My Dividend Growth Portfolio Q3 Review: 34 Holdings, 4 Sales, 3 Buys

My Dividend Growth Portfolio Q3 Review: 34 Holdings, 4 Sales, 3 Buys

Welcome to my dividend growth portfolio review for Q3 and September 2020. The S&P finally cooled off and finished down about 4% for the month after the rocket ride seen since March. The news cycle continues it’s furious pace as we steamroll towards the election next month. Just in the past week, we’ve seen the President of the United States and several other closely linked members of the White House test positive for COVID-19.

The disparity between the best performers in the S&P versus the rest continues, although the gap closed slightly last month. Apple (AAPL) cooled off in September after peaking at $137 to finish around the $116 mark (15% off it’s high). Even with the pullback, the stock is up over 100% in the past year.

Over the month, I closed out and consolidated a few positions, which I’ll cover in detail below. As part of that process, I am holding more cash for the time being. I’m still feeling cautious about the market in general and the disconnect from what is happening around the country. I suspect this is a feature and not a bug. When March hit, I didn’t have enough cash available, and the cash I did have I deployed it too quickly. I aim to buy good companies and hold them for the long haul. In that process, there will be some losers along the way, and pruning must take place. I sometimes fall into the trap, but we should be watering our winners and cutting the losers, not vice versa.



After the extreme bullishness reaching a pinnacle in August, September was slightly muted. I did finish down about 4% on paper (372k to 357k).

About Me

For reference, this article series covers my investing journey as a father of two towards my eventual retirement. Any specific stocks or amounts are particular to my self-directed 401K plan.

My portfolio aims to generate a perpetually growing income stream for my wife and me during our golden years. The aim is to live off dividends without touching the principal. Dividend growth stocks and ETFs are the chosen vehicles to meet that goal. I’m 35, and I have approximately 24 years before I can touch any of this money (without taxes and penalties).

Another primary goal of writing is to assist other investors. I hope there are facets of my strategy that you find appealing and can implement yourselves.

For anyone interested, I have a trimmed version of a portfolio tracking spreadsheet you can freely take for yourself, found here.

I’ve received some questions in the past, so you can save off a copy by selecting “File” -> “Make A Copy.”

2020 Goals

I originally had an optimistic goal of about $17,000 in projected dividend income when setting goals for 2020. I’ve since dropped any particular income goal for the year after having my life completely upended. I’m currently hovering around the $14,000 mark and making sure that I safely maintain that level. That will suffice for now until some additional clarity comes about. Even outside of investing, I had goals that have been pushed due to COVID.

Dividend cuts and suspensions did their fair share of damage part of my portfolio as well. The high yield Global X funds have cut their distribution rates, though they are slowly coming back. Simon Property Group suspended and reintroduced a lower dividend. Disney (DIS) halted its dividend for now. The one thing I have control over is owning companies that can actually grow their dividends through good times and bad. My goal for dividend growth holdings is to average a growth rate of at least 7%. Currently, I’m at about 9%.

Portfolio Strategy

Buying Criteria

These are the general guidelines I will review to see if something is worthy of adding to my dividend portfolio or whether I will add to an existing position.

Investing Framework

This is the first round of questions to review during an initial filtering process of investments.

  • What is the opportunity here?
  • Am I excited about this idea, or is it a trade?
  • What might the expected returns be?
  • What are the risks and downsides?
  • How does this fit into my portfolio?
  • Is the opportunity here better than an existing holding or ETF?
  • Are we near an all-time high? COVID has shown us how quickly markets can unravel. I may limit how much money I invest when we are near new-highs as a result.

Company-Specific Factors

  • Are earnings and revenue growing?
  • How long is its dividend growth streak?
  • Is the dividend safe? 60+ on Simply Safe Dividends

  • What about the dividend growth rate historically and potentially going forward? Is this a fast grower or slow grower?
  • Chowder Rule (current yield + 5-year growth rate) > 10%.
  • I like to see shareholder-friendly management. Total shareholder yield is another useful metric to analyze. This aggregates net dividends, buybacks, and debt reduction.
  • Valuation needs to look right per F.A.S.T. Graphs.

