My Dividend Growth Portfolio In Q1: Double-Digit Returns And Dividend Growth Up To 33%
- The Dividend Growth 30 portfolio is an article series I started last summer.
- The 30 stocks in the portfolio delivered nice gains in Q1 2021, with almost all of them being up year to date.
- There were no dividend cuts, while several companies have grown their dividends at an attractive pace so far.
- Looking for a helping hand in the market? Members of Cash Flow Kingdom get exclusive ideas and guidance to navigate any climate. Learn More »
Nine months ago, on July 1, I started a new model portfolio called the Dividend Growth 30, which features 30 dividend growth stocks that I believe will be solid long-term buy-and-hold investments. Now, after the first nine months, I will take another look at the portfolio's performance, and notable items - which stocks did well, which did not? We will also take a look at how dividend changes have impacted the portfolio's income.
In summer 2020, shortly before turning 30, I decided to build a model portfolio that includes stocks that I believe will do well over the coming decades. I thus chose companies with strong market positions and wide moats versus competitors that should do well in different market conditions. More on the reasoning for individual stocks can be read here, while previous recap articles can be found on my author page, this being the most recent one. The original article also includes more info regarding why I decided to build this portfolio and why I am writing about it.
Nine Months Later
In April 2021, I am now looking back at the performance of the portfolio during the fourth quarter, as well as the overall performance so far, i.e. for the first nine months. Returns are calculated with the share price on March 31. The portfolio performance looked like this at the end of the quarter:
Source: Author's calculation
Over the first nine months, the portfolio delivered a return of 34%, before dividends. During the first quarter, the portfolio delivered a return of 10.5%. So far, the portfolio has slightly outperformed the S&P 500 index since creation, as the broad market rose by 29% since July 2020.
Looking at the individual performance of each stock during the quarter, we get the following picture:
Source: Author's calculation
There were wide differences between the performances of some of these stocks, let's just take a look at some outliers.
The biggest gain during the quarter was seen by Simon Property (SPG), with Intel (INTC) and General Dynamics (GD) delivering gains of more than 20% during the quarter as well. Some additional stocks, such as Tencent (OTCPK:TCEHY), Pentair (PNR), SL Green (SLG), Home Depot (HD), American Express (AXP), and AvalonBay (AVB) delivered gains of more than 15% during the quarter.
The explanation for these gains differs. In some cases, such as with Simon Property, American Express, SL Green, or AvalonBay, it seems like recent outperformance was possible thanks to the ongoing reopening trade. Markets have started to bid up value stocks that will benefit from normalization following the pandemic, and that includes many real estate stocks as well as financials. Others, such as Intel, moved in company-specific news. Intel had seen its shares perform rather weakly in 2020, but the announcement of a CEO change and new growth plans have propelled the stock upwards.
There were also stocks that underperformed, however. This includes Nike (NKE), which was the weakest performer in the portfolio during the quarter, but also Visa (V) and Albemarle (ALB). Those three were down in Q1, with some others, such as Activision Blizzard (ATVI) underperforming the market despite rising slightly. The explanation for this underperformance seems to be pretty straightforward - shares were too expensive going into the quarter.
These stocks had performed well during 2020 and traded at valuations that were way ahead of the historic median, so they consolidated to some degree as the market started to shift towards value stocks in Q1. None of these companies do look especially cheap, however, despite moving down slightly in Q1.
All 30 stocks in this portfolio have regularly increased their dividends in the past. I believe that all 30 of them will be able to regularly increase their dividends in the future, too, although the current pandemic has slowed down dividend growth rates to some degree. Corporations are currently oftentimes on the conservative side regarding shareholder returns, which is why not too many companies opted for dividend increases in recent quarters. Nevertheless, there were some quite meaningful dividend increases in the nine months since the portfolio was constructed:
Source: Author's calculation
The most sizeable dividend growth was offered by Oracle (ORCL), which hiked its dividend by one-third in 2021. Others have offered double-digit dividend growth as well, though, including Abbott Laboratories (ABT), Broadcom (AVGO), and Nike. Some companies offered minor dividend increases that can't be described as overly attractive, including Realty Income (O), which increased its dividend by ~1% so far.
Dividend Reinvestment And Portfolio Yield
All dividend payments received during the quarter were reinvested in more shares of the same stock, which led to the following purchases during the first quarter:
Source: Author's calculation
Activision Blizzard and Tencent make annual dividend payments. Thus, there was no Q1 payment that could be reinvested. Disney (DIS) has still suspended its dividend for now. All other companies made dividend payments that were reinvested, which equated to a total reinvestment of about $230. Based on the total payout received during the quarter, the portfolio yield on cost is ~3.1%, while the current yield, based on prices on March 31, is ~2.3%. Worth mentioning, portfolio income has grown during every quarter since inception, as there were no dividend cuts, while dividend increases and dividend reinvestment have pushed the average income upwards. Portfolio income grew by 4% sequentially, which equates to a high-teens growth rate on an annualized basis.
So far, I am very happy with this experiment. The portfolio has delivered attractive returns during the first quarter, as well as since inception, beating the broad market. At the same time, the portfolio offers a dividend yield that is higher than the yield of the broad market, at around two and a half percent based on current prices. The above-average dividend yield of the portfolio should lead to a meaningful accretion of dividend reinvestments over the years, which could be helpful in driving portfolio performance, especially during times when the market is moving sideways, and dividend payments will play a larger role.
It should be noted that the strong performance that was achieved during Q1, at ~11% including dividends, will in all likelihood not be repeated too often, as that would equate to an almost impossibly high ~50% on an annualized basis.
The performance of individual stocks was not uniform so far at all, which has to be expected. But since most stocks are up since inception and were up during Q1, there is not much to worry about here. It is important for me that none of the portfolio companies have cut their dividends so far, while we have seen some quite large dividend increases already. I expect that this is a trend that will continue, especially since reopening efforts and economic growth should allow some of those companies to become more inclined to reward their owners through growing dividends. Please share with us what you think about the portfolio and its individual stocks, or what other stocks you would favor for a multi-decades portfolio.
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Analyst’s Disclosure: I am/we are long ALL STOCKS MENTIONED. 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.
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