2020 Portfolio Review - Long
Summary
- Introduction.
- Portfolio strategy and how this changed in 2020.
- Review of 2020 performance.
- Looking ahead - blearily - to 2021.
I'm Glad 2020 is Behind Us
Phew! What a year. The Pandemic overshadowed everything in real life - and federal monetary policy overshadowed everything when it came to investing. This will be long so I'll get to it - I hope you like a bunch of charts and tables!
This is my real-world portfolio I plan to use to retire on within 1-2 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 35 stocks. You can find the complete list at the bottom of this post.
This post will include a very brief 4th quarter 2020 review. Most of the charts and tables I use for quarterlies are the same as for annual reviews. It doesn't make sense to have two separate posts.
Here are previous portfolio updates.
- 2018 Portfolio Review
- Third Quarter, 2019
- 2019 Portfolio Review
- First Quarter, 2020
- Second Quarter, 2020
- Third Quarter, 2020
Portfolio Strategy
I have two accounts; a taxable account and a Roth IRA. I have managed those differently in the past - the Roth has been for high-yield RICs - REITs and BDCs. In 2021 I intend to get out of the RICs and manage the two accounts similarly.
- I look for well-valued, financially sound dividend-payers that will help me reach my income goal.
- I sell as little as possible. I am not a "buy-and-never-sell" investor but a company has to have real problems or no longer help me achieve my investing goals for me to sell.
- I have quite a few posts discussing my strategies. I think the single best one to understand how I select stocks is: Doing the "Deep Dive" for my Next Potential Stock Purchase. I review my initial screen and go into detail about my more in-depth examination when I am considering buying. It is long.
How my Investing Changed in 2020
My general strategy for buying and owning companies didn't change much during the year but there were two adjustments/tweaks, both related to dividend income safety and stability.
Adjusting my risk tolerance. In 2019 I bought Occidental Petroleum (OXY). It had just taken on a lot of debt for an acquisition and the price dropped. I knew it was risky and never let it become more than a 1% position. I also felt that at $50 oil it would be fine. The pandemic took care of that.
A black swan event is precisely that - something you can't predict or project. I'm not glad it happened by any means (not relevant to investing but an Uncle of mine died from COVID in December). But from an investing perspective, if it was going to happen I'm glad it did before I retired when I still have a lot of financial flexibility. In any case, if my goal is safe and stable dividend income once I retire, clearly a company like OXY that had just taken on a lot of debt and was very dependent on near-term fossil fuel prices is too risky.
Getting out of REITs. My Roth had been an experiment to see if I would become comfortable with investing in regulated investment companies or RICS before February, 2022 when I convert my 403b to an IRA. I may have been comfortable but I evidently wasn't competent. Once multiple companies had cut or eliminated their dividends I decided this wasn't an investment class I should stick with. This may be more than a tweak but my Roth is not a large portion of my investments.
I debated using the Roth for growth rather than dividend-payers. I think this is sound from a strategy standpoint. Buy companies you think you may want to later sell in an account where you won't have to worry about capital gains. But I'm going to go with the same sorts of investments as in my taxable account. The Roth is so small that I'm afraid I won't give growth the attention it deserves. Once I convert my 403b to an IRA I'll have enough to make studying a different investment style worth doing. Not to say I'll switch even then, we'll see.
My basic method of evaluating companies - see the deep dive post for specifics - seems to be working fairly well. I didn't make any changes to it though I placed more emphasis on a sound balance sheet for a while during the spring and summer.
I have a company 403b but don't talk about it here as I can't own individual stocks in it. My 59.5th birthday will be in February, 2022. I intend to roll most of it over to an IRA then and will probably have a lot to say then.
All figures are as of market close on December 31, 2020.
Annual and 4th Quarter Performance Summary
I'm including my 4th quarter numbers along with figures for the year. I use most of the same charts for my quarterlies as I do for my year-end review so it doesn't make much sense to have two separate posts. As I'm going to begin managing my Roth similar to my taxable account this will be the final time I list separate accounts.
