blue and yellow graph on stock market monitor

Tweaking My Portfolio For Better Performance

It’s been a while since I’ve published an article here on Dividend Derek, but rest assured, I haven’t gone anywhere. Most of you probably follow me on Seeking Alpha, where I do most of my writing. I wanted to make a quick post about some portfolio changes that have occurred this month.

Buys

  • Medtronic (MDT)
  • Schwab U.S. Dividend Equity Fund (SCHD)
  • Invesco Nasdaq Next Gen 100 ETF (QQQJ)

Sales

  • Travelers (TRV)
  • Berkshire Hathaway (BRK.B)
  • Prudential (PRU)

Medtronic

Part of my purchase process is to always look around at my portfolio and see if anything is worth adding to. Oftentimes, the best stock to buy is one you already have. One prime reason to consider adding to a holding is on the heels of a nice dividend raise. Medtronic announced an 8.6% dividend raise at the end of May, extending its annual streak to over 44 years. As COVID is winding down, elective surgeries are coming back and ultimately will allow the company to continue growing well into the future.

Schwab U.S. Dividend Equity Fund

SCHD is by far my favorite dividend ETF and one I write about frequently. Adding to SCHD was part of a trade with my sale of Travelers. I’ll cover more of the specifics below, but suffice to say, I took my proceeds from that sale and added another 100 shares of SCHD.

Invesco Nasdaq Next Gen 100 ETF

This purchase was part of another trade with my sale of Berkshire Hathaway. Though I primarily have dividend stocks, I have an allocation to growth as I have decades before “official” retirement. QQQJ is a new ETF dating back to just late in 2020, and it targets the next largest 100 companies (generally in technology and communications) that would otherwise be in the Nasdaq 100. With a tilt towards smaller cap companies, this one should do extremely well over the long term.

Travelers

I take selling stock pretty seriously; there were stints where my turnover was much higher than I wanted it to be. Generally, though, I am pretty content with not selling shares and just letting my portfolio ride. As I would perform monthly analyses on my portfolio, TRV continued to stand out as one of my lackluster performers. For comparison, the performance lagged SCHD by close to 50% over the past seven years.

In absolute terms, it returned about 10.5% for me annually, and it was actually one of my oldest holdings dating back to 2014. So again, this was a 7+ year holding before I decided to set up a limit-sell order. As the company hit the $160 mark, I had set a limit as I decided I would not ride this one back down, should it happen. I was content holding shares as long as they continued to march upwards. Additionally, both the yield and the dividend increase in April were lackluster for me. Shares only yield about 2.4% versus 2.7% for SCHD, and a 3.5% increase is below my target of 7%. This is also on the heels of a 3.7% increase last year as well.

Rather than continue holding a company that has lagged in both total returns but also dividend yield and growth, I opted to roll that capital into SCHD and focus on better individual names.

Berkshire Hathaway

Berkshire was another very conflicting sale for me. Like Travelers, I had set a limit sale order should the price tumble. Though I’m a huge Warren Buffett fan, the company has not performed exceptionally well over the past decade. It’s done fine for me, but as part of my growth allocation, it has lagged just owning the S&P 500. Not great results when also considering I’m receiving no dividend income from them. Again, I did not take this decision lightly as I’ve owned shares since 2015.

The company has oodles of cash and makes billions each quarter, but they are hesitant to use much of it as asset prices remain high. They are also slightly hesitant to repurchase their own shares if it’s above their intrinsic value calculation. I took the money from Berkshire and QQQJ to juice my growth while also removing individual equity risk.

Prudential

The last sale this month was Prudential Financial. Alongside Travelers, this was another lackluster investment since I’ve held shares. I had some good purchases, overpaid on other blocks of shares, and the net result was about a 7.7% annual return since 2016. Though it has a higher yield, the results are similar to those of just owning the SPDR Portfolio S&P 500 High Dividend ETF (SPYD).

Unfortunately, the 4.5% dividend increase earlier this year was the worst since the Great Recession and much lower than the 13% annual increase seen over the past five years. In a similar vein to both TRV and BRK, I had a limit sell order set a bit below the current share price when shares were trading around $110. I have not reallocated that capital yet, though it’s at least earmarked right now for SPYD.

Conclusion

I sold three companies this month that I’ve owned for over five years, so I don’t take the moves lightly. Even using limit orders for all three, I ultimately let the market decide if and when they would sell. I rolled the capital from those sales into either higher growth or better dividend growth names.

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August Transactions So Far

August has seen a bit of turbulence in the markets. The Fed cut the benchmark rate 25 basis points at the end of July and we’ve begun seeing a tad of a correction. I am very slowly looking to take advantage if we start seeing a real correction. Last December I was disappointed not having enough dry powder as they say.

Summary

TickerDateSharesPriceIncome
MMM8/14/201910160.7$57
PRU8/15/20192380$92

Details

Here’s a quick update of what I’ve done so far this month. When I’m reviewing my potential buy list, I will cross reference my dividend tracking spreadsheet and my upcoming dividend alerts that I built in Custom Stock Alerts. Here is one example (though the numbers are different)

On the 15th I put in a limit order for Prudential @ $80 per share. It took most of the day but it eventually triggered which gave me another traunche of shares at the 5% yield point. As you can see from the screenshot above (taken on the 16th), shares climbed a bit dropping the current yield.

The picture above is a quick snippet from my tracking spreadsheet and I wanted to highlight the Prudential row. I added green shading to the “Current Share Price” column whenever the current price is less than my “DRIP basis” which is my cost when I bake in any impact of reinvesting shares. So not only was Prudential below my cost basis but coupled with the upcoming dividend yield capturing 5% it felt compelling to add. I will say this is also under the guise that while the recent earnings announcement disappointed investors and thus the sudden and sharp stock price drop, the long term thesis is still intact.

In a similar theme, I added some more shares of 3M (MMM) to jump in before an upcoming dividend. Again, this is all in my tax advantaged account so I’m not trying to capture the short term dividend with implied taxes.

Possible Transactions

I may add to my Walgreens stake though I haven’t decided one way or the other yet. The current yield is quite nice at 3.6% and I’m down a little bit from my initial stake. The yearly increase of about 3% was low but it is still an increase.