Selling Criteria

Here are my guidelines when I may consider a stock sale. I really don’t want to sell shares, but I will when circumstances change.

  • Company degradation – This could be things like deteriorating balance sheets, loss of competitive advantage, and credit rating loss. These factors may come to light before a dividend cut manifests. The pandemic exposed a lot of names in this category.
  • Dividend cut or unexpectedly paltry increases. The dividend increase is the more visible outward sign of a company’s success.
  • Thesis is not panning out.
  • Based on known information, capital is better passively invested or focused on better ideas.

Timing

One tactic I’ve used is buying shares before the ex-dividend date after the company has announced its yearly increase. The increase provides a glance into how management thinks the company is operating. A large increase can be confirmation from management that the business is running well. Sometimes, the reverse can be true too – being snubbed with a “bad raise” can be a red flag that things are not as they seem, and it’s time to research what’s up.

Most importantly, this was not done to chase dividends but to strategically add to a position that was worthy of being added to. Trees don’t grow to the sky, and neither do dividend yields. A quality company that has a nice dividend increase should see its stock price rise by a similar amount over the course of the year, readjusting to the new and higher dividend amount. By jumping the gun, you can speed up the compounding process. This is also a much more compelling idea when valuations aren’t at nosebleed levels like today.

If this sounds interesting to you, you should check out my weekly article to get the full list.

Dividend Reinvestment

One positive trend in the industry this past year has been commission-free trades across most platforms. I am fortunate to now have free trades in my 401k account. From that perspective, there is no direct benefit whether I leave reinvestment on or not. I’ll try to leave it on for my core holdings or where I can lower my cost basis. This is also when I have ample cash (5%+ in my portfolio).

In any event, I did some simple conditional formatting on my spreadsheet. Cells will be green if I have an opportunity to lower my cost basis.

I can quickly cross-reference this with my upcoming dividend calendar for my dividend alerts. Additionally, I added an extra column on my spreadsheet for whether it’s on or off.

I have reinvestment on at the moment for everything I own except for (PEI.PD), (T), and (PFFD). PFFD is currently off because the current price is above my basis, so I’ll take the cash. The other two are off because I lack confidence in them, and might be gone by the end of the year.

Contributions

I continue to plug away, and I’m on pace for maxing again for the year, should be next month. I received a “true-up” contribution in March for fully funding my plan before the end of the prior year. My understanding is not everyone has this, so check your circumstances if you fully fund a retirement account with an employer match before the end of the calendar year.

The Portfolio

Here’s my actual portfolio with a few of my data points highlighted. Apple cooled off after their incredible performance through August.

Name Ticker % of Portfolio CCC Status Income
Apple (AAPL) 8.26% Challenger $214
AbbVie (ABBV) 1.50% Challenger $299
Abbott Laboratories (ABT) 1.49% Challenger $73
BlackRock (BLK) 1.66% Contender $150
Global X US SuperDividend (DIV) 1.08% None $431
Cohen&Steers Opportunity CEF (FOF) 2.67% None $893
Corning (GLW) 3.03% Contender $285
Home Depot (HD) 3.05% Contender $238
XTrackers High Yield Corp Bond ETF (HYLB) 2.93% None $642
iShares International Select Dividend ETF (IDV) 3.38% None $895
JPMorgan Chase (JPM) 2.31% Challenger $302
MasterCard (MA) 3.34% Challenger $57
Medtronic (MDT) 1.98% Champion $160
Global X MLP ETF (MLPA) 1.15% None $137
Altria (MO) 2.88% King $881
Microsoft (MSFT) 1.15% Contender $41
Nike (NKE) 1.11% Contender $31
Realty Income (O) 0.75% Champion $120
Pennsylvania REIT D Series 6.875% (PEI-D) 0.14% None $172
Global X Preferred ETF (PFFD) 1.58% None $319
Prudential Financial (PRU) 2.15% Contender $509
iShares mREIT ETF (REM) 1.78% None $919
Starbucks (SBUX) 2.47% Contender $167
Schwab US Dividend ETF (SCHD) 7.28% None $717
Global X MSCI SuperDividend Emerging (SDEM) 2.01% None $646
Global X SuperDividend® ETF (SDIV) 2.25% None $1,221
Simon Property Group (SPG) 1.35% None $520
SPDR S&P High Dividend (SPYD) 7.20% None $1,544
Global X SuperDividend REIT (SRET) 0.97% None $515
AT&T (T) 1.62% Champion $424
T. Rowe Price (TROW) 1.66% Champion $160
Travelers Companies (TRV) 1.61% Contender $177
Visa (V) 3.12% Contender $67

