Seeking Alpha

My Dividend Growth Portfolio October Update: 36 Holdings, 11 Buys, 8 Sells, 3.59% Yield

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Includes: AAPL, ABBV, BLK, CSCO, CVS, DIS, DIV, FOF, GLW, HD, IDV, IRM, ITW, JNJ, JPM, MA, MDT, MLPA, MO, NKE, PCEF, PRU, REM, SBUX, SCHD, SDEM, SDIV, SKT, SPG, SPYD, SRET, SWK, T, TROW, TRV, V, WFC
by: Dividend Derek
Dividend Derek
Dividend growth investing, long only, long-term horizon, dividend investing
Summary

I collected $733 in dividends during October which brings my yearly total to $7,725 which has eclipsed 2018.

I removed seven holdings while added two new ones.

Core is my key word for October.

Introduction

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 me 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, I 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."

Another primary goal of writing is to assist other investors. I hope there are facets of my strategy that you find appealing and can implement yourselves.

Change Log

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 correction watchlist

Commentary

October was another strong month for my portfolio being up 3.3%. I ended the month with a balance of $343k which was up from $332k month over month.

I do question the valuations we are seeing as we pushed new all-time highs several times during the month. Earnings have been generally better than expected though not great by any stretch. While the macro data is generally mixed, it "feels" like this may be a time to accumulate a bit more cash. Most importantly - and there have been some articles recently - regarding selling out. This certainly is not that scenario, but I see nothing wrong with increasing my cash component by a few more percent.

The Federal Reserve also gave us another 25 basis point rate cut. It's not for me to say whether it was needed but I do worry about them using their ammo this early. Besides using up their financial ammo early, it allows asset prices to rise to keep the spread between investment yields and the safe alternative the same.

My second and third bullet points are related. New for last month was the display and subsequent analysis of the dividend safety scores for each of my holdings. It was extremely insightful to see several holdings having a much lower score than I may have otherwise predicted if prompted.

This is a snippet of the table I displayed for September:

The third column is the dividend safety score per Simply Safe Dividends. Lo and behold high yields (last column) mostly come with spotty dividend safety. That "insight" isn't new, but I felt it was time to consolidate and clean-up my portfolio.

I highlighted the word "core" because everything I own should be considered core. I don't believe I should have individual equities that I don't consider core. I've done well in my investing career to this point and I don't need to rely on average companies. There are plenty good ETF alternatives that can handle "average".

Part of the cleanup process this month was trimming my watchlist and I wrote a separate article on it here.

2019 Goals

  1. I want my dividend growth holdings to have an average dividend growth rate of at least 7% (currently 9.8%).
  2. 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).
  3. I want to suffer no dividend cuts. (Annaly cut in April but now a former holding)

Portfolio Strategy

Buying Criteria

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.

Investing Framework

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's the expected growth?
  • 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. An example could be seeing P/E mean reversion as part of a thesis.

Company-Specific Factors

  • How long is their dividend growth streak?
  • Is the sum of the dividend safety + yield + growth score >= 200?
    • This may become more nuanced; growth stocks may need a safety + growth score > 160 to be considered
    • High yield stocks may need a safety + yield score > 160 to be considered
  • 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.

Selling Criteria

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.
  • Thesis not panning out
  • 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.

Timing

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" view 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.

Dividend Reinvestment

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 strategy 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 have conditional formatting on 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. Additionally, I have a separate sheet that holds small queries such as this.

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). The query I use is where reinvestment is on OR where my basis is higher than the current share price (to show me where I could potentially turn on the DRIP).

I turned on the reinvestment once more for Starbucks, with there being three reasons.

