Monthly Review Of DivGro: June 2020

Summary

• My monthly review of DivGro provides a summary of transactions and explains how those transactions affected projected annual dividend income. DivGro is my portfolio of dividend growth stocks.
• In June, I opened one new position and added shares to eight existing positions. DivGro now contains 92 different positions.
• Five DivGro stocks announced dividend increases in June. Unfortunately, I suffered a dividend cut as well.

Once a month, I review my portfolio of dividend growth [DG] stocks, DivGro. I present details of any buys or sells, and I provide a summary of dividends collected. Additionally, I look at how the month's activities have impacted DivGro's projected annual dividend income (PADI).

In June, I opened one new position and added shares to eight existing positions. Five DivGro stocks announced dividend increases in June, but I also suffered a dividend cut. The net result of these changes is that PADI increased by about 6.0% in June. Year over year, PADI increased by about 27%.

As for dividend income, in June I received dividends totaling $4,000 from 46 stocks in my portfolio, a year over year increase of 13%. So far in 2020, I've collected $14,112 in dividends or about 52% of my 2020 goal of $27,000.

Source: Author's blog (DivGro)

DivGro's PADI of $30,743, means I can expect to receive $2,562 in dividend income per month, on average, in perpetuity, assuming the status quo is maintained. But DivGro's PADI should increase over time because I invest in DG stocks. Furthermore, I plan to reinvest dividends until I retire, so DivGro's PADI should continue to grow through dividend growth and through compounding.

Source: Author's blog (DivGro)

Dividend Income

In June, I received a total of $4,000 in dividend income from 46 different stocks, which is a new record for monthly income!

Source: Author's blog (DivGro)

Following is a list of the dividends I collected in June:

Stocks:

• Archer-Daniels-Midland Company (ADM) — income of $108.00
• Aflac Incorporated (AFL) — income of $28.00
• Amgen Inc. (AMGN) — income of $80.00
• Anthem, Inc. (ANTM) — income of $9.50
• Broadcom Inc. (AVGO) — income of $97.50
• Blackrock, Inc. (BLK) — income of $127.05
• Cummins Inc. (CMI) — income of $78.66
• Canadian National Railway Company (CNI) — income of $52.78
• Chevron Corporation (CVX) — income of $103.20
• Dominion Energy, Inc. (D) — income of $94.00
• Digital Realty Trust, Inc. (DLR) — income of $50.40
• Gilead Sciences, Inc. (GILD) — income of $136.00
• The Home Depot, Inc. (HD) — income of $90.00
• Honeywell International Inc. (HON) — income of $54.00
• International Business Machines Corporation (IBM) — income of $114.10
• Intercontinental Exchange, Inc. (ICE) — income of $30.00
• Intel Corporation (INTC) — income of $99.00
• Johnson & Johnson (JNJ) — income of $24.24
• Lockheed Martin Corporation (LMT) — income of $33.60
• Main Street Capital Corporation (MAIN) — income of $71.75
• McDonald's Corporation (MCD) — income of $33.75
• 3M Company (MMM) — income of $147.00
• Microsoft Corporation (MSFT) — income of $51.00
• NextEra Energy, Inc. (NEE) — income of $35.00
• Northrop Grumman Corporation (NOC) — income of $14.50
• Realty Income Corporation (O) — income of $23.30
• PepsiCo, Inc. (PEP) — income of $51.13
• Pfizer Inc. (PFE) — income of $114.00
• Pinnacle West Capital Corporation (PNW) — income of $39.13
• Public Storage (PSA) — income of $90.00
• Phillips 66 (PSX) — income of $180.00
• Qualcomm Incorporated (QCOM) — income of $22.75
• Raytheon Technologies Corporation (RTX) — income of $57.00
• Snap-on Incorporated (SNA) — income of $64.80
• T. Rowe Price Group, Inc (TROW) — income of $180.00
• The Travelers Companies, Inc. (TRV) — income of $85.00
• UnitedHealth Group Incorporated (UNH) — income of $50.00
• Union Pacific Corporation (UNP) — income of $46.56
• United Parcel Service, Inc. (UPS) — income of $101.00
• Visa Inc. (V) — income of $15.00
• Valero Energy Corporation (VLO) — income of $181.30
• Walgreens Boots Alliance, Inc. (WBA) — income of $137.25
• Wells Fargo & Company (WFC) — income of $102.00
• Exxon Mobil Corporation (XOM) — income of $174.00

Funds:

• Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO) — income of $142.50
• AllianzGI Equity & Convertible Income Fund (NIE) — income of $380.00

The chart below shows DivGro's monthly dividends plotted against PMDI. Clearly, quarter-ending months are huge outliers:

Source: Author's blog (DivGro)

To smooth things out a bit, I create a rolling 12-month average of dividends received (the orange bars) plotted against a rolling 12-month average of PMDI (the blue, staggered line):

Source: Author's blog (DivGro)

While it would be great if dividends were distributed more evenly, I don't want to make any investment decisions based on the timing or frequency of dividend payments.

