My Dividend Growth Portfolio Half Time Report: 38 Holdings, 1 Buy, 3 Sells (2024)

Welcome to my review for my dividend growth portfolio. This edition will cover June, Q2 as well as the first half of the year. We've now crossed the half-way point and are in the back half of the year. Six months ago, I don't think anyone would have believed all of the events we've experienced if you told them. Coronavirus, record unemployment figures, national protests are just the high-level topics. Q1 was an utter dumpster fire after seeing all-time highs in late February to dropping over 30% near the tail end of March.

Everyone has their own story around coronavirus and how it impacted them personally. The past several months here have included my kids finishing up the school year at home, along with me being busier than ever with my day job. As always remember, I do this for fun and is a hobby for me. Sprinkle in months of distancing and not seeing friends or family and there's a recipe for the hardest year of our lives. That said, I've felt a lot better in the past few weeks than in the prior months. I'm not waving any kind of "Mission Accomplished" banner, but I'm in a better head space for sure.

Somehow, a virus has become a political issue rather than a health, which I'll never understand. In any event, after several states either re-opened too quickly or too many people went back to "normal", we are rapidly spiraling out of control with the virus. As laissez-faire as we collectively have become around the virus, cases continue to hit new highs around states and the country as a whole.

States are beginning to either slow or roll back opening plans. Unfortunately, for at least the next several weeks, we will continue pushing new highs as there is quite a large lag between any kind of policy action and the interactions that have already taken place. It's been pretty clear to me the only way out of this mess will be a widely distributed vaccine that people will actually get (yes, again this is a risk in this country).

So, what does this have to do with investing and a dividend-centric portfolio? The massive snap-back from the March lows certainly feels good and takes off some of the emotional burden of having so much change around you so quickly. That said, the market has been driven by healthcare and tech.

A lot of names continue to languish and have missed out on this rally. With that, many income-oriented stocks either halted or massively reduced their dividends. Safe income only seems safe during normal times, and it's been incredible (in the textbook sense) of seeing how quickly things can crater. The REIT section of my portfolio took a major hit save for Realty Income. Many names have bounced back, but watching the bottom fall out was simply awe-inspiring.

When it comes to my portfolio, I again did not take many steps this month. I'll highlight the trades below, but I basically removed some positions and rolled them into an ETF. I don't have confidence in the market recovery and the disconnect from the real economy. I'm also not going to bet against the market and jump out or attempt to market time. The individual holdings I am most interested in are back to being within earshot of all-time highs. So, here I sit, I'll reinvest my dividends along the way, and maybe consider a few small trades a month. I also know the companies that haven't worked out and may be interested in parting with.

At the end of June, I finished with a balance of about $328k, which was up about $10k from the end of May.

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 35, 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."

Dividend Increases

• None this month

Dividend Cuts

• Simon Property (SPG) declares $1.30/share quarterly dividend, -38.1% decrease from last paid dividend (February) of $2.10

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 life completely upended. I'm currently hovering around the $14,000 mark and safely maintaining that will suffice for 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 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. 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 (14+ 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.

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.

• 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. 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 not panning out.
• 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. The increase provides a quick 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 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.

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. The portfolio yield has hovered in the mid 4% range. It peaked over 6% in March. Projected income recovered a little bit but will still be in flux for a while. Cash continues to be conserved.

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

Tanger

Oh Tanger. I'll start with the hard figures first. I sold my remaining shares for $8.57 (limit sell) after deciding not to ride this one down (again). I took a net loss of just short of $5,000 (62% down) - OUCH. The thesis behind shares was a hot button topic on Seeking Alpha as many will recall. I didn't get into the stock early, but I did have a cost basis in the low $20 range.

It was already struggling though the dividend was covered as the business transitioned. What I've also learned from coronavirus is that this event has just sped up business declines. Not to say that Tanger won't be back but as we saw with mall-based retailers, for example, this just sped up the inevitable. Obviously, with stores being closed for an extended period, they had to halt the dividend. It's just basic math. It just solidified the fact that this was not a standout business and not worthy of being an individual holding for myself. My individual holdings should be the best of the best in their respective spaces - all while assuming that "space" is worthy of being in. Retail is a tough business, and I'd rather be in a name like Home Depot with a strong balance sheet.

W.P. Carey/STAG Industrial

The sales of WPC and STAG have everything to do with these positions being such small fractions of my portfolio as to not being worth watching. The two of them combined were about 0.5%. Ended up about $300 because of the rapid rebound in particular of WPC but again, this is just to simplify my portfolio for now. If a time comes to pass where I want to add one or both of these again, it will have to be in a larger chunk to move the needle.

