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.   


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