4th Quarter 2020:
- Quarterly dividend increase over third quarter, 2020: 8.74%
- Quarterly dividend increase over fourth quarter, 2019: 33.15%
- 4th quarter change in overall portfolio value: 11.06%
- 4th quarter change in taxable account value: 10.49%
- 4th quarter change in Roth value: 22.12%
Full-year 2020:
- Annual Dividend Increase over 2019: 30.46%
- 2020 change in overall portfolio value: 13.57%
- 2020 change in taxable account value: 16.10%
- 2020 change in Roth value: -17.60%
- Overall portfolio yield: 3.30%
- Taxable account yield: 3.07%
- Roth yield: 7.28%
- Increase in annual (12-month) projected dividend income from January 1, 2020: 8.02%
All figures are adjusted for cash added to/subtracted from accounts. As an example, if I had $100k in my beginning balance, deposited $10k and my ending balance was $115k my return for the year would be 5%, not 15%.
I only made deposits worth about .8% of my beginning value so this wouldn't affect things a lot either way.
Late Addition: I apologize for not including these initially, I'd forgotten I can pull these from Fidelity. They show my account balances through the year.
Taxable Account in 2020:
Overall in 2020:
Meeting my Investing Goal: My only numbers-based goal for the year was: Increase my dividend income by 10% or more. This was achieved and then some.
Total Returns: As I write this I have no idea how my total return compares with the overall market. I know I dropped less in March than the market but I also know I tended to lag it by a bit - not radically - as prices recovered. I want to roughly track the S&P. The Roth was like a lead weight from March through October, then started to pick up but still hurt things for the year.
Year-over-Year Dividends: The 30.46% year-over-year dividend increase was fantastic, particularly considering the pandemic and how many of my RICs either cut or suspended their dividends at some point. However as I'll mention later, the big gains happened in the first quarter.
12-Month Forward Dividend Income: This is the first year I've tracked my forward 12-month income over time. The 8.02% increase seems OK, not great but I don't have a comparison. I suspect that my improvement would have been much higher in previous years if I had been tracking it.
My current "organic" expected DGR is 8.48%. This is substantially below where it was at the beginning of 2020 but also up from where it stood in October. I calculate this using the 5-year historical DGRs of companies I own. I have a post with more details about the spreadsheet I use to calculate this.
Fourth Quarter, 2020 Thoughts: In looking at the dividends, you'd think it was a nice increase. But without the MSC Industrial (MSM) special dividend it would have been about flat over the previous quarter. I'm still roughly treading water on dividends and have been through 2020. It was a good quarter for value gains, particularly in the Roth which created a nice opportunity to sell a few REITs and one BDC.
Positions entered and exited in 2020
I posted about most of these and will include the links. I do not generally make posts when adding to an existing position. For the year I made 28 buys and 10 sells.
Positions Closed:
| Company | Last Sale Date | Price | Link (if available) | Reason for Selling |
| Occidental Petroleum (OXY) | 3/10/20 | $14.00 | Selling Disney, Occidental, And Buying Some Stuff | Broken stock |
| Walt Disney (DIS) | 3/17/20 | $95.61 | Selling Disney, Occidental, And Buying Some Stuff | Concerns about dividend |
| CoreCivic (CXW) | 6/18/20 | $10.27 | Buying PM and XOM, Selling CXW | Broken stock - halted dividend, might not be a REIT |
| Dominion Energy (D) | 7/7/20 | $72.82 | Selling Dominion, Buying Duke And Some Other Things | Sold a chunk without shareholder returns, future dividend cut |
| Valero Energy (VLO) | 9/25/20 | $44.01 | Dividend concerns and tax-loss sale |
|
| TCG BDC (CGBD) | 12/3/20 | $11.35 | Roth Transactions | de-RIC |
| Apple Realty (APLE) | 12/4/20 | $13.42 | Roth Transactions | de-RIC |
The other three sales were about half of my Exxon-Mobil (XOM), half of my Tanger Factor Outlets (SKT) and about 10% of my Apple (AAPL).
New Positions Opened:
| Company | First Buy Date | Initial Price | Link (if available) |
| Apple Realty (APLE) | 1/2/20 | $15.98 | January Portfolio Review |
| TCG BDC (CGBD) | 1/7/20 | $13.50 | January Portfolio Review |
| General Dynamics (GD) | 3/17/20 | $127.00 | Selling Disney, Occidental, Buying Some Stuff |
| Philip Morris (PM) | 3/18/20 | $66.66 | Selling Disney, Occidental, Buying Some Stuff |
| Duke Energy (DUK) | 7/7/20 | $79.56 | Selling Dominion, Buying Duke And Some Other Things |
| Johnson & Johnson (JNJ) | 10/13/20 | $148.52 | I Bought Johnson & Johnson |
| Oklahoma Gas and Electric (OGE) | 12/7/20 | $32.80 | Roth Transactions |
| Excel Energy (XEL) | 12/7/20 | $66.06 | Roth Transactions |
| Pinnacle West (PNW) | 12/24/20 | $77.00 | Trimming Apple and some Buys |
My monthly reviews have a complete list of transactions.
