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.

Thanks for taking the time to read my work, and please leave feedback in the comments. If you like my work on Seeking Alpha, consider signing up for a premium account if you have not.

Reviewing 2018 and Moving Forward In 2019

Introduction

First, I have to apologize for my lack of adding content to my personal blog. It’s not that I have lost any interest or focus in dividend investing, but my time that I can allocate for personal blogging is less than what I may have hoped. I hope to get into a better cadence this year and jot thoughts down on what I am looking at in real time.

With that said, 2018 wrapped up and it’s time to move forward in 2019. In 2018, I collected over $7,000 in dividends! That was over 20% more than I earned in 2017.

Dividends Collected In 2018

Part way through the year I decided to allocate a bit of my portfolio to growth stocks. I sold out of some dividend paying names and rolled those proceeds into stocks that either pay no or very low dividends. I sold my shares of the U.S. Schwab Dividend Equity ETF (SCHD), Verizon (VZ), Duke Energy (DUK) among others. In turn I bought shares of Visa (V), MasterCard (MA), Square (SQ), PayPal (PYPL), Twitter (TWTR) and even iQiyi (IQ).

My income on the tail end of the year obviously took a nose dive with all of those funds diverted.

During my 2018 analysis write-up (read here), I highlighted a few thoughts I had opined about while reflecting how the year went.

Dividend reinvestment is not black or white

Historically I have always reinvested my dividends across the board. Every holding, no exceptions was reinvested. The math is solid behind that rationale, you dollar cost average your way into positions over long periods of time with free reinvestment. Some stocks even offer discounted shares for reinvested dividends though the vast majority don’t.

I ran into two potential issues with reinvesting for some names. Higher yield holdings I own partly for their cash flow. I want that cash flow in hand to re-apply as I best see fit. With every dollar reinvested, I lose that flexibility.

The second issue which dovetails off of that was having positions providing too much of my income. It sounds like a first world problem but having one individual holding providing 10%+ of my dividends actually made me a little uncomfortable. Any sort of hiccup like a dividend cut would put a noticeable dent in my dividend stream and is what I am trying to avoid.

My feelings are that transaction costs are virtually negligible and dividends will still be compounded back into dividend earning shares, it just may not be the original company. I like to have a steady stream of firepower that I can apply as I see fit throughout the year.

Being more data-dependent

As a corollary to my first point, I am going to be more data-dependent with my investment timing. I built Custom Stock Alerts to facilitate the timing of my investments.

I love looking for companies that are going through temporary headwinds (or not) and are hitting a new 52 week low. That gives me the best purchase price and highest yield of any investor that year. Depending on “why” the stock has hit a low, it also gives me the largest margin of safety. Everyone loves a good bargain so why is the stock market any different?

Just like a new low may make an interesting time to buy shares, a new high may signal an opportune time to trim some shares. With a large watchlist like mine, something is always on sale and something is always at a premium. Shares can be sold, profits gained and rolled into lower valuation stocks. This process can perpetually add to my dividend stream.

The ex-dividend alert tool on Custom Stock Alerts will also give me a heads up before a stock is set to pay a dividend. Depending on other factors, it may make sense to dive in before a dividend to capture the payment. For the majority of my investing, this is in a tax advantaged retirement account. Of course be aware there are tax implications if you do this in a taxable account.

Lastly, using some of these techniques lend themselves to the exciting world of options. I haven’t actually used this yet so I don’t pretend to be any sort of expert in the topic but writing covered calls or selling puts can enhance income. This is a topic well out of scope for this post but it fits in nicely using data available to me.

You don’t have to swing at every pitch

Patience is a virtue in life and investing is no different. If you manage your portfolio at all, you need to be willing to sit and wait for a good investment opportunity.

To be honest, I started getting really excited Christmas Eve. My own personal feelings aside, seeing the market hit levels it did was exciting for an investor with some cash available. Unfortunately it did not last though I am optimistic we may see a pullback before long. Just remember high stock prices only benefit net sellers.

Passive investing is OK!

There are a slew of great ETF options that can be added to make a well-rounded portfolio. ETF is not a four letter word. Some dividend investors will avoid ETFs at all costs – in literal sense too – because of perceived shortcomings.

Yes, payments may be variable, the holdings may be variable and there are some expenses associated with owning ETFs. On the flip side, they are incredibly diverse and can fit into every niche you can imagine. Want REIT exposure? There are ETFs for that. Want more specific mortgage REIT exposure? There are ETFs for that.

I’m looking to round out my portfolio with some different ETFs, in particular in areas where I feel my knowledge is lacking. I don’t feel comfortable buying things like individual MLPs, mortgage REITs, BDCs, it’s just out of my area of expertise. I’m more comfortable analyzing C-corps and some larger REITs.

A Defined Investing Framework

One of my other goals for 2019 is to fully flesh out my investing framework. At a high level, I’m going to further define the proportion of my portfolio that fits into these areas; growers, dividend growers and high yielders.

When presented with an investment idea I will have a series of questions to answer beyond just analyzing whether it may be a good company or not.

  • What is the opportunity here?
  • Am I excited about the business?
  • What are expected returns?
  • What are the risks and downside?
  • How does this fit into my portfolio?
  • Does it offer something materially different than an equivalent ETF?

Those are just a sample and the framework will be defined as the year progresses. The aim is to ultimately make sure I am allocating my investment dollars as best as possible to fit my goals.

Conclusion

I love dividends and how they are helping me progress towards my financial goals. To recap, I collected over 20% more dividends in 2018 than in 2017 and over $7,000.

After I scratched the itch of adding a few growth stocks, I am ready to really push hard with more dividend paying stocks this year. I’m working on allocating a percent of my portfolio towards high yielding opportunities. ETFs can be a great tool to help me build this portion where I personally feel that I lack the expertise required.

By combining some of the lessons that I reflected on with a-to-be-defined investing framework, I’m looking forward to moving forward in 2019.

Be sure to check out my dividend portfolio in real time, any time, here.

Monopoly dividends

Great Time To Add More SCHD

The Schwab US Dividend Equity ETF (SCHD) has been a pillar of my investing portfolio.  At a very high level, it’s a low-cost ETF that invests in quality, dividend paying (and growing) companies.  I own it in both my retirement account as well as my taxable account.  There are numerous reasons why I own it and will continue to add to it.  In fact, I am preparing to add more over the next week prior to the upcoming dividend payment.

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