Wednesday, September 27, 2017

Reclassifying of Core and Supporting positions

I took some time to look through my holdings and make more stringent what I consider a Core holding and what are Supporting positions. When building my portfolio I started with the core positions as they are my foundation. I then diversified with more aggressive higher growth companies in the speculative areas. Supporting companies are a way I diversify away from non-cyclical consumer staples-like corporations. A lot of my supporting companies are in discretionary, industrials, or material sectors that suffer from down years but grow quickly on up years.

As a background, my portfolio is broken down into the following categories:
Super Core: Have all the qualities of a Core position but also a strong credit rating. Must be rated with a financial rating of A+ or higher by S&P, a Value Line financial rating of A++, and have a Value Line safety of 1.
Core: Less cyclical more stable businesses. Have long track records and most are dividend aristocrats. offer products and services people use all the time even during bad economic times. I will likely hold these for life unless the business environment changes substantially and the dividend gets harmed. The goal with these types of companies is to build a foundation that offers consistent predictable dividend income to live off of. Capital appreciation is secondary to the dividend and the growth of that dividend.
Supporting: Held for the mid to long term. Are companies with proven track records but often times are in more cyclical industries with earnings that can go up or down depending on the economic climate
Speculative: Bought for capital gain purposes. If the direction of the stock is heading the wrong way I will sell and move on.


Here are some companies I moved classifications around from Core to Supporting:

Dominion (D) and WEC Energy (WEC): I moved these from Core to Supporting. It does not meet the quality metrics of better utilities like Next Era Energy (NEE).

Illinois Tool Works (ITW): It is not as stable as a 3M during economic recessions. It is more cyclical. However, it is a very well run company (dividend aristocrat) and the growth has been spectacular. I am putting this as a Supporting position behind 3M.

Air Products & Chemicals (APD): Materials is a cyclical industry. I moved this to Supporting.

Kraft Heinz Co (KHZ): I have more stable packaged food companies that have more established histories. MKC and GIS I have as core since the history is more established. KHZ's balance sheet is not the cleanest and it only has a BBB- credit rating. I label this now as Supporting.

Stryker (SYK): Moved it to Supporting behind my core positions like JNJ and BDX and MDT. SYK is a great company with a strong credit rating and balance sheet. Good growth and stable growth. But it is overshadowed by my "big 3" healthcare stocks.

I also recently bought a new position in General Dynamics (GD). GD is a Supporting position for me. The business is less diversified than a 3M and it's a cyclical business. It has the cleanest balance sheet of all the defense companies, and it is a dividend aristocrat with a proven track record.



Even after relabeling several of my Core positions to Supporting, I still hold a large majority in the Core and Super Core positions. The portfolio table below shows the companies names and their associated colors. Notice how Supporting positions hold less weight in my portfolio while Core positions hold a chunkier part of my portfolio as they are the foundation of the dividend growth strategy. It is imperative that the Core positions continue providing consistent dividend in come and dividend hikes year after year.

