tumsasedgars
Happy New Year!
First, thank you for all of the engagement on my recent article detailing my 2023 plans for my portfolio. I received a lot of positive engagement which keeps me coming back to update everyone on my portfolio. To catch any new readers up, here is my inaugural article on my portfolio rationale, how I view/manage my top positions, my November portfolio update, and my most recent watchlist (new watchlist article coming later this month).
The most important statistic for this portfolio is that my dividends grew 11.4% over 2021. While I don’t care about total return as much, I know a lot of SA readers like to know. My portfolio returned roughly -10% this year. I was lucky with a lot of purchases that turned out very well earlier in the year and averaging into big tech throughout the year. While the performance of META and NFLX hurt quite a bit, keeping those positions smaller helped. Going forward, I’ll discuss total return at the end of the year and focus more on dividend growth since that is the primary objective.
I did not do any deep analysis on total return, I track every purchase made throughout the year and calculate return on a rolling basis. I’m not comparing my return to the S&P 500 since I would need to look at every single time I purchased shares and compare. Instead, I look at the S&P 500 yield (roughly 1.8%) and dividend growth (roughly 10%) and compare that to my own yield (1.9%) and dividend growth (11%) for comparisons. On those metrics, my portfolio is performing as intended.
Adding money to the portfolio helped the dividend growth and also offset a lot of the higher yielding ETFs I sold. Going forward, I anticipate adding money to be a major tailwind to future years. Since I’m still in the accumulation phase, I’m happy to embrace that tailwind. If I were closer to retirement, I’d be leaning on organic dividend growth more.
Point of clarification for everyone: I’ve had numerous comments about the simplicity of indexing your portfolio. My stock portfolio below makes up only a portion of my family’s assets. In addition, we have a portfolio of roughly equal size consisting of passive index funds (specifically VOO and VTI). Over the next few decades, I imagine the individual stock portfolio will overtake the passive portfolio to an 80/20 mix or so, but passive investing is an important component of our work-sponsored retirement plans.
As is customary, we will move into how I allocated my monthly savings and dividend reinvestments. I’ll then discuss dividend raises my portfolio saw in December 2022 and raises I anticipate seeing in January 2023.
Monthly Savings
I initiated two FOUR positions this month. With my year-end 2022 goal being to focus on a basket of companies yielding 2.5%+, I took the opportunity to add four names: Mid-America Apartment Communities (MAA), Enterprise Products Partners (EPD), Medtronic plc (MDT), and Charter Communications (CHTR).
I acquired shares of MAA on December 5, 2022 for $161.79; shares of EPD on December 5 for $24.68, December 9 for $23.83, and December 29 for $24.15; shares of MDT on December 19 for $76.97 and December 29 for $77.93; and shares of CHTR on December 19 for $308.25. Outside of those four new positions, I also added to MCO at $282.41, AAPL at $130.04 and CNI at $120.12, all on December 29. Busy month!
Here is a discussion on all of my new investments.
In previous articles, commenters have questioned by preference for ESS over other more diversified apartment REITs. The true answer was that I’ve long owned ESS, and if I could do it over again, I probably would go with a more diversified apartment REIT. With apartment REITs finally coming down to more reasonable cap rates, I decided to begin my DCA into a position. I’m not sure where MAA will end up in terms of position sizing, but it’s something I want to have to balance my overexposure to the west coast apartment market. The other major consideration was EQR here. I liked MAA’s stronger focus on the southern portion of the country (especially given that it doesn’t operate on the west coast) and more consistent dividend track record.
EPD is a company I’m very excited to add to my portfolio. So excited that I purchased it three times this month to get it to its “full” weighting for me. In the comment section of a previous article (thanks John749), I noted I’d like to own a midstream MLP, but needed to do it in a taxable account and had to decide whether to go after MMP or EPD and I’d likely cap the position at 0.5%. In the end, I was able to move some money around and aggressively purchase EPD in my taxable account to get it to the 0.5% target. MLPs in general are something I’ve avoided, and if I’m going to deal with a K-1 I’d rather it be for a more significant amount of money than slowly averaging into the position. I’ll happily take the distributions from EPD and add to other higher dividend growth names. The small allocation to EPD helped bolster the portfolio’s yield while protecting it by weighting it small enough that any disruption won’t hurt total dividend growth. I may add MMP at some point in the future, but I’m content with EPD for now. I’m happy EPD is the fourth high yielding position in the portfolio. Since these companies have a yield well in excess of the total portfolio, they allow me to allocate to non-dividend payers with higher capital appreciation prospects.
