May 2020 Portfolio Update - A Return To Normal?
Summary
- The coronavirus chaos seems to abate, going by the number of nations announcing reopening plans and new strategies. More companies have reported earnings as well, with several beats on record.
- Certain undervaluations persist - others, we can only dream about at this time.
- I'm slowly working on my investment approach, detailing each step further and further. My stock watch list now holds over 400 stocks across the world, and there's more to add.
- Dividends continue to flow.
Summary
May turned the tide a bit in terms of investments. While I invested sizeable amounts of capital - nearly $10,500 - it wasn't nearly as much as the preceding months. With dividend pauses, however, I managed to slowly work down my cash position more to where it stands today. I continue to focus on stocks bought at comparatively superior multiples that I believe will withstand the test of time.
My target remains to have spent the majority of my savings during 2020 and to be above 95% stocks, if not 99.3%, by December.
As a result of current dividend pauses/cuts and investments, my projected annual income from dividends alone is now ~151.18 % of the average dividend income/average monthly expenses ratio. This represents above all the cuts/pauses done by two companies as of this month.
This month's update of the international dividend investor's portfolio
As a value-oriented dividend investor with a very long-term perspective, I believe that investing in a diversified portfolio of dividend stocks and related shares/securities is a better option in the long term than investing in index funds or most ETFs.
In addition to receiving growth in stock/portfolio value, I also receive annual, quarterly, and monthly dividend payments without paying a fee, which enables me to live my life as I see fit.
In adopting a dividend investor's mindset, I've stopped caring about short-term stock movements. I consider my investment portfolio as a functioning business, and the business's goal is simple - to ensure my financial independence. I'll do this through any means at my disposal, and I've no moral/ethical qualms as an investor about investing in any sort of publicly-listed business.
My prerequisites
I'm a relatively young (34-year-old) trilingual (Swedish/German background) who holds a large variety of national and international stocks. I reached my financial independence (at least in Sweden/Swedish standards) in 2018 when my average monthly dividends for the first time exceeded my average monthly costs/expenses + savings goal.
In Swedish terms, my annual dividends of $31,890 give me roughly the annual salary of an average Swedish:
- Elementary School Teacher
- Coke Burner
- Munitions Worker
- Construction Worker
- Rehab Case Worker
- Car Mechanic
- Welder
In my life, I work independently and run several businesses. These days, I work mostly as a consultant and take contracts at leisure and as I like, while my businesses mostly run "themselves."
Living in Sweden means that my economic requirements may be (very likely are) different from what someone in the US would require to comfortably retire, as seen above by the employment examples. Many people are, in fact, living off of less money than I make from my dividends alone. Due to a government-financed healthcare system and extensive state minimum pensions and available benefits, many of the concerns and considerations investors in other nations may have don't apply to me.
I doubt I'll want to live in Sweden my entire life, so I'm also looking into appealing nations for living, from a climate, socioeconomic, and future demographic perspective. Thus far, the US, Canada, Australia, and New Zealand are on the list (with various pros and cons).
This is very long-term planning, however, and won't be relevant until 5-7 years in the future. I've estimated that I need about $50,000-80,000/year to live at the standard I'm used to and want to be living at. After all, I don't want to work as a coke burner or a welder in the US (or anywhere else). This also means that, despite being financially independent at my desired standard in Sweden, I'm not yet "done."
May 2020 news update
May marked a continuation of the return to normal investment logic. I identify opportunities on a weekly basis and invest in 3-4 of them. I still have plenty of cash on hand, but my investment pace has slowed down a little, and I'm still far from spent. I continue to do:
- Investments in carefully controlled "cash injections," portioned into an appealing mix of quality, conservative companies, varied in sector and risk.
- The abandonment of certain companies in favor of higher-quality companies. This does not mean the aforementioned companies are poor investments - but I'd rather buy companies that are rarely on sale as opposed to "just" those I've been buying previously.
- The continuation of my ultra-safe dividend stock list with 5 different tiers. This tool has become invaluable to me to efficiently sort opportunities, safeties, and so forth.
I continue to focus on a mix of higher-yielding dividend stocks as well as qualitative, more low-yielding companies. These days, I'm looking at a target overall yield of about 3-5.5%. My portfolio's total yield is at a current 5.053%, though this includes a still-sizeable chunk (around 6%) of liquid capital currently held in a 0.65% interest savings account. Were I to put this to work even conservatively, this number would go up to around 5.2% at the very least. What's more, the coming months will bring in significant capital that needs to be reinvested.
Here is my total portfolio allocation in terms of sectors and cash.
(Source: Author's Calculations and Data, Google Sheets)
As you can see, I've spent about 1.5% worth of cash. There are also some dilutive effects, as the entire portfolio has moved back towards green thereby lowering these exposures. I still have resources to tap, should I need them, and if we see further drops. I still intend to put most of the above capital to work over the coming months as we (hopefully) see more volatility.
With that said, let's review some numbers for the month.
