2019 is now in the books, and as you’d expect with the market at all-time highs, it was another stellar year for the DGI For The DIY portfolio.

The account value increased by nearly 28%, which doesn’t quite match the 35% returns from the NASDAQ, but compares favorably with the 29% gains from the S&P 500 and and the 22% from the Dow Jones Composite.

Income growth wasn’t nearly as impressive however, as it barely squeaked out a 10% gain. This met the portfolio goal of ten percent annual income growth, but I found it interesting that it so far lagged the price gains of the portfolio.

This may seem like a red flag, but considering that the S&P only saw earnings growth of 5% in 2019, it shouldn’t really be much of a surprise.  People often forget that the stock market experienced a huge pull-back in December of 2018, which caused the market PE multiple to contract to just 16.5 at year’s end.

The huge price gains in 2019 were mostly a recovery from that correction, as the market PE multiple expanded by 22%. It’s pretty wild how much a difference positive market sentiment can make on returns, which reinforces my decision to put the priority on income rather than paper gains for my investment goals.

Since dividends are generally paid from earnings, it should be no big surprise that dividend growth seriously lagged price growth during the year. Between lackluster earnings growth and high uncertainty regarding tariffs and economic growth, it makes sense that companies were cautious with dividend hikes during the year.

Portfolio Dividend Income Growth

As mentioned, the portfolio saw dividend income increase by just over ten percent in 2019. This income growth come by way of dividend reinvestment adding more shares to the portfolio and higher dividends payouts from the companies I own.

Here is a breakdown of the change in dividend income for each position in the portfolio during 2019. Keep in mind that there are no new contributions being made in this portfolio, so the only sources of income growth are organic dividend increases “O” from the companies owned, dividend reinvestment “R” adding to shares held, or trades made to sell “S” or purchase “P” stocks.

There were actually a fair number of trades made in 2019, with twelve sales and eleven buys made during the year. This makes the table a bit busy, as there are some large drops in income from stocks that were either trimmed or sold out of, and large gains from stocks that were added to or purchased for the first time.

With 10% being my goal for portfolio growth, it’s good too see there is much more green than yellow or red in the growth column.

Multiple positions grew dividend income by more than 20% over the past year without the aid of add-on purchases, including: AbbVie Inc. $ABBV, EOG Resources $EOG, Kinder Morgan Inc. $KMI, Mastercard Inc. $MA, Norfolk Southern Corp. $NSC, Union Pacific Corp. $UNP, Visa Inc. $V, and Wells Fargo & Co. $WFC.

Not all is good however, as two companies grew income by less than 5%,: Becton Dickinson and Company $BDX and CVS Health Corp. $CVS. I do plan on holding them despite the slow income growth, because I expect their dividend growth to pick up the pace within the next year or so.

Becton Dickinson is still digesting the $24B acquisition of CR Bard, while CVS Health is doing the same with its $70B acquisition of Aetna. So their focus right now is paying down debt and shoring up the balance sheet rather than increasing payouts to shareholders. As they get leverage back down to the desired levels, dividend growth should pick up once again.

Income Progress

All in all it was a successful year, as I met my goals for 2019 and remain ahead of my long-term income goals.

This chart is a big reason why I so much enjoy the strategy of DGI, as it allows me to set tangible targets and track my progress through the years. I know exactly where I stand on a passive income basis, and can set goals for where I want to be at retirement.

Keep in mind, the $26,220 ultimate goal won’t be my wife and I’s only funds for retirement. This is just one piece of our retirement puzzle. We will also have a ROTH IRA, a 401(k) at my current employment, Social Security, my wife’s military pension, an ESOP program from the company I work for, and other accounts.

When will we retire? When we have enough passive income to replace our salary from punching the clock at our jobs. The table above sets a path to achieve a portion of those goals.

So far I am exceeding those goals, and if that continues going forward, it just moves my future retirement schedule ahead a few years.

December Dividend Increase Announcements

In the November Dividend Digest, I highlighted seven companies that were due for dividend increases, and all seven came through as expected. Another recent addition, Broadcom Inc. $AVGO also joined the dividend growth party, and announced an increase of its own on December 12.

It was a wide mix of increases, as Mastercard, Amgen Inc. $AMGN, Broadcom, and Abbott Labs $ABT all raised payouts by double-digits, while Realty Income $O, Dominion Energy $D, and AT&T $T announced increases of less than 3%.

