The Retiree's Dividend Portfolio Rotation To More Defensive Stocks (2024)

This is the second update of Jane's Traditional and Roth IRA's in 2021. The accounts represented in this article constitute a large part of her retirement savings and my goal is to provide readers with specific details about the performance of this account. As mentioned above, I have included a couple of new tables that offer greater insight into Jane's accounts and their overall performance.

One of the major focuses of this month's update is the deployment of funds by purchasing more defensive stocks that have previously sold at a premium. We are in the process of selling certain positions and reinvesting those funds into an asset class that is looking more attractive.

Background

For those who are interested in John and Jane's full background please click the following link here for the last time I published their full story. Here are the key details about John and Jane that readers should understand.

• This is a real portfolio with actual shares being traded.
• I am not a financial advisor and merely provide guidance based on a relationship that goes back several years.
• John retired in January 2018 and is only collecting Social Security income at this point in time.
• Jane has officially decided to retire on December 31st, 2020. She will begin collecting social security within the next few months.
• John and Jane have other investments outside of what I manage. These investments primarily consist of minimal risk and minimal yield certificates.
• John and Jane have no debt and no monthly payments other than basic recurring bills such as water, power, property taxes, etc.

I started helping John and Jane with this because I was infuriated by the fees and gimmicky trades made by their previous financial advisor. I do not charge John and Jane for anything that I do and all I have asked of them is that they allow me to write about their portfolio anonymously in order to help spread knowledge and to make me a better investor in the process.

Generating a stable and growing dividend income is the primary focus of this portfolio and capital appreciation is the least important characteristic.

Dividend Decreases

No stocks cut their dividend/distribution that was payable during the month of February.

Dividend And Distribution Increases

One company paid increased dividends/distributions or a special dividend during the month of February in the Traditional and Roth IRAs.

• East West Bancorp (EWBC)

East West Bancorp - EWBC has had a pretty phenomenal run which is why we let go of some of the shares as the price of the stock continues to climb to values well-above pre-pandemic levels. The dividend is a great indicator of the optimism management has for the value of its stock and analyst Elan Zanger of Jefferies upgraded the price target to $89. I personally believe that EWBC is better prepared to scale up its lending activities compared with smaller banks like Preferred Bank (PFBC). EWBC is an efficiently run institution but the P/E ratio really suggests that shares are trading at a price that would require near-perfect execution in the upcoming year.

The dividend was increased from $.275/share per quarter to $.33/share per quarter. This represents an increase of 20% and a new full-year payout of $1.32/share compared with the previous $1.10/share. This results in a current yield of 1.69% based on a share price of $78.12.

Retirement Account Positions

There are currently 35 different positions in Jane's Traditional IRA and 26 different positions in Jane's Roth IRA. While this may seem like a lot, it is important to remember that many of these stocks cross over in both accounts and are also held in the Taxable Portfolio.

Below is a list of the trades that took place in the Traditional IRA during the month of February.

Source: Charles Schwab

Below is a list of the trades that took place in the Roth IRA during the month of February.

Source: Charles Schwab

The images above indicate that we made quite a few purchases in the month of February compared with quite a few sells in the January update.

• We added more shares of BlackRock Health Sciences (BME) as the price came down to a 52-week-highs.
• We added Unilever (UL) as the stock came down from its 52-week-high and serves as another great defensive stock in the portfolio.
• We added another small tranch of shares in AbbVie (ABBV) after a quick dive in the share price - we won't be adding more unless share prices drop below $100/share.
• PPG Industries (PPG) we built a small position in PPG on recent price weakness but now shares are getting back into fully-valued range.
• We established a position in Black Hills Corp. (BKH) which is another defensive company that has seen some temporary weakness. The share price has moved back towards its 52-week-high in the second half of March.

We closed the position in Sysco (SYY) now that the COVID recovery has fully materialized for the company. Shares are now trading at less than the price we sold at and the chart below shows some of the debt trends relative to the share price that reinforced why we sold out of this position. Sysco is laden with debt (although it recently announced a $1.1 billion paydown of debt) and its heavy reliance on restaurants has made me concerned with the ability to generate meaningful returns over the next year.

February Income Tracker - 2020 Vs. 2021

Income for the month of February was up slightly year-over-year for Jane's Traditional and Roth IRAs. We are expecting to see modest growth in the Traditional IRA (currently trending to be 6.1% higher FY-2021 than it was in FY-2020) while the Roth IRA appears to be trending for a slight loss or no growth (-1.0% FY-2021 vs FY-2020). The average monthly income for the Traditional IRA is expected to be $1,295.55/month and the Roth IRA coming in at $486.36/month based on current projections.

SNLH = Stocks No Longer Held - Dividends in this row represent the dividends collected on stocks that are no longer held in that portfolio. We still count the dividend income that comes from stocks no longer held in the portfolio even though it is non-recurring. All images below come from Consistent Dividend Investor, LLC.

Here is a graphical illustration of the dividends received on a monthly basis for the Traditional and Roth IRAs.

Based on the current knowledge I have regarding dividend payments and share count, the following tables are a basic prediction of the income we expect the Traditional IRA and Roth IRA to generate in FY-2021 compared with the actual results from 2020.

Below is an expanded table that shows the full dividend history since inception for both the Traditional IRA and Roth IRA.