There has been a lot of discussion in different articles on the merits of MDT. It’s a blue chip medical device company that’s gone nowhere over the past few years. But, the company sports an 8%+ 5-year dividend growth rate. At a 3.5% yield, it was really hard to convince myself to not just dump a ton of money into this one position. Instead, I’ll take my time and average in. I’m roughly targeting a 1-2% weighting going forward. At a 0.6% weighting, I acquired a half to one-third position and as long as the price remains depressed, I’ll try to add over the next few months. If the price for some reason runs away from me, I’m fine letting this non-core position flourish while I allocate its distributions.
I’ve written about CHTR a few times, specifically in my November and September watchlist articles and I previewed the purchase in my 2023 portfolio article. When CHTR got close to $300 per share, I decided to pull the trigger and initiate a position. Since I have exposure, I’ll try to average into the position over the coming months. CHTR is not a dividend growth stock, but it’s been a strong growth company for several years. CHTR is currently priced for an environment where the market expects it not to grow. I said it before, but I feel like I’m appropriately protected in this position. I think I’m purchasing CHTR at a good price, and it’s weighted appropriately where I’m protected for any serious loss of capital. If CHTR runs ahead of me I can’t say I wouldn’t consider selling/reducing my position. Right now, I’m happy to buy a very good company at an attractive price.
MCO, AAPL and CNI are all core positions that I added to with some monthly savings and cash that was in my accounts. I like these year-end purchases with some idle cash since it draws the cash level down a bit and lets me up the share counts heading into the new year (to be clear, the cash amount I report below is only an estimate, I don’t closely track the amount of cash in my accounts since there are constantly accumulating dividends). I don’t think any of them offer an attractive margin of safety, but I’m happy to add to AAPL near its 52-week low. I’ll continue to buy these three behemoths as I noted in my plans for 2023.
Dividend Reinvestments
On January 3, 2023, I put my December dividends to work and purchased shares of Canadian Pacific (CP) at $75.07, Visa (V) at $211.67 and Costco (COST) at $457.07.
These companies are building off my strategy for 2023 to continually allocate to my “top 10” positions and companies I want to join my top 10. I always have a hard time buying shares of COST since they always seem expensive. I’ll likely focus dividend reinvestments toward COST so I can average my purchases throughout the year since that is an area where I don’t give a lot of weight to valuation.
CP is a company I’m quite bullish on given the pending acquisition of Kansas City Southern. The transaction remains under review by the Surface Transportation Board. If you’re interested in following along, the docket number is FD-36500 and you can find the docket here.
I have nothing more to add on V as I feel like I discuss my love of V and MA monthly. Expect to see me add to V and/or MA regularly.
Dividend Raises
Last month, my portfolio saw 5 dividend increases:
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On December 6, MA raised its dividend by 16.3% to $0.57 per share per quarter
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On December 8, AMT raised its dividend by 6.1% to $1.56 per share per quarter
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On December 8, AVGO raised its dividend by 12.2% to $4.60 per share per quarter
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On December 13, O raised its dividend by 0.2% to $0.2485 per month per share
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On December 13, MAA raised its dividend by 12.0% to $1.40 per share per quarter
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On December 15, CVS raised its dividend by 10.0% to $0.605 per share per quarter
I will discuss them in order.
MA is one of the largest securities in my portfolio for this exact reason. Year after year, it rewards shareholders with large dividend increases and an increasing buyback program. I’ve discussed my love for MA (and V) previously given its capital light business structure and competitive advantage. Long MA and I plan to continue to add on weakness.
