Sunday, October 29, 2017

2015 Portfolio disappoints on dividend increases

Invest with income that grows is the overall purpose of my investing strategy.   2015 is still quite a good portfolio when measuring capital gain and total return.  Stocks in this portfolio beat the performance of similar investments in SDY and VIG.  The only weakness of significance is dividend growth.

During 2015, I used the same four screening criteria as I used 2014.  In 2014, I changed the dividend yield hurdle to 3.5% from 3.0% in 2014 and continued to require 3.5% in 2015.  Other than that increase required yield, all other criteria remained the same. 

Also presented is a comparison of two ETFs that specialize in dividend stocks, SDY and VIG, and my holdings.

VIG is lagging this portfolio.  Notice that I do not use the SEC (securities and exchange commission) measure of performance for VIG or SDY.  Investors do not buy their shares on the first day of the year, they buy as the year goes on.  Sometimes investors use dollar cost averaging and sometimes they buy when money is available to invest.

As with all my portfolios, when I buy a stock, I record the number of shares of VIG and SDY that investment would buy.  Then I track how the sum of my stocks performed as compared with the sum of the VIG and SDY shares purchased. 

For an income investor the two stocks that are most disappointing are Conoco Phillips (COP) and Waddell and Reed (WDR) because they reduced their dividends.   Based on 100 shares COP reduced the dividend from $292 to $106 and WDR reduced their dividend from $172 to $100.

Income investors invest both for income and income growth.  We know that about every 20 years our non discretionary expenses double.  This means our income needs to double as well.  That translates to requiring about an average annual increase of 3%.   The lesson here is not the two stocks that reduced dividends but to make sure you have enough stocks in a diversified portfolio to weather those failures.   This portfolio's dividend income has increased 3.41%.   

SDY one of the benchmarks I use has a much better dividend history.  Only 3 dividends have been declared by SDY in 2017.  I compared those three dividends with the first three dividends in 2015 and the result is a dividend increase of 5.6%.   While total return of SDY lags total return of my portfolio and actual yield is lower but yield growth is higher.

The question of whether you should buy a high dividend yield versus higher dividend growth is very individual.  Life expectancy as well as cash flow requirements determine which is best.  Individual stocks in this portfolio yield more than either of the two ETF's.   As measure by yield on current value,  M* Portfolio yields 3.12%, VIG is next at 2.71% followed by SDY at 2.63%.  Note that I use the most recent quarterly dividend multiplied by 4 then divided by current value.  

VIG, oddly, remains a laggard as compared with SDY and my stocks (remember I buy shares in VIG at the same time I buy a stock in my portfolio so this will vary from what is reported officially) on dividend increase.  The oddity is that VIG is designed to include stocks with dividend increases.   Again when you compare the first three dividend payments of 2015 with the first three dividend payments of 2017, VIG income increases are 2.16%.  

Another peculiarity of this portfolio versus earlier M* portfolios is I bought two lots of only one stock and that was Caterpillar (CAT.)   This was not popular early in 2015 because CAT's stock price deteriorated.  However, CAT has dug out of the slump and roared back to be one of the best performers in this portfolio.

See the results of the 2015 M* Dividend Machine Portfolio and the benchmarks SDY and VIG below.





 

 

In your own portfolio, you can get rid of those stocks that no longer meet your criteria.  In these published portfolios, I am long only.  Buy and hold is a great strategy but getting rid of your losers is a good strategy as well.   

Criteria





M* MoneyMadam
 Disclosure:  Long CAT, COP, CVX, EMR, LHO, QCOM, WHG 

Saturday, October 28, 2017

2017 M* Model Portfolio Update

In 2017 my goal is to invest about $100,000 in Dividend Machine stocks.  My criteria for selection are presented in the table below.





It has been an interesting journey this year.  I keep thinking the market is overpriced and so I wait for opportunities to buy but they have been few.  You have to stick to your strategy and I am trying to get that $100,000 invested.

It is important to notice that I have added to HCI .  This is only the second time I have doubled up on a Dividend Machine.  The first time was in 2015 when I used Caterpillar (CAT) twice.  CAT recently recovered in a big way to reward the 2015 portfolio.  While the business models are totally different, I am hoping HCI will deliver similar returns in the future as CAT has.


My 2017 Dividend Machine portfolio (to date) is presented below.





I measure the income and return on each stock as well as how the portfolio would have done if the money had been invested in two  ETF's designed for income investors, SDY and VIG.

VIG is winning this week with SDY a close second and M* is the laggard.  This has happened before and I end up prevailing with the exception of 2014. 

Until the portfolio is 1 year old, I cannot report on total return.  Total return includes dividends and until we hold each stock or shares of the respective ETF's through one year, it is very difficult to measure total return.  Therefore, you will see only capital gain in 2017. 

M* MoneyMadam

Disclosure:  I am long every stock in this portfolio.
Further disclosure:  I have calls on KSS, CVS, DRI