  1. I firmly believe it is a generational investment idea and core to my portfolio
  2. The share price has come down from the stratospheric heights seen earlier this year
  3. The next payment will be an increased dividend rate (13%)
Name Ticker DRIP Basis Current Share Price Reinvest On?
AbbVie ABBV $75.81 $81.84 Yes
BlackRock BLK $446.70 $482.44 Yes
Cisco Systems CSCO $46.44 $47.76 Yes
CVS Health CVS $69.85 $67.32 Yes
Global X US SuperDividend DIV $23.04 $23.42 Yes
Cohen&Steers Opportunity CEF FOF $12.94 $13.23 Yes
Corning GLW $22.23 $30.05 Yes
iShares International Select Dividend ETF IDV $30.85 $32.19 Yes
MasterCard MA $206.12 $269.00 Yes
Global X MLP ETF MLPA $8.34 $7.99 Yes
Altria MO $41.70 $46.25 Yes
Prudential Financial PRU $83.98 $92.05 Yes
iShares mREIT ETF REM $28.67 $43.05 Yes
Starbucks SBUX $48.28 $81.89 Yes
Schwab US Dividend ETF SCHD $51.86 $56.38 Yes
Global X MSCI SuperDividend Emerging SDEM $11.32 $13.18 Yes
Global X SuperDividend® ETF SDIV $14.96 $17.23 Yes
Tanger Factory Outlets SKT $20.35 $16.32 Yes
Simon Property Group SPG $167.39 $156.41 Yes
SPDR S&P High Dividend SPYD $37.97 $39.25 Yes
Global X SuperDividend REIT SRET $14.70 $15.17 Yes
Visa V $141.04 $176.37 Yes

Dividend Increases

Dividend Cuts

  • None this month
  • Annaly Capital Management in April

Contributions

I formally maxed my 401k yet again this year! I'm extremely happy and grateful that I'm able to do that while managing everything else in my life. This is now the 4th year in a row I've done this. I'm also personally looking forward to some higher paychecks for the rest of the year. My cash hoard is decent so should any pullback occur I can take advantage without needing contributions.

The Portfolio

Name Ticker % of Portfolio CCC Status Income
Apple (AAPL) 4.80% Challenger $200
AbbVie (ABBV) 1.44% Challenger $261
BlackRock (BLK) 1.41% Contender $132
Cisco Systems (CSCO) 0.70% Challenger $71
CVS Health (CVS) 2.28% None $224
Walt Disney (DIS) 2.92% Challenger $136
Global X US SuperDividend (DIV) 1.35% $338
Cohen&Steers Opportunity CEF (FOF) 0.77% $209
Corning (GLW) 2.47% Contender $230
Home Depot (HD) 2.48% Challenger $201
iShares International Select Dividend ETF (IDV) 3.74% $751
Johnson & Johnson (JNJ) 2.27% Champion $229
JPMorgan Chase (JPM) 3.06% Challenger $297
MasterCard (MA) 2.73% Challenger $46
Medtronic (MDT) 2.09% Champion $147
Global X MLP ETF (MLPA) 1.59% $525
Altria (MO) 3.27% Champion $832
Nike (NKE) 0.79% Contender $27
Pennsylvania REIT D Series 6.875% (PEI-D) 0.63% $172
Invesco CEF Income ETF (PCEF) 0.65% $165
Prudential Financial (PRU) 2.66% Challenger $409
iShares mREIT ETF (REM) 2.71% $831
Starbucks (SBUX) 2.39% Challenger $144
Schwab US Dividend ETF (SCHD) 5.58% $532
Global X MSCI SuperDividend Emerging (SDEM) 1.89% $430
Global X SuperDividend® ETF (SDIV) 2.96% $973
Tanger Factory Outlets (SKT) 1.99% Contender $596
Simon Property Group (SPG) 1.81% Contender $333
SPDR S&P High Dividend (SPYD) 4.15% $627
Global X SuperDividend REIT (SRET) 1.77% $478
Stanley Black & Decker (SWK) 2.65% Champion $160
AT&T (T) 2.26% Champion $409
T. Rowe Price (TROW) 1.46% Champion $128
Travelers Companies (TRV) 1.75% Contender $151
Visa (V) 2.82% Contender $55
Wells Fargo (WFC) 0.77% Challenger $102

Here are the values behind the "CCC Status" category:

  • King: 50+ years
  • Champion/Aristocrat: 25+ years
  • Contender: 10-24 years
  • Challenger: 5+ years

Dividend Safety

Here's a table that I capture data points from Simply Safe Dividends from their scoring algorithm and meshing that with the S&P credit rating. The table is then sorted descending by total score (this is only for individual companies).