Reviewing May 2020 dividends and projecting future dividends
(Source: Author's Calculations and Data, Google Sheets)
The issue for the European stocks, including Scandinavian ones, has become that most, but not all, companies have either postponed or frozen their dividend decision. What usually is a March, April, or May payout has become an opaque "we'll reconvene later in the year" sort of decision when it comes to our annual dividends. As such, the hit to the above graph/statistics may look harsh, but I expect most of the companies that have failed to pay a dividend to pay out dividends later this year - and if they don't, the graph will likely be even worse.
The total amount of dividends paid out from my private portfolio this month, in combination with interest income from my savings, was $3,950. This has been reinvested. Many European companies have, as I said, postponed their dividend decision, so there is a lot of money missing here.
The current average monthly dividend income from my private portfolio, based on the calculation of annual dividends/12, is $2,657.50
I'm working on presenting what the actual companies paying dividends are in a better way, sort of a calendar view - this has been troubling, but I'm trying to work through it. Until then, I'll attempt as thorough a report as possible on my dividend payors.
Below, you can view my average income from dividends in relation to expenses (in SEK) for the year 2019/2020.
(Source: Author's Calculations and Data, Google Sheets)
Some of the companies paid me dividends during this month include:
Annual/Bi-Annual Dividends
- Boliden (OTCPK:BDNNF)
- Assa Abloy (OTCPK:ASAZF)
- Tele2 (OTCPK:TLTZF)
- Investment AB Latour (No Symbol)
- Renault (OTCPK:RNSDF)
- Europris (OTCPK:ERPSY)
- Kesko (OTCPK:KKOYF)
- Fortum (OTCPK:FOJCF)
Quarterly Dividends
- Caterpillar (CAT)
- Ocean Yield (OTCQX:OYIEF)
- British American Tobacco (BTI)
- Yara (OTCPK:YARIY)
- Tanger Factory Outlets (SKT)
- Unum Group (UNM)
- AbbVie (ABBV)
- General Dynamics (GD)
- Celanese (CE)
- Lowe's (LOW)
- CVS Health (CVS)
- Foot Locker (FL)
- AT&T (T)
- Bristol-Myers-Squibb (BMY)
- Toronto-Dominion Bank (TD)
- JPMorgan Chase (JPM)
- Altria (MO)
Monthly Dividends
- Realty Income Corporation (O)
- Exchange Income Corporation (OTCPK:EIFZF)
Overall, I'm very pleased with the dividend mix in terms of companies, as it includes a far improved mix of payors in terms of quality compared to 2018/2019 - and I intend for this to continue going forward, in terms of quality. However, there was nearly $4,000 missing from European companies who've postponed their dividend decisions.
Transactions During May 2020
I only purchase stocks I consider fairly valued or undervalued. I don't mind sitting with some (or a lot) of cash on hand, as my goal of financial independence from dividend stocks is reached, and I am in no position where I feel I "have" to invest in anything or keep any certain amount of money in or outside of the market.
This month, the following transactions were made in my private investment account:
- Purchased stock/increased exposure to Dominion Energy (D). This purchase was in response to the stock's undervaluation and factors discussed in my article on the company, "Wolf's Corona Discounts: Dominion Energy".
- Purchased stock/increased exposure to Omnicom Group (OMC). This purchase was in response to the stock's undervaluation and factors discussed in my article on the company, "Wolf's Corona Discounts: Omnicom Group"
- Purchased stock/increased exposure to Ameriprise Financial (AMP). This purchase was in response to the stock's undervaluation and factors discussed in my article on the company, "Wolf's Corona Discounts: Ameriprise Financial."
- Purchased stock/increased exposure to General Dynamics (GD). This purchase was in response to the stock's undervaluation, thanks to the latest drops.
- Purchased stock/increased exposure to Oracle (ORCL). This purchase was in response to the stock's undervaluation and factors discussed in my article on the company, "Wolf's Corona Discounts: Oracle."
- Purchased stock/increased exposure to Eastman Chemical Company (EMN). This purchase was in response to the stock's undervaluation and factors discussed in my article on the company, "Wolf's Corona Discounts: Eastman Chemical Company."
- Purchased stock/increased exposure to Archer-Daniels-Midland (ADM). This purchase was in response to the stock's undervaluation and factors discussed in my article on the company, "A Dividend Stock From Each Sector - May 2020"
- Purchased stock/increased exposure to Comcast (CMCSA). This purchase was in response to the stock's undervaluation and factors discussed in my article on the company, "A Dividend Stock From Each Sector - May 2020"
- Purchased stock/increased exposure to Whirlpool (WHR). This purchase was in response to the stock's undervaluation and factors discussed in my article on the company, "A Dividend Stock From Each Sector - May 2020"
- Purchased stock/increased exposure to Bristol-Myers Squibb (BMY). This purchase was in response to the stock's undervaluation.
- Purchased stock/increased exposure to Realty Income Corporation (O). This purchase was in response to the stock's undervaluation.
- Purchased stock/increased exposure to AvalonBay Communities (AVB). This purchase was in response to the stock's undervaluation.
- Purchased stock/increased exposure to Federal Realty Investment Trust (FRT). This purchase was in response to the stock's undervaluation and factors discussed in my general article, "These U.S. Companies Are Extremely Undervalued - Part 2"
- Purchased stock/increased exposure to Merlin Properties (OTCPK:MRPRF). This purchase was in response to the stock's undervaluation and factors discussed in my article on the company,
Looking forward
For the next month, I've decided to keep an eye on the following companies and may extend my position in one or several of them, depending on which offer particularly appealing valuations at the time:
- Bristol-Myers Squibb
- Broadcom
- Oracle
- General Dynamics
- Alfa Laval (OTCPK:ALFVF)
- Omnicom Group
- Toronto-Dominion Bank
- Lowe's
- Ameriprise Financial
- Eastman Chemical Company
- Comcast
- AT&T (T)
- Whirlpool
- Archer-Daniels-Midland
The list is long, and frankly, those aren't all of the stocks I'm viewing at this time - but they're some of the "core." More on that below.
Where to go from here as a dividend growth investor?
Things are slowly starting to recover, and we can look back on the chaos of February and March with something forlorn, wishing for it to return so we can execute even more excellent deals. Perhaps the downturn will return - and if so, I stand ready. At the same time, coronavirus has caused a bit of a strategy adjustment for me as an investor, the like of which should have become clear from my investments over the past 3 months.
(Source: MarketWatch)
There are still effects coming. One of the largest potential effects on my portfolio is what will happen to the dividend from Simon Property Group (SPG). I believe a cut is coming here, and even if temporary, such a cut would cut far deeper than others into my average coverage ratio, causing it to drop several percentages, which would constitute the largest drop on record. Practically, it doesn't change anything for me, nor is it a signal to sell or stop investing in SPG, but it does highlight the importance of diversification and quality in the face of trouble.
(Source: Photo Source)
In the end, where I go from May as a dividend growth investor is similar to where I've gone from the previous few months - to more quality, continue investing on a weekly basis, and just keep building my portfolio.
As I am writing this, the stock market has moved in a sideways/slightly positive trajectory for weeks. My watch list-based approach continues to be a strength for me. I've added Italy, Spain, Austria, Switzerland, the UK, and France to the list. I'm still going to be adding more countries and the dividend stocks and companies I've found to be potentially appealing and begun researching. Geographical and currency-based diversification is a tenet I want to follow in my decisions, provided that quality companies with the fundamentals I respect and demand are available in the country.
These are then, like above, going to be categorized into the "classes" I've established for myself in order to attempt to fairly gauge them against similar domestic or US/NA stocks. Thus far, what I've seen is that the approach has made my weekly picking process much simpler. I no longer consider every stock available, and I'm more close-minded to adopting new stocks into my own "realm" of acceptability - this was a goal with the list to begin with.
It is my hope that it can perhaps inspire you to similarly conservative portfolio compositions and perhaps to come up with your own prerequisite for your own circumstances. I highly encourage it as a methodical and confidence-building approach, even in times like these.
It's become more and more important to consider each buy carefully as we move into higher valuations for key investments. I now consider each buy against not one or two, but several others, comparing potential returns, safeties, and forecasts to make certain I'm allocating capital as responsibly and conservatively as humanly possible. This is reflected in my articles, the companies I write about (for the most part), and where I place my "Bullish" ratings.
Wrapping up
During this time, I find comfort in the continued conservative nature of my dividend portfolio and the methods I use and have adopted to keep it aligned towards my long-term goals.
Continue considering your long-term investment goals and where you want to be in 1 year, 5 years, and 30 years. These things, not the whims of writers or other investors, should guide your own investments.
Knowing who you are and who you want to be as an investor is paramount to your long-term success on the market. This includes your ability to retain a cool head during times like these.
For me, keeping a firm structure and solid rules helps with that - that includes also these regular, monthly dividend updates, even in troubled times such as these. All in all, I believe that these articles have shown that despite the utter chaos found in the market today, the overall long-term effects upon my dividends, even with pausing and cut, have been less than expected.
I hope this article finds you to be still in good health and in good spirits.
This article was written by
Wolf Report is a senior analyst and private portfolio manager with over 10 years generating value ideas in European and North American markets.
He is a contributing author for the investing group iREIT on Alpha where in addition to the U.S. market, he covers the markets of Scandinavia, Germany, France, UK, Italy, Spain, Portugal and Eastern Europe in search of reasonably valued stock ideas. Learn more.Analyst’s Disclosure: I am/we are long ABBV, ALFVF, ALFVY, AMP, ASAZF, ASAZY, AVB, BDNNF, BMY, BTI, CE, CVS, D, EIFZF, EMN, FL, FOJCF, FOJCY, FRT, GD, JPM, KKOYF, KKOYY, LOW, MO, MRPRF, O, OMC, OYIEF, RNLSY, RNSDF, SKT, SYY, T, TD, TLTZF, TLTZY, UNM, YARIY, YRAIF. 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.
While this article may sound like financial advice, please observe that the author is not a CFA or in any way licensed to give financial advice. It may be structured as such, but it is not financial advice. Investors are required and expected to do their own due diligence and research prior to any investment.
I own the European/Scandinavian tickers (not the ADRs) of all European/Scandinavian companies listed in my articles.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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