What a year! I don’t know about the rest of you, but 2017 was an incredible 365 days for me and my family. It was a year that brought fun life experiences, a change in my career path, and some new milestones for my portfolio and this website.
As I type this update, we sit just
three weeks one week away from Christmas. My kids are getting more excited by the day, and my 3-year-old still hasn’t quite figured out why it isn’t already Christmas since the tree is up and Christmas songs are playing on the radio.
However, the purpose of this post isn’t to look ahead, it is to review the past month, and November was another excellent one for both myself and the portfolio.
I read many comments, articles, and other writings about DGI investing throughout the week. Earlier this month, I started to bookmark the pieces that catch my eye, with plans to highlight them for readers here on DGI For The DIY.
Regular readers of this site are aware of the respect and admiration I have for Chowder on Seeking Alpha. He was one of the contributors there that caught my attention early on, and has played a big part in my maturation as a dividend growth investor.
I am all smiles after a handful of dividend increases were announced in the DGI For The DIY portfolio. Over the last two weeks, 5 more companies declared new dividend rates, providing me with another nice boost to my income.
With these increases, ten of the eleven companies from my portfolio dividend growth projections have now made announcements. I previously wrote about the increases from Polaris Industries, Church & Dwight Co. and Gilead Sciences, and Coca-Cola and Dr Pepper Snapple. Today I will give my thoughts on the most recent increases coming from Xcel Energy Inc. $XEL, Ross Stores, Inc. $ROST, GameStop Corp. $GME, Digital Realty Trust $DLR, and QUALCOMM Inc. $QCOM.
I was just going over some of my sector-based watch lists and was struck by the wide variety of dividend payout ratio targets that have been set by companies. This got me thinking about how often investors, and specifically dividend investors, use payout ratio as an initial screening tool for finding potential investments.
Not only do payout ratios vary significantly from sector to sector, but they also can vary significantly between companies operating in similar businesses. For example, it is quite common for utility companies to pay out more than 50% of their earnings in dividends, as they operate in generally stable businesses that have predictable earnings. However, when looking at my 30 stock utility watch list, there is a range of targeted payout ratios from 40-75%, with UGI Corporation $UGI on the low end and Dominion Resources $D at the top.
This update is a bit different for me, as it is the first one I’ve made since starting this new website. I’m still trying to find balance between simply restating what I already said in my Seeking Alpha update, and providing some new insight here.
2016 was a good one for the markets, as the DJIA gained more than 15%, while the S&P gained 11% for the year. My portfolio also did quite well, putting up 15.6% income growth and increasing in value by 24.1% (including contributions).
After taking a beating in 2016, it appears that the Healthcare Sector may be on the rebound. I have been taking advantage of the cheap prices by consistently adding to my positions over the last 6 months, with new positions and multiple buys made in Abbott Labs $ABT and CVS Health $CVS, along with adding to my positions in Omega Healthcare $OHI, and AbbVie Inc. $ABBV.
Here are the prices for those transactions, and how they have done so far.
On the surface, those numbers don’t look all that great, as the first three purchases made are still underweight. I was a bit early in jumping in on CVS Health Corp., and my first two buys remain under water. However, I made a third purchase following the big drop on earnings, and that has worked out well so far, as that buy is up nearly 11%.
Just giving a quick update that I have begun construction of an “Education Center” that will cover some of the basic questions of Dividend Growth Investing.
I am also planning on adding “Stock Selection” and “Portfolio Construction” pages, but thought I’d also open it up to readers as well to see if they can think of other important topics that should be covered.
As of now I am just populating these different topics with articles that I have personally written, but as time goes on I also plan to add articles from other authors from Seeking Alpha and other sites as I come across them.
Do you have any MUST READ articles in your bookmarks that you think would be worthwhile to others? If so, please share in the comments below and I will consider them for addition.
Thanks, and Happy New Year!
