February Portfolio Update - I Am Completely Out Of REITs
Seeking Alpha Analyst Since 2017
NOTE: For those looking for the DGI Chit Chat Blog here's the link: https://seekingalpha.com/instablog/48196727-cemanuel/5208606-dgi-chit-chat-successor
I recently sold a bunch of real estate (first purchase was in 1986 when I was 23) and am investing in stocks - have gone with mutual funds for a couple of decades and formerly traded grain commodities but opened my accounts to trade individual stocks on March 8, 2017. The longer I have been in the market the more convinced I have become that Dividend Growth Investing (DGI) is the best method for building income.
I am retired, effective 12/31/21.
I have three accounts; a Taxable Account, a Roth IRA, and a Traditional IRA. I also have a small HSA I can invest with but have index ETFs in it and don't discuss it on SA.
I am managing my separate accounts as follows:
Taxable: Main purpose - to live off in retirement. Most of this will come from dividend income which will be about 70% of what I need. Beyond occasional sales to make up my dividend income gap I will do little trading in this account.
IRAs: Total return. I like dividends but as I don't expect to need to withdraw from these until RMD time I will look for more rapid dividend growth and non-dividend payers are not automatically excluded. I take dividends as cash to buy more stocks with. I will likely be more active in these accounts though I never expect to be a frequent trader.
Buying for the IRA began on 2/22/22 and was completed on 3/7/22. I am doing Roth conversions, trying to be close to the 24% tax bracket limit each year. The first was on 6/17/22.
I ended my accumulation phase of investing on 7/1/21 to build cash for retirement.
Here are my current holdings, last updated 3/2/23:
- Taxable Account: ABBV, BBY, BLK, CVS, GD, ITW, LMT, LYB, MO, MSFT, NEE, PM, TROW, UNH, WHR, WSM
- Roth: AAPL, ABBV, AMD, AMZN, BBY, BMO, CM, CRM, DG, GOOGL, KLAC, LCID, LOW, LRCX, META, MSFT, MU, NVDA, PYPL, QSR, SBUX, TGT, TSLA, WSM
- TIRA: AAPL, ABBV, ADBE, AMAT, ANTM, AOS, BBY, BMO, CM, CMI, DG, DT, F, FAF, GM, GOOGL, KLAC, LOW, LRCX, MU, PYPL, QSR, RY, SHW, TD, TGT, TROW, TSCO, TXRH, UNH, WMS, WSM
2017 Total Return: 16.2%.
2018 Total Return: 1.58%.
2019 Total Return: 31.63%
2020 Total Return: 13.57%
2021 Total Return: 32.63%
2 year/24 month return on 3/8/19 - 18.87%
3 year/36 month return on 3/8/20 - 39.61%
4 year/48 month return on 3/8/21 - 78.02%
5 year/60 month return on 3/8/22 - 113.39%*
I calculate the returns after subtracting new money added into the account however I do count reinvested dividends. For example, if I have an account worth $100,000 at the start of the year, I add $10,000 in new money and the 12/31 balance is $112,000 my return would be 2%, not 12%. With withdrawals, conversions, taxes, etc., tracking returns for 2022 and beyond is enough of a headache that I've quit doing it. Things seem to be holding up well for funding my retirement.
*Does not include the IRA
Summary
- Introduction.
- Trades Made and Dividends Received.
- Plans Going Forward.
Introduction
This is my real-world portfolio I plan to use to retire on within 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 31 stocks. You can find the complete list at the bottom of this post.
Probably the best - but quite long - overview of my investing goals and how I go about selecting companies is this post: Doing the "Deep Dive" for My Next Potential Stock Purchase.
The big February news is that I no longer own any REITs. I may re-enter them once I rollover my retirement to an IRA but will look for lower risk companies than some I held previously. I still own some BDCs and have no plans to sell.
My portfolio value increased minimally during the month. I don't know how I did compared with the S&P but I suspect I was fairly close to it. I have not yet received my statements but with interest rates this low any changes will be minimal.
Here's a quick numbers summary:
- Number of buys: 5
- Number of sells: 3
- Dividend increase over February, 2020: -7.00%
- Dividend increase over November, 2020: -.03%
- February change in portfolio value: 1.17%
- Current portfolio yield: 3.27%
- Increase in annual (12-month) projected dividend income from January 31, 2021: 1.34%
- Organic/internal projected annual dividend growth rate: 8.64%
If you've been reading my blog for a while you may notice that I've made some changes to the above list. As I've gone to managing my Roth pretty much the same as my taxable account I'm no longer listing figures for the two accounts separately. They aren't quite identical as I still own two BDCs but their total value represents about 15% of the Roth. The big difference is dripping in the Roth rather than taking cash as dividends due to account size.
Trades Made and Dividends Received
Trading Activity:
- 2/1/21 - Bought AbbVie (ABBV) at $102.50
- 2/8/21 - Sold Omega HealthCare (OHI) at $36.75, this closed my OHI position
- 2/8/21 - Bought Altria Group (MO) at $42.64
- 2/16/21 - Bought Lockheed-Martin (LMT) at $338.98
- 2/22/21 - Sold New Residential (NRZ) at $10.03, this closed my NRZ position
- 2/22/21 - Sold Two Harbors (TWO) at $7.27, this closed my TWO position
- 2/22/21 - Bought Pfizer (PFE) at $34.24
- 2/22/26 - Bought Best Buy (BBY) at $101.66
Dividends Received:
- 2/1/21 - CVS Health (CVS)
- 2/1/21 - AT&T (T)
- 2/1/21 - Verizon (VZ)
- 2/5/21 - General Dynamics (GD)
- 2/11/21 - Apple (AAPL)
- 2/16/21 - Omega HealthCare (OHI)
- 2/16/21 - AbbVie (ABBV), increase from $1.18 to $1.30 per share
- 2/16/21 - A.O. Smith (AOS)
- 2/26/21 - Williams-Sonoma (WSM)
The Trades:
My de-REITing is complete. I have no inclination to sell my BDCs and could even buy more. While they can be risky I like the level of information they provide - if banks provided the same I might buy them - and the US government has been very active the past two recessions in making sure financial markets function. I keep saying I'd like to be predominantly buy-and-hold. Maybe selling the REITs will allow me to mostly get there.
