 243
Osram (OSAGF) 0.23% 236
Apple Hospitality REIT (APLE) 0.22% 222
TD Ameritrade (AMTD) 0.21% 211
Macquarie Infrastructure Corp (MIC) 0.19% 190
MPLX LP (MPLX) 0.18% 186
CenturyLink Inc. (CTL) 0.17% 179
EQT Midstream Partners (EQT) 0.16% 162
DHT Holdings Inc (DHT) 0.15% 153
Brookfield Energy Partners (BEP) 0.15% 153
Simon Property Group (SPG) 0.13% 138
Fresenius Medial Care (FMS) 0.13% 131
Uniti Group Inc (UNIT) 0.12% 124
Pebblebrook Hotel Trust (PEB) 0.11% 118
Vonovia (OTCPK:VONOY) 0.11% 118
Albemarle Corporation (ALB) 0.11% 115
Apollo Commercial Real Est. Finance Inc (ARI) 0.11% 115
Brookfield Property Planners (BPY) 0.10% 102
Antero Midstream Corporation (AM) 0.09% 90
General Electric Company (GE) 0.07% 74

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Disclosure: I am/we are long ALL STOCKS 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: I am not offering financial advice but only my personal opinion. Investors may take further aspects and their own due diligence into consideration before making a decision.