Dividend Changes

In June, the following stocks announced dividend increases:

• Canadian National Railway (CNI) — increase of 4.43%
• Realty Income (O) — increase of 0.21%
• Qualcomm (QCOM) — increase of 4.84%
• UnitedHealth (UNH) — increase of 15.74%
• WP Carey (WPC) — increase of 0.19%

I like seeing dividend increases above 7%, and only UNH delivered this time around.

Unfortunately, DivGro also suffered a dividend cut:

• Simon Property (SPG) — decrease of 38.1%

As a result of these changes, DivGro's PADI will decrease by $215.

Following is a chart showing the trailing 1-year dividend growth rates of DG stocks in my portfolio:

Created by the author from DivGro portfolio data

QCOM, Oracle Corporation (ORCL), and FedEx Corporation (FDX) have not increased their dividend in the past 12-months. I'm happy to see that the majority of my DG stocks have 1-year dividend growth rates of at least 7% (colored green in the chart above).

Transactions

Here is a summary of my transactions in June:

• Bristol-Myers Squibb (BMY) — new position of 100 shares

I decided to open a position in BMY after the Health Care stock ranked seventh in my recent analysis of Health Care sector stocks. A Dividend Contender with a dividend increase streak of 14 years,BMY yields 3.13% at $57.58 per share. The stock is trading some 18% below my fair value estimate of $70 per share. I rate BMY Excellent with a quality score of 23.

While BMY's Chowder Number [CDN] is on quite low and the stock has performed poorly for several years, there are indications that its acquisition of Celgene has sparked a revival. Earnings estimates look promising, and BMY's last dividend increase was 9.8%, much higher than its 5-year dividend growth rate of 3%.

Source: Portfolio-Insight.com

My cost basis is $57.81 with an initial Yield on Cost (YoC) of 3.11%.

In addition to opening the new position in BMY, I added shares to several existing positions.

In the June edition of my monthly 10 Dividend Growth Stocks article series, General Dynamics Corporation (GD) was ranked #2 and happened to be the most discounted of the top 10 DG stocks. In the same article, I noted that PNW offered an attractive yield of 4.41% at $71.05 per share and that adding 75 shares would turn my PNW position into a full position. I rate GD Excellent with a quality score of 24 and PNW Fine with a quality score of 22. Both offer favorable CDNs.

• Added 15 shares of GD and increased my position to 65 shares
  • average cost basis: $105.53 (current price: $141.97)
  • average initial YoC: 4.17% (current yield: 3.10%)

• Added 75 shares of PNW and increased my position to 125 shares
  • average cost basis: $77.16 (current price: $78.26)
  • average initial YOC: 4.06% (current yield: 4.00%)

Last month, I identified Dividend Contender HON as a hidden gem in my Top Holdings of Dividend ETFs article series. Rated Excellent with a quality score of 24, HON now yields 2.53% at $142.45 and is trading at about fair value.

• Added 10 shares of HON and increased my position to 70 shares
  • average cost basis: $144.76 (current price: $142.45)
  • average initial YoC: 2.49% (current yield: 2.53%)

Two Financials sector stocks, JPMorgan Chase & Co. (JPM) and Wells Fargo & Company (WFC), are ranked in the top 50 holdings of dividend ETFs. While banks find themselves in challenging times due to limitations the Federal Reserve is placing on them, I decided to increase both these positions in my portfolio. JPM is rated Fine with quality scores of 21 and WFC is rated Decent with a quality score of 17.

In a somewhat speculative move, I doubled my WFC position even though the company is widely expected to cut its dividend. I think WFC is trading about 40% below fair value, which provides a great opportunity for me as a long term investor. We'll see how this goes...

• Added 30 shares of JPM and increased position to 100 shares
  • average cost basis: $111.65 (current price: $96.27)
  • average initial YoC: 3.22% (current yield: 3.74%)
• Added 200 shares of WFC and doubled my position to 400 shares
  • average cost basis: $38.33 (current price: $25.47)
  • average initial YoC: 5.32% (current yield: 8.01%)

In the top 50 holdings of dividend ETFs, PEP ranked #14 and traded just below fair value.

• Added 20 shares of PEP and increased my position to 70 shares
  • average cost basis: $126.98 (current price: $134.46)
  • average initial YoC: 3.22% (current yield: 3.04%)

PEP is still trading at about fair value estimate and I rate the stock Excellent with a quality score of 24. The stock's CDN of 11 is a bit lower than I'd like to see.

