- My 2020 Dividend Growth Portfolio.
- 35.3% CQGR during 2020.
- Goal of $650 in quarterly dividends by Q4 2021.
- Summary of top portfolio holdings including: AVGO, ABBV, BAC, and VLO.
2020 has been a roller coaster year for me. My wife gave birth to our first child, a daughter, and she is the best thing about my life. I recently woke up with shooting pains in my side and, upon finding out it was appendicitis, promptly had my appendix removed. Life has seen its fair share of ups and downs and that doesn't even begin to take into account the impact of Covid-19, the election, protests, and all the mania that has ensued. Through it all, I have been able to continuously grow our dividend portfolio income and total portfolio value by consistently investing in companies that I believe will continue to deliver strong track records of earnings and dividend growth.
I realize that every individual has a different investing style. For 2020, I have invested about $1,400 a month on average into my work 401k and a Roth IRA. I invested about 93% of that money into dividend-growth stocks with the balance being invested in index/mutual funds that range from large-caps to small-caps. I believe there are many ways to perform well investing in the stock market, but I have chosen dividend-growth investing as my preferred method for generating returns through the stock market. Some prefer flashy IPOs, some prefer stocks at exorbitant valuations, and yet others prefer slow-growers with large dividend yields. In any case, I believe that time in the market is far more important than timing the market, which is why I tend to invest in companies with a good return on assets, with strong management teams, and that grow their dividends wisely without accumulating too much debt.
For the purpose of writing about my portfolio, I will focus solely on individual stock performance and will not write anything about the fund performance as I don't seek that as a way to bring alpha, but rather as a way to bring some stability to my portfolio.
Quarterly Dividend Growth Review
Dividend growth from June 2019 - December 2020
Any investor that is serious about progress should be tracking their results. I track my quarterly dividend growth and my next quarter projection each time I make a transaction. This keeps me focused on the current goal I'm working on. My goal for 2020 was to generate $300 of quarterly dividend income by the end of the year, as you will see later on in this article I didn't have to take any major risks to accomplish that. I am invested in companies with proven track records that for the most part have performed well even during this year of pandemicmonium. As evidence of that, I have not experienced a single dividend cut this year, though some companies have paused their growth, I don't have a problem with that because I would rather see dividend growth paused to be able to ensure future growth rather than assume a debt burden that will only bring future pain.
Comparing 4Q 2019 to 4Q 2020 puts YoY dividend growth at 422.77%! That's an awesome number, but that's not a realistic goal every year. A more realistic representation of the number is a 35.3% CQGR from the end of Q1 2020 to the end of Q4 2020. Even that isn't achievable forever but given the fact that I'm in the early stages of my portfolio development and monthly contributions amount to a large portion of my growth, I think it is quite possible to achieve fantastic CQGR returns. My goal for 2021 is to be receiving $650 in quarterly dividend income by Q4 2021, this implies a CQGR of 18.76%. In order to achieve this goal, I will plan to raise my monthly contribution to $1,500 a month, rely on exceptional management teams to continue to raise dividends, reinvest all dividends received, and continue to invest in companies that have proven the ability to provide consistent total returns to investors.
Q4 Portfolio Review
The table below outlines the weighting of companies in my portfolio that I received a dividend from during Q4 2020. It is important to note that this doesn't reflect the current standing of my portfolio, just the amount of shares owned prior to each company's ex-dividend date for that quarter, which will add up to $326.68 in dividends for the quarter.
|Stock||Weight %||Dividends $||Shares|
Dividends and share count of each company during Q4 2020
Anyone can invest in any company and have varying degrees of success. I think those that are truly successful can explain why the companies they have invested in will continue to be successful going forward. I will attempt to do so by writing a short investing thesis the companies which constitute a large portion of my portfolio.
|Stock||Weight %||Dividends $||Shares|
Dividends and Share counts headed into Q1 2021, noted AVGO and BAC dividends have yet to be reinvested
Broadcom (AVGO) - Broadcom is a favorite amongst many dividend-growth investors as they have delivered strong appreciation and dividend returns by continuing to grow the top and bottom line of their business. While their revenue from hardware has decreased slightly over the last few years, their subscriptions and services line has exploded from a little over $1 bln in 2018 to well over $6 bln in 2020. This explosive growth should allow them to continue to be generous to shareholders as this tends to be a higher margin portion of the business than hardware. Broadcom recently raised its dividend $0.35 a share, slow growth for them, but quite impressive for a year that has stifled many companies.
