August Portfolio Review - Divs OK, Not Great

Summary

• Trades and Dividends.
• The Buy List.
• Summary.

Introduction

This is my real-world portfolio I plan to use to retire on within 2-3 years, intending to live entirely off dividend income. The bulk is in a taxable account but I began a Roth in 2017 which is a small portion. At this point I have 34 stocks. You can find the complete list at the bottom of this post.

Probably the best - but quite long - overview both of my investing goals and how I actually go about selecting companies is this post: Doing the "Deep Dive" for My Next Potential Stock Purchase.

August continued the trend of the market continuing to be detached from the economy. Did the economy improve? Sure. Does it justify all-time highs? Not in my opinion but Federal Reserve and Federal Government policies are providing a lot of support so I'm continuing to ride the ride.

My sense is that I substantially under-performed the market in August. Particularly during the last full week of the month my stocks gained far less than the S&P. I don't track this but am somewhat aware of it.

Magic Numbers:

On a positive note, I passed a "magic number" in August. I call any $100,000 gain in portfolio value a magic number because under my portfolio balance calculation - my cost in a stock divided by current portfolio value - this means I can buy another $5k of a stock and be at a full 5% position. I am now overweight nothing and only MO and ABBV are full positions. This increases my options but let's face it - AT&T (T) was a full position and I added this month anyway so clearly I don't pay that much attention to it.

This was a long MN gap. My last magic number came in February. Before this I had something like 3 in 4 months. However I do not count a pullback and then regaining value as magic numbers. I've had quite a few of them since March but I use my all-time-highs. This is probably the only area where portfolio value has any real significance for me. I like seeing it go up - I'm not crazy - but for the most part it doesn't affect my investing much.

And let me note how disappointed I am in the creative people of the world. I wanted to make a picture of an apple split the post image - a banana split but with an apple instead. But an image search for apple split just showed people cutting the fruit into halves or quarters. There was a dessert on whatsfordinner.com but you couldn't even see the apple.

Here's a quick numbers summary:

• Number of buys: 1
• Number of sells: 0
• Dividend increase over August, 2019: 10.76%
• Dividend increase over May, 2020: -5.52%
• August change in overall portfolio value: 6.00%
• August change in taxable account value: 6.21%
• August change in Roth value: 2.02%
• Current overall portfolio yield: 3.36%
• Taxable account yield: 3.10%
• Roth yield: 8.39%
• Increase in annual (12-month) projected dividend income from July 31, 2020: 1.51%

Trades Made and Dividends Received

Trading Activity:

8/18/20 - Bought T at $28.89

Dividends Received:

• 8/3/20 - CVS Health (CVS)
• 8/3/20 - T
• 8/3/20 - Verizon Wireless (VZ)
• 8/7/20 - General Dynamics (GD)
• 8/13/20 - Apple (AAPL)
• 8/14/20 - Omega Healthcare Investors (OHI)
• 8/14/20 - AbbVie (ABBV)
• 8/17/20 - A. O. Smith (AOS)
• 8/28/28 - Williams-Sonoma (WSM)

The Trade:

Some dividends came in and T was trading under $30 so I bought it. There's nothing brilliant or exciting about that. But it increased my annual dividend income. I still believe T is a buy at under $36 but with where it's traded recently I have an interim price target of $30. At or under this level and it's an add consideration. T is one of what I call my "sluggards" - companies I buy only for the dividends with zero expectations of the share price moving. Do I want the price to go up? Sure - I'm not an idiot. But so long as the dividend is safe this doesn't much matter.

The Dividends:

I do not like seeing the decrease in dividends from May. There is one reason for this - Tanger Factory Outlet Centers (SKT). It paid in May and has since suspended the dividend. The amount I lost would have been enough to give me a marginal gain over May. NRZ also went back to paying in July after paying in May but this was minor. I had more ABBV paying in August but not enough to make up the loss. 

The Year-over-Year August dividend increase is the smallest I've had all year. That will change in September and should REALLY change in October. But just going by the numbers, this was not a stellar dividend income month. 

My 12-month projected dividends grew by 1.51% in August. This was due to the T purchase along with one Roth DRIP. However my internal/organic annual dividend growth rate is now down to 8.62%. I expect this to continue to decline. The high dividend growth rate companies are not trading where I want to buy them right now. However the 12-month increase means I'm now 1.57% below where I was on March 1. I've regained about 2/3 of what I lost that month. I suspect I'll get it all back by the end of the year - if nothing else I own cuts.

Illinois Tool Works (ITW) announced what I think is a very solid quarterly $.07/share - about 6.5% - dividend increase. But even this is below what they've done lately. I have a lot of companies that typically increase in the fall. I'm curious to see how this goes.

For a long time now, since February, 2018, my 2/5/8/12 months have been my highest income months. This looks like it will be changing in September. 

So this was sort of a "meh" dividend month for me. I knew I'd be lower with the SKT suspension and unfortunately I was correct. Not happy about that but it is part of it. The line doesn't head straight up.

Chart of the month: This has the number of portfolio transactions by month since I opened my accounts on March 7, 2017. I have never posted this before because I'm not sure it makes sense to or even matters to anyone but me. Then again, this is my blog.