I decided to add shares of LMT to my portfolio to turn my holding into a full position. The stock is rated Excellent with a quality score of 24, though its CDN of 13 is not quite what I would like to see. Nevertheless, I like LMT's prospects.

• Added 16 shares of LMT and increased my position to 30 shares
  • average cost basis: $275.20 (current price: $349.25)
  • average initial YoC: 3.49% (current yield: 2.75%)

Finally, with several dividend suspensions and cuts this year in recent months, I needed to make up for some of the dividend income losses. I own two dividend-paying closed-end funds, NIE and ETO, and I noticed that ETO currently is trading below its net asset value. That means it is a good time to add shares!

• Added 400 shares to ETO and increased my position to 1,000 shares
  • average cost basis: $19.41 (current price: $21.08)
  • average initial YoC: 8.81% (current yield: 8.11%)

All of these transactions increased DivGro's PADI by about $1,952, more than making up for the loss in dividend income I suffered from SPG's dividend cut.

I consider a full position to be about 1% of total portfolio value. In the following chart, DG stocks in my portfolio with relative weights below 1% are colored green.

Created by the author from DivGro portfolio data

My Apple Inc. (AAPL) holding is by far the largest in my portfolio, as the stock has performed wonderfully since my first purchase five years ago. The stock has returned 61% on an annualized basis!

If, instead, we look at the contribution of each position to DivGro's annual dividend income, AT&T, Inc. (T) dominates with 4.06%. Even at that level, T's contribution is well below 6%, the level at which I would take action to reduce my exposure.

Created by the author from DivGro portfolio data

Markets

It is worth looking at the markets to understand the environment we're investing in, even though I no longer compare DivGro's performance to those of the markets:

	DOW 30	S&P 500	NASDAQ Composite	10-YR BOND	CBOE VIX
May 31, 2020	25,383.11	3,044.31	9,489.87	0.648	27.51
Jun 30, 2020	25,812.88	3,100.29	10,058.77	0.653	30.43

Click to enlarge

In June, the DOW 30 gained 1.7%, the S&P 500 gained 1.8%, and the NASDAQ gained 6%. The yield on the benchmark 10-year Treasury note increased to 0.653, while CBOE's measure of market volatility, the VIX, increased to 30.43.

Portfolio Statistics

Given DivGro's current market value and the total capital invested, the portfolio has returned about 48% since inception. But calculating the IRR (internal rate of return) gives a better measure of portfolio performance, as IRR takes into account the timing and size of deposits since inception. DivGro's IRR is 11.8%.)

I track the YoC for individual stocks, as well as an average YoC for my portfolio. DivGro's average YoC increased from 3.67% last month to 3.70% this month.

Created by the author from DivGro portfolio data

MAIN's YoC dominates at 10.96%, partly because it is the stock that I've owned the longest, but also because it is a high-yielding DG stock.

Another interesting statistic is percentage payback, which relates dividend income to the amount of capital invested. DivGro's average percentage payback is 16.5%, down from last month's 16.7%.

Created by the author from DivGro portfolio data

Again, as my longest-held position, MAIN's payback of 61% is the highest by far.

Finally, DivGro's projected annual yield is at 4.81%, up from last month's value of 4.74%. I calculate the projected annual yield by dividing PADI ($30,743) by the total amount invested.

Here's a chart showing DivGro's market value breakdown. Dividends are plotted at the base of the chart so we can see them grow over time:

Source: Author's blog (DivGro)

Looking Ahead

Through the end of June, I've suffered three dividend suspensions and two dividend cuts.

On 5 July, Dominion Energy announced that it has agreed to sell its Gas Transmission & Storage segment assets to an affiliate of Berkshire Hathaway Inc. (BRK.A). As a result of the sale and the reduction of income from the divested assets, Dominion Energy will reduce its annual dividend and target a payout ratio of around 65%.

Wells Fargo expects to cut its dividend of 51¢ per share. The announcement will be made on 14 July. The cut is necessary because of limitations that the Federal Reserve is placing on banks. Specifically, dividend payments will be limited to the average net income for the four preceding calendar quarters.

I have no plans to close any positions in stocks that have suffered dividend suspensions or dividend cuts. I'll reconsider later this year when it is time to think about taking tax-loss harvesting actions.

Please see my Performance page for various visuals summarizing DivGro's performance.

Thanks for reading and take care, everybody!