Green Bold = Super Core
Green = Core
Yellow = Supporting
Red = Speculative

Name Ticker Sector       Value   Weight        Divies      Yield S&P Fin VL Fin VL Safety
Philip Morris International Inc PM Staples $34,322.95 8.90% $1,309.17 3.8143% A B++ 2
Johnson & Johnson JNJ Health $24,133.51 6.26% $619.28 2.5661% AAA A++ 1
Altria Group Inc MO Staples $21,201.09 5.50% $867.50 4.0918% A- B+ 2
Home Depot Inc HD Discret $20,172.13 5.23% $445.32 2.2076% A A++ 1
Visa Inc V Financial $18,294.26 4.74% $117.29 0.6412% A+ A++ 1
PepsiCo PEP Staples $15,026.50 3.90% $432.75 2.8799% A A++ 1
Becton Dickinson and Co BDX Health $15,018.43 3.89% $225.68 1.5027% BBB+ A++ 1
Realty Income Corp O REIT $14,693.23 3.81% $639.71 4.3538% BBB+ A 2
NextEra Energy Inc NEE Utilities $14,096.18 3.66% $375.07 2.6608% A- A 2
British American Tobacco PLC BTI Staples $12,107.54 3.14% $430.68 3.5571% A- B++ 2
Ross Stores Inc ROST Discret $11,574.85 3.00% $116.13 1.0033% A- A 2
McCormick & Company MKC Staples $11,497.38 2.98% $222.19 1.9326% A- A+ 1
3M Co MMM Industrial $11,484.97 2.98% $255.79 2.2272% AA- A++ 1
AT&T Inc T Telecom $11,186.72 2.90% $566.27 5.0620% BBB+ A++ 1
Mastercard Inc MA Financial $10,986.69 2.85% $69.87 0.6360% A A++ 1
Procter & Gamble Co PG Staples $9,427.61 2.44% $280.84 2.9790% AA- A++ 1
Dominion Resources, Inc D Utilities $8,396.29 2.18% $324.21 3.8614% BBB+ B++ 2
The Coca-Cola Co KO Staples $8,210.83 2.13% $266.67 3.2478% AA- A++ 1
Xcel Energy Inc XEL Utilities $7,714.49 2.00% $232.84 3.0182% A- A+ 1
Automatic Data Proc, Inc ADP Tech $7,620.92 1.98% $160.48 2.1058% AA A++ 1
Illinois Tool Works Inc. ITW Industrial $7,370.21 1.91% $156.33 2.1212% A+ A++ 1
Medtronic plc MDT Health $7,101.29 1.84% $166.73 2.3478% A A++ 1
Starbucks Corporation SBUX Discret $6,923.38 1.80% $125.58 1.8139% A A++ 1
Church & Dwight CHD Staples $6,909.43 1.79% $107.74 1.5593% BBB+ A+ 1
TJX Companies Inc TJX Discret $6,018.64 1.56% $101.97 1.6942% A+ A++ 1
Kimberly-Clark KMB Staples $5,880.54 1.52% $193.89 3.2971% A A++ 1
Clorox Co CLX Staples $5,681.17 1.47% $145.38 2.5590% A- B++ 2
Air Products & Chemicals, Inc APD Materials $5,318.57 1.38% $133.86 2.5169% A A+ 1
Kraft Heinz Co KHC Staples $5,056.87 1.31% $160.86 3.1811% BBB- A 2
McDonald's Corporation MCD Discret $4,966.53 1.29% $130.84 2.6345% BBB+ A++ 1
Colgate-Palmolive Co CL Staples $4,574.71 1.19% $99.73 2.1801% AA- A+ 1
Stryker Corporation SYK Health $4,103.14 1.06% $49.44 1.2050% A A++ 1
WEC Energy Group, Inc. WEC Utilities $3,877.83 1.01% $126.21 3.2546% A- A+ 1
General Mills, Inc. GIS Staples $3,352.68 0.87% $126.44 3.7714% BBB+ A+ 1
General Dynamics Corporation GD Industrial $3,285.28 0.85% $53.76 1.6364% A+ A++ 1
Abbott Laboratories ABT Health $3,188.13 0.83% $63.94 2.0057% BBB A++ 1
Southern Co SO Utilities $2,845.81 0.74% $135.32 4.7551% A- A 2
Misc Type ……….. Partial Totals Weight Yrly Dividends  Avg Yield …..832 …..9 …..82
Equity Stocks $373,620.79 96.88% $10,035.80 2.6861%
Investable US Dollars $7,055.98 1.83%
Miscellaneous Assets $4,989.50 1.29%
. .. Equity + Misc Weight …..2 ….. …..222 …..2222 …..223
Total $385,666.27 100.00%

4 comments:

  1. Nice looking portfolio. We are like minded when it comes to stock selection. I'm considering adding to my position in WEC by month end, but it looks a little pricey to me right now.
    Tom

    ReplyDelete
  2. if you list a stock as yellow and bold, is that still a supporting stock?

    also, you say that, "SJM and GIS I have as core since the history is more established." did you mean SJM, or another stock since you sold SJM I thought.

    hoping to pick up more D and PEP soon!

    ReplyDelete
    Replies
    1. Meant to say MKC not SJM. I edited the post.

      The Yellow bold are companies that have very strong balance sheets and qualify metrics. Notice they're all A, A++, 1. I still consider them supporting. Just because a company has a strong balance sheet it does not mean they are core to my investing style. A cyclical industrial business like Illinois Tool Works is not core to me as a Johnson and Johnson or Pepsico.

      Delete