My Buys

SPDR Portfolio S&P 500 High Dividend ETF - SPYD

I took all of the proceeds from the aforementioned sales, added some extra cash and bought 190 shares of SPYD. I got them at a blended price of $29.80 which was a good bit below my own cost basis metrics. This was also done prior to the June dividend, so they were immediately eligible for that.

What I like about SPYD is that it's a broad basket of the 80 highest yielding equities in the S&P 500 and is essentially free to own with a cost of just 7 basis points. Sure, some companies will do well, some won't, but it's an instant dose of diverse dividends. Companies have to be large enough and meet certain requirements to even be included in the S&P, so that provides some minimum bars to hurdle. At some point, value will come back in vogue or just the need for income, and I can wait and collect my quarterly dividends until that happens. Prior to coronavirus, this was a hot ETF to hold and had almost pushed $40 just back in February. Getting it now under $30 - when so many growth names are pushing new highs, still feels like a nice value.

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 it's off the high water mark by about 15%.

The aqua bars for 2020 continue to spike higher for several of the months (notably the end of each quarter). While June was substantially higher than any prior year, it did drop a bit when compared to March. Let's find out why.

Notes

• Total income dropped about $250 and about $200 of that is attributable to IDV. IDV is an international dividend paying ETF by iShares which pays a variable dividend. I pulled up the historical payments and you can see the cyclicality of the payments. Turns out there is generally one large payment per year, and that happened to be in March versus past years, it was in this 2nd quarter payment.
• 
• I'm still lower on all my Global-X funds than in March when the dividend cuts were first going to start taking effect.
• There was some organic growth from names like Home Depot but generally the higher amounts for individual companies is attributable to the effect of reinvesting the last payment into fractional shares.

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.

I had to adjust both axis this month. Apple continues to skyrocket pushing it to nearly 8% of my portfolio. On the vertical axis, SPYD is projected to provide the most income of any holding. Most of my individual holdings are all lumped there in the middle.

Growth

On a monthly basis, the $1,552 in June was 106% better than June of 2019. On a YTD rolling basis, it's up 65%.

Now that Q2 is in the books, I can see that for both quarters I've had enormous growth over 2019. Q1 was better for obvious reasons but even Q2 saw over 50% income growth from last year. If Q3 proves to be strong, I could eclipse my total income from 2019. That would leave all of Q4 setting the new high water mark. Under normal years where dividends aren't being cut left and right and I'm able to continually add new money, this is where strong compounding growth comes from.

It makes a lot more sense taking the broader picture than focusing on any month or quarter. Looking at the growth over time will smooth out these variations, eventually even coronavirus will be a blip in the mirror.

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 $13,949 which is about 39% higher than what it was a year ago. Again - this is after having dividends slashed across both individual names as well as ETFs. This is also under the backdrop of not aggressively investing these days either. But hey - it's still up 39% right now, so I'm not complaining about that. The figure also dropped this month because of the reverberations of losing Tanger and having Simon Property also lower their distribution for the foreseeable future.

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 can't view fixed income as risk free, though, as I'm still underwater on some of those holdings since the start of the virus.

I first allocated 10% 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 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 not diving into any particular equity at this point, just small nibbles with my 401k funding as it comes bi-weekly.

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 similar, but the dividend growth rates have been quite different.

Visualizations

Income by Sector

ETFs continue to provide the lion's share of dividends, it moved up from about 50% last month to over 54% now. The rest is sprinkled over the different sectors.

A little more than a third of my investment dollars are in an ETF, while the rest is sprinkled across the sectors. This makes sense as I get more yield from diverse instruments and many of the individual dividend growth picks yield substantially less.

Sector Allocations

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+). While not completely predictive, focusing on quality has been beneficial to my portfolio. Disney suspending their dividend isn't surprising with how leveraged they are to gatherings; whether it is in the movie theater watching the latest releases or visiting theme parks. In their case, it is also on the heels of a massive leveraged acquisition for the Fox film assets.

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

My watch list for new holdings would be for growth names, some examples might include:

• CLOU
• IBB
• QQQQ

I don't have any individual names on my watch list, but I'd be up for increasing my position sizes in my individual dividend growth names.

Things Coming Up

I'm expecting Stanley Black & Decker to announce their increase in July.

Conclusion

I wrapped up June with $1,552 in dividends. While that amount was 106% higher than a year ago, it was muted by a decrease from March. For the second quarter, I collected $3,144 which was up 52% from Q2 of 2019. For the half year completed, I've received $6,771 which is up 65% from this same point a year ago.

My forward-looking income is still hovering around $14,000, which is still approximately flat for the year. I made one buy this month and three sales. I still maintain about 5% cash at this time.

As always, stay safe! 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