My Dividend Growth Portfolio With No Name
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.
DWC,
Great portfolio there. A lot of high-quality names across the board!
Looks like you focus on current yield a bit more than me, but your life situation is a bit different. So that makes sense.
There will definitely be speed bumps along the way, and the recent ARCP situation just reminds us that we are taking on risk when we invest in stocks. That’s why the return is expected to be much higher than what you get at the local bank.
I’d personally be a bit less sanguine about SDRL, however, and that’s just because the company has been pretty routinely free cash flow negative over the last 10 years. They’re bleeding cash. Just my $0.02 on that one.
Good stuff though. You should be crossing over $200k in no time.
What’s the average yield of the portfolio? I’m guessing you’re over 4%?
Keep up the great work.
Best regards.
DM,
That was a quick note! Thanks for the encouragement.
My life situation is definitely determining my strategy. It will shift as I grow older (I’m 41 this year) and world economics change. For now this is working fine.
I am watching SDRL like a hawk. Their free cash flow is disturbing, but they have booked rig coverage for over 70 percent of 2015 and possess one of the newer fleets. That’s why we diversify, right? Even if it went to zero I’d still be in great shape, and I’ve received hundreds in dividends from them over the course of the year that are now in other holdings.
Projected yield for 2015 is a hair over 5 percent at current market value, or around $9,600. I expect that to come down a little over the next few months as I focus the capital I’m currently building up into core holdings.
A few of my goals for the next six months or so:
1) Bring PEP to up weight with KO
2) Double JNJ
3) Add an insurance and rail company
Now if only the market would stop skyrocketing
Best,
DWC
Great looking portfolio! You and I share many positions and there are quite a few on your list that I’d like to add as I continue to grow my portfolio.
I like your strategy of juicing your capital by starting with some higher yielding investments. Of course, the ARCP news is concerning, but long-term, as long as the dividend doesn’t disappear, I’m happy with the existing size of my position as I am planning some tremendous growth in my portfolio size over the next few years.
I will say I disagree with no showing the cost basis of the FRIP shares. Much like any dividend received, they are taxable. Think of those dividends like any other income. Once you pay tax and put it into the portfolio, you add it to your cost basis. Dividends are the same. For example, say you sold those 20 BP shares, you’d want to offset all that gain with the cost basis of the money in those shares. No need to get double taxed, once on the dividends and once on the gain from a sale!
Lastly, I like your plans for the next six months. While the market needs to cooperate, I am looking to put another $36-40k in my DG portfolio and $6-10k into my P2P lending investments over the next 14 months. Should really see some nice gains in my forward looking income and will likely experience more and more organic compounding as time goes on.
W2R,
I wrestled with how to handle the FRIPs on the spreadsheet for quite some time. To be honest I don’t recall why I chose the direction I did. Hopefully it wasn’t laziness! However, I did deliberately keep a separate tab that lists all the FRIP purchases in case I wanted to add them in.
After your note I may just do that
It’s hard for me to determine how much I want to invest over the course of the next year or so as my extra income can fluctuate dramatically. August was horrendous, however October has rocked and will allow me to make four or so purchases of around $1,500 each in Nov/Dec if I choose. This market upswing is terrible timing for that.
My goal is to scrape together and save as much as possible to invest toward creating passive income. If I’m happy with my effort then that’s all I can ask of myself. Being completely debt-free helps a ton.
How is P2P working for you? I’ve done some cursory looks at that but nothing too in-depth. I owned a rental property from 2011 to mid-2013 that was a painful (I timed it perfectly, but chose the wrong house) but ultimately a great and learning experience. Right now the focus is squarely on dividends.
Best,
DWC
I’ve had a tremendous amount of success with P2P lending since I started investing in early 2009. Since that point I’ve earned in excess of 10% returns, and a focus of mine for 2015 will be to add another $6-10k into those accounts to really expand on the base I already have in there. I’d like to eventually have at least $50k in P2P lending as a nice offset to my dividend growth assets.
Important things to note about P2P lending:
1) Diversification: Start an account with $2,500 or more, and only invest $25 per note.
2) Risk: Determine what level of risk you are willing to take. I shoot for just above middle of the road. This allows me to achieve a higher level of return in the good times while hedging slightly against a market downturn.
3) Defaults: Bad loans will happen. Some folks try to sell their late notes prior to default, but I employ a fully passive strategy at this point, so my returns are net of all charged off loans.
4) Automation: There are many automation tools out there, including the in-house options for Lending Club and Prosper. Find one you like and use it. It will help turn the process into something passive.
Best of luck and let me know if you have any other questions!
Thanks for the info, W2R! I love the idea of a little complimentary income from something other than dividends and will certainly investigate further. Ten percent gains net of defaulted loans is nothing to sneeze at.
Best,
DWC
W2R — btw I took your advice and added in the cost basis for all FRIP shares. Much cleaner now!
Best,
DWC
Looks good and is a much better reflection of your cost basis!
What an awesome portfolio you have there. Not surprised to see that we share similar stocks in both of our dividend portfolios. Keep up the good work.
Tawcan,
Thanks, man! It’s not a perfect portfolio, but whose is? I’m just happy to have been able to grab some great stocks when they were on pullbacks over the past 10 months. Here’s to many more months and years of onward and upward
Best,
DWC
Some great companies in the list, some I dont like and some I didnt know of. Looks like a well diversified portfolio. Thanks for sharing. I will have to research the ones that I am unfamiliar with.
cheers
R2R
Thanks for stopping by, R2R.
Some of the companies you haven’t heard of are likely the business development companies. Those are high yielders I use to juice capital for other purchases. Like oil, that whole sector is taking a beating right now, so between the two sectors my portfolio looks ugly.
It’s a long game and I’m quite happy with where I’m at. In fact, I’d like to see the market drop some more while I scrape together more funds.
Best,
DWC
Thank you for sharing this! It’s always a pleasure for me to discover another portfolio with similar picks. As I’m heavily invested in BDCs, this is rarely the case
Like you, I want(ed) to fuel the grow machine early on and take the dividends to invest them in reliable dividend growth companies. The plan sounds good but to see the risky holdings fall into double digits and sometimes combined with cutting(PSEC) or suspending(SDRL) the dividends is no soothing experience. At least for me.
Therefore it’s good to see your in a similar position while also keep sticking to the plan. On the same time your showing that building a diversified portfolio will counter the risky picks with capital appreciation over time.
Cheers,
DivRider
DR,
Thanks for stopping by! Yeah, BDC’s aren’t typically a favorable pick in DGI portfolios as they usually don’t fulfill the growth part of the equation. There’s always more risk, and that seems especially palpable now as the entire sector is taking a beating.
Like you said, it’s a long term plan and I won’t let a couple road bumps veer me off it. PSEC is still paying a very respectable dividend and SDRL could snap back to life in the future with a turnaround in oil. I fully expect a sizable cut or suspension of the ESV dividend as well. That’s ok as I have the time to wait it out
Best,
DWC