Seeking Alpha

Final 2019 Update For The Millennial Portfolio

by: Mark Roussin
Mark Roussin
Long-term horizon, dividend growth investing, REITs, portfolio strategy

JNJ led the portfolio higher in December with a solid 6.1% increase for the month.

ABBV was the big winner for the portfolio gaining 33% in the short 4+ months of owning the stock. ABBV was the first position I bought into for this portfolio.

Initiated a position in CSCO during the month of December.

The current yield on cost is 4.71% with a total gain of 10.2%.

In October 2019, after receiving various emails from my followers regarding stock picks for Millennials, I launched the Millennial Portfolio. First off, I think it is great that young folks are thinking about investing in their futures, which has not been a major focus of this generation over the years, thus far. The sooner one starts thinking about retirement the sooner they can reach financial independence. One term that has commonly been discussed here on Seeking Alpha has been the “FIRE” method, or Financial Independence Retire Early, and who does not want to retire early.

As such, over the past few months I have started putting together a portfolio of investments geared toward those of you with a number of years left before you plan on retiring. The FIRE method could be a little too optimistic with some of the stories or articles you read about folks retiring in their 30’s, but for the vast majority of us, retiring in our 50’s would be considered early in my book, which is what this portfolio is built for.

This portfolio will not just be for those of you in the millennial generation, but also for those of you with family members that may be a millennial that you could use to give them advice or maybe you are building a portfolio for them, such as grandkids. I do try to take more of a conservative approach when making my selections, due in part to the millennial generation being risk averse. However, I will look to add in some more risky selections due to the time horizon Millennials have.

The Millennial Retirement portfolio will be structured around making high-quality long-term investments in primarily dividend paying stocks. This portfolio, due to the longevity Millennials have, will take a long-term approach and we will not make sudden changes due to volatility within any of our investments unless the thesis changes for whatever reason.

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Portfolio Blueprint

The Millennial Retirement Portfolio takes a long-term approach with the goal in mind of reaching financial independence prior to reaching retirement, whether it be in our 50’s or 60’s, for the vast majority of us. Let’s take a look at how our Millennial Retirement Portfolio will be constructed:

  • High-quality stocks and ETFs
  • Dividend paying stocks that are well-covered with strong dividend growth
  • Some higher growth (non-dividend) stocks will be mixed in due to longevity
  • Risk Tolerance: Moderate
  • Target portfolio yield of 3+%

Here are the rules we will be sticking by for this portfolio:

  • I will start by making a $2,000 initial investment in each stock as it joins the portfolio.
  • Additional investments of $1,000 will be made if any initial investments remain a compelling buy.
  • Dividends will be collected until we collect $1,000 before making another investment
  • Only sell if the thesis breaks (dividend becomes unsafe, negative changes take place within the company, or strategy changes for the company).

Why Millennials Need To Invest For Retirement

At first glance, this question of “Why Millennials need to invest for retirement” seems to be straightforward, however, the millennial generation needs a lot more help than past generations. TD Ameritrade conducted a 2018 Millennials and Money survey that concluded that 53% of Millennials expect to become millionaires one day, yet only 31% of young Millennials are actively saving for retirement. So, for the other 69% of the generation, this portfolio is for you!

The millennial generation grew up during the “Great Recession” and much doubt has been cast over Wall Street and the financial markets. In addition, student debt is at all-time highs, as is housing costs, which puts retirement savings on the back-burner for many, not just Millennials. It is completely understandable why this generation, my generation in fact, is a little different. However, whatever amount, small or large, that you can set aside every month or so can go a long ways with the power of investing and compounding dividends.

To briefly give you an idea on the power of compounding dividends, let me give you an example of investing at 28 or waiting until mid-30’s. A 28-year-old who invests in a retirement account today and contributes $6,000 per year would have $910,000 for retirement saved by age 67, assuming a 7% annual rate of return. Using the same assumptions, except waiting until age 35 to start saving, shrinks that savings amount to $565,000. Putting your money to work as early as possible makes all the difference.

