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And just like that, we’re one step closer to financial freedom.
October was a great month for me personally and professionally. I achieved a long-term running goal at the end of October that I’ve been building towards for two years. It was an exciting accomplishment, and best of all, my passive income was continuing to come in while I spent almost a week completely away from my portfolio. I instead focused my time on getting ready for my goal, achieving my goal, then recovering from my goal.
Pooled Dividend Reinvestments
While I didn’t start this article until we were well into November, I still found time to reinvest my dividends. Due to being on the mend, I kept my reinvestments very simple this month. I reinvested all of my dividends into the ratings agencies, S&P Global (SPGI) and Moody’s (MCO). SPGI shares were purchased at $322.73 and MCO shares were purchased at $267.80. Well off these companies’ recent bottoms, I’m still happy to accumulate shares of these high quality businesses. The companies are “combining” to be the third largest position in my portfolio, behind only “Visa (V) + Mastercard (MA)” and Microsoft (MSFT). I expect my railroads (Canadian National (CNI), Canadian Pacific (CP) and Union Pacific (UNP)) will likely overtake the ratings agencies at some point over the next year or two, but I don’t anticipate the agencies falling out of my top five unless there is a significant decay in their stock prices relative to the other stocks in my portfolio.
My last article discussed an ETF holding I sold that allowed me to make a major change in my portfolio. I added three new positions, BlackRock (BLK), UNP, and Verizon (VZ) and bolstered Texas Instruments (TXN), Realty Income (O), Altria (MO), Comcast (CMCSA), American Tower (AMT), and Mastercard (MA). If I hadn’t made these recent purchases, I would have attempted to add shares of TXN, CMCSA, and/or AMT in my monthly dividend reinvestments. Instead, I took a break from some of my favorite names and I was able to allocate all of my reinvestments into SPGI and MCO, helping build these long-term positions.
Monthly Savings
In addition to my monthly dividend reinvestments, I was able to put money to work in the market. I used my monthly savings to add to several positions, including CP, Qualcomm (QCOM), and V. I purchased shares of QCOM on October 4, 2022 for $120.48; shares of CP on October 7, 2022 for $69.02 and on October 24, 2022 for $71.18; and shares of V on October 24, 2022 for $192.08.
I chose QCOM because it’s a stock I’ve long felt under allocated to which seems to present buying opportunities every few years. Well off its recent highs, I felt comfortable adding in the low $120s (spoiler alert, I added again in early November, but that’s for next month’s writeup) to try and get that position to be a bit bigger. I could see this position growing into the 2%-3% range, then allowing it to drift back down as I allocate money to other names. QCOM should be a solid grower for years to come, and I’m hoping for that high-single digit growth number to help offset some of the slower growers in the portfolio.
Expect me to add to my railroads when I can. While CNI is my largest current rail position, CP may end up catching it in a few years. I’m happy to acquire shares of CP while the dividend is still inorganically frozen (meaning it’s paused due to the digestion of a merger, not because there is a fundamental issue with the company, similar to SPGI pausing dividend growth during the INFO acquisition). I expect strong dividend growth moving forward in 2023 with share repurchases resuming in 2024. Purchasing the railroads will likely be a theme of mine during the end of 2022 and heading into 2023. I’m not concerned about acquiring cyclical names heading into the most predicted recession just given my long term focus. I’ve said this before, but if I’m betting on companies/a sector to anchor my portfolio for decades, I’m picking the companies with the 100-year bonds.
The last portion of my savings ended up shaking up my top portfolio position. With my monthly savings purchasing V, plus the proceeds put to work from the ETF sale into MA, in addition to the downturn in MSFT, the payment rails have overtaken MSFT as the top spot in the portfolio with an 8.5%+ weighting. I’m not sure how long it will last, but I’m very happy having two of the greatest businesses anchoring the portfolio.
Dividend Increases
In October, I saw two very nice dividend increases which meaningfully increased my 2023 dividend income:
I expect ABBV’s dividend raises to be in the mid-single digits moving forward. With such a strong starting dividend yield and the Humira patent expiration, I largely expect ABBV to focus on purchasing/developing new therapies to help offset lost Humira revenue. I am content with this sort of expected growth, and will be very happy to see 4-6% dividend growth for the next several years.
V was a big surprise to me. I was expecting something between a 10% and 15% dividend raise. A 20% raise blew away my expectations and helped me get very close to my 2022 dividend growth target. Going forward, I’m expecting lower double digit growth rate. I’d be very happy with 10%-12% dividend growth over the next 3 years.
Moving Forward
There are far too many places I want to put my money to work, and the limiting resource is the money itself. Each month, I’m attempting to balance valuation and portfolio weightings to make the best capital allocation decisions. It’s difficult to purchase shares in a company only to be presented with a better opportunity in the coming days.
The best way to combat this difficulty is to remain focused on the long term. Dividend growing blue chip companies at attractive prices demand capital. Short term price movements have to be ignored once that capital has been allocated. Some companies may underperform for years only to see incredible out-performance in a short time frame. Investing requires discipline to continue to add to companies at the exact point you don’t want to.
