- My passive income stream increased by 55.58% in July and 63.07% in August, pushing year-to-date dividend growth to 40.26%.
- I've been building my cash position in preparation for a market crash and taking advantage of high interest rates.
- I continue to buy stocks while also allocating savings to cash equivalents, and selectively reinvest dividends back into dividend growth stocks.
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It's been a couple of months since I've written a portfolio review.
I've been busy at work. I went on vacation last month (I recommend Ocracoke, North Carolina to anyone looking to take a relaxing break). And there have been a couple of persistent healthcare issues that I've had to deal with in my household (damn you, Lyme disease).
But, through it all, I can confidently say: these last couple of months have represented a couple of big steps towards financial freedom.
During July, my passive income stream increased by 55.58% on a year-over-year basis.
This was the best performance that I'd seen in years (only topped by some of the months in 2017 when my monthly income soared higher because of a significant capital infusion after a property sale).
But that record didn't last long.
In August, my passive income stream increased by 63.07%.
These two months pushed my year-to-date dividend growth up to 40.26% (compared to the first 8 months of 2022).
This year-to-date performance is trending higher than I could have ever expected coming into the year; however, as I've said throughout the year, it's not because of organic growth.
Instead, this massive dividend growth is primarily due to asset allocation decisions.
Throughout the year I've been building my cash position every month, slowly preparing for the next recession/market crash.
Now that the broad market indexes have recovered from their 2022 lows (where I was aggressively allocating cash to the markets), I want to rebuild my bear market baskets so that I can take advantage of the next bout of macro weakness.
In the past, this wasn't a pleasant process. It had to be done, but it wasn't fun.
It felt pretty bad stashing cash away in my checking account that was yielding 0.04%.
These days saving feels great though.
I've moved all of my cash to a Fidelity account where their SPAXX money market fund yields nearly 5%.
Therefore, when I move savings into SPAXX at the end of each month it's akin to buying a safe, high yielding stock.
SPAXX has become my second largest holding and this allocation is growing every month.
This position will continue to grow so long as the markets continue to rally.
I know people love to hate Jerome Powell and the Federal Reserve for its hawkish policies over the last 24 months or so…but as a regular saver, I'm not complaining.
It feels pretty great to be able to build cash while also building my passive income stream. And while I know these high rates won't last forever, I'm content to take advantage of them while they last.
Theoretically, when the Fed pivots dovish it will be due to bearish signs in the economy (and/or stock market), so when rates start to fall on short-term bonds (which dictate the money market fund's yield) it should be a prime time to begin allocating these funds back into the equity space.
I don't know when this pivot will occur, but in the meantime, I'm sleeping well at night collecting 4.98% with a cash equivalent position in SPAXX.
Speaking of sleeping well at night…that nice upward curve that's starting to form on the monthly dividend chart above provides me a lot of solace.
It shows that the compounding process associated with accumulating dividend growth stocks is working nicely.
The stock market goes up and down…but my income stream continues to trend higher.
That's what dividend growth investing is all about and I continue to be a believer in this strategy's ability to get my family where we want to go financially.
Despite 2023's Rally, There Are Plenty Of Opportunities In The Stock Market
Although I'm allocating capital to my cash position every month, I'm still buying stocks as well.
I want to get my cash/cash equivalents position up to the ~10% level, but I don't want to totally sacrifice the upside that equities (risk assets) provide over the long-term.
Each month roughly half of my available savings are being allocated towards SPAXX and/or short-term bond funds. The other half is still being allocated to blue chip dividend growth stocks.
What's more, I continue to selectively reinvest 100% of my dividends back into dividend growth stocks each month. With that in mind, I've made many trades since my most recent update. But, at this point in time many of those trades are outdated and no longer relevant and/or actionable for readers, so instead of talking about something that I did 60 days ago, I decided to update all of the fair value estimates across my holdings and provide readers with those.
As always, you're free to take these estimates with a grain of salt, but they're what I'm basing portfolio management decisions off of at the moment.
And I think it's a pretty good time to provide this update because it makes sense to refresh many of the old estimates given that we're close enough to the end of 2023 to start to prioritize 2024 expectations.
Remember, what's in the past is in the past.
Stocks are generally priced upon the expectation of future cash flows (and they should be).
And while I don't want to speculate too much when it comes to pricing in future growth, I think there's adequate visibility (barring a significant black swan event) into 2024 right now to start basing FV estimates off of next year's expectations.
Before you take a look at these estimates, remember that these fair values aren't necessarily price targets for future purchases.
Only the highest quality stocks in my portfolio/on my watch list don't require a margin of safety to be bought.
For the most part, I'm only looking to buy stocks at a discount.
What I deem to be an appropriate discount will vary from company to company based upon my long-term growth outlook.
Also, managing single stock risk is important to sleeping well at night, so generally speaking, once I have built a "full" or even an "overweight" position, the margin of safety requirements to add more shares expand in an effort to reduce overall risk.
Everything is a balancing act…between quality, value, and asset allocation…when it comes to managing my portfolio.
But, I think establishing fair values across one's holdings is the first step to being able to make informed decisions in the market and therefore, performing this exercise periodically, no matter how tedious it might seem, is paramount to making sound, rational, intelligent trades.
So, with all of that being said, here are my holdings, my cost basis numbers, my current position weightings, current share prices, and my updated fair value estimates.