Here are the values behind the “CCC Status” category:

  • Champion/Aristocrat: 25+ years
  • Contender: 10-24 years
  • Challenger: 5+ years
  • King: 50+ years

Dividend Safety

I use the table below to keep tabs on the dividend safety score from Simply Safe Dividends and how that meshes with the S&P credit rating. The table is then sorted descending by the safety score for individual companies only.

Name S&P Credit Rating SSD Safety Score
BlackRock AA- 98
Prudential Financial A 75
Home Depot A 87
T. Rowe Price 94
AbbVie BBB+ 50
Medtronic A 99
Visa AA- 99
Apple AA+ 99
Travelers Companies A 78
MasterCard A+ 99
Corning BBB+ 77
Microsoft AAA 99
Altria BBB 55
Nike AA- 99
Starbucks BBB+ 67
Abbott Laboratories A- 71
JPMorgan Chase A- 60
Realty Income A- 70
AT&T BBB 65
Simon Property Group A 25

With this new chart, I’ve had a few insights:

  • I try to bundle my riskier companies into ETFs than individual exposure.
  • I mostly own safe (60+ score) companies.
  • Out of dividend safety, dividend growth, and current yield, you can pick any two.
  • Disney has no safety score because of dividend suspension. Simon Property Group is hanging on with a 25 score.

Performance

Here’s my updated performance of my holdings versus their benchmark since I’ve first owned shares. Results are sorted descending against the benchmark. Results may not perfectly line up with my own results due to subsequent purchases. I can see if I’m better off rolling money into a benchmark ETF than holding shares at a high level. This is where I started watching where some of my holdings were not delivering what I had expected them to.

Ticker Owned Since Benchmark Versus Benchmark Versus S&P
AAPL 4/13/2015 SCHD 231.44% 219.90%
TROW 9/29/2016 SCHD 74.33% 56.81%
HD 5/3/2016 SCHD 70.11% 53.23%
NKE 5/3/2016 SCHD 63.43% 46.55%
GLW 10/14/2015 SCHD 48.47% 36.39%
MA 7/26/2018 SCHD 48.19% 42.14%
MSFT 11/14/2019 SCHD 40.42% 32.21%
MO 10/31/2013 SPYD 33.61% -70.21%
ABT 1/10/2020 SCHD 28.08% 22.95%
BLK 10/16/2019 SCHD 26.25% 17.89%
V 7/26/2018 SCHD 25.75% 19.70%
JPM 7/15/2016 SCHD 21.85% 2.89%
FOF 10/10/2019 SPYD 13.32% -23.89%
MDT 11/22/2016 SCHD 4.50% -12.23%
PRU 4/7/2016 SPYD 2.67% -69.32%
ABBV 1/28/2019 SCHD 0.38% -9.29%
O 2/21/2020 VNQ -5.26% -23.92%
HYLB 1/10/2020 AGG -6.31% -6.29%
T 11/3/2015 SPYD -6.54% -66.53%
SBUX 12/3/2015 SCHD -8.37% -19.66%
TRV 4/28/2014 SCHD -39.21% -61.11%
SPG 4/30/2019 VNQ -57.52% -76.24%

The data runs off the API I host over at Custom Stock Alerts (documentation here). This set comes from exposing the stock return calculator as an API call that can be used on the web, MS Excel, or Google Sheets.

