No tricks today; only a treat. That treat is the vehicle that will drive me to financial independence.
It’s high time I shared my dividend growth portfolio after prepping it for the site nearly a week ago. Life got in the way, and so did working hard to earn extra cash for dividends, leaving this post unattended for far too long.
My dividend growth portfolio currently has no name. If it were a person then I’d call it Clint Eastwood in The Man with No Name, ready to draw and fire off new buys when the time is right. I’ll come up with an appropriate name soon enough and then the portfolio will find a permanent home in the Dividends with Children website navigation.
First, here’s the portfolio, which like most on the web is updated in real time. I tried to minimize/eliminate scrolling as it drives me nuts. That requires a minuscule font so if you’re squinting, you have my apologies.
I currently hold positions in 40 companies, and within those companies there are different strategies at play. This is best evidenced in the “yield” column where the return ranges from around 1 percent to the 10 percent and slightly higher range.
The thought process behind this strategy is diversification and generation of capital. I am using the high yielding securities, which consist mostly of REITs and BDCs, to fund the slow burning core stocks like Coca-Cola (KO), McDonald’s (MCD), Johnson & Johnson (JNJ), etc. through Scottrade’s flexible reinvestment plan, or FRIP for short. The higher yielding stocks aren’t as likely to grow in value, but as long as interest rates remain suppressed, I feel confident that the dividend returns will help fuel the other staple dividend stocks that I hopefully won’t have to ever sell.
Why take this more risky approach? It’s a lot harder for me to generate and save extra capital for new purchases as my kids grow older and eat more food, require bigger clothes, probably braces in the near future, etc., so I wanted to utilize my existing funds to grow those core holdings sooner rather than later.
Of course there will always be roadblocks and mistakes, as was the case this past week with American Realty Capital Properties (ARCP) and a whistleblower who uncovered deliberate actions to hide accounting fraud. This was one of my larger holdings in the riskier dividend producing category so net value of the portfolio has taken a hit with the massive stock price slide. However, as long as ARCP continues to pay dividends, and they’ve publicly stated that will happen through at least the end of the year, I will continue to happily receive and redistribute them elsewhere. If this road bump has left permanent damage and the dividend takes a big cut or his halted, I won’t be afraid to cut my losses and move those funds elsewhere.
Another mistake was Seadrill (SDRL), which like ARCP was purchased — albeit with a much smaller investment — to generate immediate income for redeployment. They’ve made no mention of a dramatic dividend cut (yet), so I’ll continue to hold.
On the other end of the spectrum are some lower dividend players that I purchased based almost solely on “observation.” What this means is I believe these companies are leaders in their fields and poised to continue their dominance over the next five years. They include Disney (DIS), the parent company of both Marvel and Lucasfilm; Apple (APPL) and Starbucks (SBUX).
You’ll also notice a few error cells for British Petroleum (BP), Clorox (CLX) and a couple others. These are stocks that I have only FRIP’ed into when they were suppressed and never made a straight purchase, and I don’t add FRIP’ed shares into my “cost basis” column. In the case of BP and CLX, specifically, I definitely want to eventually build those out to full positions. BP will probably come first considering the pressure on the energy sector right now.
I also want to make sure I always have funds for at least one purchase when the market pulls back at least five percent like it did a little over a week ago. I’ll always continue to redistribute dividends as they are received, but I like to keep a little ammo in the chamber considering I’m only equipped to make one or two purchases a month at most with few exceptions.
Despite being generally happy with where I’m at in my quest to generate dividend income, there’s still obviously a ton of work left to do. I want to add at least 10 more positions and smooth out the balance among my core holdings. See how out of whack my Target (TGT) percentage of the portfolio is? That was a beginner’s mistake when I got carried away and tried to chase the stock price down as it slipped during the two months following the data breach.
Again, Happy Halloween, and if you have kids, consider tracking down a service that will recycle their massive bag candy haul for cash. They do exist as my kids will be trading each pound collected for $2, and services like this will save your kids’ teeth as well as teach them a lesson about finance and the value of goods.