I would always have been more active early on making buys to get started. But it does reflect my move toward more of a buy-and-hold philosophy over time.

If you're interested in the actual numbers, here are the trades by year since I started:

Year	Buys	Sells	Total Trades
2017	165	72	237
2018	44	23	67
2019	31	16	47
2020 (Through August)	16	4	20

Plans Going Forward

Possible Sells: In the Roth several of the REITs have giant sell signs on their backs when they recover, which I expect they will eventually. I could sell OHI and Iron Mountain (IRM) today. I'm up on both but they seem to have their dividends solidly covered and their prices should also rise. I have not made a decision on the BDCs. They have treated me better but who knows - maybe an economic crisis will come along where the FED and government do NOT do everything they can to prop up capital markets.

I have nothing I'm planning to sell in the taxable account. Even, say, a company like Exxon-Mobil (XOM) slicing its dividend in half would leave me with something paying 4% - and that I expect would try to restore it as quickly as possible. Now if something happened where I came to question a company's actual survival I might pull the trigger. I don't see that as a near-term situation with anything I own.

There was a time when I thought that if Alphabet (GOOGL) went above $2,000 I might sell and replace with a dividend-payer. With just 2-3 years until I retire that option is pretty much off the table. At this point I'll just hold and if I need it to fill a dividend income gap once I hang it up I'll trim as needed. I don't see it getting there in September but it's had a strong August so I can't say for sure.

Possible Buys: I hate to say ditto but my possible buy list really is almost the same as it was in July and so are the reasons. I'll mostly do a copy and paste - forgive me if you think you're seeing double. I consider XOM, Valero (VLO) and LyondellBasell (LYB) stronger buys now than a month ago. Oil has held above $40 for an extended period and while margins are tight for refiners, in the case of these two, not tight enough at the moment to threaten the dividends.

• ABBV - I own a pile of it and added more in July. Unlikely but still worth mentioning.
• Archer-Daniels-Midland (ADM) - I've warmed to this one though the market has too as the price has gone up some. 
• A.O. Smith (AOS) - I'm still looking at $48 and was very close to adding not long ago when the price dipped below this. Lower yield than my ideal but a dividend aristocrat with very good prospects IMO.
• General Dynamics (GD) - Around $147 is 3% yield. I could add there and it's a "onesie" - a company I've only made one buy of. This vaults it to the top in my "all other things being equal" decision-making process.
• Gilead (GILD) - My target price has not changed - literally for years - from $65. If anyone reading this wants to use Remdesivir in their GILD calculations, you shouldn't. IMO at best it would provide a modest earnings bump for a quarter or two. The sales relative to overall company cash flows will never be that much. Good for PR. For company profits? Not so much.
• LYB, VLO, XOM - I grouped these because to a certain extent the thesis is the same as all are energy companies. LYB is not exclusively an energy company but exposed enough that I'm including it. My general thesis is similar for each though XOM is more resilient with more resources than the other two. But I think with oil at $40 or above they won't need to cut their dividends. If oil goes much under that, all three are at risk. Oil's been at or a little above $40 for a while now. And the Baker-Hughes Rig Counts have shown a stabilization in the number of active North American wells. 
• MO - Not sure what I can say. A sluggard but a great dividend income stock.
• MSM - It's a buy at under $70 to me. High on the possible add list.
• Pfizer (PFE) - The price would need to drop some but it's one of my beloved sluggards yielding nearly 4%. If it dips under $35 I could add. I'm not sure how the possible COVID vaccine impacts things, I doubt anyone does, but at this time it's more sentiment than profit potential when it comes to influencing share price.
• PM - My target price remains $75. It's like MO but with a lower yield and better growth prospects. And I own 1/3 as much as I do of Altria.
• T - Over 7% yield and a safe dividend growing at a glacial pace - but growing. It's always a consideration at under $30, as it was in August.

I don't see anything on my watch list trading where I'll want to wait to accumulate $5k to make a buy of a new company. So I suspect my next move will be a small September buy of one of the above.

Summary

The decrease in dividends from May isn't good. I knew it was coming but that doesn't mean I have to like it any more than I do a visit to a proctologist. The portfolio value kept increasing and I did gain back more of what I lost in March in annual dividends.

I also passed a magic number which means I'm now overweight nothing and only have full positions in MO and ABBV. Though with AAPL going crazy my version of a full position seems to be losing importance over time.

I had no new dividend cuts and one decent increase announcement. Not a terrible month.

I should at least make a token mention that I've passed my two year blogversary. With 94 posts I'm not far off my one per week goal.

I keep wondering if these monthly reviews are interesting to people. I get quite a few page views so I guess some folks are finding value but I'd welcome any suggestions for something you'd like to see included. Though keep in mind this is a blog - I don't get paid so if it would take a lot of time and effort it may not happen.

I am long: AAPL, ABBV, ADM, AOS, APLE, ARCC, BBY, CGBD, CVS, DUK, GD, GILD, GOOGL, IRM, ITW, LMT, LYB, MO, MSFT, MSM, NEE, NEWT, NRZ, OHI, PFE, PM, SKT, T, TWO, UNH, VLO, VZ, WSM, XOM.