Welcome to Young Dividend! I read about many investing styles such as index funds, active funds, precious metals, bonds, high leverage real estate, active trading, and dividend growth investing. I eventually decided that dividend growth investing fits my goals and style best.
In this post I will go over my current portfolio status. The portfolio has been growing at a faster rate recently due to share price accumulation and some non-reoccurring income that I cashed in during May to June. I'll start the portfolio summary with a short summary of what the environment is like in the market. Let's start with some charts of various market KPIs.
The S&P500 is steadily climbing back up since the lows of May. This in turn has helped elevate my portfolio value. The price of stocks have been influenced by several factors. These include worries about Fed tightening due to the growing economy. Rising rates will make it more expensive for companies to borrow making the cost of doing business more expensive. Mortgages will also be more expensive and buying cars more pricey. Rising rates to borrow has the effect of slowing everything down in the economy. My high dividend paying stocks usually fall back when the 10 year hits close to 3% since this makes bonds more attractive compared to dividend stocks which have higher risk. For stocks to compete against high yielding bonds, stock prices have to fall to make their yields higher and more attractive.
The dollar is getting more expensive. This is a headwind for a large portion of my portfolio as I hold many multinationals. The trade war situation with China and Trump's recent import tax hike on Chinese goods will be a headwind for international business. As a result a lot of industrials have seen their share fall. Recent developments in North Korea's leader and President Trump have also caused some movements in the stocks however I think the impact of NK is rather minor as their economy is so insignificant. I have seen defense stocks fall back (like my GD position) after relations with NK are improving.
My portfolio is hitting all time highs. Visa has taken the #2 spot on my second largest investment and it's growing incredibly fast. I have paried Visa with Mastercard and MA has performed incredibly well as well.
It seems tobacco has largely fallen out of favor in the last year. Tobacco is a 13% part of my portfolio and I have held it for more than 4 years with no intention of selling. I like the dividend and plan to just collect and reinvest the 5-6% yield. At the moment I do not plan to add more despite the attractive price as my position is too large.
The retail part of my portfolio has also been on fire. My investments in ROST and TJX have grown considerably. Restaurants seem to be doing better as I have seen noticeable appreciation in MCD compared to 4 years ago. Consumer staples are still lagging behind but I have noticed they have begun to uptick higher in the last week. Perhaps this is a move from trade war vulnerable stocks like the industrials into more safer staples stocks that people tend to hold during volatile times. My healthcare stocks have all been doing very well; BDX and SYK and ABT are all much higher. JNJ is a very big part of my portfolio and has been a laggard, and MDT never really seems to enjoy walking sideways. I keep these two since they are very stable dividend aristocrats with very dependable earnings and dividend history. JNJ has one of the most consistent dividend track record and one of the cleanest balance sheets I have seen.
I have started expanding my portfolio in to other sectors besides consumer staples. My technology position is growing as I have been adding a lot to Microsoft. I like Microsoft's cloud offerings, I think they will be giant competing against Amazon. Retailers do not like going to Amazon web services for cloud offerings (for obvious reasons), I think they would much rather do business with Microsoft who is less seen as a invasive competitor.
I want to expand my technology positions but a lot of tech companies don't pay a dividend which is my #1 criteria. I am considering Apple, as I am liking how their services business is growing so quickly and is already so large. Their P/E is not expensive. I think over time Apple will be known as a software services providing a "user environment" experience instead of how we usually think of them today (i.e. as a hardware phone making company). I have also been entertaining the idea of buying AVGO for its yield and dominance in the chipset space in the communications industry. The company has become a monopoly in tech like Intel or nVidia, the payout ratio looks conservative, and the P/E is reasonable. My position in the dividend aristocrat ADP is also growing by itself quite fast.
I have been increasing my positions in Industrials as well, with gradual additions in ITW, HON, and MMM. 3M has not done very well and they are in a period of change as they have a new CEO but I find the overall business very diversified and stable. In the short term there may be headwinds but in the long term (over many decades) I am comfortable with diversified industrials like 3M and Honeywell. 3M has a proven track record as a dividend aristocrat and has withstood the test of time and seen many recessionary cycles.
