Sunday, November 21, 2021

Portfolio Update - happy Thanksgiving

It has been a long time since I sat down and wrote about my portfolio. Life has become more busy and I let my portfolio go on auto-pilot in 2021. My workload has increased as I have been promoted to larger responsibilities, and spend most of my time traveling meeting new business opportunities. Right now, I do not have as close of a detail view of the stock markets but have been following at a high level. The promotion allows for more income, but I have not been continuously investing like my younger years, I just hold the cash now. 

Some takeaways I see from the overall market are:

  • All assets are very inflated, too much money chasing too few deals.
  • The COVID 19 stimulus and cash injection into the market and public hands has increased prices for everything.
  • Inflation is high. Cost of raw materials and living going up significantly.
  • There is a lack of labor or shortage of supply, increasing backlog and artificially inflating demand.
  • Dividends are very low yield, due to high money supply and low interest rates.
  • COVID 19 changed the way businesses work and do business with people, entire sectors of the industry are changed forever for the better or for the worse.
  • Increased demand for technology and any industry that supports the social distancing lifestyle and stay at home economy.
  • Decreased demand for discretionary type businesses such as restaurant and bar, travel and hotel, leisure, entertainment like movie theaters or amusement parks.
  • Decreased demand for office realty and large movement of people away from mega-cities to 2nd tier cities, creating price fluctuations (up and down, depending on region) on housing compared to pre-COVID period.
The overall effect of COVID 19 and the stimulus on my portfolio has been, overall, positive as basically all my stock prices have gone up. However, this presents a challenge as I have seen on companies worth purchasing during the last year. My portfolio is more defensive and less weighted in technology stocks, as a result my overall portfolio has had less capital gains than the S&P or Nasdaq indices. To me that is fine, as overall it is still going up and paying solid dividends. If a correction or recession occurs, my portfolio will suffer less of a serious percentage loss than the broader market.

I have actually kept all my cash position idle, and have not done anything with it except reinvesting dividends in the stocks that paid the dividends. The cash is unfortunately sitting in a low interest rate bank account, and not getting much return. The high interest rate savings account I see are now 0.50%, compared to rates above 1.0% several years ago when I used to use them, the interest rate has been going down across the board over the years which really makes it challenging to hold cash as there is no return for this asset and inflation is so high now.

The reason I am holding so much cash, it is around $120,000 USD as of this writing, is because I am looking to purchase a home. That cash will be used to start a mortgage. I am looking to finally settle down somewhere and have been looking at various cities across the United States where I can live in. My work does not require me to be in a particular city permanently, I can remote work. Most of my work is spent traveling from place to place as my work is distributed around the world and is international, which is something I like as it provides flexibility and choice. I also do not like to live in high cost of living cities and prefer a remote place or quiet location to live.

