It's time to summarize another quarter. The first quarter of 2021 was somewhat volatile for tech companies, but the S&P 500 finished strong with a total return of almost 6%. Since January we have a new Congress and a new president. As both the White House and Congress are in the hands of one party, it should be easier for them to govern and execute their agenda.
And we indeed saw some execution, as Congress passed another stimulus bill worth almost $2 trillion, and the president is willing to pass an infrastructure spending bill worth another $2 trillion. While the government is increasing public spending, the central bank still increases liquidity in an attempt to keep the interest rates lower as our economy recovers from the pandemic.
The Federal Reserve had only partial success as Treasury yields have been on the rise, hammering tech and small-cap stocks. The yields are still low historically, and the Fed has no intentions to raise interest rates in the next two years, but the market sees the recovery as America is being vaccinated rapidly and GDP growth projections are on the rise.
In Q1 my portfolio performed better than the market due to the lower exposure to small-cap and tech companies. However, I am not focusing on the total return in this portfolio, but on the income it generates. I enjoyed several dividend increases and no dividend cuts.
Therefore my dividend income has also been growing organically. My main goal is to achieve a growing stream of dividends which will give me some more financial freedom. In Q1 2021, my dividend income grew by 13.5 QoQ and I am very pleased with this achievement as I allocated fewer funds to my dividend growth portfolio than I planned for initially.
I plan to keep executing my investment thesis. I will keep allocating funds to my portfolio monthly. I will invest in stocks I believe are cheap or fairly valued. I will try to achieve a higher dividend income and a high total return. I see no reason to amend my investment thesis at the moment, as it has worked for me over the past several years.
I don't see any sign of volatility as an opportunity that allows me to buy a future income for cheaper prices. If the market will be volatile due to a recession or any other reason, I will stick to the safest blue chips, which are usually expensive. Their dividend is usually extremely safe, and any price change is a possible opportunity. I will also try to take advantage of significant drops and buy some of the stocks that I find expensive right now. I wish you all a great quarter.
My dividend growth portfolio used to be more than 83% of my assets. To try to balance it, I allocated more funds to my other accounts. I want to balance it to hedge myself against possible failures in my strategy. Being overconfident in the financial world can lead to devastating results. Therefore, I am making some effort to allocate my funds and make sure that my assets stay diversified.
My current goal is to make my dividend growth portfolio around 50% of my assets and to do it while I keep increasing its value and achieve a 10% dividend growth. I am a believer in diversification. In the future, I believe that when I buy a house as an investment or to live in, it will lower the percentage of the dividend growth portfolio in my assets. Right now, I am allocating mainly to the other accounts.
My dividend growth portfolio is very well-diversified and contains a collection of 71 blue-chip companies. While I am proud of my achievements as a young investor, I must stay humble and diversify my investments wisely. The more I learn about investments, the humbler I become.
In 2021 I already maxed my Roth IRA contributions. Besides, I opened an account to save for a downpayment on a house. These two measures helped me diversify my holdings. While the Roth IRA, the pension, and the dividend growth portfolio are long-term investments, I plan to use the rest of the accounts as an optional downpayment for a home.
Since I started setting goals, I managed to achieve most of my goals. My goals for 2021 are to achieve at least 10% of dividend growth and to diversify my investments, maximize my Roth IRA contribution, read at least twelve books, and find new employment opportunities now that I have finished school.
As long as I keep executing my strategy, I will be able to achieve these goals. I usually try to travel every year, and after a rough 2020, I hope to travel in 2021 at least twice. Investors who set goals can follow their progress in a more comfortable manner.
By setting goals, you can organize your time better. I highly recommend it to everyone. It allows you to see your progress during the year. Just set some goals that are challenging but achievable, and make sure they are quantifiable.
As my brokerage account is my largest asset, I keep allocating money there according to my optimal sector allocation. As I am still accumulating, I don't mind buying stocks from sectors I am over-allocated to. I don't want to totally ignore my optimal allocation. Over the past quarter, I bought stocks across several sectors.
Over this quarter, I changed my optimal allocation. I lowered my exposure to the energy sector as I saw again how sensitive it is to energy prices. I increased my exposure to the IT sector. Energy is volatile and relies heavily on fossil fuels, and I lacked exposure to technology so it made perfect sense to me to do so.
The financial and industrials sectors did very well, so I probably won't add to these sectors unless a great opportunity arises. In the coming quarter, I will probably invest more in sectors I lack exposure to. I usually write articles regarding companies that I find attractive. I bought shares in some of them, while others are still on my radar. In Q2, I will try to add some more dividend growth companies.
|Energy and Materials||8.8%||8.0%|
The following table shows the current holdings in my brokerage account. All the companies below are part of my dividend growth portfolio. Alphabet (GOOG) (GOOGL) and Facebook (FB) don't pay dividends. However, they both enjoy steady growth in their free cash flow. This metric is the basis of any dividend payment. As a long-term investor, I don't mind waiting until they are ready to share some of this wealth with their investors. Alphabet and Facebook have already started buyback programs. I hope that both will offer dividends in the years to come.
|Industry||Company||Ticker||% of Portfolio||% of Income|
|Information Technology||APPLE INC||(AAPL)||3.40%||0.74%|
|Health Care||ABBVIE INC||(ABBV)||1.00%||1.56%|
|Health Care||ABBOTT LABORATORIES||(ABT)||2.74%||1.35%|
|Consumer Staples||ARCHER-DANIELS-MIDLAND CO||(ADM)||1.33%||1.11%|
|Financials||AMERIPRISE FINL INC||(AMP)||1.09%||0.62%|
|Financials||BANK OF AMERICA CORP||(BAC)||2.19%||1.29%|
|Health Care||BECTON DICKINSON & CO||(BDX)||0.67%||0.30%|
|Financials||CITIGROUP INC COM||(C)||1.01%||0.92%|
|Health Care||CARDINAL HEALTH INC||(CAH)||1.40%||1.45%|
|Information Technology||CISCO SYSTEMS INC||(CSCO)||0.72%||0.66%|
|Health Care||CVS HEALTH CORPORATION||(CVS)||0.34%||0.30%|
|Consumer Discretionary||WALT DISNEY CO||(DIS)||0.87%||0.00%|
|REIT||DIGITAL REALTY TRUST INC||(DLR)||1.98%||2.08%|
|Utilities||DUKE ENERGY CORPORATION HOLDING COMPANY||(DUK)||0.44%||0.58%|
|Industrials||EMERSON ELECTRIC CO||(EMR)||2.09%||1.53%|
|Energy||ENTERPRISE PRODUCTS PARTNERS LP||(EPD)||2.05%||5.38%|
|Industrials||EATON CORPORATION PLC||(ETN)||1.29%||0.91%|
|Information Technology||FACEBOOK INC CL A||(FB)||1.65%||0.00%|
|Industrials||GENERAL DYNAMICS CORP||(GD)||0.83%||0.66%|
|Consumer Staples||GENERAL MILLS INC||(GIS)||1.12%||1.22%|
|Information Technology||ALPHABET INC CLASS C CAPITAL STOCK||(GOOG)||1.97%||0.00%|
|Information Technology||INTERNATIONAL BUSINESS MACHINES CORP||(IBM)||0.61%||0.97%|
|Health Care||JOHNSON & JOHNSON||(JNJ)||3.76%||3.02%|
|Financials||JPMORGAN CHASE & CO||(JPM)||2.13%||1.62%|
|Consumer Staples||KELLOGG CO||(K)||0.35%||0.41%|
|Consumer Staples||KIMBERLY CLARK CORP||(KMB)||1.90%||2.05%|
|Energy||KINDER MORGAN INC||(KMI)||1.17%||2.42%|
|Consumer Staples||COCA-COLA COMPANY||(KO)||1.70%||1.76%|
|Industrials||LOCKHEED MARTIN CORP||(LMT)||0.34%||0.31%|
|Consumer Discretionary||MCDONALD'S CORP||(MCD)||3.12%||2.31%|
|Health Care||MCKESSON CORP||(MCK)||0.45%||0.13%|
|Health Care||MEDTRONIC PLC COM||(MDT)||1.64%||1.04%|
|Energy||MAGELLAN MIDSTREAM PARTNERS LP UNIT REPSTG LTD PARTNER||(MMP)||1.02%||3.07%|
|Consumer Staples||ALTRIA GROUP INC||(MO)||1.41%||3.09%|
|Energy||MPLX LP COM UNIT REPSTG LTD PARTNER INT||(MPLX)||0.72%||2.47%|
|Information Technology||MICROSOFT CORP||(MSFT)||0.56%||0.17%|
|Industrials||MSC INDUSTRIAL DIRECT CO INC CL A||(MSM)||0.84%||0.90%|
|Utilities||NEXTERA ENERGY INC||(NEE)||0.56%||0.37%|
|Consumer Discretionary||NIKE INC CLASS B COM||(NKE)||1.22%||0.33%|
|Industrials||NORFOLK SOUTHERN CORP||(NSC)||2.38%||1.13%|
|REIT||REALTY INCOME CORP||(O)||1.50%||2.10%|
|REIT||OMEGA HEALTHCARE INVESTORS INC||(OHI)||2.13%||4.81%|
|Consumer Staples||PEPSICO INC COMMON STOCK||(PEP)||2.61%||2.57%|
|Health Care||PFIZER INC||(PFE)||0.33%||0.47%|
|Consumer Staples||PROCTER & GAMBLE CO||(PG)||1.86%||1.42%|
|Consumer Staples||PHILIP MORRIS INTERNATIONAL INC||(PM)||2.44%||4.31%|
|Financials||PRUDENTIAL FINANCIAL INC||(PRU)||2.14%||3.44%|
|Information Technology||QUALCOMM INC||(QCOM)||1.27%||0.81%|
|Industrials||RAYTHEON TECHNOLOGIES CORPORATION COMMON STOCK||(RTX)||0.71%||0.57%|
|Consumer Discretionary||STARBUCKS CORP||(SBUX)||1.01%||0.54%|
|Utilities||SOUTH JERSEY INDUSTRIES INC||(SJI)||0.32%||0.54%|
|Consumer Staples||SMUCKER J M COMPANY||(SJM)||0.47%||0.43%|
|Consumer Staples||TARGET CORP||(TGT)||2.78%||1.22%|
|Financials||PRICE T ROWE GROUP INC||(TROW)||0.80%||0.65%|
|Information Technology||TEXAS INSTRUMENTS INCORPORATED||(TXN)||0.53%||0.37%|
|Industrials||UNION PACIFIC CORP||(UNP)||1.42%||0.81%|
|Financials||VISA INC CL A COMMON STOCK||(V)||2.00%||0.38%|
|Consumer Discretionary||VF CORPORATION||(VFC)||1.10%||0.88%|
|Energy||VALERO ENERGY CORP NEW||(VLO)||0.35%||0.59%|
|Health Care||VIATRIS INC||(VTRS)||0.06%||0.07%|
|Utilities||WEC ENERGY GROUP INC||(WEC)||0.86%||0.81%|
|Consumer Staples||WALMART INC COMMON STOCK||(WMT)||1.00%||0.53%|
|REIT||W. P CAREY INC COM||(WPC)||1.34%||2.51%|
|Energy||EXXON MOBIL CORP||(XOM)||1.59%||3.12%|
I currently own 70 companies in my portfolio. Over the quarter, I started new positions and added to existing positions. I am not worried at all about the number of positions I hold. These blue-chip companies don't need me to follow them daily. In fact, I wouldn't mind holding them even if the stock market is closed for a decade.