The next column allows flexibility to define what my benchmark can be. For example, look at the REITs – I’ve set their benchmark to be VNQ for an apples-to-apples comparison. A utility could be compared to XLU, for example. I need to flesh out what high yield ETF I want to be the benchmark for my high yielding ETFs. I generally compare everything to either SCHD or SPYD, depending on the yield/growth profile.

Versus S&P: This is a measure of the alpha generated (or not) versus the S&P 500 as a benchmark. This is calculated using the stock return calculator here, and it uses the “Owned Since” column as the starting date. This may not reflect actual results, as multiple purchases would change the figure. I can also set the benchmark at the individual ticker level. This table is how shares have performed since I first purchased them. I can compare versus both the S&P and another benchmark for each holding. It’s supported by the stock return calculator (there is also API access available for use in spreadsheets) that I built.

Portfolio Yield

I’ve calculated a few aggregate statistics for my portfolio. The portfolio yield has now dropped jumped back over 4% after the massive rally since March. For reference, it peaked over 6% in March. Projected income is still in the same ballpark, around $14,000 that it has been for most of the year. The only difference this month is that I freed up some capital without dropping much income.

Projected Income $13,924.85
Cash $31,153
Cash Ratio 9.30%
Total Value $366,215.17
YOC (Divi Companies) 6.40%
Yield (Divi Companies) 4.55%
Portfolio Yield 4.16%
Yield w/Cash Drag 3.80%

Projected Income – The sum of all known dividends for all holdings

Cash Ratio – Percentage of cash in the portfolio

Total Value – Self-explanatory

For these next batch, the numerator in each calculation is my “Projected Income”.

YOC (Divi Companies) = “Projected Income” / (“sum of invested capital” – (cash + cost of all non-dividend-paying companies)). This is my yield based on what I put in. This is separate from current market valuations.

Yield (Divi Companies) = “Projected Income” / (“Portfolio Value” – (cash + value of all non-dividend-paying companies)). Said another way, this is the yield from all my dividend-paying companies.

Portfolio Yield = “Projected Income” / (“Portfolio Value” – Cash). This is the yield based on all my invested money and their respective prices today. This would be the headline figure advertising the portfolio.

Yield w/Cash Drag = “Projected Income” / (“Portfolio Value”). All in, this is the yield, given my expected income divided by the full portfolio value.

Correlation Matrix

I use the correlation matrix from Portfolio Analyzer. It’s a huge table mapping out how one stock trades with another from a relation of -1 to 1. -1 means they move perfectly opposite another. 1 means they move in perfect lockstep.

I’ve used this information in the past to remove holdings that essentially move in lockstep (correlation > 0.90). It’s also a factor when adding in a new position. It doesn’t necessarily make sense to add something if another holding closely mirrors it. I’ve learned firsthand that all of this goes out the window during panics, as everything gets sold off indiscriminately. Bonds and preferred shares offered very little ballast.

Dividend Increases

Dividend Cuts

Trade Summary

My Sells

Johnson & Johnson

Yes, yes, I know. I sold one of the staidest companies in the entire market. My rationale was not based on any perceived danger in the company or a lack of ability to grow the dividend or anything of the like. Looking around my portfolio, JNJ has moved a bit slower than I would have otherwise liked. It’s trailed in performance to SCHD, which I compare it to (it has also been a holding in SCHD) and was also back near an all-time.

The alternative was this; I could take the $10,000 in JNJ and split it between SCHD and SPYD.