For those new to dividend growth investing, the name “Chowder” may not mean much to you. However, for any regular visitor to the “dividends and income” section of Seeking Alpha, he is one of the most well-known and well-respected members of the site.
His no-nonsense, straightforward approach to investing has guided many novice investors along their way, and with a comment total now approaching 15,000 posts, he has certainly made his impact well known.
He has been in prime form of late, and I thought it would be worthwhile to highlight a few of the comments he’s recently made.
On Christmas Day, he made a comment about fund managers and what advantage individual investors have over them, because they have different goals with their portfolios:
I was reading an article by Cramer yesterday who had some success as a stock broker in selecting companies and decided he was good enough to start his own fund. He stated he wasn’t prepared for the performance demands of running a fund. He quickly learned that if he wanted a portfolio to perform in the short term, which most people investing in funds require, then he had to start taking daily action as opposed to sitting idle while a good long term investment took a beating short term.
His favorite company was Heinz, but he couldn’t treat Heinz as an investor would normally do, buy more shares when the price corrected. He had to try and determine what the short term buy and sell points were.
The enemy of the fund manager, and why they have such a hard time at beating the S&P 500 consistently, is sector rotation. Everyone is chasing short term performance as opposed to simply building good long term positions and letting performance come to them in time. All it takes is a little discipline and patience.
People have difficulty in accepting the simplicity of the process.
Chowder used to have his Series 6 license, so he knows a thing or two about mutual funds. I thought this comment was a good one, and is a big reason I’ve decided to become a DIY investor and build my own personal mutual fund and not rely on “professionals” to do it for me. By taking control of my investments, there are no worries about whether the fund is being run with my best interests in mind, because I’m doing it myself.
Just today, he followed with another comment about not chasing growth and trying to beat the market, but rather focus on high quality stocks trading at a discount to fair value:
I have commented many times on SA over the past year and there are a handful of comments that I think are critical to one’s mindset if they wish to become a better investor and this comment is one of them.
Stop chasing growth!
Stop allowing your fears to prevent you from buying high quality companies facing headwinds.
High quality companies earned the high quality rating because they have a history of overcoming adversity. You can’t allow yourself to be afraid of buying quality at discount prices.
People have a tendency, myself included, of wanting to buy when the outlook is hunky dory. This isn’t always the best approach. I try to balance my buys between companies expected to show earnings growth and companies facing adversity.
At the beginning of 2016 people questioned my purchases in CAT, DE, IBM and CVX for example. Nobody, and I mean nobody was predicting they would outperform the market over the next year, myself included. However, my job is to buy quality and I do not let headwinds get in the way of it, which had me buying companies last January that others were avoiding.
Check out these performance stats coming off the January lows:
CAT has rebounded 72% off the January lows. … You heard that right! 72%! … Back in January they hit a low of $54.80, now at $94.28 while I type, and they still aren’t projecting earnings growth.
IBM has rebounded 47.7%
DE has rebounded 50.7%
CVX has rebounded 65.0%
EMR has rebounded 43.5%
And these are just some of the positions we hold across various accounts.
Now I realize nobody is going to catch the bottom, but that’s a wide profit range where opportunities presented themselves to buy.
So, as I look forward in 2017, I’ll still look to add companies with great earnings expectations, but I will also look to add to high quality companies facing headwinds. I’ll continue to look for a balance between the two.
I bolded what I see as the most important lesson, focus on quality and ignore the noise! Amen Chowder!
Today you can pick up shares of AbbVie Inc. (ABBV) at a forward PE of just 11.3 and a yield over 4%. Gilead (GILD) trades at a forward PE under 7, and is generating $4B+ in cash every quarter. CVS Health (CVS) trades at a forward PE of just 13.5 while yielding over 2.5% for the first time in a long time. I’ve added to both CVS and ABBV in recent weeks, GILD may be up soon as well.
For more of Chowder’s musings, check out CHOWDER’S INVESTING WORDS OF WISDOM, PART II.