Name S&P Credit Rating SSD Safety Score SSD Growth Score SSD Yield Score Total Score
Johnson & Johnson AAA 99 89 51 239
BlackRock AA- 98 84 51 233
Home Depot A 87 92 39 218
T. Rowe Price - 94 75 49 218
Apple AA+ 99 98 17 214
AbbVie A- 50 86 77 213
Cisco Systems AA- 91 62 52 205
Medtronic A 99 73 33 205
Stanley Black & Decker A 90 87 28 205
Prudential Financial A 75 60 69 204
Visa AA- 99 100 4 203
Walt Disney A 99 85 18 202
Corning BBB+ 77 79 46 202
MasterCard A+ 99 99 4 202
Travelers Companies A 78 75 43 196
Nike AA- 99 80 11 190
Altria BBB 55 46 85 186
Simon Property Group A 65 44 77 186
JPMorgan Chase A- 79 46 51 176
Starbucks BBB+ 67 73 27 167
Tanger Factory Outlets BBB 52 27 88 167
Wells Fargo A- 79 21 66 166
AT&T BBB 55 11 77 143
CVS Health BBB 67 0 54 121

With this new chart I've had a few insights:

  • I primarily have safe companies (score 60+)
  • I've removed the companies that have a safety < 50
  • Generally, my high safety scores come at the expense of yield - this is one area where I want to identify more quality companies that tick many of these boxes
  • I have great ETF alternatives for dividend growth (SCHD), safe high yield (SPYD) and high income (DIV, SDIV, SRET, MLPA, PCEF, etc.). Therefore - the bar for individual securities is quite high.

I've played with aggregating the scores and seeing what names come out with the best total scores - here's a snippet of that list.

I think if the data exists an interesting back-test would be to see how high total scoring companies have fared historically.

An astute observer may have noticed above in my criteria I included a filter for total scores above 200. What I had noticed is there are quite a few companies that are able to accomplish this. An "average" company (50 across each 3 scores) would score 150 so this is an attempt to tilt towards quality. Even Visa, with their yield being in the 4th percentile, is still able to break over 200 which is an extreme credit to them.

Performance

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
AAPL 4/13/2015 45.73% SPY 45.73%
ABBV 1/28/2019 -12.77% SPY -12.77%
BLK 10/16/2019 6.96% SPY 6.96%
CSCO 8/23/2019 -5.21% SPY -5.21%
CVS 10/7/2016 -65.57% SPY -65.57%
DIS 12/28/2015 -29.12% SPY -29.12%
DIV 7/31/2019 2.53% SPY 2.53%
FOF 10/10/2019 -3.46% SPY -3.46%
GLW 10/14/2015 29.40% SPY 29.40%
HD 5/3/2016 34.95% SPY 34.95%
IDV 6/20/2019 1.60% SPYD 3.38%
JNJ 12/9/2015 -12.71% SPY -12.71%
JPM 7/15/2016 54.97% SPY 54.97%
MA 7/26/2018 27.28% SPY 27.28%
MDT 11/22/2016 13.31% SPY 13.31%
MLPA 2/6/2019 -13.50% SPY -13.50%
MO 10/31/2013 -39.45% SPY -39.45%
NKE 5/3/2016 10.65% SPY 10.65%
PEI-D 9/16/2019 PFF
PCEF 2/15/2019 -1.60% SPY -1.60%
PRU 4/7/2016 -10.15% SPY -10.15%
REM 6/20/2019 1.20% SPYD 2.98%
SBUX 12/3/2015 -1.22% SPY -1.22%
SCHD 9/24/2018 1.20% SPY 1.20%
SDEM 2/20/2019 -14.66% SPY -14.66%
SDIV 2/20/2019 -13.61% SPY -13.61%
SKT 7/26/2017 -59.57% VNQ -54.70%
SPG 4/30/2019 -14.87% VNQ -21.19%
SPYD 6/13/2019 -2.48% SPY -2.48%
SRET 2/20/2019 -2.22% SPY -2.22%
SWK 1/28/2016 5.72% SPY 5.72%
T 11/3/2015 -14.17% SPYD -8.85%
TROW 9/29/2016 38.30% SPY 38.30%
TRV 4/28/2014 4.02% SPY 4.02%
V 7/26/2018 18.57% SPY 18.57%
WFC 8/23/2019 6.78% SPY 6.78%