Account Activity
I have been trying to reduce my trading activity. By year:
- 2017: Buys - 165, Sells - 72, Total trades - 237
- 2018: Buys - 44, Sells - 23, Total trades - 67
- 2019: Buys - 31, Sells - 16, Total trades - 47
- 2020: Buys - 28, Sells 10 - Total trades - 38
Some Charts Showing 2020 Performance:
I'm not going to offer much in the way of comments for most of these, hopefully they are self-explanatory.
Dividend Income by Month
The above graphs show my dividend income by month since I opened my accounts in March, 2017. I have tried to include X-axis labels for the line graph and there are too many data points; it looks terrible.
Dividend Income by Quarter and Year
A version of the prior graphs but showing dividends by quarter and year. The line graph is by quarter only. Note the 2020 figures; the purple in the bar graph and the last 4 points in the line. I had a nice increase over 2019 but if not for the MSM special dividends in February and December, each quarter would have been close to the same. Not terrible but not the kind of growth I'm looking for either.
My 12-month forward dividend projections, calculated monthly
I started charting how my 12-month projected dividend income has changed by writing it down each month. I messed up someplace and by the time I realized it I couldn't go back and fix it. The January data point was as of 1/1/20. At some point after April 1 I missed one and started charting from the end of each month. However the overall trend is correct. I had a bunch of hits to my dividends in March. On April 1, my 12-month dividend projection was 4.16% below where it had been a month earlier. The rest of the year was a slow, somewhat inconsistent recovery however by the end of December not only had I exceeded my January 1 projection by 8% but I was above my March 1 projection by 2.27%.
2020 Stocks by Portfolio Dividend Contribution
| Stock | % of 2020 Total Income |
| Altria Group (MO) | 12.11% |
| AT&T (T) | 10.48% |
| Abbvie (ABBV) | 8.70% |
| MSC Industrial Direct (MSM) | 5.50% |
| Pfizer (PFE) | 4.70% |
| Gilead Science (GILD) | 4.50% |
| LyondellBasell (LYB) | 4.37% |
| Illinois ToolWorks (ITW) | 3.67% |
| Verizon Wireless (VZ) | 3.54% |
| Apple (AAPL) | 2.76% |
| Exxon-Mobil (XOM) | 2.70% |
| CVS Health (CVS) | 2.68% |
| Microsoft (MSFT) | 2.61% |
| UnitedHealth Group (UNH) | 2.21% |
| Dominion Energy (D) | 1.95% |
| Williams Sonoma (WSM) | 1.78% |
| Philip Morris (PM) | 1.75% |
| Iron Mountain (IRM) | 1.65% |
| Ares Capital (ARCC) | 1.64% |
| NextEra Energy (NEE) | 1.61% |
| Newtek Business Services (NEWT) | 1.61% |
| Archer-Daniels-Midland (ADM) | 1.53% |
| Lockheed-Martin (LMT) | 1.52% |
| Best Buy (BBY) | 1.50% |
| Omega Healthcare (OHI) | 1.47% |
| Valero Energy (VLO) | 1.47% |
| Tanger Factory Outlet Centers (SKT) | 1.40% |
| Occidental Petroleum (OXY) | 1.37% |
| TCG BDC (CGBD) | 1.36% |
| A.O. Smith (AOS) | 1.00% |
| CoreCivic (CXW) | 0.95% |
| New Residential (NRZ) | 0.87% |
| Two Harbors (TWO) | 0.80% |
| Walt Disney (DIS) | 0.75% |
| General Dynamics (GD) | 0.59% |
| Duke Energy (DUK) | 0.56% |
| Apple Realty (APLE) | 0.20% |
| Johnson & Johnson (JNJ) | 0.13% |
Going into 2021
OK, now that the 2020 data is out of the way here's a brief look forward. This will be short, this post is mainly a review, not a projection.
Here's my portfolio as of January 1, 2020, sorted by expected 2021 dividend contribution.
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*Cost per share is my purchase price per share minus dividends or distributions received.
I don't care for any one company being responsible for over 10% of my dividend income but will look to address this with the IRA rollover in 2022. I don't have issues with, for example, how much AAPL is as a percent of my portfolio.
