Sunday, February 25, 2018

January 2018 Portfolio Summary

This is a very late "January 2018" portfolio summary post. I was traveling in first half of February so it was hard for me to find a time to reflect on what happened in my portfolio. I decided to do the summary now, after the market close on February 23, 2018. It will reflect all events up to this time.

I wanted to start off and comment about the general direction of the market in the last 2 months. The plot below shows the S&P500 index in the last 12 months. The S&P500, for new investors, represents the US's largest 500 companies and the performance of those 500 companies together can be tracked in this index. The index can be purchased with index funds such as SPX with usually very low expense ratios (ER = fees per year). For investors that don't want to spend time researching and picking individual stocks I recommend purchasing a low cost index over time and holding it.

The S&P500 has experienced its first correction in many months. There was a 10% drop from the end of January until the bottom in early February. I felt the market was getting too extended in January and this pull back is a nice welcome to bring valuations back down to more reasonable levels. When stock prices start to become parabolic, there is usually a correction. One can witness the parabolic movement from November until the peak in January.

I experienced around a $40,000 paper value decline in portfolio during this time. From January to February I continued to add small amounts to my portfolio to collect additional shares in high quality companies that have withdrew 10-20% in value. I did not make any large allocation changes in my portfolio. Nearly all the positions (note SO was exchanged in my portfolio for AT&T) continue to sit in my portfolio and dividends are collected. The purpose of this portfolio is income accumulation, not timing of the market or observation of how the dollar value of the portfolio compares with the index. The dollar value of my portfolio is only secondary, as those assets are only there to produce dividend income. The growth of the income is of high priority. Usually growth of dividends is followed by growth of share prices. Any increase in my portfolio's dollar value is icing on the cake; the priority is dividend growth which I track very closely on separate graphs. The safety of the dividend is of utmost importance and I see no fundamental differences among the companies I hold between the January peak and the bottom in February. I still remain positive in the long term prospect of America.

These other two graphs show two important metrics. The dollar continues to weaken. This is very helpful for my portfolio as I hold a lot of multinational companies. A weaker dollar translates to higher dollars extracted from overseas operations. This leads to higher earnings per share which improves the coverage of the dividend. Crude oil has moved up to the $60 levels from the $50 levels which it sat for some time. I do not hold any energy companies or companies that are highly correlated to the price of oil (i.e. chemical companies or refiners or transports like trucking or airlines). However, all companies require oil to operate and to me oil prices are still very low compared to the $100+ levels they were in 2013 and 2014 when I started investing. Low oil prices is good for business who use it as an input to their daily operations. Oil is a very important raw material input for production of materials, running of machinery, and shipment of goods.