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 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%.

Portfolio Yield

I've calculated a few aggregate statistics for my portfolio.

Projected Income $11,589.43
Cash $25,500
Cash Ratio 7.91%
Total Value $347,971.70
YOC (Divi Companies) 5.78%
Yield (Divi Companies) 3.97%
Portfolio Yield 3.59%
Yield w/Cash Drag 3.33%

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.

Correlation Matrix

I use the correlation matrix from Portfolio Analyzer. It's a huge table mapping out how one stock trades with another from a relation of -1 to 1. -1 means they move perfectly opposite of another, 1 means they move in perfect lockstep.

I've used this information in the past to remove holdings that essentially move in lockstep (correlation > 0.90). It's also a factor when adding in a new position, it doesn't necessarily make sense to add something if another holding closely mirrors it.

The picture for this month shows new holding FOF that closely matches PCEF. I'm still evaluating both but FOF seems to show outperformance over long stretches of time and has a longer history.

Going back 9 years comparing FOF and PCEF, FOF has shown some alpha over that timeframe, about 2% per year. Dividends received were also about 20% higher. I have some more work to do but it seems like a reasonable assumption right now to potentially roll my PCEF money into FOF and be done with it.

Trade Summary

I'll give a highlight of the trades that I made before diving into each of them. This shows the changes of expected dividend income and net cash.

Ticker Delta in Income
APLE ($121)
CLDT ($132)
SRET

$242

KHC

($160)

FOF

$208

MLPA

$150

T

($263)

BLK

$132

MMM

($176)

SCHD

$62

SPYD

$110

ITW

($268)

IRM

($488)

NLY

($338)

MLPA

$150

SDEM

$166

DIV

$165

SDIV

$139

REM

$266

Change in Income

($156)

Change in Cash $10,000

My Sells

Chatham Lodging Trust

I sold my shares primarily because of the overlap with existing ETF coverage and the lack of expected growth. I have several ETF options that give me 7-8% yield through a diverse base of holdings.

Based on the FFO estimates from here on SA, FFO is expected to decline. This will not play well with the share price or the possibility of dividend increases. I don't see the point holding here given the lack of opportunity.

That said, I did turn an 8% profit since August.

Apple Hospitality

The story here is essentially identical to Chatham; no growth expected and a yield that is offered through diverse ETFs.

On share price, I returned 3.5% but the total return was higher because I mostly didn't reinvest the dividends. I rolled the money from these two into SRET which I'll highlight in my buy section.

Kraft Heinz

Sticking with my knitting, I sold Kraft Heinz. It was a new holding for me and at the time I was OK with buying the falling knife. The dividend safety was obviously low due to the cut this year and there are questions going forward about the dividend safety (read more here).

I'm not sure of the opportunity here as earnings and sales keep declining. I'll take my exposure through my Berkshire shares. Lost $450 all together on these though holding through the earnings release would have fixed that. As it was a turnaround/yield investment, I have other yield opportunities to buy.

AT&T (trim)

I've written about my desire to maintain some cash - especially with where valuations are these days. To make a purchase I looked around my portfolio where I could draw some money from and AT&T stuck out to me. Shares at a 52-week high and a position in my portfolio that was already overweight. I sold some shares to fund my purchase of BlackRock - as a bonus it was after 10/9 so I still received the full dividend payment.