One item - and I knew it was going on when I was doing it - is that a lot of my 2020 buys were of companies I call sluggards. They pay safe, reliable dividends but aren't growing a lot and are companies where I have no share price expectations. Companies in this group include GILD, MO, PFE, T and VZ and most utilities fit here too - though not NEE. For much of the year they were the only companies I felt provided decent value. I hope to get back to buying companies showing a little more "oomph" this year. Though many of these provide me with some nice oomph every three months.
Sector Weights. I don't do much with this but I know some people do. The numbers come from running a Fidelity stock analysis by sector.
- Health Care - 23%
- Information Technology - 22%
- Industrials - 13%
- Communication Services - 12%
- Consumer Staples - 10%
- Consumer Discretionary - 6%
- Utilities - 5%
- Materials - 3%
- Financials - 2%
- Real Estate - 1%
- Energy - 1%
I passed a magic number in December - another $100k value gain! This means I can add $5k of a stock and not go over my 5% - based on my purchase price and NOT current value - full position size. At this precise moment I do not have a single full position though ABBV, MO and T are just one buy short.
There's more cash than usual as I am holding some to transfer to my Roth plus do a little shopping in my taxable account. Usually I have very little.
Goals for 2021
I only have one firm numbers-based goal: Increase my 2021 dividend income by 10% or more over 2020.
Change over the Roth. I will be selling most if not all of my remaining RICs though all of them pay pretty solid dividends so there's no hurry. I do have the urge to just do it and get it over with but I expect to generate more from the sales if I'm patient. Hopefully by a year from now I'll have this finished. I could hang onto my BDCs.
Where's the Yield? I would love to get my portfolio yield a little higher. If it were 4% I could probably retire on the dividends from my taxable account alone when the time comes, which would be ideal. But I only want so many sluggards and in stepping away from RICs I'll likely lower my dividends initially before bringing them back up. It seems that 3-3.5% is where my portfolio yield lives.
I also want to roughly track the S&P performance though this is less important than growing the dividend income.
I hope to be able to add a little more cash this year. The big problem is taxes. The government wants its cut of my dividend income but I'm keeping all dividends in the account. So I have to pay pretty hefty state and federal quarterly taxes which cuts back on what I have available to deposit.
Not really a goal as I can't impact this but I hope the economy will allow companies to return to stronger dividend increases later this year. I have quite a few that delayed announcing increases or gave small ones in 2020. I suspect most dividend investors can say the same.
Summary
I really don't know how to assess 2020. I increased my dividend income by over 30% from 2019 so at its most basic I did well. But it was such a unique year - at least I HOPE it is - that I don't have anything to compare it to.
I think I came through it OK. It had a lot of ups and downs but I managed to avoid panicking and made some nice buys in March - WSM at $31.57 has been a triple. I learned some things about the appropriate level of risk to have in a company and that I should avoid Regulated Investment Companies or RICs. Maybe not forever but at least for now.
Other than the Roth, my investments look a lot like they did a year ago. I have five utilities now rather than two and I have more in sluggards, but not so much that I worry about it. I feel pretty good about most of the companies I own except for the Roth.
The pandemic did not derail my goal of having enough dividend income by January 1, 2023 to be able to retire comfortably. I have not met my dividend "number" yet but my progress seems to be on target and I should be there once I open the IRA. The one negative is that my having enough income from my taxable account alone seems less likely than it did a year ago. But it's still possible.
On the blogging front I made 38 posts during the year. I plan to keep going though I'm not sure how the new subscription format will change things.
I'm sorry about the length. I don't know how to cover a full years' investing briefly. You could always print it off to use as a sleep aid . . .
As always, I don't offer advice (I don't know enough), just throw what I'm doing out there and hope people may find some value in it. Feel free to ask me any questions in the comments.
I hope everyone has a safe, happy, healthy and profitable new year. Happy investing!
I am long: AAPL, ABBV, ADM, AOS, ARCC, BBY, CVS, DUK, GD, GILD, GOOGL, IRM, ITW, JNJ, LMT, LYB, MO, MSFT, MSM, NEE, NEWT, NRZ, OGE, OHI, PFE, PM, PNW, SKT, T, TWO, UNH, VZ, WSM, XEL, XOM.
Analyst's Disclosure: I am/we are long All companies listed at the end of the post..
I am not a professional investor and do not offer investing advice. I have a college degree in Animal Science and used to train horses for a living. Would you really want to tell a loved one you invested based on something an ex-horse trainer/animal scientist wrote? I didn't think so. Please perform your own due diligence when making investing decisions.
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