Welcome to my dividend growth portfolio review for August 2020. The S&P continued its winning streak of 5 straight months with gains and the best August in 34 years. The divergence between tech darlings and the rest of the market continued as Apple (AAPL) and Tesla (TSLA) dominated headlines capped by their respective stock splits on the last day of August. I wonder often whether this is a trap or there are real valid reasons for the continual rise in the indices. In any event, I don’t have a plan to sell my winners, but I am certainly not adding at these levels. I felt that we were just getting to some real value in many of the high-flier names in March, but those prices quickly evaporated.
I actually didn’t make any trades in August at all. In fact, my last trades (which were very minor in nature) were over two months ago at this point. I’ve benefited greatly from the market rebound and staying the course and holding through March, as painful as it was. I don’t wish those feelings on anyone, and it was truly hard to sleep at night when everything was tanking. That patience has paid off, as my overall portfolio value is up about 50% from the lowest of the low days. There have been some bumps and bruises along the way, of course. I sold my Tanger (SKT) stake a few months ago, and that was a massive loss.
I look around my portfolio today and I have quite the mix of both healthy high-fliers and then the laggards that have done nothing during this entire rebound. Apple is obviously my best high-flier right now and has now swelled to over 9% of my portfolio. I don’t think it offers much value today, but as a generational pick, I also have no intention of selling it. On the flip side, I’m looking at Simon Property Group (SPG), which is a newer pick that has been a complete dud. It’s hard to see right now where that one is heading, I’m not sure how much I like the company buying failed retailers, but I do like the idea of partnering with Amazon for some extra fulfillment centres.
Then, I have some names that are in the murky middle, like AT&T (
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.
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The goal of my portfolio is 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. 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.”
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.
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 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, 8.4%.
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.
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. This seems extremely pertinent right now also.
- What do the earnings and revenue growth look like?
- 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. This manifests in a healthy and rising dividend and a willingness to buy back shares. Often, buybacks aren’t 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.
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 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.
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 at nosebleed levels 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.
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.
I have reinvestment on at the moment for everything I own except for PEI.PD and T.
I continue to plug away and I’m on pace for maxing again for the year. 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 circumstances if you fully fund a retirement account with an employer match prior to the end of the calendar year.
Here’s my actual portfolio with a few of my data points highlighted. Apple continued to swell in August and has ballooned to over 9% of my portfolio.
|Name||Ticker||% of Portfolio||CCC Status||Income|
|Brookfield Asset Management||BAM||0.21%||Challenger||$11|
|Global X Super Dividend U.S. ETF||DIV||1.08%||None||$429|
|Cohen&Steers Opportunity CEF||FOF||2.70%||None||$886|
|Deutsche x-Trackers USD High Yield Corporate Bond ETF||HYLB||2.86%||None||$640|
|iShares International Select Dividend ETF||IDV||3.34%||None||$885|
|Johnson & Johnson||JNJ||2.49%||King||$247|
|Global X MLP ETF||MLPA||1.23%||None||$137|
|Pennsylvania REIT D Series 6.875%||PEI.PD||0.14%||None||$172|
|Global X U.S. Preferred ETF||PFFD||1.53%||None||$318|
|iShares Mortgage Real Estate Capped ETF||REM||1.68%||None||$900|
|Schwab U.S. Dividend Equity ETF||SCHD||6.03%||None||$602|
|Global X MSCI SuperDividend Emerging||SDEM||2.04%||None||$643|
|Global X SuperDividend ETF||SDIV||2.24%||None||$1,213|
|Simon Property Group||SPG||1.23%||None||$520|
|SPDR S&P High Dividend||SPYD||5.78%||None||$1,274|
|Global X SuperDividend REIT ETF||SRET||0.93%||None||$512|
|Stanley Black & Decker||SWK||2.58%||King||$164|
|T. Rowe Price||TROW||1.65%||Champion||$158|
Here are the values behind the “CCC Status” category:
- Champion/Aristocrat: 25+ years
- Contender: 10-24 years
- Challenger: 5+ years
- King: 50+ years
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.
|Name||S&P Credit Rating||SSD Safety Score|
|Johnson & Johnson||AAA||99|
|T. Rowe Price||–||94|
|Stanley Black & Decker||A||90|
|Simon Property Group||A||25|
|Brookfield Asset Management||A-||55|
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.