Name Ticker Sector Value [$USD] Weight Divies Yield SP Fin VL Fin VL Safety
Microsoft Corporation MSFT Tech $69,105.00 5.41% $499.49 0.7228% AAA A++ 1
Home Depot Inc HD Discret $64,824.53 5.08% $1,046.86 1.6149% A A++ 1
Visa Inc V Financial $54,808.55 4.29% $409.30 0.7468% AA- A++ 1
NextEra Energy Inc NEE Utilities $54,772.71 4.29% $955.16 1.7439% A- A+ 1
Realty Income Corp O REIT $52,358.60 4.10% $2,077.80 3.9684% A- A 2
Johnson & Johnson JNJ Health $47,538.16 3.72% $1,237.41 2.6030% AAA A++ 1
PepsiCo PEP Staples $45,018.31 3.53% $1,181.73 2.6250% A+ A++ 1
Altria Group Inc MO Staples $44,940.77 3.52% $3,727.81 8.2949% BBB B++ 3
Automatic Data Proc, Inc ADP Tech $42,037.48 3.29% $657.31 1.5636% AA A++ 1
Philip Morris International Inc PM Staples $40,057.44 3.14% $2,215.57 5.5310% A B++ 3
Abbott Laboratories ABT Health $35,478.39 2.78% $503.48 1.4191% A- A++ 1
Clorox Co CLX Staples $34,283.93 2.69% $952.67 2.7788% A- A 2
Procter & Gamble Co PG Staples $32,621.92 2.55% $773.22 2.3702% AA- A++ 1
Air Products & Chemicals, Inc APD Materials $31,827.13 2.49% $641.37 2.0152% A A+ 1
Mastercard Inc MA Financial $31,682.32 2.48% $164.14 0.5181% A+ A++ 1
Kimberly-Clark KMB Staples $30,692.81 2.40% $1,041.05 3.3918% A A++ 1
Illinois Tool Works Inc. ITW Industrial $29,699.71 2.33% $599.05 2.0170% A+ A++ 1
Xcel Energy Inc XEL Utilities $28,252.41 2.21% $794.19 2.8111% A- A+ 1
Church & Dwight CHD Staples $27,764.80 2.17% $303.45 1.0929% BBB+ A+ 1
3M Co MMM Industrial $27,474.85 2.15% $907.50 3.3030% A+ A++ 1
Costco Wholesale Corporation COST Staples $26,540.89 2.08% $157.12 0.5920% A+ A++ 1
McCormick & Company MKC Staples $26,463.43 2.07% $428.61 1.6196% BBB A+ 1
Becton Dickinson and Co BDX Health $25,864.32 2.03% $362.04 1.3998% BBB A++ 1
Stryker Corporation SYK Health $25,825.40 2.02% $246.81 0.9557% A- A++ 1
WEC Energy Group, Inc. WEC Utilities $24,949.82 1.95% $747.50 2.9960% A- A+ 1
The Coca-Cola Co KO Staples $24,814.81 1.94% $756.19 3.0473% A+ A++ 1
General Dynamics Corporation GD Industrial $23,465.21 1.84% $568.97 2.4247% A A++ 1
Starbucks Corporation SBUX Discret $21,785.53 1.71% $385.45 1.7693% BBB+ A++ 1
General Mills, Inc. GIS Staples $19,053.40 1.49% $626.51 3.2882% BBB A 1
Colgate-Palmolive Co CL Staples $17,655.40 1.38% $411.65 2.3316% AA- A+ 1
Honeywell International Inc. HON Industrial $15,177.10 1.19% $272.30 1.7941% A A++ 1
McDonald's Corporation MCD Discret $13,800.51 1.08% $302.36 2.1909% BBB+ A++ 1
Dominion Energy, Inc. D Utilities $13,530.85 1.06% $459.60 3.3967% BBB+ B++ 2
Medtronic plc MDT Health $12,668.32 0.99% $272.34 2.1498% A A++ 1
AT&T Inc T Telecom $11,393.56 0.89% $982.12 8.6200% BBB A++ 1
Misc Type ……….. Partial Totals Weight Yr Dividends Avg Yield …..832 …..9 …..82
Equity Stocks   $1,128,228.38 88.36% $27,668.14 2.4524%      
Investable US Dollars   $119,994.54 9.40%          
Toyota Vehicle Depreciate   $25,100.00 1.97%          
Miscellaneous Assets   $3,502.92 0.27% $85.00        
. .. Total [$USD] ….. Yr Dividends …..2 …..222 …22 …..223
Total     $1,276,825.84   $27,753.14        


The portfolio now sits at $1.277M USD and Microsoft and Home Depot have rocketed up to take the top spots in the portfolio. Visa used to be #1 but has now moved to #3. A notable change in this year is Realty Income acquired VEREIT (formerly ARCP which had some account scandals), in an all stock transaction. They then divested its office rental properties into a new stock called ONL. I am currently deciding if I should sell this ONL to reinvest back into O as I do not like the office REIT business and also want the monthly dividend from the mother company.

At the moment, cash sits at $120,000 USD and it is expected to continue growing. I have no intention of spending any money on buying stocks at current prices. I do however, get around $27,700 USD in dividends every year, or around $2308 USD per month. This dividend cash is used to buy more dividend paying stocks every month to compound my growth, even if the stocks are expensive and yields low, I still use this cash on autopilot dividend reinvestment. This way of investing for me is the baseline dollar cost averaging I do to add positions to ensure I still am engaged in the market at all times. But for the big fresh dry powder cash, I do not touch it now.