I want to add more into utilities and industrials but I think there will be better opportunities coming soon. Utilities have not fared well in the rising rate environment. I think there will be lots of opportunity to add. Rates are only going to go up as of now. Utilities are shielded from the trade war problems as these are all based in USA. The industrials I think will also have good opportunity to add going forward. The stocks move up and down on trade war escalation discussions with China as many of these companies do business in the growing Chinese economy. Right now the narrative is not so attractive for these stocks so I think opportunity will eventually come knocking. I prefer to buy when the mood is the most gloomy. I am eyeing 3M, HON, ITW, and GD (positions I already hold) as well as many other names like Boeing. I don't think Boeing will be very impacted by any trade escalations with China. Their backlog is simply too large and China needs Boeing's planes more than Boeing needs China (China cannot simply just copy Boeing's planes in any reasonably short amount of time)
The graph above shows the growth of my assets over time. From February until May my portfolio has been in a lull. I suffered great losses as stocks tanked after trade war escalations between China and USA. Consumer staples did not do very well compared to other sectors like tech, industrials, discretionary, and healthcare in this period. Recently the portfolio is coming back to shape as stocks have been rising steadily and I have been contributing more cash into my portfolio in Q2 than in Q1. I think at this rate I can hit the 1/2 million $ mark sometime this year as long as nothing disastrous happens to the general market. Hitting the $500K mark will be a big step for me. After that point my next goal will be $1MM.
Since share price is volatile as seen by the up and down movements of my portfolio, I also monitor the annual dividend trend of my assets. Notice how from Q1'18 to Q2'18 my portfolio suffered sharp drops of over $25-30K. However, the dividend trend actually increased steadily in this period. Share prices are ephemeral and spontaneous. Dividends don't lie and are based on the company's profitability. As long as the business model is intact, there will be cash in the owners' pockets and this is the metric I go by when investing.
The graph above shows how much income my portfolio will generate by itself in the next 12 months. Right now I have just crossed the $12.5K a year barrier, which is a bit over $1000 per month. I don't see this trend stopping or slowing down anytime soon. The stocks I have invested all have quite conservative payout ratios albeit a few. Since my portfolio is largely diversified in dividend paying stocks, if one company were to go under or stop the dividend, the overall impact to my dividend trend will be minimal.
As my portfolio grows over time and my passive income grows, I have started noticing how it has affected my lifestyle bit by bit. My lifestyle is pretty much the same to how I started, building wealth this way is actually very boring. But over periods of years I have noticed subtle changes for the better.
Back in 2014 and 2015 my assets were around $100K or less. At that time I was more conscious about job security or paying for the bills or wondering how I should manage my cash flow. Currently, that money pressure has decreased. With $1000-1200 flowing in every month from dividends and almost $500K in assets, there is less stress to fix the car or to take someone out to a nice dinner. There is also less stress on my job. If one day I were let go, the fear of surviving on the streets is no longer really there compared to when I started out in 2014. Having these assets to back me up makes me feel much more flexible and independent. I now have options and can think what I want to do instead of worrying about making a living and paying the bills. There's less stress and I can take things slow instead of rushing decisions through.
Interestingly as well, I have noticed I have less of a desire or urge to buy something for material pleasure now that I have the money to do so. It's almost as if the interest has waned once something is easily attainable. I think the enjoyment I get is knowing that I can afford a new luxury car or to buy a condo in cash whenever I want, and that is what makes me appreciate the work and progress I have put in over the years. Ultimately the peace of mind and financial security is what I am most satisfied with at the present time, not the prospect of buying a nice expensive toy.
Stay tuned for next month's report. Hopefully we see even more progress next month! Regards -YD
I plan to couple my purchases with lower yields and higher yields. This way I can maintain an average yield in the 2.5-3.0% range. Lower yielding companies are often ones I like due to their growth profile.