I’d say I pretty much nailed it with my expectations!

I am expecting double-digit growth from Amgen, Mastercard, and Abbott Labs, roughly ~6.5% growth from WEC Energy, and low single-digit growth from Realty Income, AT&T, and Dominion Energy.

Upcoming Dividend Increases

January is generally a quiet month with dividend increases, and looking at my spreadsheet of past announcements, I don’t see any sure things in the coming weeks.

Chevron Corp. $CVX and Norfolk Southern both announced in January last year, and have in January at times in the past. But they haven’t done so on a consistent enough basis for me to expect one this time around.

February looks much more promising however, so I should have much more to talk about in this section next month.

Recent Articles

With the busyness of the holiday season, my free time for writing declined significantly in December, but I was able to get one article published on Seeking Alpha during the month.

As mentioned, there were some trades made in the portfolio this year, and my article shared my reasoning behind some of the more recent ones. “Trimming My Tech Titans” tells of my decision to trim my positions in Apple and Microsoft, and why I decided to add to Johnson & Johnson, Automatic Data Processing, and UnitedHealth Group with the proceeds.

The move roughly doubled my income on the capital, while offering similar dividend growth expectations going forward. Apple’s continued march higher makes the trade look a bit silly now, but I think it’s a bit too soon yet to give a final grade.

In early December I also completed a long-needed update to the Utility Sector page here on DGI For The DIY. This update expanded on some history of the utility sector, and more importantly offered an updated spreadsheet of my picks for the best dividend growth stocks in the sector.

The updated sheet includes historical dividend growth rates, links to the investor relations page for each company, provides updated EPS estimates, valuation targets, expected returns, and my dividend growth predictions for all thirty companies.

I’ve gotten a lot of positive feedback from readers on how useful the information is, so please check it out!

Top Stock Picks For 2020

We are beginning a new year, which means it’s time to look for investment ideas for the next twelve months.

My friend Sabeel over Roadmap2Retire.com runs an annual contest asking fellow bloggers to select their top investment ideas for the coming year.  Thirty-three people participated, and there were many interesting picks on the list.

Top Investment Picks For 2020

I went with Bristol-Myers Squibb Company $BMY with my pick, and not only was it my pick for 2020, but it was also my recent purchase in my portfolio.

Bristol-Myers Squibb is a U.S. based pharmaceutical company that specializes in drugs for oncology, hematology, immunology, and cardiovascular diseases.

It recently expanded its offerings and growth prospects with the acquisition of Celgene in 2019. This merger significantly adds to BMY’s research pipeline, as Celgene had five assets that were in late-stage trials.

Investor Presentation On Acquisition:

This uptick in growth is quite evident when looking at Bristol-Myers FAST Graph, at analysts are currently expecting 44% EPS growth in 2020 and 18% EPS growth in 2021.

This is remarkable growth for a company, especially for one that trades at such a large discount to the market. BMY currently trades at just 15X expected 2019 EPS of $4.35 and just 10.4X expected EPS of $6.27 in 2020. This is quite favorable when compared to an overall market multiple of ~19, and in comparison to other biotech companies.

Bristol-Meyers also offers a compelling dividend, with a current yield of 2.75%. This comes on the back of the 9.8% dividend increase that was announced in early December.

What is so exciting about the bigger increase is that it’s a step-change from recent history, as BMY has had annual dividend increases of just 2.6% for the last decade. The increase puts the payout ratio at around 40% of 2019 earnings, and just 29% of expected 2020 earnings.

The 40% payout is in-line with 2018’s numbers, and appears that it may be a new target to watch going forward. With 44% EPS growth expected this year and long-term earnings growth in the double-digits, I think BMY could end up being an excellent dividend growth stock to own in 2020 and beyond.

For these reasons, I selected Bristol-Myers Squibb as my top investment pick for 2020.

Closing Remarks

2019 was a fantastic year, and with the market recently hitting the 29,000 mark, it appears that 2020 will be no slouch either.

My portfolio once again met my goals of 10% income growth last year, and I think its well on its way to doing the same again. Recent trades allowed me to harvest some capital gains to boost income, and companies announced some nice dividend increases that will kick in next quarter.

Best wishes, and happy investing!