Pros:

  • SCHD has performed better
  • Both ETFs are nearly free to own (6 and 7 basis points)
  • Both are highly diversified (~100 holdings and 80 holdings for SPYD)
  • The yield on both ETFs is higher than the ~2.7% offered by JNJ.

Cons:

  • Can be perceived as market timing
  • Having to come in front of the class and explain myself

I did some analysis with some help from my stock return calculator and YCharts.

Just visually mapping out JNJ’s yield over the past five years, the low points are when the market is the most bullish (approximately start of 2018) and, conversely, when the yield spikes are when the market is most bearish (see the 3.3% yield seen in March).

When I compare when the stock is very bullish (the start of 2018) versus SCHD, SCHD has been a better performer.

When I try to cherry-pick a higher yield point, say around May of 2018, JNJ squeaks out a total return win but lower dividends than SCHD.

Even stepping back to the 10-year yield chart and trying to cherry-pick a point at the time that looks appealing, I still can’t make the numbers work out.

There was a nice yield bump around September of 2015 when the yield looks to have been around 3.2% or so. Even when comparing it to SCHD, the total return was actually the same, yet again, SCHD provided more income.

My problem right now is that I can’t make the numbers work. It’s a great company and perfect widows and orphans stock. Still, unless something material changes putting them on a higher growth trajectory, I don’t see the point in owning it directly. Conversely, if I had that original starting blend of $10,000 of SPYD and SCHD, I would not sell those to buy JNJ shares. It’s important to remember that making one buying decision implicitly closes the doors for everything else.

Lastly, to quote me from last month as I had been opining on my situation:

Johnson & Johnson has been interesting too, as it’s done well but has slightly lagged the Schwab U.S. Dividend Equity ETF (SCHD), which has been my favorite dividend growth ETF. With the company trading near its all-time high, is it time to just roll it into SCHD? The problem is that for each holding, there is always a limit to what I’d own. I don’t believe that limit would necessarily exist with an ETF; conceptually, I’d be OK with being 100% in it.

Cisco Systems

I started buying shares of CSCO in 2016. Over a few tranches, I had a cost basis in the $27 range for reference. I had sold a call at $50, which was exercised, and lastly, closed out my remaining shares at $56. I then bought back into the company near the end of last year around the $46 mark.

The stock took a drubbing, announced their Q4 report, and providing forward-looking guidance. From the summary:

For fiscal Q1 2021, it’s guiding to a revenue decline of 9-11% year-over-year, with gross margin of 64-65%, operating margin of 30-31%, and EPS of $0.69-$0.71 (below consensus for $0.76).

That revenue guidance points to $11.71B-$11.98B, below consensus for $12.29B.

Unfortunately, that is not a company firing on all cylinders, and I had opined last month about their performance during the pandemic.

I’ve also been really disappointed with Cisco (CSCO) lately. The company had a poor earnings release, and in this age of Zoom (ZM) becoming a household verb, how did Cisco whiff so badly with its WebEx?

Sure, the current 3.73% yield looks compelling, but this seems like dead money until they can patch up the revenue declines. For me, this was another candidate for just taking the money and rolling it into some dividend growth ETFs or better individual ideas. They may even end up in SCHD next year during the rebalance.

Stanley Black & Decker

I also sold my shares of SWK this month. The stock performed well for me, slightly edging out the S&P and returning over 21% better than SCHD since I had owned it. Why sell it then? I had set a limit sell order as I was willing to part with it.

I was willing to part with it for a few reasons. There was a lackluster dividend raise in July due to the global pandemic. Revenue fell off a cliff down 16% YoY. Now – there’s been a head-fake going on as management revised guidance for revenue from being down mid-single digits to up high single digits. I’ve found myself also more enamored with other battery-powered toolsets over the past few years. That also spreads over to the lawn and garden as I’m interested in a battery mower at some point, but SWK is not among the top performers in that segment. Again these are highly personal anecdotes, but it adds up. Lastly, I did want to bolster my cash should any real pullback occur over the next few months. The lack of dividends from SWK isn’t going to alter my trajectory at all.