Abbvie (ABBV) - Abbvie is a well-known healthcare company with a history of strong dividend growth. Abbvie just raised its forward dividend from $1.18 to $1.30 starting Q1 2021 and as of writing yields an impressive 5.06%. Investors are likely down on the stock price because of the fact that Humira, Abbvie's cash cow, will face biosimilar competition in the US in 2023. But, it isn't as if Humira sales will fall to zero. Since the launch of biosimilars in Europe, Humira sales have dropped roughly 20%. Assuming a 20% drop in the United States would cost the company billions. But Abbvie has an impressive pipeline of drugs that have come to market and are gaining market share. From September 2019 to September 2020 Abbvie has experienced impressive growth from the following drugs: Skyrizi grew from $139 million in sales to $1.065 billion, Rinvoq from $14 million to $450 million and has begun to gain international market share, Imbruvica from $3.378 billion to $3.89 billion, Venclexta from $541 million to $972 million, and has integrated a healthy amount of profitable drugs from the acquisition of Allergan's portfolio. All of this to say that Abbvie should be able to continue to deliver on the top and bottom lines and continue to line shareholder pockets.
Bank of America (BAC) - Banks have been unfavorable to many investors thought the year 2020. But, if you were willing to be greedy when others were being fearful, then Bank of America could have been a great investment for you. Bank of America hit a 52 week low of 17.75, but currently trades for 29.21. Even when valued using the trailing four quarters EPS, that yields a P/E of 14.46. But those numbers include billions of dollars in lost income due to building capital to shore up against loan losses as mandated by the Fed. The same fed that just performed a stress test and gave banks the ability to begin growing dividends and reinstating share buybacks. As a bank that has been a high-performer, Bank of America is well-positioned to grow dividends, reduce share count, and continue to grow its earnings. It has already proven that it can be profitable even in a low-interest-rate environment. It is a well-run bank and has performed admirably compared to its peers. It's exactly the type of company that I would be comfortable owning even if I didn't know the share price.
Valero (VLO) - Valero is the final company that I will discuss in this article. Refineries are a polarizing topic in the age of the New Green Deal and the focus on ESG investing. I personally believe that the world needs to be realistic about what it will take to transition away from fossil fuels. As it stands, the world still needs companies to provide transportation fuels in order to make the world move. In addition to transportation fuels, byproducts of petroleum refining are used in just about everything from sunscreen to sunglasses and everything in between. And it's not as if Valero has been one of those companies that have denied climate change. Valero has pledged and outlined how it will reduce 63% of its emissions by 2025. This will be achieved primarily through better operations of its plants and especially by an increased focus on renewable diesel production. The company will soon expand renewable diesel capacity from 275 million gallons to 675 million gallons by the end of 2021. At an estimated EBITDA credit of 1.26 a gallon, that will have a huge impact on the top and bottom line of the company as its production cost is comparable to that of other refined fuels. I try not to hold companies that have experienced negative earnings growth, but I believe strongly that Valero will rebound strongly in 2021 and will be able to resume its history of solid dividend growth and earnings growth. Valero currently offers a 7.3% dividend yield and if the economy never reopens would obviously have to cut that juicy dividend, but the company has a lot of things going for it and as the world returns to normal the company should rebound in an incredible way. I choose to believe that things will return to normal and Valero will be a great company to own, in the meantime, I don't mind holding onto my investment given the information I have.
2020 has been a challenging year, it has been a year of growth, a year of struggle, and a year of victory. As I look forward to 2021, I expect all of those things to be present as well, such is life. Investing is a great metaphor for life, you get out what you put in. You will be rewarded for making wise choices, and frankly, you can't win them all, but you can, to some degree, control your destiny.
Analyst's Disclosure: I am/we are long ABBV, AVGO, VLO.
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.
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