Dividend Harvesting Portfolio Week 94 Update

Well, the S&P 500 started the week out strong as the CPI print came in cooler than expected, then Jerome Powell spoke and all of the steam was taken out of the rally. The S&P closed down -2.12% on the week and retested bear market territory as it declined -19.68% in 2022. The Dividend Harvesting Portfolio has also retraced a bit further into the red, as it went from being down -2.21% in week 93 to finishing week 94 down -3.69% (-$346.96). Overall, I am thrilled that the portfolio I am constructing can continuously mitigate downside risk. At its worst point in 2022 only spent 3 consecutive weeks with a double-digit percentage base decline. I couldn’t tell you where the markets finish in 2022 or if 2023 will be a positive year, but that won’t stop me from allocating capital within this portfolio. I believe there are many good income opportunities in the market for long-term investors today, and I will continue to deploy capital, building out these positions.

At the end of week 94, the Dividend Harvesting Portfolio was valued at $9,053.04, down -$346.96 (-3.69%) on my invested capital. My annualized projected income grew by $10.03 (1.43%), as the Dividend Harvesting Portfolio is projected to generate $713.28 in annual dividends before compounding. In week 94, 17 companies generated $9.51 in dividend income and we are 2 weeks away from finding out if this portfolio will officially generate dividend income each week on an annual basis. In week 94, I added 1 share to each of the following positions, New York Community Bank (NYCB), Owl Rock Capital Corporation (ORCC), Verizon (VZ), Tekla World Healthcare Fund (THW), Goldman Sachs BDC (GSBD), and Virtus InfraCap U.S. Preferred Stock ETF (PFFA). More positions are generating at least 1 share annually through their dividends, while others are getting closer to this goal. I look forward to continuing this process and seeing where the Dividend Harvesting Portfolio ends.

I allocate capital toward big tech, funds, dividends, and growth outside of my retirement accounts. These are not my only investments, but I did open a separate account, so I could easily track and document this series. I intentionally created broad diversification throughout the Dividend Harvesting portfolio so I could benefit from sector rotations and mitigate my downside risk. Investors who are too exposed to growth companies or large-cap tech have gotten crushed as the investment landscape changes. On the growth and tech side of my investments, I am feeling the pain as some of my favorite companies, including Alphabet (GOOGL, GOOG), Amazon (AMZN), and Meta Platforms (META), have been taken to the woodshed.

I am going to address a question that continues to surface. I am not trying to beat the market with this portfolio. I love index funds and am invested in several index funds. I love dividend investing due to the stream of cash flow it generates. I don’t want 100% of my assets outside of real estate tied to an S&P index fund. I have created a personal investment strategy that works to achieve my investment goals, and having a stream of income generated from dividends is part of my investment strategy. Low-cost index funds are one of the best investments anyone can make in my opinion, and the Dividend Harvesting portfolio is not meant to be a substitute for an index fund. I have read many questions about dividend investing and wanted to start a portfolio from the ground up and document its progress to disprove many misconceptions, including that you need a large amount of seed capital to make dividend investing work for you.

This series has never been about hitting a target yield, generating a certain amount of profit, or beating the market. I had two specific goals with this series. The first was to create a blueprint for constructing a dividend portfolio by documenting the journey starting from the beginning. The second goal was to illustrate how allocating capital each week toward investing, regardless of the amount, would be beneficial in the long run.

Too many people are under the illusion that you need tens of thousands or even hundreds of thousands to benefit from investing. Instead of using my real dividend portfolio as an example, I decided to start a new account, fund it with $100, and add $100 weekly, providing a step-by-step guide to dividend investing. This methodology doesn’t have to be used for dividend investing, and it could be as simple as an S&P index fund or a Total Market fund. Hopefully, this series is inspiring people to invest in their future to attain financial freedom.

A Historical Recap of the Dividend Harvesting Portfolio’s Investment Principles and Historical Performance

Investment Objectives

• Income generation
• Downside mitigation through diversification
• Capital appreciation

Below are the fundamental rules I have put in place for this Portfolio:

• Allocate $100 weekly to this Portfolio
• Only invest in dividend-producing investments
• No position can exceed 5% of the Portfolio
• No sector can exceed 20% of the Portfolio
• All dividends & distributions are to be reinvested

Below is a chart that extends from week 1 through the current week to illustrate the Dividend Harvesting Portfolio’s Progression

• Blue line is my initial investment $100 in week 1, $1,000 in week 10, etc.
• Red line is the account value at the end of each week
• Yellow line is the annual dividend income the Dividend Harvesting Portfolio was projected to generate after that week’s investments and dividends reinvested

The Dividend Harvesting Portfolio Section

Here is how much dividend income is generated per investment basket:

• Equities $216.35 (30.33%)
• ETFs $177.37 (24.87%)
• CEFs $136.80 (19.18%)
• REITs $135.18 (18.95%)
• BDCs $47.57 (6.67%)

Collecting dividends can serve many functions in a portfolio. Some investors utilize dividends to supplement their income and live off. I am building a dividend portfolio for myself 30 years into the future. In 2022, I have collected $461.90 in dividend income from 512 dividends across 50 weeks. This has allowed the Dividend Harvesting portfolio to stay in the black while growing the snowball effect.

These dividends allow me to gain additional equity in my investments while increasing my future cash flow in down markets. This style of investing isn’t for everyone, but if you’re looking to generate consistent cash flow while mitigating downside risk, this method has worked for me. I am hoping to collect between $450 and $500 in dividends in 2022, which will be reinvested, and finish the year generating >$700 in annual dividends.