For example I can pair a Visa with a Pepsico Or a Microsoft with AT&T Or Stryker with Kimberly Clark.
So far in the last week and this week I purchased the following. Total costs for all these trades is around $8. MSFT $2600 APD $326 NEE $163 ITW $146 PEP $200 KMB $100 ADP $132 V $130 MCD $159 CLX $120 XEL $134
I have topped up my Microsoft position quite a bit now. Going forward I am interested in increasing my weight in my lower yielding stocks like: SYK, V, MA, ROST, TJX (however this guy ran up way too much hard to justify a buy), ABT, GD, HON, ITW.
I will likely have to pair these purchases with a higher yielder and I am considering PEP, KMB, PG, WEC, GIS, KHC, JNJ, CLX, T.
My portfolio currently looks like this. Visa and Mastercard are growing quite large. They are performing very well on their own.
This will be a quick summary since I had not much free time recently. My portfolio was on autopilot mode in the last few weeks. Nothing has really changed. Dividends came in, got reinvested. Some purchases were deployed in May.
The S&P500 has been very volatile lately. There have been ongoing discussions with the North Korea, trade tariffs, and Italy. The dollar has increased in strength in the last month. And crude oil prices are higher than earlier in the year but have recently pulled back.
My portfolio has the majority of its assets in consumer staples. This sector has not fared well so my portfolio has sat rather still for the last several months. There are several factors holding the capital appreciation back of these stocks despite many of them having higher earnings and higher dividends. Interest rates are going up which puts pressure on high dividend paying stocks since bonds become more competitive. There are inflation concerns due to tariffs on foreign import and gas prices are going up, additionally there are shortages in services such as shipping. Trade war tensions cause concern for multinational consumer staples.
Technology has been performing the best as they are rather sheltered from the many problems listed previously. I do not have many stocks allocated to that sector due to a lot of those types of companies not offering a dividend. The goal of my portfolio is income growth in the form of dividends, not capital gains. So although my portfolio is lagging recently the income continues to grow and I am still on track to meet my target goals. I am however working on diversifying more into Healthcare, Industrial, and Technology sectors. Microsoft is a new technology position I have been working on adding into my portfolio.
I do want to add more to utilities but I think interest rates are going to rise more rapidly due to the growth of our economy. Utilities on paper should become cheaper with rising interest rates due to their high use of debt. I think there will be better entry points. I also expect my high dividend paying stocks like my consumer staples to lower in value as rates continue to rise, as investors will start to shift to safer bonds for income instead of dividend stocks.
I find many consumer staples to be very attractive here. For example Pepsico has a 3.7% yield which is very high compared to its historical trend. Kimberly Clark is at 4%. Clorox at 3.2%. P&G is almost at 4% too. And MO and PM are all above 5.0% which is getting more realistic compared to the 3% yields they sat originally. These are all high quality dividend aristocrat type of stocks and if one doesn't have a heavy position in consumer staples I feel it is a good time to add some and then add later if it continues to fall. Unfortunately since I am so heavy in staples, I cannot add as much as I would like due to my goals of diversification.
Altria Group Inc
Philip Morris International Inc
Johnson & Johnson
Home Depot Inc
NextEra Energy Inc
Becton Dickinson and Co
Ross Stores Inc
Realty Income Corp
McCormick & Company
Automatic Data Proc, Inc
Xcel Energy Inc
Illinois Tool Works Inc.
The Coca-Cola Co
Procter & Gamble Co
Air Products & Chemicals, Inc
TJX Companies Inc
Dominion Resources, Inc
Church & Dwight
WEC Energy Group, Inc.
General Dynamics Corporation
Kraft Heinz Co
General Mills, Inc.
Honeywell International Inc.
