December 2018 Portfolio Summary (Year End)

This summary will be for data up to January 12, 2019.

The latter part of 2018 was very volatile. My portfolio experienced drops as large as $50K and some daily movements were $10K. The dollar remains strong. There were several Fed rate hikes in the year and this has put downward pressure on stocks and increased demand for the US dollar. Strong dollar and high rates are not good for dividend paying stocks, a lot of which do business internationally. Fed Powell's prospect of future rate hikes in 2019 also created unease as the economy in the USA and China were already showing signs of cooling. Oil prices remained severely depressed which is a positive for many of my investments as oil is an input resource. I am not invested in oil companies due to the volatility and dependency on oil prices.

Recently the market has recovered moderately from the lows after Powell suggested that the Fed will take a more observatory approach to see if future rate hikes are needed. Things on investors minds include what will materialize from the China and USA trade negotiations, Powell's view on future rate hikes, and the recent government shutdown due to disagreement between the President and the government on the border wall.

As of today my portfolio sits at $580K. Tobacco has been big losers in my portfolio ($MO and $PM). They now yield over 6%. Recent drops can be attributed to the US government's crackdown on Menthol smokes. The rising interest rates are also not helping. And Altria has recently spent a fortune acquiring stakes in other businesses.

Altria has recently acquired a large $1.8B stake in Cronos, a marijuana company. And then shortly thereafter Altria invested $13B, a huge amount, into Juul. The Juul stake price was hard for me to swallow but I can see why Altria are becoming more aggressive to diversify away from the decline in their primary smoking business. Juul is incredibly successful and a hit for youngsters. Marijuana will surely be the same once it's fully legalized in the states. I feel better about the Cronos deal as they have a path to majority ownership and control and the amount is easy for Altria to swallow. The Juul deal has no clear path for Altria to own the reins on the business. They will own 1/3 of the business but if it remains a separate entity, then Altria cannot really have full control on the money generated from the business. If Juul becomes very core to Altria I want to see that profit be usable as dividends to us shareholders.

Right now I am not so happy with Altria's balance sheet but I still believe their dividend is very safe, more safe than $PM. I am looking forward to add more to $MO and $PM to complement my other dividend purchases. $MO and $PM have always offered a high yield and this helps offset my lower yield fast growing purchases. My favorite companies usually have yields in the 0.5%-1.5% range and this is too low for the overall portfolio so high yielding companies offer an important role for me to diversify. I expect the dividend increases from $MO to slow dramatically from their usual clockwork 8% a year. I have little expectation on any growth from $PM's dividend at this point, I see it more as a bond like AT&T. To me, buying $MO now and getting paid 6.5% a year just to hold it is a good deal. Historically $MO has done very well because the dividends were high and the valuations were depressed (since it is a hated company). Reinvesting the high dividend at very depressed prices is what made $MO's returns so profitable. $MO has experienced 50% drops in the past when regulators and lawsuits came after the company, and the recent decline is nothing out of ordinary.

Right now my portfolio overall yields 3%. This is a good conservative and high payout yield. Historically I have been in the 2.6-2.8% range. This shows how much my portfolio's value has declined over the recent months.

Regarding portfolio dividend increase performance in 2018 compared to previous years, I summarized that in a post in November here: Link.  The 2018 dividend hikes were massive largely due to tax cuts from the new President's policies. The total income growth with reinvestment was a huge 16% in my portfolio. Compare this to the usual average portfolio 10% hikes in dividend a year and 2018 was an impressive year. I do not expect this type of growth to continue in the future as now companies are used to the new taxes. My average dividend growth will probably be in the 10-11% range for 2019 I think.

Year	Dividend Growth	Dividend Yield	Total Income Growth
2014	10.30%	2.81%	13.11%
2015	9.68%	2.94%	12.62%
2016	10.11%	2.76%	12.87%
2017	9.49%	2.62%	12.10%
2018	13.20%	2.76%	15.96%