Nicholas Ward's Dividend Growth Portfolio
Core Dividend Growth
|Company name||Ticker||Cost basis||Portfolio Weighting||Current Share Price|| |
Fair Value Estimate
|Johnson & Johnson||JNJ||$114.02||1.49%||$161.86||$186.00|
|Broadridge Financial Services||BR||$148.90||1.05%||$185.78||$168.00|
|Deere & Co.||DE||$347.85||1.00%||$413.08||$490.00|
|Canadian National Railway||CNI||$114.55||0.95%||$115.70||$122.00|
|Essex Property Trust||ESS||$223.54||0.76%||$225.01||$255.00|
|Illinois Tool Works||ITW||$130.90||0.73%||$238.04||$207.00|
|Air Products and Chemicals||APD||$234.91||0.73%||$300.87||$287.00|
|Bristol Myers Squibb||BMY||$49.47||0.65%||$58.60||$79.00|
|Camden Property Trust||CPT||$113.04||0.62%||$102.34||$126.00|
|Rexford Industrial Realty||REXR||$52.11||0.42%||$52.00||$63.00|
|Alexandria Real Estate||ARE||$130.96||0.27%||$112.25||$154.00|
|Automatic Data Processing||ADP||$223.34||<0.10%||$247.20||$250.00|
|British American Tobacco||BTI||$37.50||1.08%||$33.55||$45.00|
|Toronto Dominion Bank||TD||$65.06||0.61%||$61.80||$69.00|
|National Retail Properties||NNN||$38.40||0.56%||$38.16||$53.00|
|Federal Realty Investment Trust||FRT||$114.86||0.50%||$97.51||$114.00|
|Royal Bank of Canada||RY||$100.18||0.28%||$91.32||$103.00|
High Dividend Growth
|Booz Allen Hamilton||BAH||$75.49||0.39%||$112.22||$102.00|
|Owl Rock Capital||OBDC||$13.64||0.84%||$13.86||$15.26|
|Main Street Capital||MAIN||$39.25||0.39%||$41.16||$41.00|
|Ares Capital Corp.||ARCC||$17.26||0.29%||$19.28||$22.00|
|Brookfield Asset Management||BAM||$23.67||0.16%||$36.10||$39.00|
|Fidelity Treasury Money Market Fund||SPAXX||$1.00||6.00%||$1.00||n/a|
|WisdomTree Floating Rate Treasury Fund ETF||USFR||$50.40||1.47%||$50.45||n/a|
|SPDR Bloomberg 1-3 Months T-Bill ETF||BIL||$91.63||0.73%||$91.65||n/a|
Since this update was a month late, I decided to provide readers who made it to the end with an added bonus.
I don't often discuss my watch list.
These days, I'm actually looking to get a bit more concentrated into my highest conviction ideas, so it's going to take a lot for me to start building up a position into a company that I don't already own.
But, there are still many wonderful, wide moat companies that are great at compounding their fundamentals, as well as their dividend payments that I don't own…and therefore, I think it's fair to say, "never say never" when it comes to establishing new positions.
With that in mind, here are the 3 stocks currently sitting atop my watch list with updated fair value estimates as well.
Bonus Watch List
|Company name||Ticker||Cost basis||Portfolio Weighting||Current Share Price|| |
Fair Value Estimate
|General Dynamics||GD||no position||no position||$225.49||$225.00|
|Canadian Pacific Kansas City||CP||no position||no position|| |
|FactSet Research||FDS||no position||no position||$428.55||$416.00|
Overall, fundamental growth is expected to be solid over the coming year for the vast majority of my holdings. With that in mind, fair value estimates are rising (I base these figures off of the most recent company guidance, consensus analyst estimates, specific, trusted analysts with proven track records, and my own, sort of under-the-hood work on these companies).
As time moves on, these estimates ebb and flow as fundamentals change. But right now, at least, it appears as though there are plenty of good bargains out there for investors to continue to accumulate.
These are bargains that compound their earnings, their dividends, and ultimately, their shareholders' wealth.
It's a great time to be a dividend growth investor!
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
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This article was written by
Nicholas Ward is a Senior Investment Analyst with Wide Moat Research and the former editor-in-chief and portfolio manager at The Intelligent Dividend Investor, The Dividend Growth Club, and The Income Minded Millennial.
Nicholas is a contributor to the investing group The Dividend Kings where he shares analysis on dividend growth stocks. The Dividend Kings is a group of analysts, led by Dividend Sensei, that teach members how to invest more wisely in dividend stocks. The focus is on helping investors safeguard and grow their money in all market conditions through the highest-quality dividend investments. Features include: 13 model portfolios, buy ideas, company research reports, and a thriving chat community for readers looking to learn how to invest more intelligently in dividend stocks. Learn More.
Analyst’s Disclosure: I/we have a beneficial long position in the shares of A, AAPL, ABBV, ACN, ADC, ADP, AMGN, AMZN, APD, ARCC, ARE, ASML, AVB, AVGO, BAH, BAM, BEPC, BIPC, BIL, BLK, BMY, BN, BR, BTI, BX, CARR, CCI, CMCSA, CME, CMI, CNI, CPT, CRM, CSCO, CSL, DE, DEO, DHR, DIS, DLR, ECL, ENB, ESS, FRT, SPAXX, GOOGL, HD, HON, HRL, HSY, ICE, ITW, JNJ, KO, LHX, LMT, LOW, MA, MAA, MCD, MCO, MDT, MKC, MO, MRK, MSCI, MSFT, NKE, NNN, NOC, NVDA, O, ORCC, OTIS, PEP, PFE, PH, PLD, PLTR, QCOM, REXR, RSG, RTX, RY, SBUX, SHW, SPGI, TMO, TD, TXN, USFR, UNH, V, WM, WPC, ZTS 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.
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