Continuing my Q3 outperformance, I edged the market with a 2.2% capital gain, despite my large cash cushion and bond holdings.
My Oct dividends were an 18% increase from a year ago, and my YTD dividends are up over 15%.
My dividend yields continue to achieve over 5% (versus the under 2% mark for the S&P 500).
My free Schwab trade activity was higher than usual this month.
October was especially nice for home gamers like myself (record market highs AND many online brokerages eliminating stock trading fees). I was certainly busy with a month of repositioning my portfolio to skew even more conservatively amidst the new price highs (but yawn-worthy economic performance).
October was also gratifying for me because value strategies (like mine) finally etched a rare 2019 win (though my low volatility factor skew puzzlingly ended up on the bottom… proving I can't have everything that I want).
Source: S&P Global
Of course, value and dividends are still mostly lagging on the year (though the performance of any of these factors is well above my stated investment strategy goal of 5-15% annual gains).
Source: S&P Global
While the 2019 YTD results make a fairly compelling argument to just own the S&P 500 and not focus on factor investing, the returns over the past 15 years tell a different story. Even with the lowly performance of low volatility high dividend strategies in 2019 (and much of the recent past), across the full business cycle, it is still the returns leader (so don't let a limited data set cause you to change strategies).
Source: S&P Global
October 2019 Review
October 2019 was another solid one in the markets with record highs reached for U.S. equities. For the month, the S&P 500 posted a 2.17% result which I edged out with a 2.18% gain. YTD, I am up 12.4% vs. the 23.2% gains for the index (before dividends are considered). However, my 5.4% forward dividend yield on invested capital keeps crushing the 1.8% yield of the index.
As for cash yield, October 2019 rewarded me with realized dividends of $1,284 (versus $1,089 in 2018… a healthy 18% increase). For the last 12 months, my portfolio delivered $16,401 in cash to me (up 16% from my 2018 total). My realized yield for the trailing twelve months was 5.5% for my full portfolio including cash reserves. I'm also a lock to achieving my 2019 yield goal of over $15,000 for the year (a 15% increase over 2018). Fear and greed are hard to balance, but I am happy with where I am overall. My yield focused strategy still makes the most sense to me as paper gains may come and go but cash is forever.
Since I write for Seeking Alpha primarily to improve my own investment portfolio, I think it is important that you know my objectives. Please consider this context when you look at any advice I give and form your own opinions based on your needs and desires.
- GOAL: Attractive, risk-adjusted, absolute returns (5-15% annually) over a long-term time frame while minimizing capital loss and extreme drawdowns.
- STRATEGY: 'Enhanced' dividend growth or DGI strategy that focuses on a core of diversified high yielding holdings (ETFs and individual companies - my general screening criteria: growing companies (YoY EPS growth >0%) with attractive valuations (PEG <1.5 and P/E <20) and strong and safe dividends (yield >4%, payout <90%, and market cap >$500MM)… no tobacco stocks or micro caps), supplemented with return enhancing tools like hedges (derivatives and shorts), commodity exposure, etc., as well as some crazy picks.
- BALANCE: Blend of ETFs (domestic and international) and individual companies (where there is a compelling reason to own). Seek to not overweight any one sector unless there is a compelling reason to do so (although the nature of these investments leads me to be overweight in traditional dividend-paying sectors like financials, REITs, and energy).
Note: I violate these guidelines constantly, so please call me out on it.
Portfolio Composition as of October 31, 2019
|Security||Type||Div Yield||Market Value||Last Month Value||Monthly Gain/Loss (%)|
|SPDR S&P 500 High Dividend ETF (SPYD)||ETF||4.5%||$22,968||$22,788||0.8%|
|Fst Tst Dow Jns Glbl Sel Dvd Idx ETF (FGD)||ETF||6.1%||$11,945||$11,463||4.2%|
|Invesco S&P Emerging Markets Low Volatility ETF (EELV)||ETF||4.9%||$9,252||$9,096||1.7%|
|Invesco S&P 500 High Div Low Volatility ETF (SPHD)||ETF||4.1%||$8,476||$8,526||-0.6%|
|FlexShares Intl Quality Dividend Defensive (IQDE)||ETF||5.3%||$6,547||$6,360||2.9%|
|UBS ETRACS 2x US High Div, Low Vol ETN (HDLV)||ETN||10.4%||$5,602||$5,609||-0.1%|
|Invesco S&P Intl Devd High Div Low Vol ETF (IDHD)||ETF||4.5%||$5,720||$5,540||3.3%|
|Xtrackers MSCI World ex US Div Yld Hdgd ETF (HDAW)||ETF||4.7%||$5,034||$4,852||3.8%|
|iShares Evolved U.S. Innovative Healthcare ETF (IEIH)||ETF||1.6%||$5,155||$4,842||6.5%|
|Invesco S&P SmallCap High Div Low Vol ETF (XSHD)||ETF||5.0%||$4,889||$4,806||1.7%|
|Horizons NASDAQ 100 Covered Call ETF (QYLD)||ETF||10.8%||$4,626||$4,520||2.3%|
|iShares MSCI Australia ETF (EWA)||ETF||5.4%||$4,506||$4,450||1.3%|
|iShares Asia/Pacific Dividend ETF (DVYA)||ETF||6.1%||$4,365||$4,293||1.7%|
|SPDR S&P Biotech ETF (XBI)||ETF||0.0%||$4,082||$3,752||8.8%|
|iShares MSCI China Small Cap ETF (ECNS)||ETF||6.2%||$3,931||$3,870||1.6%|