As discussed previously, I’m not concerned about my portfolio’s yearly performance. I’m not trying to outperform the S&P 500, rather I’m trying to have a meaningfully higher dividend yield (the definition of that is purposefully vague) with double digit dividend growth. That is my preferred path to financial freedom.
My projected yearly dividend income is up 9.9904% over 2022. I’ll hit the 10% hurdle rate at some point this month. I’d typically be upset seeing 10% dividend growth while I’m still in the early part of my journey, but I made some moves recently that kneecapped my 2022 dividend growth to rotate into higher growing securities that will turbocharge my 2023 and beyond dividend growth. My projected 2023 dividend growth is already closing in on 20%! Big raises from V and ADP (announced on November 9, 2022) and the amount of money I’ve put to work in H2 2022 has dialed in significant projected 2023 growth. If you remove the 2022 variable dividends from COP and EOG, I’ve already surpassed that 20% hurdle.
My current plan for the remainder of 2022 is to add to companies in my core dividend growth bucket with a yield above ~2.5% (anywhere above 2% is probably my target). With my 10% hurdle being about met, I want to put my portfolio in a great place heading into 2023. My stock portfolio dividend yield is only a couple hundred basis points higher than the S&P 500 dividend yield. Moving forward, I’d like that spread to widen, so I have to prioritize adding companies paying dividends in excess of the S&P 500’s dividend yield. At this point, I’d like my portfolio to yield 2.3%-2.5%+. This is the perfect environment for that approach because I’m already happily allocated to some of the big tech companies with weaker yields and I can take this opportunity to fill out the fringes of my portfolio.
With my 20%+ dividend growth goal likely being surpassed in early 2023, you will see my start to allocate a portion of my monthly dividend reinvestments (and possibly some monthly savings if I can find the right balance to still work towards increasing my portfolio yield) into some non-dividend paying companies. Berkshire Hathaway (BRK.B) is a company I used to own and a company I’d love to own again. It’s likely the top company on my watchlist and I’m excited to partner with BRK.B long term at some point.
Portfolio:
Here is an early November snapshot look at my portfolio:
|
Company |
Ticker |
Allocation |
|
Core Dividend Growth |
37.172% |
|
|
Microsoft Corporation |
7.432% |
|
|
Apple, Inc. |
5.756% |
|
|
Canadian National Railway |
3.431% |
|
|
Essex Property Trust, Inc. |
2.819% |
|
|
AbbVie, Inc. |
2.617% |
|
|
Air Products and Chemicals, Inc. |
2.607% |
|
|
Canadian Pacific Railway |
2.552% |
|
|
Comcast Corporation |
1.666% |
|
|
Qualcomm Incorporated |
1.540% |
|
|
ConocoPhillips |
1.322% |
|
|
Vulcan Materials Company |
1.227% |
|
|
EOG Resources, Inc. |
1.138% |
|
|
CVS Health Corporation |
1.131% |
|
|
Starbucks Corporation |
0.837% |
|
|
NextEra Energy, Inc. |
0.515% |
|
|
The Coca-Cola Company |
0.499% |
|
|
Union Pacific Railway |
0.083 |
|
|
High Dividend Growth |
47.161% |
|
|
Visa, Inc. |
4.493% |
|
|
Broadcom, Inc. |
4.976% |
|
|
Moody’s Corporation |
4.413% |
|
|
BlackRock, Inc. |
4.175% |
|
|
Mastercard Incorporated |
4.154% |
|
|
Texas Instruments Incorporated |
3.914% |
|
|
Costco Wholesale Corporation |
3.203% |
|
|
Lowe’s Companies, Inc. |
2.961% |
|
|
The Home Depot, Inc. |
2.829% |
|
|
S&P Global, Inc. |
2.625% |
|
|
Automatic Data Processing, Inc. |
2.333% |
|
|
American Tower Corp |
2.344% |
|
|
Danaher Corporation |
1.988% |
|
|
Old Dominion Freight Line, Inc. |
1.733% |
|
|
Target Corporation |
1.366% |
|
|
Estee Lauder Companies, Inc. |
0.383% |
|
|
High Yield |
5.748% |
|
|
Altria Group, Inc. |
2.368% |
|
|
Realty Income |
2.157% |
|
|
Verizon Communications Inc. |
1.223% |
|
|
Non-Dividend |
8.468% |
|
|
Alphabet, Inc. |
3.435% |
|
|
Netflix, Inc. |
3.102% |
|
|
Meta Platforms, Inc. |
1.883% |
|
|
Olaplex Holdings |
0.048% |
|
|
Other Bets |
1.453% |
|
|
Hilton Worldwide Holdings, Inc. |
0.637% |
|
|
Financial Institution A |
— |
0.489% |
|
The Walt Disney Company |
0.327% |
Conclusion
Discipline, discipline, and more discipline. When motivation ends, discipline begins. I have a plan that puts me and my family on a path towards financial freedom. Allocate to attractive blue chip companies that are increasing their dividends, increase my dividend yield to widen the spread between my portfolio and the S&P 500, all while balancing growth and non-dividend payers. Continue to achieve goals in my personal life and sleep well at night knowing my mailbox money is continuing to grow. Thanks for following along on the journey.
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