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Portfolio Quality Tracking And Review, 2020 Q4

Jan. 03, 2021 12:54 PM ET10 Comments
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  • What a year it was!
  • In spite of it all, we continue to make progress on our goals.
  • DIS's improbable momentum continues.
  • As always, I include a summary of changes and the table of ratings for my full portfolio.

What can be said about 2020 that hasn't already been said?

Watching the market plunge in March, I'm not sure I imagined the recovery would come on so fast and so strong.  In the summer, after the whirlwind had died down and the market had mostly recovered, my husband and I decided to change course a bit in our investing -- take some profits, shed some underperformers, and pay off our mortgage.  We're entering 2021 with no debt!

And our portfolio is in good shape.  The stock sales put a little dent in our dividend growth goals, but we remain ahead of schedule there as well.

Portfolio Changes

This quarter was unusually busy for our portfolio's composition -- we added 5 companies and divested from 2.

Added ABBV.  I added shares at an average yield of 5.6%.  Over the last 5 years the dividend has grown at roughly the same rate as earnings growth, and earnings are expected to grow in the low to mid teens in the next couple of years.  Its quality ratings (shown in the table below) aren't quite as high as others, at least in part owing to the Allergan acquisition, but I'm comfortable with it.  This position is currently 2/3rds full.

Added AMZN.  I bought 1 share at about $3,100.  Right now this is the only stock I own that doesn't pay a dividend (although I do own V, which pays almost no dividend.)  Pure growth holdings are definitely not the meat and potatoes of my portfolio, but I'm ahead of schedule with my dividend growth goals.  AMZN's quality ratings being top notch, I went ahead and jumped in.

Added KMB.  I already own PG and CLX in the household goods space, so I didn't pay much attention to KMB.  I became interested in increasing my allocation to consumer staples, though, and not being thrilled with PG's or CLX's valuation, I gave KMB a look.  I bought shares in the low to mid 130s, average yield of about 3.2% with a raise expected later this month.  Their two most recent raises have only been about 3%, but longer term their raises have a CAGR of ~6%.  I suspect the next raise will be low again, and then pick up thereafter.  We'll see.  If they freeze, I'll consider divesting.  This is currently about a 1/3 position.

Added LHX.  Years ago I owned Harris, one of the two companies that merged to created LHX (the other being L3 Technologies).  Like many defense contractors, LHX is in decent value right now.  I already have full positions of LMT and RTX, so I wasn't sure if I wanted to add LHX.  Ultimately I decided to initiate a small position now and think through whether to reduce my LMT and RTX holdings in order to add LHX and still maintain my same exposure to defense contractors; expand my exposure to defense contractors by buying a full position of LHX; or keep LHX small.  This is a low-yield, high-growth company.  Its S&P credit rating is on the low side due to the merger, which took place in 2019.  This is a 1/4 position, unless I decide to keep it small.

Added MRK.  MRK is one of the highest quality companies that I didn't already own.  I had bypassed this company in the past due to its slow dividend growth -- frozen from 2006 to 2010, then raises not often higher than ~2% for several years after that.  Things picked up considerably in 2019 (raise of $.48/q to $.55/q) and again in 2020 ($.55 to $.61).  The most recent raise, announced in November, was a more modest 6.6% but certainly adequate for my needs; the average yield of my buys was 3.3%.  Their earnings growth is projected to be 6-8% in the next few years, and I would like to see dividend growth in that neighborhood as well.  This position is full.

Sold EMR.  EMR's last 5 dividend raises have all been about 1%.  This summer I sold the shares I had bought at the lowest yields, around 3%.  Then I sold the shares I had bought at a bit higher yield, around 3.25%.  I had originally intended to hang onto the shares I had bought at 3.5% and higher, but after the raise was declared in November -- $.50 to $.505 -- I threw in the towel.

Sold HON.  I just initiated my small position in HON last quarter.  The shares were in my SEP IRA, which is a closed portfolio (I'm no longer self-employed and thus am not contributing to that IRA).  I bought my shares in late August and September at an average price of $165; then in November, the price took a jump up.  I thought about it for a couple weeks and then decided to take the bird in the hand, selling my 30 shares on November 25 at about $208, for a gain of about 26%.  The recent dividend raise was only 3.3% and I felt the shares were likely fully valued.  Because I want the SEP to be fully invested, within a day or two I put the proceeds into AMGN, MRK, ABBV, and CVS.  I still like HON and would consider buying shares again.

In addition, I re-initiated a position in V this quarter after having sold my shares in June at 188.  I had a little regret about selling, so when I saw the price had gotten down to 180 at the end of October, I bought in again.

Summary of Rating and Ranking Changes

This quarter there were only 4 changes in quality ratings and rankings for the tickers I'm tracking, one upgrade and 3 downgrades:

In last quarter's report I noted that DIS's quality ratings had taken a hit in 2020, and this quarter they suffered one more downgrade.  Here's a summary of DIS's ratings and rankings at the end of each of the last 5 years:

And yet, here's what DIS has managed to do over that time:

Table of Ratings and Rankings for My Portfolios

Below is the summary table for my holdings, plus a few stocks (DIS, HON, MA) I don't currently hold but am tracking.  Note that anything shaded in orange in the table is a rating or ranking below what I normally like to see.

I hope this information is helpful.  May we all continue to hold on and stay healthy until COVID-19 is a thing of the past!

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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