Brookfield Asset Management

Brookfield Asset Management was a new addition to my portfolio earlier this year. It just so happened to be completely ill-timed and far too early into the market decline (this was at the tail end of February). It was also a minimal starter position at about 0.3% of my portfolio. As the year has gone on, the stock has been one that has been stuck. It did not join in the rally, and it looks like the market may be waiting for more certainty with them.

On another note, I also feel that I don’t truly understand the business. I mean that I get at a 30,000-foot level what they do and how they make money, but it feels a little bit like a “black box” to me. I wouldn’t be able to adequately predict or know their opportunities or risks without someone laying them out for me on a platter. I suspect the talent of management plays a much more important role than with other companies.

On the flip side, I look at a company like Starbucks or Home Depot, and the business models are much easier to understand. That isn’t to say that management at those companies is less talented by any stretch. Still, I find it more accessible and more relatable than a multi-tier structure such as the Brookfield family and understanding all of the moving parts’ nuances.

Again, this was a tiny bet, but even though I was down on that investment, I didn’t have the confidence or desire to increase my position.

My Buys

After selling JNJ, I rolled all of that capital into a mix of both SCHD and SPYD.

SPDR Portfolio S&P 500 High Dividend ETF

The opportunity with SPYD here is a diverse cross-section of the 80 highest yielding stocks in the S&P 500. It is essentially free to own at just 7 basis points. It has definitely been a beaten-down ETF; this was a high flier leading up to the start of the market meltdown in March. I am still underwater on this holding, but my basis continues to drop as I added another 150 shares at $29 before the ex-dividend date. This is a retirement account, so I can capture dividends tax-free.

Schwab U.S. Dividend Equity ETF

SCHD is my favorite dividend ETF bar none. Not only do all companies pass through a quality screener, which includes a requirement of paying growing dividends for 10 years, but it is also somehow even cheaper than SPYD at just 6 basis points.

The top holding right now is UPS, which has had a monster year and has nearly doubled since market lows. I wouldn’t have necessarily picked up shares myself, but it’s wonderful to see them performing so strongly for the ETF. The yield is also in the 3.5% range, which also is better than what JNJ was paying me.

I added another 70 shares before the ex-dividend date also. As ideas come and go in my portfolio, these two ETFs are always in play, in my opinion.

Microsoft

Microsoft continues to fire on all cylinders, and this stock is expensive for a good reason. They announced a nearly 10% dividend increase last month, which will be for shareholders as of November 18th. A strong dividend increase is a big signal from management that things are going well. I sure know I’m not getting a 10% pay increase at my day job, much appreciated. As I’m trying to add to my winners, this got me to add. I only added another 10 shares @ $202 to double my holding, but time remains before the ex-dividend date actually comes up. I may potentially add again, but I will probably wait for at least the election to pass.

Charts and Graphs

Dividends

This chart covers a rolling 3-month average of my dividend income. With a quarterly view, I can smooth out the variations from month to month. What’s been interesting is how well the data has fit the trend line over time.

There was a downward period in 2018 when I moved some money to growth stocks. Later, that trend reversed, which led to the current peak of over $1,200 in March. Then, the recent drop is all surrounding coronavirus and the impact it has had on dividend payments around the country. I’m still above the $1,000/month average, though just barely.

The aqua bars for 2020 were all trending higher before having several lackluster months. September reversed the trend where both July and August were lower months than in 2019.

I put September and June side by side to see how close they were. There weren’t many variations; I didn’t make many trades over the summer, so it was down to the deltas for some of the ETF holdings.

Dividends by Position Size

The bubble graph maps expected yearly dividends (y-axis) by the percentage in my portfolio (x-axis). The third data point, yield on cost, is represented by the size of the bubble.

Apple remains my largest holding though it shrunk some in September. SCHD and SPYD are about neck and neck in terms of position size though SPYD is projected to deliver approximately twice the income. After that, the other holdings are spread and offer a matrix of income and size.

