Compounders And Dividends: September 2022 Portfolio Update

Oct. 04, 2022 2:30 PM ETAAPL, ABBV, ADP, AMT, APD, AVGO, CHTR, CMCSA, CNI, CNR:CA, COP, COST, CP, CP:CA, CVS, DHR, DHR.PA, DHR.PB, DIS, EL, EOG, ESS, GOOG, GOOGL, HD, HLT, KO, LBRDA, LOW, MA, MCO, META, MO, MSFT, NEE, NFLX, NKE, O, ODFL, OLPX, QCOM, SBUX, SPGI, TGT, TXN, V, VMC, VMW18 Comments
Three Wood Capital profile picture
Three Wood Capital
347 Followers

Summary

  • Turbulent markets confirm my focus on the dividend growth segment.
  • During September, I made 12 trades; 12 purchases and 0 sales.
  • My projected dividend income is up 13.9% on a year-over-year basis.

2022 wooden numbers with coins on the table

baona

To quote one of my favorite writers here at Seeking Alpha, "another month, another step towards financial freedom."

It's markets like these that confirm my position as a dividend growth investor. While my portfolio is down, my dividend income comes in as projected and reinvests at lower prices with higher starting yields. I was excited to see the red last week knowing my dividends were going to reinvest into blue chip companies with higher yields.

While it is difficult to see your portfolio drop in value, I'm reminded that the money I invested during the 2018 and 2020 downturns have added a significant amount of money to my total dividends. I'm also sleeping well at night with my dividend growth ambitions because I know we will see more bear markets over my lifetime. When the next one comes, my dividends will be higher due to the money I'm investing today. When a bear market arrives during my retirement, I won't have to sell my shares into weakness to cover my living expenses. Instead, the world class companies and management teams I'm partnering with will continue to send me growing checks year-over-year.

As a reminder to people who read my first post, I pool my dividends and reinvest on the first trading session of the following month. In this post, I'll discuss where I put the rest of my September savings to work (those who read my second post already know where the big chunk went) and where I selectively reinvested my dividends. My updated portfolio and weightings are at the bottom of the post.

My plan moving forward is to write a monthly article about my selective dividend reinvestments and monthly savings allocations. If there is interest for an updated monthly watchlist, I'm happy to provide that (a few new stocks have already been added), but I don't want to produce content unless there is some sort of appetite.

Even though my dividend income is projections (+13.9% year-over-year!) allow me to invest up to 25% of my dividends and monthly savings into non-dividend paying companies, I wanted to put this money to work into the dividend paying-segments of my portfolio given the healthier starting yields I'm seeing across my portfolio.

September trades

During September I made 12 trades; 12 purchases and 0 sales.

Dividend Reinvestments

I used my pooled September dividends to buy shares of Microsoft (MSFT) at $235.58, Texas Instruments (TXN) at $156.74, Mastercard (MA) at $285.72, S&P Global (SPGI) at $307.50, Broadcom (AVGO) at $449.08, Realty Income (O) at $57.73, American Tower Corp (AMT) at $213.49, Comcast Corporation (CMCSA) at $29.75, Target (TGT) at $149.61 and Home Depot (HD) at $282.86.

I try not to invest my dividends into so many companies so I can really make my compounding go to work, but I see a ton of value across several names that I want to increase exposure to. O and AMT have come down significantly in price and AMT appears to be a 10-year high for dividend yield and O last yielded above 5% at the COVID bottom. Building up the real estate portion of my portfolio is definitely a priority. The rising predictable income helps build the remainder of the portfolio. With O being only one of my two "high yielders," I'll likely use the dividends from O and Altria (MO) to build another high yielder over the coming year or two. You'll have to see my watchlist to know who I'm targeting.

CMCSA continues to fall, so I will continue to slowly accumulate shares into weakness. The selling has been violent and ruthless, with CMCSA and CHTR seeming to find new bottoms weekly. It's getting to the point where I may have to add Charter (CHTR) or Liberty Broadband (LBRDA) (which gives you something close to a 20% discount on CHTR) to the portfolio. These companies seem very cheap. I'll admit, CMCSA should always be trading at a discount to CHTR given the terrible capital allocation decision. Brian Roberts has a gem of a company with top tier assets, and he keeps throwing that cash flow out the window. I was very excited to see CMCSA already executing on $9 billion of share repurchases through the middle of September, with another $20 billion loaded up in the coffer. This is probably one of the investments I'm least confident in since there seems to be plenty of ways to lose, but I'm going to trust in the assets, repurchases and growing dividends. I'm hoping we see a spinoff of NBCU at some point, but I'm happy to hold onto the entire enterprise as is.

TGT still looks expensive on a forward P/E, but like CMCSA I'm happy to slowly pick up shares with reinvested dividends. I'm hopeful that most of the damage has been done already for TGT shareholders. I can almost guarantee you'll see TGT again next month as another monthly dividend reinvestment.

HD and SPGI ended up with the reinvested dividends instead of Lowe's (LOW) and Moody's (MCO), respectively. These can really flip, and I think all four look attractive, but I went with HD and SPGI out of preference to build up those positions. I love all four companies as they are large oligopolies and fierce competitors. As noted in previous writings, I love industries with two large players with a history of stellar management that act like shareholders. I have such a hard time picking between the two in such cases, so it's easier to own both and treat them as "one" in my portfolio.

TXN is a company I'd like to see in my top 10, so it should be a repeat offender on the reinvested dividend list. It's one of the few companies I view as a bona fide compounder in my portfolio. Excellent management and superb capital allocation mean I'll be buying this every chance I get. I always try to buy AVGO when the yield approaches 4%. I like the pending VMware (VMW) deal and the balancing of the portfolio between enterprise software and chips.