Analyst’s Disclosure: I am/we are long AAPL, ABBV, ACN, ADM, ADP, AFL, AMGN, AMZN, ANTM, APD, AVGO, BLK, BMY, BNS, CB, CMCSA, CMI, CNI, COST, CRM, CSCO, CVS, CVX, D, DIS, DLR, ETO, FDX, GD, GILD, GOOG, HD, HON, HRL, IBM, ICE, INTC, ITW, JNJ, JPM, KO, LMT, LOW, MA, MAIN, MCD, MDT, MMM, MO, MRK, MSFT, NEE, NFLX, NIE, NKE, NNN, NOC, O, ORCL, PEP, PFE, PG, PM, PNW, PSA, PSX, QCOM, ROST, RTX, RY, SBUX, SNA, SPG, SYK, T, TD, TJX, TROW, TRV, TSM, TXN, UNH, UNP, UPS, V, VLO, VZ, WBA, WFC, WPC, XEL, XOM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Comments

[DanaW]

I have followed your articles religiously and enjoy the information provided.

Can you tell me, is the spreadsheet that you use for DivGro a commercial product? If yes can you provide the product name and company.

If one developed on your own would you consider sharing it?

I would like to use it for my retirement portfolio because the data is presented in a logical order, easy to understand, and key information to determine progress at your fingertips.

Thank you for your time.

DanaW

[woodland]

Great job here FerdiS, you have done a great job.

[FerdiS]

Thanks, woodland -- I appreciate your comment! Take care!

[Surinder]

@FerdiS
Thanks for sharing your portfolio update. You have solid selection of equities in your portfolio.
I sold part of my D and added to Pnw.
Surinder

[FerdiS]

Thanks for your comment and for sharing your moves with $D and $PNW. All the best and happy investing!

[turk617]

Solid portfolio of stocks. Ever consider adding DGRW which covers your theme of dividend growth? Enjoyed the reading!

[FerdiS]

Thanks, @turk617 -- earlier, I invested in ETFs to diversify my portfolio while I slowly added individual positions. Now I feel I'm diversified enough. Few ETFs deliver the yield and growth I look for, plus their expenses eat into one's total return potential. I own two CEFs with significantly higher yields than most ETFs offer.

[buddyrow4]

👍

[FerdiS]

Cheers!

[AlieGee]

Thanks for your update Ferdi....The two REITs were really skimpy but better than a cut.

[FerdiS]

Yes, though remember these REITs raise their dividends (skimpily) every quarter... better than a cut for sure, and better than nothing also.

[usiah]

Your reports are required reading for me, FerdiS, including your monthly portfolio review. Thank you for sharing.

Not easy to let my D go, but I went ahead and did it after a very pleasant several years' hold. Replacing D with smaller utilities NWE and OGE. Am hanging on to SPG for now, but not adding.

Plan to begin accumulating UNP in my IRA as cash comes available. The same with RGA, a stock I'm high on and notice it's not among your holdings.

Retired dividend-growth investor

[FerdiS]

Hi, @usiah -- I appreciate the comment and kind words.

Unlike you and others, I've decided to hang on to D. While the dividend cut is bitter to swallow, at least the company seems to be aiming for annual increases of 6% (versus about 2% lately). That would be nice.

Take care and happy investing!

[usiah]

@FerdiS

I might revisit D at some future time when the price settles in to a 4-5% yield.

[FerdiS]

OK, all the best usiah !

[mpTEX]

Thanks, Ferdi. Always check out your monthly updates!

[FerdiS]

Hi, mpTEX -- I appreciate your comment and support!

[johndailey1]

Good article. Love the graphs and charts but what is the difference between Yield on Cost and Payback?

[FerdiS]

Payback is cumulative and realized. YoC is annualized and "promised".

The longer I hold a DG stock, the larger its payback will become. So, payback is how much I've ever received in dividends from a position divided by how much I invested in that position.

YoC is how much a position is expected to throw off in dividends in the next year divided by how much I invested in that position.

[Ramon_13]

So you will continue to hold D ? I sold on monday's open. I might get back in later. The reduced div cut in the 4Q will drive the share price lower

[FerdiS]

Yes, at least through December when I usually make decisions that would impact my taxes. Perhaps you're right about a lower share price, though that may have been priced in when the stock fell 12% after the announcement. We'll see how it goes. It looks like D will be aiming for much higher dividend growth (6% vs about 2%).

[jgilger]

Always nice to read about your portfolio moves... I have a very similar portfolio & am too overweight in AAPL and a huge pop today...
My recent adds include: JPM, GD, LMT, GDX

[FerdiS]

Those are good stocks, @jgilger -- and $AAPL continues to amaze me! Take care and enjoy the ride!

[Bradley Guichard]

Thanks for the article - interesting read. We share a similar portfolio strategy. All the best.

[FerdiS]

I appreciate your comment, BradGu -- thanks and all the best with your investments!