Corporation Name	Ticker	Sector	Value	Weight	Divies	Yield	S&P Fin	VL Fin	VL Safety
Johnson & Johnson	JNJ	Health	$34,038.12	5.87%	$944.41	2.7746%	AAA	A++	1
Visa Inc	V	Financial	$31,399.84	5.41%	$227.44	0.7243%	A+	A++	1
Altria Group Inc	MO	Staples	$29,322.75	5.05%	$1,918.87	6.5440%	BBB	B+	2
Philip Morris International Inc	PM	Staples	$26,165.21	4.51%	$1,716.74	6.5612%	A	B++	2
Home Depot Inc	HD	Discret	$25,603.80	4.41%	$587.97	2.2964%	A	A++	1
NextEra Energy Inc	NEE	Utilities	$23,758.61	4.09%	$600.35	2.5269%	A-	A	2
PepsiCo	PEP	Staples	$23,369.96	4.03%	$801.61	3.4301%	A	A++	1
Becton Dickinson and Co	BDX	Health	$21,071.47	3.63%	$283.57	1.3457%	BBB	A++	1
Realty Income Corp	O	REIT	$19,035.51	3.28%	$785.23	4.1251%	BBB+	A	2
Mastercard Inc	MA	Financial	$18,591.30	3.20%	$125.27	0.6738%	A	A++	1
Ross Stores Inc	ROST	Discret	$18,032.70	3.11%	$177.93	0.9867%	A-	A	2
3M Co	MMM	Industrial	$18,014.67	3.10%	$509.86	2.8302%	AA-	A++	1
McCormick & Company	MKC	Staples	$17,454.31	3.01%	$284.01	1.6272%	BBB	A+	1
Air Products & Chemicals, Inc	APD	Materials	$15,603.87	2.69%	$437.89	2.8063%	A	A+	1
Procter & Gamble Co	PG	Staples	$15,170.32	2.61%	$474.10	3.1252%	AA-	A++	1
Xcel Energy Inc	XEL	Utilities	$15,010.23	2.59%	$462.88	3.0838%	A-	A+	1
Clorox Co	CLX	Staples	$14,768.68	2.55%	$369.82	2.5041%	A-	B++	2
Kimberly-Clark	KMB	Staples	$14,320.94	2.47%	$488.77	3.4130%	A	A++	1
Illinois Tool Works Inc.	ITW	Industrial	$13,758.10	2.37%	$422.32	3.0696%	A+	A++	1
AT&T Inc	T	Telecom	$13,591.62	2.34%	$898.18	6.6084%	BBB+	A++	1
WEC Energy Group, Inc.	WEC	Utilities	$12,970.66	2.24%	$440.82	3.3986%	A-	A+	1
The Coca-Cola Co	KO	Staples	$12,681.05	2.19%	$417.88	3.2953%	AA-	A++	1
Automatic Data Proc, Inc	ADP	Tech	$12,674.99	2.18%	$304.24	2.4003%	AA	A++	1
Church & Dwight	CHD	Staples	$11,067.99	1.91%	$143.73	1.2986%	BBB+	A+	1
Dominion Resources, Inc	D	Utilities	$10,330.97	1.78%	$493.99	4.7817%	BBB	B++	2
Colgate-Palmolive Co	CL	Staples	$9,958.14	1.72%	$269.40	2.7053%	AA-	A+	1
TJX Companies Inc	TJX	Discret	$9,611.87	1.66%	$157.97	1.6435%	A+	A++	1
Microsoft Corporation	MSFT	Tech	$9,540.88	1.64%	$170.77	1.7899%	AAA	A++	1
Starbucks Corporation	SBUX	Discret	$9,121.69	1.57%	$206.11	2.2595%	A	A++	1
Stryker Corporation	SYK	Health	$8,370.63	1.44%	$109.17	1.3042%	A	A++	1
McDonald's Corporation	MCD	Discret	$7,194.53	1.24%	$183.05	2.5443%	BBB+	A++	1
Abbott Laboratories	ABT	Health	$6,770.66	1.17%	$125.00	1.8462%	BBB	A++	1
General Mills, Inc.	GIS	Staples	$6,646.24	1.15%	$311.64	4.6890%	BBB+	A+	1
General Dynamics Corporation	GD	Industrial	$6,610.49	1.14%	$150.12	2.2709%	A+	A++	1
Honeywell International Inc.	HON	Industrial	$6,509.27	1.12%	$155.43	2.3879%	A	A++	1
Medtronic plc	MDT	Health	$6,234.68	1.07%	$146.98	2.3574%	A	A++	1
Kraft Heinz Co	KHC	Staples	$3,232.56	0.56%	$177.19	5.4813%	BBB-	A	2
Resideo Technologies Inc	REZI	Industrial	$109.56	0.02%	$0.00	0.0000%
Garrett Motion Inc	GTX	Industrial	$39.92	0.01%	$0.00	0.0000%
Misc	Type	………..	Partial Totals	Weight	Yr Dividends	Avg Yield	…..832	…..9	…..82
Equity	Stocks		$557,758.78	96.12%	$16,480.71	2.9548%
Investable	US Dollars		$15,894.50	2.74%
Miscellaneous	Assets		$6,613.00	1.14%
.	..	…	Equity + Misc	Weight	…..2	…..	…..222	…22	…..223
Total			$580,266.28	100.00%

Sector distribution has not moved around much. Over the years I have tried to diversify away from mostly consumer staples. I have increased positions in Industrials and Technology. Discretionary and Healthcare are also now significant portions. I add a lot into Healthcare and Utilities and Staples as they are very core and consistent and anti-cyclical businesses with good yields. The discretionary business has grown a lot on their own, especially ROST and TJX and MCD. The Consumer Staples  and Utilities have held up well in this correction compared to my more cyclical sectors like industrials.  Diversification is important as I cannot tolerate the risks associated with concentration. However, concentration is the real way to generate high returns and many famous investors operate in this regard such as Buffett. To me I do not need these type of returns and risks to achieve my goals so I prefer diversification.

The net worth growth is steadily inching back up to $600K. The spike up towards end of last year was due to changing employers. A lot of that cash has been deployed already so that corresponds with the spike in forward annual income. I recently have held cash only during the market move downward. In January I am expecting my cash positions to be in the $15K-20K range and am considering purchases now.

One important observation is the overall steadiness of the forward annual dividend graph. If one does their research and invests in very safe payout ratio dividend paying companies with decades of dividend increasing track record, then the dividends will be much more guarantee compared to price. It is also easier to predict dividend increases as one can read a company's track record and make conservative estimates where it is going. One cannot do the same with price however. Price is up to the whims of the market, it can go up and it can go down. Dividends on the other hand can only be paid out with cash, as long as a company's fundamentals are good then the cash will keep rolling in. This is why I like to focus on the second graph more than the first graph.

Happy investing, let us make 2019 a blow out year for this portfolio.

-YD