I have included line graphs that better represent the trends associated with Jane's monthly dividend income generated by her retirement accounts. The images below represent the Traditional IRA and Roth IRA respectively.

Here is a table to show how the account balances stack up year over year (I previously used a graph but believe the table is more informative). Each month since November has really seen balances push higher and more recently has reached a plateau in the month of January. The accounts have seen the account balance continue to grow again during the month of February and have continued as of market close on 3/19/2021.

The next images are the new tables that indicate how much cash Jane had in her Traditional and Roth IRA Account at the end of the month as indicated on their Charles Schwab statements.

The next two images provide a history of the unrealized gain/loss at the end of each month in the Traditional and Roth IRAs going back to the beginning in January of 2018.

I like to show readers the actual unrealized gain/loss associated with each position in the portfolio because it is important to consider that in order to become a proper dividend investor, it is necessary to learn how to live with volatility. The market value and cost basis below are accurate as of the market close on March 19th. If you compare the images below with the Unrealized Gain/Loss images you can see that Jane is sitting on significantly higher capital gains over the first three weeks of February.

Here is the unrealized gain/loss associated with Jane's Traditional and Roth IRAs.

The last two graphs show how dividend income has increased, stayed the same, or decreased in each respective month on an annualized basis. I believe that the graph will continue to become more valuable as more years of data become available.

Conclusion

By now it should be clear that we are in the process of a capital rotation where we are exchanging some of our more positions that have fully played out for a plethora of defensive stocks that are looking attractive in the face of a fully-valued stock market. There are a handful of utilities, data center REITs, cell phone tower REITs, and consumer defensive stocks on this list but the total return of the ones mentioned in this article can be seen below.

This capital rotation should allow us to unlock greater dividend potential from Jane's retirement portfolio since we are acquiring stocks at a higher dividend yield than their long-term average. **I would have included UL but my energy level is gone for the day and my brain can't handle the calculations that impact the dividend due to currency volatility and conversion.

• BKH - 5 Year Average - 3.28% - Effective Yield on Purchase - 3.73%
• DLR - 4 Year Average - 3.24% - Effective Yield on Purchase - 3.42%

The point of all of this is that there is always value in the stock market because contrarian investments will always exist. The good thing about the current market is that the stocks selling at a discount are all companies that were priced at a premium in the middle of the pandemic. Now is the opportunity for investors to find some of the defensively positioned companies at a modest discount.

Please reference the February Taxable Account article (linked below) for a list of stocks that are looking reasonably or attractively priced (this article was published almost two weeks ago so it is important to consider that some of the valuation gaps have tightened since that article was published.

February Articles

I have provided the link to the February 2021 Taxable Account below.

The Retirees' Dividend Portfolio: John And Jane's February Taxable Account Update

New Article Format: Please let me know what you think about the format and the new tables by commenting, liking, following, etc. I appreciate all forms of criticism and would love to hear feedback on ways to improve the readability/value of my articles.

In Jane's Traditional and Roth IRAs, she is currently long the following mentioned in this article: AbbVie (NYSE:ABBV), Agree Realty (ADC), Archer-Daniels-Midland (NYSE:ADM), Broadcom (AVGO), Avient (AVNT), Broadcom Preferred Series A (AVGOP), Boeing (BA), Bank of America (BAC), Black Hills Corp. (BKH), BlackRock Health Sciences Trust (BME), Bank of Montreal (NYSE:BMO), Bank of Nova Scotia (BNS), BP (BP), British American Tobacco (NYSE:BTI), Canadian Imperial Bank of Commerce (CM), Cummins (CMI), Concentrix (CNXC), Digital Realty (DLR), Eaton Vance Floating-Rate Advantage Fund A (MUTF:EAFAX), Enbridge (ENB), EPR Properties Preferred Series E (EPR.PE), Eaton Corporation (NYSE:ETN), Emera Inc. (OTCPK:EMRAF), East West Bancorp (EWBC), General Mills (NYSE:GIS), GasLog Partners Preferred C (GLOP.PC), Honeywell (HON), International Business Machines (NYSE:IBM), Iron Mountain (IRM), Laurentian Bank of Canada (OTCPK:LRCDF), Lexington Realty Preferred Series C (LXP.PC), Lumen Technologies (LUMN), LyondellBasell (LYB), Main Street Capital (MAIN), McGrath RentCorp (MGRC), 3M (MMM), Mesabi Trust (NYSE:MSB), Altria (NYSE:MO), Annaly Capital Preferred Series G (NLY.PG), NetApp (NTAP), Realty Income (O), OGE Energy Corp. (OGE), Oxford Lane Capital Corp. 6.75% Cum Red Pdf Shs Series 2024 (NASDAQ:OXLCM), Preferred Bank (NASDAQ:PFBC), Philip Morris (NYSE:PM), PPG Industries (PPG), PPL Corporation (NYSE:PPL), Cohen & Steers REIT and Preferred Income Fund (RNP), Royal Bank of Canada (NYSE:RY), Schwab International Equity ETF (SCHF), SYNNEX Corp. (SNX), STORE Capital (STOR), Toronto-Dominion Bank (NYSE:TD), Unilever (UL), Vermilion Energy (VET), Verizon (VZ), Williams Companies (WMB), W. P. Carey (WPC).

Matthew Utesch