Acquisitions Made in Q1 2021
The first quarter was rather calm beside the shakedown of the Nasdaq. Since even my technology companies are stable like Apple and Alphabet and not speculative like Tesla (TSLA) or Nio (NIO), I didn't feel the volatility during the quarter. I bought shares in three sectors: financials, technology, and telecom.
In the financial sector, I added Bank of America and Prudential. The entire financial sector was hurt in 2020, and after passing the stress tests, dividend increases and buybacks will come back in 2021. Both companies offer value to shareholders who look for long-term safe and growing dividends.
In the telecom sector, I added Verizon and AT&T. Both companies offer a slow-growing yet safe yield. AT&T is struggling at the moment with its debt load, and investors are pricing it. I am optimistic and believe that while it may take longer to reach the targeted debt level, the dividend will stay safe in the meantime.
In the technology sector, I bought shares in Microsoft. During the last quarter share price has declined together with the Nasdaq, but the price was still resilient. I took the tiny opportunity and bought some shares. I now have a small position, and I look forward to adding to it. The dividend is safe, and every short-term weakness is a long term opportunity for dividend growth investors.
Sales Made in Q1 2021
Over the past quarter, I have not sold any stock. I sell when a company cuts its dividend, and that didn't happen in Q1 2021. When I look at the near future, I try to find dividends that are relatively in danger. Right now, I believe that the dividends in my portfolio are adequately safe. The riskiest dividend, in my opinion, is the one paid by Omega Healthcare and MPLX.
What Am I Looking For?
When I look at my portfolio, I see a great collection of companies. Every year, I feel more confident about some companies and less confident about others. That's why diversification is key. I am always looking for the weaker links in my portfolio, and I try to measure the effect of a possible dividend cut on my dividend income.
In Q2, I will keep following the real estate and consumer discretionary sectors closely. As we get out of recession discretionary spending will grow and people will roam the streets as the pandemic fades. Some of my positions in the energy sector are a bit risky so I will monitor them closely. You probably recognize the chart below, as it is part of my stock analysis. Using this chart contributes to my analysis thesis. I keep looking for Type 2 stocks mostly, as they offer the best combination of growth and income.
(Graph created by author)
Stocks to Consider
These stocks have all passed my initial screening and should be thoroughly analyzed before I decide to add more or initiate a new position. While they all passed my initial screening they still require a more thorough analysis before I decide to invest in any of them.
In the consumer staples sector, I am looking to add more to my position in J.M. Smucker and Kellogg. I love the current valuation, the safe dividend, and the entry yield. However, mainly with Kellogg, there is a slow transformation that slows down the dividend increase.
I am also looking to add to the consumer discretionary sector as well as the financial sector. I have several candidates on my radar, and the first one is Lowe's (LOW) which I analyzed lately, and since then outperformed the market by over 10%. Another candidate is Genuine Parts Company (GPC) which is another dividend king, yet the valuation is a bit challenging.
In the real estate sector, I consider adding more to Realty Income. However, I would also like to look for new candidates in the sector as I only own 4 REITs at the moment and I would like to increase my exposure to more sub-sectors since I sold my shares in Park Hotels and Resorts (PK).
After 2020 which was a roller coaster we started a more stable 2021. I managed to maintain the dividend income steady during the quarter. In the coming quarters, I will keep executing my investment thesis, as I invest in companies monthly. Hopefully, I will be able to achieve my goals and get closer to my long-term objectives.
The coronavirus is probably going to accompany us into 2021 especially in Europe, but it will probably fade by the end of the year. After a recession, and political campaigns, I hope the recovery and political stability will benefit investors. I wish you all a great quarter, a happy Passover, Easter, and Ramadan Mubarak. I hope you all stay safe and healthy.
Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.