Showing posts with label 2014 Dividend Machine. Show all posts
Showing posts with label 2014 Dividend Machine. Show all posts

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

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Sunday, October 26, 2014

New Dividend Machine for 2014

When you visit the Wilbur D May museum in Nevada, you learn that this very successful man sold his stocks just before the crash of 1929 not because he was prescient, but  because he was going on an extended trip and that it was a prudent move.  As the story is told, he bought back at 10 cents on the dollar.

This story shows that luck is a big factor in selling high and buying low.  The rest of us have to use discipline to build our income producing portfolios.   Good luck may yield a greater gain for the lucky few, but discipline provides steady and increasing income for the rest of us.

Discipline drives the 2014 Dividend Machine Criteria

With that in mind, let me remind you that we are searching for stocks that yield at least 3.5%.   These stocks must have increased the dividend at least 4% per year over the past five years and they should earn more than they pay out and have a debt to equity ratio less than 1 or within industry standards.

McDonald's, symbol MCD, is just such a stock.  MCD meets all four criteria for inclusion into the 2014 Dividend Machine portfolio.

MCD was a 2012 Dividend Machine

MCD was a Dividend Machine before. In October of 2012 MCD met that year's Dividend Machine criteria.

Price has increased 5% and dividends have increased 5.2% since that post.   These are good results for an income investor.  MCD's 2014 Dividend Machine fundamentals are presented in the table below.

Consider McDonald's, symbol MCD, for the income producing portion of your portfolio.


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Sunday, September 28, 2014

Are you really an income investor?

Would you be happy with this performance?  Invest $207,336 during 2011; hold it for 3 years and your value is up nearly 50% to $309,843.    Moreover, the money you invested creates nearly $10,000 per year and your income has increased nearly 19%.   See the table below.

Now, let's look at a more recent measure consisting of three investments:  (1) Dividend Machines, (2) VIG a dividend increase ETF, and (3) SDY a dividend yield ETF.  

Invest $63,490 dollars during 2014 in the Dividend Machines I write about and your money would be worth $64,698 for a gain of 1.9%.    Invest in VIG and your money would be worth $64,698 for a gain of 2.35%.  If you invested your money in SDY your investment would be worth $64,868 for a gain of 2.17%.   See the table below.

Gain, however, is only one measure of your portfolio.   In all cases you need to look at income and income growth. If you are a real income investor, the first thing you look at is which portfolio pays the most and which one has the best income dividend increase.  Notice that the portfolio of Dividend Machines is creating $2,436 per year.  VIG has a bigger gain but not a bigger income.  SDY's gain is not as good as VIG but better than Dividend Machines. SDY provides $1,518 per year just over half of Dividend Machines.    VIG provides only $1,369 per year.

Investment costs are important but almost insignificant in this case as the SDY and VIG charge almost nothing and your Dividend Machines have only one expense when you buy it.

IT reminds me of a conversation I had recently with a man who is so thrilled his 5 year investment in SDY is still at 20%.   What is the income buddy and what is the income gain.

Growth investors will look only at capital gain/loss but we income investors need cash flow.  At the end of 2014, this portfolio will be closed.   We will make no more buys or sells.   I will report on dividend increases throughout 2015 and beyond.   I will track all three SDY, VIG, and my 2014 Dividend Machine stocks.

Very Truly Yours,


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