3M

Selling 3M was not something on my radar but in my opinion the quarter was another bad one in a string of bad quarters. I first bought the stock around $200 on its way back down from $270. That's proven to have been way too early in this story as they are still struggling mightily. Chalk 3M up as another victim of the trade war.

From the earnings release here on SA:

3M cuts its full-year adjusted EPS guidance to $8.99-$9.09 from its prior forecast of $9.25-$9.75, and slashes its FY 2019 organic local-currency sales outlook to a 1%-1.5% decline vs. its prior outlook of negative 1% to positive 2% growth.

What strikes me is that the stock is still expensive - even with downward guidance! At the $161 I sold at, shares were still at 17-18x adjusted (declining) earnings. I don't buy paying that much for declining earnings and the thesis hinges upon global growth and growth namely in China. I sold at a 10% loss and rolled that into a combination of SCHD and SPYD.

Illinois Tool Works

Color me surprised for the large stock pop since the earnings call on this one. I thought it was a "meh" quarter but that's not how the market saw it. Revenue was down, margins were up, full year guidance reaffirmed. With flat earnings growth this year I find it very expensive at a now 23x earnings. I'm hesitant with these industrials and how immediately tied to the global economy they are. I feel the downside risk is a lot greater than current potential upside.

This one ended up being a great winner for me even for a large company. My limit sell order finally triggered at $167 which was a little early, but it helped me turn in a 27% total return (23% annualized). In truth the results were a tad better because not all dividends were reinvested.

Iron Mountain

This was a little surprising here for me. Looking at the previous FFO growth estimates this seemed like a nice long-term story. About 8% yield with a growing business, nice thesis. That was blown up with the earnings release though.

Iron Mountain (NYSE:IRM) -2% reports a mixed Q3 that beat on EPS but missed on revenue with a flat Y/Y performance. The company lowers its FY19 outlook to revenue of $4.25-4.28B (was: $4.25-4.325B; consensus: $4.28B) with AFFO of $850-870M (was: $870-900M).

Q3 AFFO was down 2% Y/Y to $225.3M. Adjusted EBITDA was up 3% to $375.7M versus the $373M consensus.

With the growth gone, this now seems like dead money until they can turn the tide. This is another one I'm content holding through a more diverse higher yield ETF bundle. Ended up with about a 6% return since the end of April on this one.

Annaly Capital Management

This one was interesting; newer holding to the portfolio, fat yield, but with a murky business model. I'll be honest, I don't understand the nuance of their business, the amount of leverage they deal with and frankly I have zero edge in this space. Earnings were OK (I think?) but it really drove the point home that this is not for me. It was also my only dividend cut of the year.

Ended up with about $100 loss after accounting for the dividends accrued and I feel better rolling it into REM and taking at least a broader approach to this specialized high yield REIT sub-sector.

My Buys

GlobalX Super Dividend REIT ETF

I took the investment money from CLDT and APLE and rolled it into SRET. One difference between an ETF versus an individual company is that I have limits on what I would keep putting into a company. I don't feel the same with the ETFs as you are buying a "concept" with changing names.

Though there is high correlation between all three, it was a little lower than I expected. The returns for SRET were also the best of all three.

Cohen&Steers Closed-End Opportunity Fund

I haven't felt compelled enough yet to buy individual CEFs, so this is a fund-of-fund owning CEFs. It's similar to PCEF as it holds CEFS but FOF itself is a CEF. An advantage here is that the fund itself can meander with either a discount or premium to NAV. It's a broad holding delivering about 8% yield.

I purchased 200 shares of FOF with the funds freed by selling KHC.