Name Ticker Sector       Value   Weight        Divies      Yield S&P Fin VL Fin VL Safety
Altria Group Inc MO Staples $35,138.38 8.20% $1,436.22 4.0873% A- B+ 2
Philip Morris International Inc PM Staples $35,072.24 8.18% $1,414.66 4.0336% A B++ 2
Johnson & Johnson JNJ Health $25,669.64 5.99% $653.31 2.5451% AAA A++ 1
Visa Inc V Financial $24,348.72 5.68% $166.38 0.6833% A+ A++ 1
Home Depot Inc HD Discret $23,893.55 5.57% $522.65 2.1874% A A++ 1
NextEra Energy Inc NEE Utilities $17,662.08 4.12% $501.85 2.8414% A- A 2
Becton Dickinson and Co BDX Health $17,151.02 4.00% $233.52 1.3615% BBB+ A++ 1
PepsiCo PEP Staples $14,948.95 3.49% $438.87 2.9358% A A++ 1
3M Co MMM Industrial $14,859.57 3.47% $341.05 2.2952% AA- A++ 1
Ross Stores Inc ROST Discret $14,375.21 3.35% $116.65 0.8115% A- A 2
Mastercard Inc MA Financial $14,164.20 3.30% $80.59 0.5690% A A++ 1
AT&T Inc T Telecom $13,760.81 3.21% $749.50 5.4466% BBB+ A++ 1
Realty Income Corp O REIT $12,940.64 3.02% $677.97 5.2390% BBB+ A 2
McCormick & Company MKC Staples $12,745.45 2.97% $249.58 1.9582% A- A+ 1
Dominion Resources, Inc D Utilities $8,906.58 2.08% $393.91 4.4227% BBB+ B++ 2
Kimberly-Clark KMB Staples $8,846.82 2.06% $311.37 3.5196% A A++ 1
Illinois Tool Works Inc. ITW Industrial $8,745.68 2.04% $166.42 1.9029% A+ A++ 1
Automatic Data Proc, Inc ADP Tech $8,487.00 1.98% $181.79 2.1419% AA A++ 1
Procter & Gamble Co PG Staples $8,380.50 1.95% $285.38 3.4053% AA- A++ 1
The Coca-Cola Co KO Staples $8,051.48 1.88% $285.20 3.5422% AA- A++ 1
Xcel Energy Inc XEL Utilities $7,811.21 1.82% $251.24 3.2164% A- A+ 1
Medtronic plc MDT Health $7,740.97 1.81% $177.18 2.2888% A A++ 1
Church & Dwight CHD Staples $7,385.89 1.72% $130.82 1.7712% BBB+ A+ 1
Starbucks Corporation SBUX Discret $7,087.02 1.65% $151.49 2.1375% A A++ 1
Air Products & Chemicals, Inc APD Materials $6,806.87 1.59% $182.32 2.6785% A A+ 1
TJX Companies Inc TJX Discret $6,541.94 1.53% $104.89 1.6034% A+ A++ 1
Clorox Co CLX Staples $6,323.22 1.47% $187.60 2.9669% A- B++ 2
WEC Energy Group, Inc. WEC Utilities $5,512.72 1.29% $196.98 3.5732% A- A+ 1
McDonald's Corporation MCD Discret $5,311.47 1.24% $131.60 2.4776% BBB+ A++ 1
Stryker Corporation SYK Health $4,720.23 1.10% $54.88 1.1626% A A++ 1
Kraft Heinz Co KHC Staples $4,475.80 1.04% $162.12 3.6221% BBB- A 2
Colgate-Palmolive Co CL Staples $4,430.99 1.03% $100.85 2.2760% AA- A+ 1
General Dynamics Corporation GD Industrial $3,991.83 0.93% $60.69 1.5204% A+ A++ 1
Abbott Laboratories ABT Health $3,618.92 0.84% $67.88 1.8757% BBB A++ 1
General Mills, Inc. GIS Staples $3,478.58 0.81% $128.69 3.6995% BBB+ A+ 1
Southern Co SO Utilities $43.85 0.01% $2.31 5.2644% A- A 2
Misc Type ……….. Partial Totals Weight Yr Dividends  Avg Yield …..832 …..9 …..82
Equity Stocks $413,430.05 96.44% $11,298.40 2.7328%
Investable US Dollars $9,874.74 2.30%
Miscellaneous Assets $5,400.00 1.26%
. .. Equity + Misc Weight …..2 ….. …..222 …22 …..223
Total $428,704.79 100.00%

Above is a summary of my current portfolio positions. My largest positions are in tobacco, MO and PM. I have not added to those positions in a long time as they are so chunky, however I do reinvest their large quarterly dividends. I have been consistently adding to other names in the mean time, focusing on increasing my positions in industrials, healthcare, and utilities. MO and PM used to be even larger % of my portfolio. But over the quarters, other positions started to garner larger share. Like JNJ, Visa, Home Depot, NextEra Energy, and BDX. I think over time, these high quality American companies will eventually become as large as my MO and PM positions improving my diversification.

