My Dividend Growth Portfolio May Update: 41 Holdings, 1 Buy, 0 Sells (2024)

Welcome to my May 2020 review for my dividend growth portfolio. Markets continue to fly, pushing back towards all-time highs set a few months ago. The Fed has begun its bond purchasing program as they inject cash into the system. This with the backdrop of continued coronavirus concerns here in the states. States are beginning to reopen (whether fully justified or not is another story). Added to the fold now are nationwide protests around the death of George Floyd. I'm thinking this will lead to the next wave of the virus as any social distancing has been removed during these events. We are also steamrolling towards the conventions this summer and an actual general election in November. And oh yeah, we have over 40M+ people recently unemployed.

From my own perspective I was virtually inactive for the whole month. I made one small token purchase near the end of the month of Realty Income (O) that I'll detail further down. I also didn't sell any stock during the month.

My portfolio balance closed May a bit lower than where it was in February. At the time of writing it pulled about even. The names that have performed well are the ones that I would have expected. Big tech, healthcare, big consumer staple companies. The flip side of the coin are physical retailer REITs, high yield anything.

I still don't have plans to add much new money if any at the time. I may nibble at an ETF here or there, but I don't think the markets truly reflect the uncertainty around the country and it's more of the Fed driving the show. I'll continue to reinvest my dividends and use that as my contribution for the time being. June will bring the end of Q2 and then a few weeks after we will finally start to see some of the real carnage the virus has had on company results. I expect big tech to continue putting up strong results.

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 401(k) plan.

The goal of my portfolio is to generate a perpetually growing income stream for my wife and I 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. Currently 34, I have approximately 25 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."

Dividend Increases

• Medtronic (NYSE:MDT) declares $0.58/share quarterly dividend, 7.4% increase from prior dividend of $0.54.

Dividend Cuts

• Distributions were lowered for HYLB again as well as some of the Global X funds
• SPG is late by missing their May dividend payment, one is promised before the end of June.
• Tanger (SKT) paid out their May dividend but has suspended going forward

2020 Goals

After having life completely upended this year, I had dropped any particular income goal I was shooting for. I originally had an optimistic goal of $17,000 in projected dividend income by the end of the year. I'm hovering around the $14,000 mark right now.

Dividend cuts and suspensions have roiled part of my portfolio so that is not a safe avenue either to continue pursuing. The one thing I have control over is owning companies that are able to 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 9.4%.

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 the business? (No trades)
• What's the expected growth?
• What are the risks and downsides?
• How does this fit into my portfolio?
• Is the opportunity here better than an ETF?
• Are we near an all-time high? Coronavirus showed how quick we can plummet. One fallout from this experience may be avoiding adding new money when we are near new highs.

Company-Specific Factors

• What do the earnings and revenue growth look like?
• How long is their dividend growth streak?
• Is the sum of 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 > 10%. High yield investments may get a pass on this. Like mentioned above, I want some additional "kicker" that can provide additional upside with less risk.
• I want to see steady earnings growth over time (no commodity-based companies).
• I like cash cows. Good profit margins (> 10%) are appreciated, though not required. A company with a moat should be analyzed to see how easily its moat can be disrupted.
• I like to see shareholder-friendly management. This manifests in a healthy and rising dividend and a willingness to buy back shares. Often buybacks aren't always done at opportune times. Additionally, they are frequently established to just buy back stock options for employees. A good metric to investigate is the "total shareholder yield." This aggregates net dividends, buybacks and debt reduction.
• Perhaps most importantly, the valuation needs to be right per F.A.S.T. Graphs. The stock should be trading at fair value or better for an appropriate timeline (13+ years, if possible). With a longer time frame, I can see how shares fared during the Great Recession, and this also removes some of the recency bias that can come from only analyzing valuation during this extended bull market.
• I will also use Simply Safe Dividends and the information provided by Brian on his site. Among a plethora of information available, he has a dividend scorecard where companies are ranked in terms of dividend safety, growth and yield. I aim to pick companies that are in the 80+ safety range.