AMT with another stellar raise to end the year. A 6.1% raise is fantastic, especially when you remember it bumps its dividend every quarter. In total, the January 2023 dividend is 12.2% higher than the January 2022 dividend, and you didn’t have to wait a year to get that entire raise since it materialized over the quarters. At $211.11 (the time of writing) AMT is trading at a ~2.95% yield, one of its better bargains over the past year. Long AMT and I hope to accumulate more shares throughout 2023.
AVGO was a surprising, but welcome, dividend raise this quarter. I thought there was a chance AVGO would hold off on its bump (or provide a smaller bump) as it was still in the regulatory process for its acquisition of VMW. Seeing another double digit dividend raise was great, and definitely helped give this year a few more basis points of growth. AVGO is one of my bigger income providers given its top 10 weighting and heavier yield (compared to the rest of the portfolio). It’s this reason I’ll likely hold off on any AVGO purchases over the next year. I’d like to diversify my revenue stream a bit more, so AVGO will need to fall out of the top 10 before I consider adding significant capital.
I was disappointed to see O provide a smaller raise given that we get the “big” raise in December. O raises its dividend quarterly, and given that it’s a higher yielding position, I don’t anticipate any noteworthy raises. The year over year rise is 0.8%. It’s a position I’m generally happy with, but a few more years of sub 1% yearly raises may have me looking at other opportunities.
MAA has quickly earned its place in the portfolio given the raise only days after the position was initiated. I don’t have much to say outside of what I noted above. I’m sure I’ll have more to say in the coming months as I build the position.
CVS has followed up its initial bump last year with another double digit increase. I wish I would have loaded up on shares when this company was in the $50s with zero dividend growth, but I’m happy to be partnering with this company as it’s proving its commitment to shareholders.
Projected January Dividend Increases
I decided to add a new section to my portfolio update which looks at any potential dividend increases in the next month. As a reminder, I group stocks into a few buckets: core dividend growth, high dividend growth, high yield, and other bets. For core dividend growth, I anticipate mid-to-high single digit dividend growth; for high dividend growth, I anticipate low double digit dividend growth; for “high yield” I expect a 4%+ yield plus low single digit dividend growth; and I have no expectations for other bets and am fine with a paused/stagnant dividend as long as that was the intent when purchasing. At the end of the year, I’ll likely shake up my allocations because some of my future expectations have changed.
Here are the dividend increases I anticipate being announced in January 2023:
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Canadian National (CNI) – CNI typically announces its dividend increase in January, with the last two being a 19% increase and a 7% increase. I have CNI in my core dividend growth bucket, so I’m anticipating somewhere between 7%-9% dividend growth. I would be thrilled with anything north of that and disappointed with a sub-5% dividend growth.
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Comcast Corporation (CMCSA) – CMCSA’s last two dividend increases were 8.0% and 8.6%. I’m actually hoping for a slightly larger raise in January, something in the low double digits given the poor stock performance this year, but I could see a move from $0.27 per share to $0.29 per share. I’m hoping for $0.30 per share, though.
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BlackRock (BLK) – BLK’s last two raises were 18.1% and 13.7%. While I would love another strong double digit raise, Seeking Alpha provides some stats on BLK’s dividend payout history, and it looks like the current payout ratio is well above its 5 year average. While BLK’s dividend is rated an A+ safe, I think growth should slow. Mid to high single digits is what I’m expecting.
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S&P Global (SPGI) – Typically, SPGI hikes its dividend in January for its April payment. SPGI waited a quarter last year as it was waiting for the close of the INFO acquisition. I hope SPGI will return to the January hiking schedule. I’m expecting a low double digit raise.
Portfolio
Below is a current look at my portfolio, but first some housekeeping items. At the end of every year, I take a step back and determine if my going forward expectations for the companies match the buckets they are in. I made one change, I moved TXN from my high dividend growth bucket to my core dividend growth bucket. I think mid-to-high single digit dividend growth over the next few years is likely for TXN given its focus on CapEx.