BlackRock

This came onto my watch list through my analysis of aggregate dividend scores from Simply Safe Dividends. With a total score of 233, this is one of the highest aggregate scores in the entire universe. There is plenty to like with the business also; they are the largest asset manager - even bigger than Vanguard! They have approximately 7T under management and own the iShares platform of ETFs. As there has been a clear trend towards passive investing, this is still a burgeoning market with a large opportunity. They also have the breadth to be able to deliver top notch products at fees that smaller fund issuers cannot match.

Great credit rating, minimal amount of debt, great dividend growth and a fair price - sounds good to me!

Schwab U.S. Dividend Equity ETF / SPDR Portfolio S&P 500 High Dividend ETF

I took the money from selling 3M and split it evenly between SCHD and SPYD. These are two of my favorite dividend ETFs though for different reasons. SCHD focuses dividend growth stocks while SPYD offers the top 80 companies in the S&P by yield. SCHD sports a 6 basis point expense ratio while SPYD has a 7 basis point. For all intents and purposes these are free, and this is indeed a free lunch. As a bonus SPYD trades free for me in my retirement account.

The last bundle of ETFs were funded from the NLY/IRM sale money. This was also all done on Halloween but there's no tricks here. Here's what I bought:

  • Global X MLP ETF (MLPA)
  • Global X SuperDividend US ETF (DIV)
  • Global X SuperDividend ETF (SDIV)
  • iShares Mortgage Real Estate Capped ETF (REM)
  • Global X SuperDividend Emerging Markets ETF (SDEM)

NLY and IRM were yield investments and I spread that across these more diverse opportunities. DIV, SDIV and SDEM pay monthly while MLPA and REM are quarterly.

As I highlighted above, the net of these things were a slight dip in expected dividends though the $10,000 from selling ITW has been kept for a later date.

Options

None

Charts And Graphs

Dividends

This chart covers a rolling 3-month average of my dividend income. With a quarterly view I can smooth out the variations from month to month. You can visually see how well the trend-line fits the data over time.

What I like about the chart is that it focuses on the whole investment journey and not any individual month. It's firm proof I'm getting closer to the summit.

My dividend income for the month dipped slightly which hurt my rolling three-month average. 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.

Month beginning Average Monthly Amount Notes
Jan-2015 125.00
Jan-2016 250.00
Jan-2017 375.00
Jan-2018 500.00
Jan-2019 675.00
Jan-2020 750.00 Estimate
Jan-2021 875.00 Estimate
Jan-2022 1,000.00 Estimate
Jan-2023 1,125.00 Estimate
Jan-2024 1,250.00 Estimate
Jan-2025 1,375.00 Estimate

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.

This was my best October with $733 though it feels like a slight letdown after the $1250 in September. From the chart though it is clear improvement over 2018 ($494 last year).Notes

  • My monthly payers (DIV, FOF, PCEF, SDEM, SDIV and SRET) provided $153.
  • The strike-through lines show the payments from APLE, CLDT, IRM, ITW and NLY I won't be receiving going forward
  • 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.

I had to adjust both axis again this month to help fit SDIV and SCHD. SDIV, REM and MO are my highest payers and T dropped much lower from my trim this month. SCHD also comprises close to 6% of my portfolio with AAPL close to 5%.

Growth

On a monthly level, the $733 in October was 48% higher than last year. To the right of that figure, the 29.72% is a rolling YTD comparison to 2018 (a total of $7,725 versus $7.015). This rolling figure helps smooth out the monthly variances. With October in the books I've now eclipsed the total amount received for all of 2018. This phenomenon happened last year as well, so the last two months will be setting the new high-water mark to then eclipse during 2020.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.

With the inclusion of high yielding ETFs this year I've vaulted ahead and now sit at a figure 84% higher than last year in October. Year to date that figure is 72% higher. Though I took a slight step back this month to $11,589, the progress has been staggering. I have two more months to reach the $1,000/mo. target if I so desire.

Target Portfolio

I have 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 10% to growth stocks (was 20% then 15%). 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 30% (was 20% then 25%) 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.https://static.seekingalpha.com/uploads/2019/3/6/9020091-15518710183814197.png

For illustrative purposes, I specifically have the circles overlapping most of the area to highlight the focus on dividend growth stocks.