Equity + Misc
My portfolio now sits at $440,000 in value. This is a real portfolio funded with real money and shows the progress over the last 4 and a half years. It is steadily growing from the periodic investments I make into the portfolio. I use the money I receive from my vocation and put the majority of that amount into income paying assets. My largest positions, Altria and Philip Morris, have not fared well recently. However they still pay very high dividends and the payout ratios are safe. It is interesting to see other stocks that are high performers start to move up to those #1 and #2 spots, such as JNJ and Visa and Home Depot. I think Visa will eventually become my #1 position due to its large growth rate. The downside with Visa is that it does not pay a very large dividend. I try to balance my portfolio with high growers with low dividends with slower growers with higher dividends.
My goals for this year are to hit $500,000 sometime in the latter half of the year. I think this is possible as I expect my take home income to be larger in the second half due to non-reoccurring income. The forward annual dividends shown below continue to grow as well due to individual company dividend increases as well as my contributions. I am now very close to $12,500 in annual dividends. This is over $1000 average per month which is very helpful as I can use that money to pay for bills or buy more shares.
The dividend payment graph is much more predictable than the portfolio value chart, I focus mainly on the dividend payment trend and the safety (payout ratio) of that dividend. So far I see no issues in any of the companies that I hold in paying their dividend..
When corporations report earnings, margins are always an important metric. For instance looking at operating margins, I can tell how profitable a company still is after they factor in all expenses such as cost of goods, labor, and operating expenses. Although I'm not a corporation, I can still use a similar concept. I can take my income (which is like my revenue) and then subtract all expenses such as food, housing, transportation, entertainment, etc.
The definition of personal savings rate is: "A savings rate is the amount of money, expressed as a percentage or ratio, that a person deducts from his disposable personal income to set aside as a nest egg or for retirement."
Before going forward and calculating my savings %, I took a look at what the national averages were in the USA. I used FRED for the data.
When America was in its growth days and the economy was growing and personal income was growing we had savings rate above 10%. But recently, the savings rate is very low around 2.5 to 5.0%. This is very unfortunate and I think a lot of this is attributed to the growing use of credit to combat the rising costs of living and low to non-existent income growth. Income growth can be seen back in the days before 1980s but in the last few decades there has been little to no income growth across America. America is also driven by a consumer culture and buying large purchases (cars and houses) on large credit. This likely is why Americans have such low savings rate compared to other countries like China.
Even with a savings rate of 10% back in the good days, that seems awfully low to me. For example a person earning $40,000 after taxes every year will only stock away $4,000 annually for a rainy day? That will take a very long time to accumulate enough to retire and is little safety for emergencies. I am skeptical if the data is actually correct though, as people may save money without the Fed having the data to compile the personal savings rate graph. I also don't believe this graph uses equity saved up from a person's home, and it should be noted most American's nest egg is stored in their house's equity. So if the FRED graph is only showing savings as retirement accounts or brokerage accounts, then the actual savings rate may be actually higher than what is graphed.
So enough of the national data. I got to work and pulled up my bank statements for the last 4 years. Here is what I found:
I created two data points for each year. The purple bar is to show my net savings (money stocked away into my brokerage counts too) divided by my income before the tax man took anything. The green graph is the same but divided by my income after the tax man took his share. Since the purple bar's denominator will be larger (since it includes income that haven't been taxed yet), the percentage is lower. The data here does not include dividend payments or share appreciation or capital gains, this data is purely using income from my full time job.
I am hovering around 70% of savings rate (calculated using take home income after taxes). This includes my rent, food, and every other random expense. I notice in 2016 my margins were higher, that was because I shared rental with another room mate for a good number of months.
Overall I think this is quite good and this explains why my portfolio continues to go up and up even on bad market environments. The majority of my take home income is pushed right into my portfolio for more shares of dividend paying stocks.
At the moment I don't see any reason to improve the margins more. At the current rate I think I can achieve my goals. I am not interested in cutting too much into my quality of life. It's just not worth sacrificing one's lifestyle too much to achieve a few more percentage savings per year in my opinion, especially if my margins are already sitting above 50%.
Around $7000 of cash was deployed today in stock. The buys were distributed approximately as below. Exact dollar amounts not shown as there were too many trades. Although there were a lot of trades below I did not have to pay any commission.