I am interested to see how the dividend income in December ends, as there has been a significant uptrend in the YoY monthly dividend income. I am excited to see what this chart looks like in several years from now.

I haven’t added new positions since week 90, and the Dividend Harvesting Portfolio has 604 individual dividends flowing through its portfolio on a weekly basis.

The goal of generating enough income from the dividends to purchase an additional share per year has been the never-ending project of this portfolio. There are now 17 total positions generating at least 100% of their share value in dividends within the Dividend Harvesting portfolio. I think that it is a realistic possibility that I can add 4 more companies to this group by the end of 2022.

The Dividend Harvesting Portfolio Composition

Many of the readers have asked if I could break down the individual positions within these sectors. I created pie charts for each individual sector and have illustrated how much each position represents of that sector of the Dividend Harvesting portfolio. Since I only have 1 position in Food & Staple Retailing and Industrials, I did not make a chart for those. 3M (MMM) and Walgreens Boots Alliance (WBA) represent 100% of those sectors. The charts will follow the normal portfolio total I have constructed. Please keep the ideas coming, as I am happy to add as much detail to this series as I can.

In week 94 REITs fell under 18% of the Dividend Harvesting Portfolio composition and relinquished being the largest segment of the portfolio. Individual equities make up 44.06% of the portfolio and generate 30.33% of the dividend income, while exchange-traded funds (“ETFs”), closed-end funds (“CEFs”), real estate investment trusts (“REITs”), business development companies (“BDCs”), and exchange-traded notes (“ETNs”) represent 55.94% of the portfolio and generate 69.64% of the dividend income.

I have a 20% maximum sector weight, so when a singular sector gets close to that level, I make sure capital is allocated away from that area to balance things out. In 2022, I will make an effort to even out these portfolio percentages. As more capital is deployed, the bottom half of the portfolio weighting will increase.

Industry	Investment	Portfolio Total	% of Portfolio
ETFs	$1,642.44	$9,053.04	18.14%
REIT	$1,608.99	$9,053.04	17.77%
Closed End Funds	$1,312.19	$9,053.04	14.49%
Oil, Gas & Consumable Fuels	$791.17	$9,053.04	8.74%
Communication Services	$606.44	$9,053.04	6.70%
Consumer Staples	$588.03	$9,053.04	6.50%
Technology	$586.66	$9,053.04	6.48%
Financials	$561.16	$9,053.04	6.20%
BDC	$497.70	$9,053.04	5.50%
Utility	$270.09	$9,053.04	2.98%
Pharmaceuticals	$242.36	$9,053.04	2.68%
Industrials	$125.71	$9,053.04	1.39%
Food & Staple Retailing	$119.06	$9,053.04	1.32%
Independent Power & Renewable Electricity Producers	$98.43	$9,053.04	1.09%
Cash	$7.68	$9,053.04	0.08%

Click to enlarge

In week 94, Verizon (VZ) became the largest position once again in the Dividend Harvesting Portfolio. I am glad no positions are close to the 5% threshold I have, and eventually, this will even out further.

Week 94 Additions

In week 94 I added an additional share to each of the following positions:

• New York Community Bank (NYCB)
• Owl Rock Capital Corporation (ORCC)
• Verizon (VZ)
• Tekla World Healthcare Fund (THW)
• Goldman Sachs BDC (GSBD)
• Virtus InfraCap U.S. Preferred Stock ETF (PFFA)

New York Community Bank

• I recently wrote an article on why I still believe NYCB is still undervalued (can be read here). NYCB has now exceeded 1 share annually from its dividends, and I probably won’t add to this position for several weeks.

Owl Rock Capital Corporation

• ORCC has become one of my favorite BDC’s, as it looks to be undervalued compared to others in its space. ORCC has also gotten to the point where it will exceed 1 share annually from its dividends. ORCC offers a double-digit yield and is implementing buybacks in addition to special dividends.

Verizon

• There isn’t much to say about VZ. It’s yielding 7.03%, and I think it’s undervalued at these levels. I plan on adding more to VZ until it generates a share annually from its dividends.

Tekla World Healthcare Fund

• THW has been in the upper range on my chart of positions generating a share annually from its dividends, and I wanted to push it over the 100% threshold. I will be adding another share in the coming weeks.

Goldman Sachs BDC

• GSBD is trading at a -8.95% discount to its NAV and has a dividend yield of 12.73%. This is a strong BDC, in my opinion, that I want more exposure to.

Virtus InfraCap U.S. Preferred Stock ETF

• PFFA is a preferred stock ETF managed by Jay Hatfield. I don’t have much exposure to preferred shares, but I like his investment methodology and approach to investing in preferred stock. I plan on adding to this fund over time.

Week 95 Gameplan

I have a feeling I will be adding to my positions in Enbridge (ENB), Kinder Morgan (KMI), VZ, and maybe Starwood Property Trust (STWD).

Conclusion

With 2 weeks left in 2022, I am pleased with how the Dividend Harvesting Portfolio has mitigated downside risk and generated a continuous flow of dividend income. I am excited to get the first calendar year’s worth of data, and over the next several years, I plan on writing YoY comparison articles. Please leave any suggestions for new positions or new sections in the article series below. I think the Dividend Harvesting Portfolio is well-positioned for any investment environment in 2023, and I plan on continuing to document the process for years to come.