In the last 2 months I have added to industrials and utilities, and some healthcare.
- Industrials: 3M, ITW, GD
- Healthcare: JNJ
- Utilities: WEC, XEL, NEE
There were also a few smaller purchases along the way.

My portfolio is centered around core positions that have stable mature businesses with high levels of dividend safety. The portfolio sectors are still largely in consumer staples. My positions in industrials has been growing. I have been aiming to reduce the large concentration in staples if possible, not by selling any but by adding more to other sectors. Since the portfolio's goal is income accumulation, I need to make sure that a large foundation of my portfolio is centered around businesses that hold high importance to their shareholder's dividend. Core and Supercore positions are focused around dividend aristocrats with 25+ years of increasing dividends. These companies which I classify as Core or Supercore also have superior balance sheets and moat and are not very cyclical businesses. This makes me feel more confident during economic recessions (like those that happen in 2000 and 2009) that my dividend is safe. I will feel less confident holding a small or startup company with a shaky dividend history during a large scale economic recession than I will in a dividend aristocrat company like JNJ who are professionals in handling differing economic environments. These mature companies have so to speak 'seen it all' over their 50-100 years of operation (some have been paying dividends for over 100 years).

The market correction lately can be seen in the end of January to early February time frame of the plot above. This chart shows the net worth I currently have and is a sum of all my portfolios. I do not hold any debts so the portfolio is quite accurate in showing what I currently have from the work I put in during the last 4 years. There have been 10% corrections in the past, however my portfolio back then was smaller. When corrections happened when I started, my biweekly contribution was enough to offset the dips. However, now that my portfolio is over $400K, I can no longer hide a 10% dip using my bi-weekly salary contributions anymore as that is just too much money.

I wanted to stress the importance of the graph above. Compared to the net worth graph which shows the dollar live value of my portfolio holdings, the portfolio's forward annual dividend graph is much smoother and predictable. The general trend is up. During the market correction timeframe, I added several shares of stocks which is why you see a slight surge up in the dividend graph.

Market corrections are an excellent time to add shares of stock. When prices fall, the yield % rises. This means every dollar you put to work will give you more dividends than the dollar put to work before the correction. Think of going to a grocery store and getting 10% more in food for your dollar than before. Food being dividends in this case.

What is even more interesting to note is that during this market volatility, many of the companies I hold have been increasing their dividends considerably. When I compared the hikes of these companies to their hikes last year, the increases this year are very large. I believe the changes with the tax cuts, repatriation, and more pro-business environment in Washington are aiding in the success of these businesses.

Names - Dividend Raise %
ADP - 10.53%
APD - 15.79% (wow! that tax cut is doing work)
CHD - 14.74% (wow!)
CLX - 14.29% (wow! these slow growing stapless don't usually increase this fast)
HD - 15.73% (this business is on fire)
MA - $13.64%
MKC - 10.64%
MMM - 15.74% (wow! this dividend aristocrat continues to outperform)
NEE - 12.92% (13% for a utility!)
SYK - 10.59%
V - 27.27% (this is comparing last March 2017 to this March 2018's raise, an unbelievably well run company catching the wave of the cashless society and millennial trends)

There were several other companies that announced hikes in the single digit raises. For more information check the bottom of the dividend payout page.

In terms of the health of a lot of companies I own, I do not see any change in the businesses. In fact, business in America is very good despite what the stock price charts say. That is why I continue to hold and add to my current positions.

Understand your goals, your investing process and philosophy, and execute objectively without emotion. In the long term I believe this will lead to favorable results.

Happy investing


  1. Love your charts YD, especially the net worth and 12 month dividends - that trend upwards is awesome to look at.

    Looks like a very solid portfolio of businesses you've put together too - I can see plenty of those great companies churning away for many years to come!

    Cheers, Frankie

  2. One of the better portfolio analysis I have seen on the web. Agree with your thoughts on tax reform trickling through to dividend increases. Tom

  3. Nice portfolio and great diversification curious why no energy stocks though?