Some other considerations I had were to move BLK and AVGO to core dividend growth, to move EOG/COP to other bets, and to move CVS to the high dividend growth category. I decided to leave the companies as is since I still anticipate low double digit growth from BLK/AVGO, dividend growth from EOG/COP, and there is not enough information to assess whether CVS will continue 10% dividend raises moving forward.
I think BLK/AVGO’s dividend growth will decelerate over time, so I may make the move at the end of 2023. EOG and COP are more bets on oil than the actual companies themselves at this point. I may decide to call a mid-year audible and move these to other bets. My main thinking here is if EOG/COP didn’t raise their core dividend this year, they wouldn’t be candidates to sell due to their variable dividend. If we see another double digit increase from CVS in late 2023 along with strong EPS growth, I’ll likely move it to my high dividend growth category. In situations where I’m not quite sure if I should move a company, I tend to leave it as is.
|
Company |
Ticker |
Allocation |
|
Core Dividend Growth |
40.564% |
|
|
Microsoft Corporation |
7.393% |
|
|
Apple Inc. |
4.837% |
|
|
Canadian National Railway |
3.676% |
|
|
Texas Instruments Incorporated |
3.633% |
|
|
Air Products and Chemicals, Inc. |
2.669% |
|
|
AbbVie, Inc. |
2.579% |
|
|
Essex Property Trust, Inc. |
2.493% |
|
|
Canadian Pacific Railway |
2.409% |
|
|
Comcast Corporation |
1.733% |
|
|
QUALCOMM Incorporated |
1.483% |
|
|
Vulcan Materials Company |
1.128% |
|
|
ConocoPhillips |
1.021% |
|
| CVS Health Corporation |
0.938% |
|
|
EOG Resources, Inc. |
0.933% | |
|
Starbucks Corporation |
0.868% |
|
|
Union Pacific Corporation |
0.717% |
|
| The Coca-Cola Company |
0.658% |
|
|
Medtronic plc |
0.677% |
|
|
NextEra Energy, Inc. |
0.491% |
|
|
Mid-America Apartment Communities |
0.229% |
|
|
High Dividend Growth |
42.529% |
|
|
Broadcom Inc. |
4.899% |
|
|
Moody’s Corporation |
4.536% |
|
|
Visa, Inc. |
4.346% |
|
|
Mastercard Incorporated |
4.178 | |
|
BlackRock, Inc. |
4.171% |
|
|
Lowe’s Companies, Inc. |
2.877% |
|
|
The Home Depot, Inc. |
2.769% |
|
|
Costco Wholesale Corporation |
2.728% |
|
|
S&P Global, Inc. |
2.544% |
|
|
American Tower Corp |
2.191% |
|
|
Automatic Data Processing, Inc. |
2.065% |
|
|
Danaher Corporation |
1.918% |
|
|
Old Dominion Freight Line, Inc. |
1.652% |
|
|
Target Corporation |
1.152% |
|
|
Estee Lauder Companies Inc. |
0.502% |
|
|
High Yield |
5.747% |
|
|
Altria Group, Inc. |
2.118% |
|
|
Realty Income |
1.956% |
|
|
Verizon Communications Inc. |
1.147% |
|
|
Enterprise Products Partners L.P. |
0.526% |
|
|
Non-Dividend |
9.307% |
|
|
Alphabet Inc. |
3.256% |
|
|
Netflix, Inc. |
2.964% |
|
|
Meta Platforms, Inc. |
2.295% |
|
|
Charter Communications, Inc. |
0.738% |
|
|
Olaplex Holdings |
0.053% |
|
|
Other Bets |
1.393% |
|
|
Financial Institution A |
— |
0.582% |
|
Hilton Worldwide Holdings, Inc. |
0.554% |
|
|
The Walt Disney Company |
0.257% |
|
|
Cash |
0.460% |
Conclusion
2022 was a great year for my family and portfolio. We welcomed our first child, I started a new job, and my wife transitioned to a stay at home mother. I have a feeling 2023 will be another great year for my family and portfolio.
Thank you to everyone for following along! I love writing here and can’t wait to see where my portfolio goes in 2023.
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