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 circ*mstances change.

• Dividend cut.
• Company degradation - This could be things like deteriorating balance sheets, loss of competitive advantage and loss of credit ratings. These factors may come to light before a dividend cut manifests. This may also appear in a streak of less-than-expected dividend increases. The dividend increase is the more visible outward sign of a company's success. A paltry increase or two may underscore problems below the surface.
• Thesis not panning out
• I just don't want to own it. When I pull this card, I will more fully explain my reasoning. Part of the beauty of owning individual companies is choosing where I put my money. I can opt to not support companies, products, management, etc. that I do not agree with. An example of this could be companies with management issues or criminal/unethical business practices.
• Based on known information, capital is better passively invested or focused into better ideas.

Timing

One tactic I've used is buying shares prior to the ex-dividend date after the company has announced its yearly increase (this also works for ETFs). The increase in amount gives a quick, "at a glance" view into how management thinks the company is operating. A large increase can be confirmation from management that the business is running quite 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. I've front-run a dividend increase several times already with Altria Group (MO), Starbucks (SBUX), Corning (GLW), Prudential Financial (PRU), Home Depot (HD) and Johnson & Johnson (JNJ).

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 in the nosebleeds like they are today.

If this sounds interesting to you, you should check out my weekly article, where I give the full list of these companies.

Dividend Reinvestment

I have commission-free trades, so it doesn't really matter 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.

Here's my table showing reinvestment statuses. Items show up in here when reinvestment is either on or the current price is below my basis. I have it off for PEI.D and SKT, this is from a lack of confidence in either of these holdings. SPG is precariously close to that mark also.

Contributions

I'm still on pace for maxing for the year as long as I remain employed! I received a "true up" contribution in March for having fully funded my plan before the end of the prior year. My understanding is not everyone has this, so check your circ*mstances if you fully fund a retirement account with an employer match prior to the end of the calendar year.

The Portfolio

Here's my actual portfolio with a few of my data points highlighted.

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

Here's a table that I 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 (this is only for individual companies). Many of these scores have taken a hit lately especially.

With this new chart I've had a few insights:

• I mostly own safe (60+ score) companies
• I try to bundle my riskier companies into ETFs than individual exposure. This doesn't always pan out.
• Out of dividend safety, dividend growth and current yield, you can pick any two.
• Tanger and Disney right now have no safety score because of dividend suspensions. I half expect Simon will join them soon.

Performance

Here's my updated list of performance of my holdings versus their benchmark since I've first owned shares. Results are sorted descending. Results may not perfectly line up with my own results due to subsequent purchases. It highlights the flat out result versus the S&P and a benchmark since the date of first purchase. Many of the top holdings took a major hit during the first drop of the coronavirus.

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 in the web, Excel or Google Sheets.

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.

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.

Portfolio Yield

I've calculated a few aggregate statistics for my portfolio. Portfolio yield dipped again as stock values have generally recovered. It peaked over 6% in March and sits in the mid-4%'s now. Projected income recovered a little bit but will still be in flux for a while.

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 of 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 that during panics all of this goes out the window as everything gets sold off indiscriminately. Bonds and preferred shares offered very little ballast.

Trade Summary

My Sells

None

My Buys

Realty Income

I took a nibble at another 20 shares of Realty Income right at the end of the month. The monthly ex-dividend date was coming up, but I've been trying to reestablish a position in the company after selling out previously. Shares traded in the $55 range at the time which yielded a little over 5%. Rent collection has been quite good compared to some other REITs. They collected 82% of May rent after collecting 84% of April. I also saw someone reference their top tenants which gave me some confidence.

Also seeing their overall portfolio size added some confidence.

This could still be dipping a toe into a risky pool as they are ultimately hinged to the success of their lessees, but they have a much different profile than the mall or outlet-based retailers.

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. You can visually see how well the trend-line fits the data over time. The divergence from the trend started mid-2018 when I sold some income stocks for some growth stocks. After the subsequent fall of income and some mixed investment results, I stayed true to myself and got back into the dividend game whole hog. The addition of high yielding stocks and ETFs (now mostly ETFs) has given my dividend income a shot in the arm.