Here’s my updated list of 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. At a high level, I can see if I’m better off rolling money into a benchmark ETF than holding shares.
|Ticker||Owned Since||Benchmark||Versus Benchmark||Versus S&P|
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.
I’ve calculated a few aggregate statistics for my portfolio. The portfolio yield has now dropped under 4% as equity valuations have skyrocketed. It peaked over 6% in March. Projected income is still about the same as it has been the past four months.
|YOC (Divi Companies)||5.90%|
|Yield (Divi Companies)||4.26%|
|Yield w/Cash Drag||3.71%|
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.
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.
Charts and Graphs
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 lacklustre months. August was a decline year over year and over last quarter (May). Let’s see why.
- The noticeable change from May was Tanger no longer providing any dividend income. This was from both the explicit dividend suspension but also by cutting bait with my shares. Shares have continued to drop, since I sold if there’s a silver lining. Perhaps at some point there is some value here, but this was a bad investment from the get-go.
- The lines struck through in 2019 were holdings that I sold during the year but that had received their dividend in July.
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.
With Apple continuing its rapid price appreciation, I had to adjust the graph yet again to fit it. 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.
The $768 in August was a decline of 7% from last year, with the biggest driver being the removal of Tanger Factory Outlet Centers. On a rolling year-to-date basis though, I am up 45% compared to last year (though that percentage keeps dropping each month). I’m on pace to capturing my 2019 dividend total sometime in October most likely.
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 $14,014, which is about 28% higher than what it was a year ago. You can see the trend over the course of the year – my original projections were about double last year and that has pretty steadily moved downwards. My projected income has been stuck for many months now through the combination of dividend pauses or cuts, along with not a lot of new capital driving income forward.
At some point, these forces will abate, and it will be off to the races once more. This helps me keep a cool head knowing this too will pass.
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 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 being 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. 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 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.
For illustrative purposes, I specifically have the circles overlapping most of the area to highlight the focus on dividend growth stocks.
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 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.
Income by Sector
ETFs continue to provide the lion’s share of dividends, which moved up from about 50% last month to over 54% now. The rest is allocated over different sectors.
A little more than a third of my investment dollars are in an ETF. This should make sense, as I get more yield from some ETFs and many of the 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+). While not completely predictive, focusing on quality has been beneficial to my portfolio. Disney suspending its dividend isn’t surprising with how leveraged it is to gatherings; whether it is in the movie theatre watching the latest releases or visiting theme parks. In the company’s 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:
I have an opportunity to potentially add some BAM, PRU or CSCO, as they are my only dividend growth names where the current price is below my reinvested cost basis.
Things Coming Up
I don’t have any expected dividend announcements for August, and here are the announcements I’m waiting for the rest of the year:
I earned $768 in dividends in August. That amount was 7% lower than a year ago, and it was lower than the prior quarter of May. The biggest factor was Tanger having suspended its dividend and me ultimately selling shares. Year to date, I’ve received $8,310 in dividends, which is up 45% than this time last year.
My forward-looking income is still hovering around $14,000, which is still approximately flat for the year. I didn’t make any stock trades this month, and I still have about 5% cash at this time.
Enjoy your long Labor Day weekend, and 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!
Disclosure: I am/we are long AAPL, ABBV, ABT, AMZN, BAM, BLK, BRK.B, CSCO, DIS, DIV, FOF, GLW, GOOG, HD, HYLB, IDV, JNJ, JPM, MA, MDT, MLPA, MO, MSFT, NKE, O, PEI-D, PFFD, PRU, REM, SBUX, SCHD, SDEM, SDIV, SPG, SPYD, SRET, SWK, 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.