Sunday, January 29, 2017

Total Return on a Dividend Portfolio

I recently added a metric to analyze my portfolios.

  • Dividend yield and growth are important to monitor
  • Total return is a metric worth measuring
  • 2011 was the best portfolio
  • 2014 was the worst portfolio

When I started this blog my intent was to build portfolios geared for income that grows.  Therefore, I monitored dividend yield, and dividend growth.  However total return is also important.


All portfolios are presented below. 



The 2011 portfolio was completed in November 2011 and is now 6 years old.  I always expect my investments to double in 10 years using the 7% annual return rule of thumb.  I need to know how I did.

In addition to receiving and spending the income over these past 6 years, the portfolio has a very nice capital gain.  Add those two together and you have total return.  These stocks generated $51,269 of income and as of today the portfolio value increased by 86.40% for a total return of 111.13%.  One nuance is interesting.  Several stocks were bought out.  I have carried those proceeds as cash for ease of data monitoring.  That cash, $11,243 creates no income and no capital gain.  I am going to change that going forward and will invest that cash.

To view 2011's individual holdings and other information, click on this link: 2011 Model Portfolio.

2017 is brand new and the 2016 portfolio is too complicated to follow with ease so I will cash out that portfolio when the final call either expires or is exercised.  The last call expiration date is 2/17/2017.

M* Worst Performing Portfolio - 2014

Dividend yield on this portfolio is 3.34% which beats the benchmarks SDY and VIG which yield 2.6% and 2.65% respectively.  So on that measure, which is important for income investors, this portfolio holds its own.

Dividend growth on the other hand is terrible at just over 1%.  My benchmarks have done much better. SDY increased the dividend by 9.39% and VIG was the winner at 21%.

Total return differences are significant as well.  My portfolio has a total return of 19.73%. SDY did better with a total return of 25.56%.  In addition to dividend increases, SDY made significant capital gain distributions in 2014, 2015 and 2016.   VIG did not do quite as well with a total return of 14.64%.

Why is my 2014 portfolio doing so poorly? 

My 2014 portfolio started with only 17 stocks.  This was not planned, it was just the way my investing worked out during 2014.  Over the next 2 years (2015 and 2016), RYAM was added when RYN created that spin off.  RAI  delivered a 2:1 stock split and is expected to be bought out by British Tobacco.  LG changed it's name to Spire, symbol SR.

None of the above circumstances are responsible for the poor performance.  Three stocks reduced their dividends:  COP, POT, and RYN.

COP - when you look at fundamentals available for this stock in 2014, when I picked it, it looked good.  To see that post click on this link.  2014 COP Dividend Machine Fundamentals.  I did not anticipate the revenues and earnings would fall off a cliff.  COP continues to struggle today.  As this is a long only portfolio, I cannot sell.  We are getting paid a little dividend to wait but COP has been a terrible blight on 2014's performance.

Moreover, this portfolio had too many energy stocks.  In addition to COP, this portfolio owns CVX and SE.  When you have only 17 stocks, three in the energy space are too many. This is where the yield was and I would say my goal of a 3.5% dividend yield was a bit greedy.

POT - Again, at the time I picked POT, the fundamentals were adequate and you can read about them by clicking this link:  2014 POT Dividend Machine Fundamentals.  Like COP, this stock was in a space very sensitive to global growth and revenues declined, not as much as COP but they did go down.  More important earnings per share (EPS) suffered so much that management elected to suspend the dividend.  POT now pays a $.40 annual dividend.

RYN - A similar story with RYN.  Rayonier is a real estate trust that owns timberland.  They did spin off RYAM.   RYAM pays a dividend of $.28 and RYN pays a dividend of $1.00 but that is less than it was when I purchased RYN stock.  To see the original post, click on this link: 2014 RYN Dividend Machine Fundamentals.

Two of these stocks POT and RYN did not have much of a cushion when I added them.  EPS were just above dividend paid out and this should be something to consider in the future.  However, the most obvious problem is this portfolio suffers from lack of diversification.

Click this link to see the individual holdings and other information on the 2014 portfolio:   2014 model portfolio.  I expect RAI to be bought and that will generate some cash that I can use to buy a stock that will add to the diversification.

Take a look at these portfolios to educate yourself on using dividend growth stocks for your retirement planning.

The goal to "retire with income that grows" is possible by using a disciplined approach to stock selection and portfolio growth is possible too but stay diversified.  SDY and VIG are good exchange traded funds to consider if you cannot management your own stocks for income.

M* MoneyMadam