December Performance Update

December Highlights

  • Received $14.25 in dividend payments during the month from JNJ
  • Added CSCO shares to the portfolio during the month
  • Current yield on the portfolio is 4.30%
  • Yield on Cost for the portfolio is 4.71%
  • Total gain on portfolio (with Dividends) is 10.2%
  • Total Dividends expected for 2020: $840.85
  • Inception to date Gain: 9.7%

Portfolio Activity

Let’s take a look at the final update of 2019 for the millennial portfolio I started investing in during Q3. The month of December was strong for both the market and our portfolio. Unlike the bloodbath investors saw in December 2018 when the S&P 500 lost 9.2%, this December was a different story as the S&P 500 rose 2.86%. The Millennial Portfolio increased 1.84% during the month of December 2019, lagging that of the market as a whole, but nonetheless happy with how we closed 2019. The portfolio made 9.66% in the short four months of existence and 10.2% when you include dividends.

This month’s strong performance was led by Johnson & Johnson (JNJ), VICI Properties (OTC:VICI), and Starbucks Corporation (SBUX), which saw increases of 6.1%, 3.3%, and 2.9% growth, respectively. We did get two dividend increase announcements in December from both ABBV and IRM. AbbVie increased their quarterly dividend, payable in January 2020, by 10.3%. IRM increased their quarterly dividend a mere 1.2%, payable in January 2020.

I did end the year with only one selection in the red and four stocks gaining double digit returns on the year. AbbVie was the big winner for the portfolio gaining over 30% in the short 4+ months of owning the stock.

I did make one addition to the portfolio in December, and that was adding Cisco Systems (CSCO) shares. This is the first technology company added to the portfolio thus far, as the company had been trading at a reasonable valuation after poor quarterly results, which I took advantage of.

Cisco Systems designs, manufactures, and sells Internet Protocol based networking and other products related to the communications and information technology industry worldwide. The company operates in a business that has been able to produce strong free cash flows over the years leading to strong dividend growth as well.

Based on recent history, the company has announced a dividend increase in the coming quarter. Assuming a 10% increase, which is in line with the prior-year increase, the dividend yield would be 3.22%. At the current dividend, the company maintains a dividend payout ratio of only 44%, leaving plenty of room for the company’s board to continue increasing the annual dividend moving forward.

CSCO shares have drastically underperformed the market this year by increasing 11% to the S&P 500 index’s nearly 30% gains. This has provided investors a buying opportunity in this blue-chip name. The company maintains a strong AA- rated balance sheet that is worthy of a spot in your long-term portfolio.

Dividends Expected Next Month

I expect to receive $192.72 in dividends for the month of January 2020.

  • $35.40 expected from ABBV
  • $40.32 expected from MO
  • $39.58 expected from IRM
  • $13.20 expected from DIS
  • $23.78 expected from VTR
  • $24.69 expected from VICI
  • $15.75 expected from CSCO

Looking Ahead

In conclusion, the year 2020 will be surrounded by plenty of uncertainty combined with a slowing economy, which could derail our record-breaking bull run we have experienced once and for all. Trade wars, global unrest in Hong Kong, global tensions with the likes of Iran and North Korea, throw in a Presidential election and a lot can happen in 2020 so it is important for investors to be prepared.

Take a look at “3 Of My Top REIT Picks For 2020” and “3 Of My Favorite Dividend Picks For 2020”, a couple ideas that I published last week. I look forward to continuing the portfolio into 2020 and would love to hear a few of your top ideas for the new year.

Now that you have had a chance to digest the portfolio results to date, I look forward to hearing your thoughts on the portfolio and hearing some of your ideas for any changes to be made. Good luck to everyone and happy investing!

Note: I hope you all enjoyed the article and found it informative. As always, I look forward to reading and responding to your comments below and feel free to leave any feedback. Happy Investing!

Author’s Disclaimer: This article is intended to provide information to interested parties. I have no knowledge of your individual goals as an investor, and I ask that you complete your own due diligence before purchasing any stocks mentioned or recommended.

Disclosure: I am/we are long ABBV, MO, DIS, IRM, JNJ, VTR, VICI, SBUX, CSCO. 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.