My Roth is starting to look like a pharma and utility account. This isn't intentional but with two sectors trading at good values vs most of the rest of the market and a high turnover in a relatively short period, it happened.
The ABBV and LMT buys were from accumulated dividends. The MO and PFE purchases were using same-day REIT sales. I don't think there's anything particularly interesting about the buys. Just companies I like, trading at what I felt were attractive levels.
Best Buy: A little while back I decided $100 was a good price for BBY but though it has been there from time to time I always went with higher yielders. Today (writing this on 2/26/21) I looked at its latest ER, thought about the implications of the layoff announcement, and when I read about the 27% dividend hike I deposited a little cash into my account and made a nibble.
I don't think the last ER was bad with an over 11% YoY revenue increase. From a corporate standpoint, the layoffs are actually a good thing. I have been impressed with the company's growth in its online business. I don't like seeing people lose their jobs but from a corporate efficiency, margins, sales/employee, etc., standpoint, this is actually a positive.
The Dividends:
An interesting dividend note. Whenever one of my companies gives me an increase I check to see if this has altered its 5-year historical DGR. ABBV's increase of a little over 10% (thank you!) actually dropped this from 20.58% to 17.93%. This is still nothing to sneeze at but when I entered it into my dividend spreadsheet it dropped my portfolio projected DGR from 8.82% to 8.53%. I knew it would decrease it but didn't know by how much though it serves as a reminder of how much of my annual dividend income is from this one company.
I expected my 12-month forward dividend income projection to decline with the sale of three REITs each paying over 7%. I was surprised when I was able to increase it by over 1.3% instead. MO pays over 8% but PFE, while a healthy income-provider, does not. I guess the combination of decent replacements and the three smaller buys were enough to keep things heading up.
The decline from February, 2020 and remaining flat compared to last November can each be attributed to MSC Industrial Direct (MSM). Last February they paid a $5/share special dividend. Their last two payouts were November/January vs November/February which messed with the relative month comparison.
February was a good dividend month and my 2/5/8/11 series is still my largest set of payers. But the difference between these and the other two have lessened.
Miscellaneous:
2020 Taxes: I'm going to like paying taxes much more than I did last year. I have K-1s yet to file but based on everything else I'll be getting a sweet refund from the Federal government and a decent one from Indiana. The reason? No cap gains, actually a loss. I didn't have anything like I did when I sold Bausch Health (BHC) in December, 2019 for a triple. So I don't have to save up cash for the tax man. And while I'll still have quarterlies they should be quite a bit smaller in 2021. This will help me add cash.
Magic Numbers: I reached another Magic Number on February 5. I call any $100k increase in my account balances a magic number. This is because using my "rule" for position sizes, it means the limit on what I can own goes up by $5k. Until this, MO was the only "full" position I held. The pace of this one was a little ridiculous; my last MN was December 8. I know balance increases will accelerate as the portfolio size grows but this is getting silly. Other than as it affects my position sizes, the balance doesn't mean much compared with dividends but it is a nice ego boost so I can't help feeling happy about it and, apparently, bragging about it in a blog post. Don't judge me.
Plans Going Forward
I only have one company I'm planning to sell at some point. Exxon-Mobil (XOM) continuing to be a fossil-fuels only company is starting to look like a problem. Now oil and natural gas aren't going away in my lifetime. But with all the regulations related to clean energy generation - less US Federal than state and International - I have a hard time seeing opportunities for growth. At one time I was thinking of selling at $60 which would be about 35% above my purchase price but it has popped strongly enough that I'm starting to think $70.
In my January Update I was pretty negative about T. I'm still not thrilled but am no longer looking to sell in the near term. If it was now December it would be the number one candidate for me to sell $7k of to put into my Roth. But it's not December. We'll see where I'm at by then.
On the buy side, most of my prospective purchases are the usual suspects but more BBY is a possibility. Except for XOM and MO I could add more of anything if it drops to my price. I have a full MO position.
I'm down to 31 companies, the fewest I've had in quite some time. I have a few new ones on my watch list but they are mainly more utes. As I own five and most at fairly small levels, it seems to make more sense to increase those rather than building cash to make a first buy of, say, Atmos (ATO) or WEC Energy (WEC).
I should be able to make a couple of buys from accumulated dividends in March. And I could add more cash.
I have four dividend increases coming in March. Three are pretty small but any raise is welcome.
Summary
February was a solid month. Selling the last of my REITs was the biggest news but as significant was just grinding and being able to make two small buys from accumulated dividends and to deposit some cash for another. I hope you are safe and well.
Happy Investing Everyone!
I am long: AAPL, ABBV, ADM, AOS, ARCC, BBY, BMY, CVS, DUK, GD, GILD, GOOGL, ITW, JNJ, LMT, LYB, MO, MSFT, MSM, NEE, NEWT, OGE, PFE, PM, PNW, T, UNH, VZ, WSM, XEL, XOM.
Analyst's Disclosure: I am/we are long All Stocks 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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