Actual Portfolio

I'm reasonably close to my target and it looks like I have some opportunity to expand my growth section. One idea I was kicking around was a cloud or SAAS (software as a service) based ETF to augment the growth slice.

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.

Ticker Classification
AAPL Dividend Growth
ABBV Dividend Growth
AMZN Growth
BLK Dividend Growth
BRK.B Growth
CSCO Dividend Growth
CVS Dividend Growth
DIS Dividend Growth
DIV High Yield
FB Growth
FOF High Yield
GLW Dividend Growth
GOOG Growth
HD Dividend Growth
IDV High Yield
JNJ Dividend Growth
JPM Dividend Growth
KWEB Growth
MA Dividend Growth
MDT Dividend Growth
MLPA High Yield
MO Dividend Growth
NKE Dividend Growth
PEI-D High Yield
PCEF High Yield
PRU Dividend Growth
REM High Yield
SBUX Dividend Growth
SCHD Dividend Growth
SDEM High Yield
SDIV High Yield
SKT High Yield
SPG High Yield
SPYD Dividend Growth
SRET High Yield
SWK Dividend Growth
T High Yield
TROW Dividend Growth
TRV Dividend Growth
V Dividend Growth
WFC Dividend Growth

Visualizations

Income By Sector

I don't normally include a prior view except when there are large shifts between months. From September to October, I now receive more than 50% of my dividend income from ETFs. It's more of a mental number than any real accomplishment per se (like when the DOW closes above 30,000).

September view:

October view:

The chart above is my current view. You can see now 37% comes from ETF with the rest spread over the various sectors.

Sector Allocations

With how capital is allocated, the ETF slice continues to grow and now comprises over a third of my portfolio.

Champion, Contender, Challenger View

September view:

October view:

What I was able to do was cut out 4/5 of the "None" dividend growth companies from my portfolio. Unfortunately, I've lost two champions in MMM and ITW but gained another Contender in BlackRock.

Correction Watch List

I'm always willing to bring in a new holding if it fits into my framework. I have a few ideas on my list that have been continual winners for some time and I'd be more interested if we get a broader correction. Here are some I'm interested in:

  • MSFT
  • BAM
  • ABT
  • O
  • TXN

Things Coming Up

From last month I wrote:

After analyzing some of those dividend safety scores from SSD, I might close out some positions that don't stack up to my desired quality standards. I'll continue playing with my theory of the SSD scores > 200 and seeing what shows up there.

This is exactly what I did during October; I closed out some holdings and I've been identifying some new holdings that score well and I'd like at the right price.

As I always point out, 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)
  • EPS growth next 5 years > 0% (new this month)
  • Revenue growth past 5 years > 0% (new this month)
  • Sorted by their 52-week lows

JNJ and GLW are current holdings so I'll look at them again but I generally think valuations are a bit too stretched right now.

Another screener idea I've been working with comes courtesy of Schwab. The high-level criteria are as follows:

  • Dividend paying
  • Narrow or wide moat per Morningstar
  • Morningstar rating of 4 or 5
  • Schwab Equity Rating of A or B

Conclusion

I wrapped up September with $733 in dividends which brings the yearly total to $7,725. I collected 48% more dividends than October of 2018. Year to date, I've collected 29% more than 2018.

I made 11 purchases and 8 sales which netted to subtracting $135 of projected income over the next year. Year to date, my projected income has grown 72% to $11,589. I finished with 36 dividend paying holdings (a decline of 5 holdings).

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, BLK, BRK.B, CSCO, CVS, DIS, DIV, FB, FOF, GLW, GOOG, HD, IDV, JNJ, JPM, KWEB, MA, MDT, MLPA, MO, NKE, PEI-D, PCEF, PRU, REM, SBUX, SCHD, SDEM, SDIV, SKT, SPG, SPYD, SRET, SWK, T, TROW, TRV, V, 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.