I believe since inflation is becoming a big issue, the Federal Reserve will eventually need to taper and increase interest rates. Every time the Fed does this, it causes panic and asset prices become very volatile (usually going down) as money supply decreases (less cash chasing deals). This will cause all stocks, especially dividend paying ones, to go down in value so that yields can be comparable to the increased interest rate in bonds and treasuries. I believe property prices will also fall as a result of tapering or increased Fed rates, as housing prices are related to mortgage interest rates, and when rates go up the cost of the mortgage goes up, so housing prices have to fall to normalize.

I am in the market shopping for a home, and find the interest rates very low which is nice. However prices of properties are indeed very high due to the low interest rates and high money supply. My rationale is eventually one needs to live somewhere, and the USA population keeps increasing while usable land is constant. 

When reviewing the finances of a home, I do subtract the cost of rental living expense from the mortgage cost when analyzing this ROI. I also factor in the equity that each mortgage payment will have, as paying for a home is roughly 2/3 for fees+interest+taxes in the beginning and 1/3 to one's own equity. In the end, I look at how much net excess expenses a mortgage will cost me (verses renting) and then compare it to the potential return of the house over time, as house prices tend to increase roughly a bit above inflation in the United States. Since the mortgage is leveraged (i.e. assume a 5x ratio for a 20% down payment 30 year plan), an inflation rate of 3% per year (rather conservative) that generates a price increase of 3% year over year on the selling price value of the house will be around a 15% return per year on the cash put on the 20% down payment. This return will go down of course after accounting for upkeep and taxes and running expenses, but it's still an attractive figure. The taxes and interest paid per year will also help on tax returns, however, this amount is minimal (I estimate maybe I can get 20% of these taxes and interest I pay per year). Having a property will also provide assurance that I have locked in a place to live without having to worry about inflation impacting my cost of housing expense.


Above is the plot showing my net worth growth. The trend continues to move up as my portfolio does most of the work due to capital appreciation of the overall market. My goal now is to achieve $2M sometime in next 3 years. After the first million is hit, the next millions are always more easy to achieve as the portfolio's positions are doing a lot of the work. The dividend trend is slowly creeping up due to dividend increases from each company, and also dividend reinvestment to buy more shares. The dividend income growth is slower compared to previous years as I am not using my cash to buy more shares actively, due to saving for a home. I have noticed the dividend increases have been slowing down in 2021 compared to previous years.



The above charts show my sector and position allocation. Consumer Staples used to be a larger weighting, around 32%, but it has now declined to 29% as other sectors are growing faster than the Consumer Staples. Technology companies have been performing the best, but I do not hold many positions in this sector, I only hold ADP and MSFT which both have performed very well. The Utility sector has been rather stagnant, and compared to other sectors, their yield look attractive if one has cash and needs to invest.

Stocks that have performed very well in my portfolio this year include:
Home Depot (HD)
Microsoft (MSFT)
Costco (COST)
Automatic Data Processing (ADP)
Next Era Energy (NEE)

Visa and Mastercard have been pulling back, and are high quality companies, one can take a look at these two companies if they are looking for a solid company to invest in. For high yield, Clorox has pulled back significantly, and MO and PM continue to offer high yield if one can tolerate the industry they are in. MKC is a dividend aristocrat, with lower yield %, but has also pulled back significantly and is a solid company as well to invest in. For utility companies, XEL and WEC have pulled back and have not run up like other stocks, and offer good yields relative to the overall market.


Happy Investing,
-YD

2 comments:

  1. Thanks for the post. I always look forward to them. Why won't you just take a margin loan on your future house and buy a house for cash? This makes the entire process much more easier when you get a house. I am also surprised that you don't do covered calls or lend you shares to boost at least a little bit you portfolio return. Congrats all around KR

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  2. Happy to see you are doing well! Happy Thanksgiving to you and yours!

    We just moved out of NYC to a suburban home. Mortgage rate is insanely low but the housing market is very competitive. Not sure where you are, but I wish you all the best in your housing search.

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