I broke the $1,000 average monthly dividend mark in December 2019, and I've moved up from there. The average dipped again this month as the $912 was lower than the $1,107 from February.The attractive aqua bar for May was more representative of the annual increases I am expecting. Growth was muted compared to last year but was still a positive.Notes

• Apple was the only bright spot with organic growth. Some holdings were slightly increased because of the impact of reinvestment.
• Generally, the high yielding ETFs were cut down again with lower payments across DIV, SDEM, SRET and SDIV.
• HYLB also lowered their distribution again.
• That was the last payment I can expect to receive from Tanger for some time.
• SPG did not pay a May dividend though they say they will declare something in June which will almost certainly be a cut.
• I hid some rows of holdings I no longer have, so the May numbers will not add up exactly, there were lingering payments from some of the Canadian banks in the total.

Dividends by Position SizeThe 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 is still my largest holding just beating SCHD. SCHD is my favorite ETF which is also why it's the largest ETF I have. On the y-axis, some of my high-yielding ETFs have been cut down. I'll monitor the situation but I'm not parting ways.

Growth

The $912 in May was a 12% improvement over 2019. On a rolling 12-month basis I'm still ahead about 56%.

My next 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 $14,002 which is about 52% higher than what it was a year ago.

You can clearly see some of the carnage from coronavirus as the monthly figures have completely faltered the past three months. At this point, I'm trying to just hold approximately steady.

Target Portfolio

I have a target portfolio that captures my need for a lot of various dividend sources while also having allocation to growth. 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 10% to growth stocks. This scratches my itch for having shares in Berkshire 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 at this point).

Next is 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 being generated alongside my regular contributions.

The main portion of the portfolio at 55% is core dividend growth. This is where I am 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 leads to a missed opportunity or a need to scramble to sell something else. This will help prevent FOMO.

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

For illustrative purposes, I specifically have the circles overlapping most of the area to highlight the focus on dividend growth stocks.

Actual Portfolio

I'm right around where I'd like to be. High yield took a shellacking in March which cut that slice down a lot. I'm shoring up cash until there is a clear way out of all of the issues plaguing the country.

Here's how I classify my holdings in order 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 high yield. Their current yields are about the same, but the growth rate of T's dividend is barely beating the rate of inflation, if at all.

Visualizations

Income by Sector

I receive about half my income from ETFs of various types and the rest is sprinkled across the sectors.

When I look at my allocations in dollar amounts, 1/3 is into an ETF (the difference mainly being higher yielding ETFs which scale up to generate 50% of my income) with the rest dispersed across individual holdings in each sector.

Sector AllocationsLastly when analyzing my individual picks, I categorize them based on their dividend growth history (kings 50+, champions 25+, contenders 10+, challengers 5+). This chart took a hit this month with both Tanger and Disney falling off and losing their status.

Champion, Contender, Challenger View

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.

Correction Watch List

I don't have any new holdings on my radar, maybe the Q's another similar ETF in a high growth area like cloud computing. Other than that, I'd work on adding to existing holdings.

Things Coming Up

Medtronic announced their increase in May (I had them listed as a June increaser before). I had JPMorgan as a possible June increaser but looking at their history they are probably in September.

Conclusion

I wrapped up May with $912 in dividends. While that amount was 12% higher than a year ago, it was muted by a decrease from February (Q1 comparable). Some dividend ETFs also lowered their payout which will impact results in the short run. My forward-looking income was slightly increased to $14,000, which was up less than 1%.

I made one small buy during the month and no sales. I am on the fence about a few of my positions with no decisions planned as of yet. I still maintain about 5% cash at this time.

I hope everyone stays safe and is able to maintain employment if you are still working. There's a lot of craziness going on outside and I'm very fortunate to be able to write about my investing hobby.

Thanks for reading, I hope you've enjoyed reading it as much as I've enjoyed writing it. I encourage you to "Follow me" if you don't already!

Dividend Derek