Growth

I did earn $1,553 in September, which I’m quite proud of. That amount was 22% better than the $1,269 in September of 2019. On a rolling year basis, I’ve collected 41% more dividend income than at this point last year. For the full calendar year, you can see that I’m only 3% behind all of 2019. I will pass that during October, and I basically have all of the fourth quarter to set the new high-water mark.

Looking at that chart helps keep me grounded because I know I am moving ever closer to my goals – even as tumultuous the year 2020 has been.

I can compare quarterly results now that the third quarter is complete. I didn’t show much progress in Q3 versus last year, only up about 6.5% in terms of dividends received. Any progress this year is good as far as I’m concerned. I am optimistic that maybe a calendar year from now, I’ll continue full steam ahead. Hopefully, COVID is in the rearview mirror by then.

This chart is my forward-looking income view, where I sum up what I would earn in the next 12 months based on the shares I own and the currently declared dividend rates. It currently stands about $13,924, which is about 18% higher than what it was a year ago. This has drastically trended down over the course of the year as the tail end months of 2019 are beginning to catch up with early 2020. Dividend cuts, suspensions, and lack of certainty about investing have left me just holding tight.

These forces will abate at some point, we’ll get an effective and widely distributed vaccine, and it will be off to the races once more. This helps me keep a cool head, knowing this too will pass.

Target Portfolio

I have a target portfolio that captures my need for various dividend sources, while also having a growth allocation. This is how I would like to allocate money across different equity (not asset) classes. I’m an equity guy, though I’ve found value in fixed income as a place to park extra cash.

I first allocated 15% to growth stocks. This scratches my itch for having shares in Berkshire (BRK.A) and some of the FANGs. I’m also optimistic that at least some will be the dividend growers of the future (most likely to be Berkshire or Alphabet (GOOG, GOOGL) at this point).

Next is 20% (was 25%) allocated to high-yielding stocks. I use these as the income portion of my dividend machine. Dividends may be directly reinvested if current prices are right, or they will be harvested and tactically allocated to the best investment idea at the time. It also helps me shore up my “balance sheet” by having more cash generated alongside my regular contributions. I also added a 5% to fixed income – these are more income-generating ETFs under bonds or preferred shares.

The main portion of the portfolio at 55% is core dividend growth. I aim to pick names that I expect to surpass the high yielders decades down the road. I would consider names like Apple, Nike, or Home Depot to be generational winners. This can also be ETFs such as SCHD, which are built to hold dividend growth companies.

Lastly, the remaining 5% is allocated to cash. I think any active investor must always have cash on the sidelines for opportunities that present themselves. Frequently, these opportunities may only last a day, and with no cash available, either lead to a missed opportunity or a need to scramble to sell something else. This will help prevent FOMO (fear of missing out).

Another way to view the core portfolio would be through a Venn diagram across the three equity categories.

https://static.seekingalpha.com/uploads/2019/3/6/9020091-15518710183814197.png

For illustrative purposes, I mostly have the circles overlapping to highlight the focus on dividend growth stocks.

Actual Portfolio

I’m in the ballpark of where I’d like to be. High yield took a shellacking in March, which cut that slice down a lot. It continues to lag, and I’ve now been carving out a niche for fixed income. Dividend growth is still about 2/3rd of my portfolio, and I could use some more raw growth. I do plan on adding growth when valuations settle.

Here’s how I classify my holdings to create the above pie chart. I try to be logically consistent, but it can be a little subjective. One example of the subjective nature is Altria is pegged as a dividend growth stock, but AT&T is a high yield company. Their current yields are similar, but the dividend growth rates have been quite different.

Ticker Classification
AAPL Dividend Growth
ABBV Dividend Growth
ABT Dividend Growth
AMZN Growth
BLK Dividend Growth
BRK.B Growth
DIS Dividend Growth
DIV High Yield
FOF High Yield
GLW Dividend Growth
GOOG Growth
HD Dividend Growth
HYLB Fixed Income
IDV High Yield
JPM Dividend Growth
MA Dividend Growth
MDT Dividend Growth
MLPA High Yield
MO Dividend Growth
MSFT Dividend Growth
NKE Dividend Growth
O Dividend Growth
PEI-D High Yield
PFFD High Yield
PRU Dividend Growth
REM High Yield
SBUX Dividend Growth
SCHD Dividend Growth
SDEM High Yield
SDIV High Yield
SPG Dividend Growth
SPYD Dividend Growth
SRET High Yield
T High Yield
TROW Dividend Growth
TRV Dividend Growth
V Dividend Growth

Visualizations

Income by Sector

ETFs continue to provide the lion’s share of dividends, which has moved up from about 50% over the summer to 59% now. The rest is allocated over different sectors.

Sector Allocations

Almost 40% of my investment dollars are in an ETF. Comparing this 40% allocation to 59% income should hopefully make sense. I get more yield from some ETFs, and many individual dividend growth stocks yield substantially less.

Champion, Contender, Challenger View

Lastly, when analyzing my individual picks, I categorize them based on their dividend growth history (Kings 50+, Champions 25+, Contenders 10+, Challengers 5+). I will use this to help keep me focused on quality, and while it has been beneficial, it is not perfectly predictive. Disney suspended their dividend for obvious reasons with movie theatres, and the parks closed for some time.

This is an automated pull from my API. I have a “King” status for those with streaks over 50 years. I want to note that the Abbotts per the CCC list are not Champions, though, by legacy S&P rules, they are both Dividend Aristocrats.

I did sell two kings over the month, which may be sacrosanct to some.

Watch List

My watch list for new holdings would be for growth names. Some examples might include:

I could add to my PRU, which is my only DGI holding trading below my cost basis. I’ll probably take a wait and see approach with them; they report early in November.

Things Coming Up

The election (finally). I may hold off from doing much investing this month because this could be another large volatility event. However, I’m optimistic some buying opportunities may open up.

I still have a few holdings that I am on the fence about after consolidating some positions. AT&T is on my shortlist, they announce earnings on the 22nd of this month, but I’m not expecting much as estimates I’ve seen so far peg EPS lower than last year. The yield is compelling, and the stock has visited some interesting places in the past few years, but it has essentially been dead money for me. Part of that was around my buy points though I did sell part of my stake at $38 just about a year ago. I have some funds that yield in the same ballpark, and I could sell my shares and disperse among those.

For some of my questionable holdings, I have limit sell orders set.

Here are the dividend announcements I’m still waiting on this year:

  • MasterCard
  • Nike
  • AT&T
  • Visa
  • JPM (this will probably be pushed due to increased capital reserves)

Conclusion

I earned $1,553 in dividends in September. That amount was 22% higher lower than a year ago, and it matched what I earned in June. For the third quarter, I collected $3,093, which was 6.5% higher than the $2,902 in 2019. Year to date, I’ve received $9,864 in dividends, which is up 41% from this time last year.

My forward-looking income is still hovering at around $14,000, which is approximately flat for the year. I performed some portfolio consolidation by selling four holdings and adding to three existing ones. I’ve moved up to about 9% cash at this time.

Best of luck over the next month as my next edition won’t be until after the election. As always, thanks again for reading, and I hope you enjoyed this. I encourage you to “Follow me” if you don’t already!

Disclosure: I am/we are long AAPL, ABBV, ABT, AMZN, BLK, BRK.B, DIS, DIV, FOF, GLW, GOOG, HD, HYLB, IDV, JPM, MA, MDT, MLPA, MO, MSFT, NKE, O, PEI-D, PFFD, PRU, REM, SBUX, SCHD, SDEM, SDIV, SPG, SPYD, SRET, T, TROW, TRV, V. 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.


Originally published on Seeking Alpha

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