MSFT and MA are two of my favorite companies and deserve more capital than I can throw at them. As discussed below, I added to Visa (V) with my monthly savings, so I wanted to reinvest some of my dividends into MA to keep building that position.

Monthly Savings

I deployed the rest of my monthly savings into Visa at $183.31 and used some cash to round out my position in NextEra Energy (NEE) at $82.54. As stated in my last article, I love companies that require little to no CapEx with fat margins that are returning nearly all of their FCF to shareholders. V's large competitive advantages are really second to none and the multiple looks reasonable at a low 20s multiple if you normalize cross-border spend. While any sort of sustained recession will yield better prices for V, I'm very content with my purchase. I'll continue to buy V and MA as they will continue to pay me an increasing dividend while reducing the share count.

NEE is a tougher one to explain outside of just wanting to build that position up a bit more. I have no utility exposure, and rounding NEE out to 0.50% of my portfolio hits my target for the smaller position. Florida Power & Light is one of the best electric utilities in the country and NEE is a leader in renewables through NextEra Energy Resources as the largest operator of wind and solar projects, with additional exposure to nuclear, natural gas and oil generating plants. I tend to only like utilities when they are at lower valuations with higher starting yields, but NEE is a longer-owned position that I've been wanting to round out. As prices provide, I can see myself adding to NEE with my monthly dividend reinvestments.

I will note I was close to accelerating my dividend reinvestments to establish a position that's long been on my watchlist, Nike (NKE), after the large post-earnings decline. It could have gone either way, but I decided to instead stay disciplined and focus my reinvestments on the already beaten down names in my portfolio. Having done a lot of previous research on NKE, it's a name I would have felt comfortable quickly pulling the trigger on. In the end, I felt that there may be another time to buy NKE while it's getting its inventory straightened out. If I didn't think a number of stocks in my portfolio were already at attractive levels, I would have likely pulled the trigger.

Below is a look at my current portfolio:

Company

Ticker

Allocation

Core Dividend Growth

39.590%

Microsoft Corporation

MSFT

9.049%

Apple, Inc.

AAPL

6.425%

Canadian National Railway

CNI

3.632%

Essex Property Trust, Inc.

ESS

3.571%

AbbVie, Inc.

ABBV

2.733%

Air Products and Chemicals, Inc.

APD

2.574%

Canadian Pacific Railway

CP

1.873%

Qualcomm Incorporated

QCOM

1.678%

Vulcan Materials Company

VMC

1.280%

Comcast Corporation

CMCSA

1.272%

CVS Health Corporation

CVS

1.230%

ConocoPhillips

COP

1.175%

EOG Resources, Inc.

EOG

1.075%

Starbucks Corporation

SBUX

0.919%

NextEra Energy, Inc.

NEE

0.583%

The Coca-Cola Company

KO

0.522%

High Dividend Growth

44.369%

Broadcom, Inc.

AVGO

4.976%

Moody's Corporation

MCO

4.502%

Visa, Inc.

V

3.936%

MasterCard Incorporated

MA

3.757%

Lowe's Companies, Inc.

LOW

3.526%

Costco Wholesale Corporation

COST

3.424%

Texas Instruments Incorporated

TXN

3.218%

The Home Depot, Inc.

HD

3.129%

S&P Global, Inc.

SPGI

2.862%

Automatic Data Processing, Inc.

ADP

2.501%

American Tower Corp

AMT

2.395%

Danaher Corporation

DHR

2.399%

Old Dominion Freight Line, Inc.

ODFL

1.868%

Target Corporation

TGT

1.419%

Estee Lauder Companies, Inc.

EL

0.467%

High Yield

4.254%

Altria Group, Inc.

MO

2.313%

Realty Income

O

1.941%

Non-Dividend

10.719%

Alphabet, Inc.

GOOGL

4.424%

Meta Platforms, Inc.

META

3.195%

Netflix, Inc.

NFLX

2.974%

Olaplex Holdings

OLPX

0.144%

Other Bets

1.063%

Hilton Worldwide Holdings, Inc.

HLT

0.663%

The Walt Disney Company

DIS

0.346%

Financial Institution A

--

0.054%

Conclusion

My portfolio continues to grow its monthly dividends and I look forward to providing these monthly updates on my purchases, dividend reinvestments, and (rarely) sales. Please take a look at my watchlist article for the companies I'm learning about, researching, and potentially buying. I hope this update helps the community understand how I'm reinvesting my dividends and the thoughts that go into my monthly purchases.

I will continue to be fully invested into equities in the market. While others may be looking for ways to play inflation or timing the bottom, you will find me aggressively adding to positions during times of weakness. I'd rather catch the bottom early rather that miss it completely.

This article was written by

Three Wood Capital profile picture
347 Followers
Young(ish) Dividend Growth Investor looking to compound capital over the long-term. Focused on slowly accumulating shares in blue chip companies with the ability to pay growing dividends over the long-term. Five+ years experience actively managing my own portfolio.Focused on building a portfolio that can be passed down and provide my wife and me a comfortable retirement.

Disclosure: I/we have a beneficial long position in the shares of MSFT, AAPL, CNI, ESS, ABBV, APD, CP, QCOM, VMC, CMCSA, CVS, COP, EOG, SBUX, NEE, KO, AVGO, MCO, V, MA, COST, LOW, TGT, TXN, HD, SPGI, ADP, AMT, DHR, ODFL, EL, MO O, GOOGL, META, NFLX, OLPX, HLT, DIS either through stock ownership, options, or other derivatives. 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.

Additional disclosure: I/we have no stock, option or similar derivative position in CHTR, LBRDA, or NKE, but may initiate a beneficial long position through a purchase of stock, or the purchase of call options or similar derivatives over the next 72 hours.

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