|Global X MSCI Portugal ETF (PGAL)||ETF||7.7%||$3,201||$3,036||5.4%|
|iShares International Select Dividend ETF (IDV)||ETF||5.9%||$3,189||$3,074||3.7%|
|iShares MSCI Malaysia ETF (EWM)||ETF||3.7%||$2,812||$2,785||1.0%|
|Global X MSCI China Comm Services ETF (CHIC)||ETF||0.5%||$2,187||$2,194||-0.3%|
|Iron Mountain (IRM)||REIT||7.5%||$13,120||$12,956||1.3%|
|Blackstone Mortgage Trust (BXMT)||REIT||6.8%||$10,890||$10,755||1.3%|
|Royal Dutch Shell (NYSE:RDS.B)||Company||6.5%||$8,744||$8,985||-2.7%|
|Sabra Health Care REIT (SBRA)||REIT||7.3%||$8,266||$7,715||7.1%|
|New Residential Investment (NRZ)||REIT||12.6%||$8,142||$8,060||1.0%|
|Tanger Factory Outlet (SKT)||REIT||8.8%||$8,060||$7,740||4.1%|
|Occidental Petroleum (OXY)||Company||7.8%||$4,050||$4,447||-8.9%|
|PacWest Bancorp (PACW)||Company||6.5%||$3,699||$3,634||1.8%|
|Kinder Morgan (KMI)||Company||5.0%||$3,676||$3,792||-3.1%|
|Gilead Sciences (GILD)||Company||4.0%||$3,186||$3,169||0.5%|
|VARIOUS POSITIONS OF <$1,000 VALUE||VARIOUS||2.0%||$3,411||$3,219||6.0%|
|FIXED INCOME TOTAL||3.6%||$35,079||$35,127||-0.1%|
|Amer Century CA High Yield Municipal Fund (BCHYX)||Mutual||3.3%||$20,296||$20,345||-0.2%|
|iShares Long-Term Corporate Bond ETF (IGLB)||ETF||4.1%||$6,656||$6,663||-0.1%|
|iShares Yield Optimized Bond ETF (BYLD)||ETF||4.1%||$5,124||$5,110||0.3%|
|SPDR Long Term Corporate Bond ETF (SPLB)||ETF||3.8%||$3,003||$3,009||-0.2%|
|SCHWAB ROBO-ADVISOR TOTAL||2.0%||$13,349||$13,006||2.6%|
|TOTAL + CASH||$35,233||5.0%||$339,039||$331,411||2.2%|
Portfolio Moves in October 2019
SHARE BUY - SPDR S&P Biotech ETF (XBI): Bought 50 shares of this biotech ETF at $74.95 on October 1.
- Reasoning: This is a change out of a more expensive ETF (IBB; 0.47% fee level) for a 0.35% fee (even though neither ETF is 'on theme' for a dividend-focused portfolio).
SHARE BUY - Amer Century CA High Yield Municipal Fund (BCHYX): Bought 1,845 shares of this muni bond ETF at $11.00 on October 2.
- Reasoning: I am just parking cash here because the 3.3% yield (and no Federal/CA taxes) is better than the 1.7% I get on a money market fund.
SHARE BUY - iShares Yield Optimized Bond ETF (BYLD): Bought 200 shares of this corporate bond ETF at $25.55 on October 8.
- Reasoning: I am just parking cash here because the 4.1% yield is better than the 1.7% I get on a money market fund.
SHARE SALE - Cardinal Health (CAH): Sold my entire position (100 shares) of this healthcare company at $45.95 on October 10.
- Reasoning: May have been a premature exit, but I made a modest gain on this non-core holding while collecting some decent dividends.
SHARE SALE - KKR Real Estate (NYSE:KREF): Sold my entire position (200 shares) of this REIT at $20.80 on October 25.
- Reasoning: This REIT has gone nowhere and is too risky if it isn't going to have growth potential (despite a very juicy dividend).
SHARE SALE - People's United Financial (PBCT): Sold my entire position (200 shares) of this U.S. bank at $17.05 on October 28.
- Reasoning: I'm nervous about the interest rate spread environment for U.S. banks, so I made a modest gain on this non-core holding while collecting some decent dividends.
A busy trading month saw me continue to de-risk my portfolio as I'm not a believer in these recent market highs. I think another Q4/Q1 correction is in the making once the earnings recession and trade disappointment receive their due focus. While my strategy is the same, I am positioning for choppy waters in a way that helps me sleep better at night.
With a hat tip to Jeff Miller at NewArc Investments whose 'Weighing the Week Ahead' is the single most valuable thing I read every week, I will separate my thoughts into two buckets: 'Likely Signal' for front of mind topics and 'Probably Noise' for things in the press that don't bother me much at this point with regards to how it might impact equity markets (note: the past months have seen Jeff's indicators indicate rising caution).
- U.S. 2019 'earnings recession' continues
- U.S. yield curve inversions only duck taped over by Fed cuts
- Slowing U.S. corporate buybacks (aka the last solid source of 'bid' in the markets)
- Rising worldwide protectionist entrenchment (aka trade wars) makes conflicts permanent (at least for a while… and I have zero faith that the U.S.-China conflict will be amicably resolved anytime soon)
- Ex-U.S. economies finally catch a bid (this makes me more optimistic about foreign equities after a LONG period of underperformance)
- U.S. Fed rate changes (the sugar high of mid-cycle rate cuts feels great, but I don't see the Fed having a lasting impact to prevent future weakness)
- Trump impeachment proceedings (expect lots of smoke here… but no fire due to the composition of the Senate)
- Anything 2020 U.S. politics (it's just too early and governance has a way of moderating firebrands)
Disclosure: I am/we are long ALL POSITIONS AS 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.
Additional disclosure: The author is an amateur who has a history of getting calls both right and wrong with zero predictive power. Trade at your own risk and never rely solely on this author's opinion. Also, as I have no knowledge of your circumstances, goals, and/or portfolio concentration, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended.