Thursday, July 13, 2017

Quarterly Review, Q2-2017

Welcome to my 18th quarterly review of DivGro, my portfolio of dividend growth stocks. I adopted the strategy of dividend growth investing (DGI) more than four years ago after being inspired by several do-it-yourself DGI bloggers.

My quarterly reports summarize the actions I've taken during the preceding quarter. Quarterly reports include summaries of dividends received and changes that impact dividend income.

In the second quarter of 2017, I concluded several account consolidation actions, including transferring our IRAs to FolioInvesting where I'm managing them as part of DivGro. I have yet to transfer our taxable account from FolioInvesting to our trust account at Interactive Brokers. Doing so will allow me to write more covered calls.

In Q2-2017, I collected option income totaling $3,951, compared with Q1-2017's total of $3,243. My goal for 2017 is to collect $8,400 in options income. While the year-to-date options income of $7,193 appears to be closing in on my goal, I only count options income for closed or expired trades. I call such options income secured because it no longer has associated obligations. So far in 2017, I've secured $5,573 in options income (66% of my $8,400 goal).

Dividend Income


The following chart illustrates DivGro's dividend income by quarter:


This past quarter, I collected dividend income totaling $3,313, down 7.6% from last quarter's total.
The main reason for the reduction is that I closed my PennantPark Investment (PNNT) position in February, giving up a fairly large dividend. On the other hand, this quarter's dividend income tops the dividend income received in Q2-2016 by 20.8%.

DivGro's average percentage payback is 9.41%, down from 10.55% at the end of Q1-2017. Percentage payback relates total dividend income to the total amount of capital invested. There are a couple of reasons for this decrease. First, I closed my STAG Industrial (STAG) position this quarter and, second, I opened a few new positions in non-dividend-paying stocks.

Transactions


This quarter I deposited $3,000 in new capital, $1,765 in passive income, and $3,951 in options income. I call income received from Seeking Alpha publications and from blog advertising "passive" income, largely because the income is not guaranteed.

Additionally, I recognized $10,564 in consolidation cash deposits and $2,523 in past cash deposits. These terms need a little explanation. Consolidation cash is simply the cash available in the IRA's that I now manage as part of DivGro. Past cash represents the initial cash outlay to buy stocks I transferred to DivGro.

Following is a summary of my buys in Q2-2017. New positions are highlighted:

Company
 Ticker
 Date 
Transaction
CVS Health Corporation
 3 Apr
 bought 40 shares at $77.99 per share 
Hormel Foods Corporation
 3 Apr
 bought 100 shares at $34.74 per share 
Ford Motor Company
 (F)
21 Apr
 added 1,000 shares at $11.38 per share 
Gilead Sciences
21 Apr
 added 100 shares at $65.95 per share
Intel Corporation
 1 May
 transferred 120 shares at $21.02 per share 
Nuveen Floating Rate
Income Fund
10 May
 bought 500 shares at $11.95 per share 
Target Corporation
 15 May
 added 200 shares at $70.00 per share 
Intel Corporation
 19 May
 added 200 shares at $36.00 per share 
Cisco Systems, Inc
 5 Jun
 added 200 shares at $31.69 per share 
NVIDIA Corporation
 16 Jun
 bought 10 shares $151.79 per share 
Hannon Armstrong Sustainable
 Infrastructure Capital
 16 Jun
 bought 200 shares at $23.11 per share 
Amazon.com Inc
 16 Jun
 bought 5 shares at $997.50 per share 
Alphabet Inc
 16 Jun
 bought 5 shares at $935.00 per share 
Netflix, Inc
 16 Jun
 bought 30 shares at $151.08 per share 
Facebook
 16 Jun
 bought 30 shares at $149.65 per share 
Starbucks Corporation
 21 Jun
 bought 100 shares at $59.73 per share 

I doubled my position in F and GILD to reduce my cost basis and to sell covered calls. The buys of TGT and INTC in May were due to option assignments. For CSCO, I sold two covered call options.

I have yet to report on my trades in June, but several readers were surprised to see me add a few non-dividend-paying stocks. I'll explain my motivation in an upcoming article.

I closed one position and reduced the number of shares in two positions, either by choice or due to option assignment:

Company
 Ticker
 Date 
Transaction
Cisco Systems, Inc
 3 Apr
 sold 200 shares for $32.00 per share 
STAG Industrial, Inc
19 Jun
 sold 240 shares for $27.66 per share 
Target Corporation
29 Jun
 sold 40 shares for $52.37 per share 

DivGro now consists of 57 different positions, including 55 stocks, one closed-end fund (CEF), and one exchange-traded fund (ETF). Here is the distribution of DivGro's holdings by sector:


I'm showing CEFs and ETFs as "sectors" even though they're funds.

Dividend Adjustments


Last quarter, I reported projected annual dividend income (PADI) of $12,607 on investments totaling $312,590, for a projected annual yield of 4.03%. This quarter, PADI increased to $14,917 and total investments increased to $333,442, so now projected annual yield is 4.47%.

The following table shows the stocks in my DivGro portfolio that announced dividend increases in Q2-2017. I'm including the new annual dividend and yield on cost (YoC).

Company
 Ticker
Increase Annual Div
 New YoC
UnitedHealth Group Inc
 $3.00 
3.48%
Northrop Grumman
$4.00
2.62%
Apple Inc
$2.52
2.41%
Qualcomm Inc
$2.28
3.77%
Travelers Companies
$2.88
3.34%
International Business Machines
$6.00
3.53%
Johnson & Johnson
$3.36
3.68%
Target Corporation
$2.48
3.48%
Procter & Gamble Company
$2.76
3.37%
Chubb Limited
$2.84
2.76%
ExxonMobil Corporation
$3.08
3.91%
Omega Healthcare Investors
$2.52
6.74%
STAG Industrial, Inc
$1.41
7.61%
Realty Income Corporation
 (O)
$2.54
5.36%

DivGro's average YoC is 3.78%, down from the 3.98% reported at the end of Q1-2017.

I received dividends from 50 different stocks this quarter:

• Apple Inc (AAPL) :: income of $63.00
• AbbVie Inc. (ABBV) :: income of $128.00
• AFLAC Inc. (AFL) :: income of $21.50
• Chubb Limited (CB) :: income of $16.56
• Cummins Inc (CMI) :: income of $45.10
• Cisco Systems Inc. (CSCO) :: income of $29.00
• CVS Health Corporation (CVS) :: income of $20.00
• Dominion Resources, Inc (D) :: income of $75.50
• Eversource Energy (ES) :: income of $28.50
• Ford Motor Company (F) :: income of $150.00
• General Dynamics (GD) :: income of $29.40
• Gilead Sciences Inc (GILD) :: income of $104.00
• Hormel Foods Corp. (HRL) :: income of $17.00
• International Business Machines (IBM) :: income of $45.00
• Intel Corporation (INTC) :: income of $552.85
• Nuveen Floating Rate Income Fund (JFR) :: income of $33.75
• Johnson & Johnson (JNJ) :: income of $45.36
• Coca-Cola Company (KO) :: income of $74.00
• Lockheed Martin (LMT) :: income of $25.48
• Main Street Capital Corp. (MAIN) :: income of $351.30
• McDonald's Corp. (MCD) :: income of $25.38
• 3M Company (MMM) :: income of $18.80
• Altria Group Inc. (MO) :: income of $45.75
• Microsoft Corp. (MSFT) :: income of $54.60
• Nuveen Amt-Free Quality Municpal Income Fund (NEA) :: income of $22.26
• AGIC Equity&Convertible Income Fund (NIE) :: income of $209.00
• Nike Inc (NKE) :: income of $18.00
• Northrop Grumman (NOC) :: income of $16.00
• Realty Income Corp. (O) :: income of $31.65  
• Omega Healthcare Investors (OHI) :: income of $189.00
• Pfizer Inc. (PFE) :: income of $96.00
• Procter & Gamble Co. (PG) :: income of $68.96
• Qualcomm Inc. (QCOM) :: income of $228.00
• Reynolds American, Inc (RAI) :: income of $51.00
• Raytheon Company (RTN) :: income of $19.14
• STAG Industrial, Inc (STAG) :: income of $84.00
• Stanley Black & Decker (SWK) :: income of $29.00
• AT&T Inc (T) :: income of $82.81
• Target Corp. (TGT) :: income of $84.00
• T. Rowe Price Group (TROW) :: income of $57.00
• Travelers Companies (TRV) :: income of $20.88
• UnitedHealth Group Inc. (UNH) :: income of $14.25
• United Parcel Service Inc. (UPS) :: income of $20.75
• Valero Energy Corporation (VLO) :: income of $120.40
• Vanguard High Dividend Yield ETF (VYM) :: income of $89.40
• Verizon Communications (VZ) :: income of $57.75
• Walgreens Boots Alliance, Inc (WBA) :: income of $16.50
• Wal-Mart Stores Inc. (WMT) :: income of $79.56 
• Xcel Energy (XEL) :: income of $18.00
• ExxonMobil Corp. (XOM) :: income of $50.05

Market Value


At the end of Q2-2017, DivGro's market value of $444,254 represented a simple gain of 33.2% on $333,442 invested. Of course, this does not take into account the timing and size of cash deposits. DivGro's internal rate of return since inception is 14.4%.


Portfolio Statistics


I now monitor DivGro's performance monthly in Pulse articles. It is important to monitor the performance of long-term stocks because changes that could affect the stock's performance can easily "hide" behind solid long-term results. I'd rather not be surprised by such changes. You can read the latest pulse article here.

For my quarterly reviews, I review general portfolio statistics. First, let's look at the yield of stocks in my portfolio:



My closed-end fund, NIE, has the largest yield, followed by OHI, which is a REIT (real estate investment trust). The average yield of stocks in DivGro is 3.03%.

Next up is the dividend growth rate. For quarterly reports, I look at the 1-year dividend growth rate, which will change throughout the year as stocks announce dividend increases. It is important to strike a good balance between high yielding stocks and high dividend growth stocks.



I like seeing dividend increases of about 7%, so I'm very happy to see about half of my DivGro stocks with a 1-year dividend growth rate exceeding 7%. The arithmetic average also is above 7%!

Let's look at the weight of individual holdings in DivGro. I prefer to see equal weights, but this difficult to achieve because I want to sell covered call options and to do so I need 100 shares (or multiples of 100 shares). Quite naturally, therefore, my portfolio will not be ideally weighted.



Next, let's look at the contribution of each position to DivGro's projected annual dividend income, which depends not only on the stock's yield but also on the size of the investment. Here, F and MAIN dominate, followed by QCOM and NIE:



Finally, let's look at the payback percentage, or how much of my original investment I've received back in the form of dividends. Generally, stocks I've owned for a long time will have larger paybacks, but dividend yield also plays a role: payback will grow faster for stocks with larger yields.



The payback percentages of RAI, MAIN, and MO are above 20%. The arithmetic average payback percentage is 6.58%. However, on my portfolio spreadsheet, I calculate a weighted average payback percentage, which currently is 9.41%.


Goal For Q3-2017


Now that I'm accepting guest posts at DivGro, I have a little breathing room to spend more time doing some research. I'm developing an interesting new chart that I'll soon share with the DGI community. It provides a visual way to determine if a dividend growth stock is trading well below fair value (a buy candidate) or well above fair value (a sell candidate).

Thanks for reading and take care, everybody! 






8 comments :

  1. Love it Ferdi, as usual. Thanks for sharing. That's a pretty concentrated position in Ford! ;). Great job getting over 20% growth YoY. I'm thinking this last half of the year is going to be pretty exciting for me as well!

    ReplyDelete
    Replies
    1. Hi, Passive Income Dude -- thanks for reading and commenting!

      Yes, my Ford position is pretty large. I'm generating lots of options income from my Ford position, boosting the 5% plus dividend by a significant percentage.

      Looking forward to seeing how things go for you in the second half of the year! Take care and happy investing.

      Delete
  2. Fantastic update. I didn't realize that you bought so much Ford stock. I'm assuming you're leveraging this for options. Nice move. Your MAIN dividend income is amazing. Nothing like reinvesting that amount each month. Keep up the good work.

    ReplyDelete
    Replies
    1. Thanks, Investment Hunting -- I doubled my Ford position to sell more covered calls. My Ford options have been doing really well for me. As for MAIN, it pays a special dividend every now and then, which is great!

      Here's to keeping the snowball rollin'!

      Delete
  3. Good Quarter Ferdi. I had dropped my F shares some time ago. Maybe I should have followed your model ;-)
    Cheers,
    DFG

    ReplyDelete
    Replies
    1. Thanks, Dividend Family Guy -- I like F because the stock just doesn't seem to want to go anywhere. That's really food for option sellers. I've done really well with my F options.

      All the best and happy investing!

      Delete
  4. DivGro -

    Treating this like a true business and excelling at it! Love the moves and the value you are creating from the assets you own.

    -Lanny

    ReplyDelete
    Replies
    1. Hi Lanny -- thanks for visiting and commenting. I've learned a lot about business principles after adopting the DGI strategy. Fortunately, this community shares so much that its easy to learn!

      Take care!

      Delete

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