Ted SeeksQuality

"Out of curiosity, I pulled our top 20 positions from 8/3/2018 to compare to our current holdings.

2018: JNJ, DIS, AAPL, MSFT, MMM, KMB, UL, MDT, NKE, SYY, HRL, PG, HON, UNP, AMGN, IBM, VFC, UTX, SBUX, CVS

2020: AAPL, JNJ, MSFT, *GOOG, *HD, *ADP, CSCO, MMM, CVS, UL, AMGN, NKE, SYK, RTX, KMB, UNP, NSRGY, MRK, HON, UNH

Divested from DIS (COVID risk, valuation), IBM (YPMO, quality), VFC (valuation at peak).

Added GOOG, HD, ADP, SYK, MRK, UNH. Others were/are owned in both periods even if no longer quite in the top 20."

[…]

" we just executed a major set of trades – our largest since March. Added to JNJ, MRK, MSFT, PG. At least two of the four are overpriced by any normal definition, yet still priced fairly vs. peers. All four are quality companies that I expect to be there and supporting me in 10-20 years.

We are in a grossly inflated market. The Fed has created a ridiculous amount of new money in the last six months, and that money has to flow SOMEWHERE. Most of it has flowed to the bond and stock markets, though some may be flowing to real estate as well.

So what am I going to do? Sit on cash forever? When we have cash available, we put it to work, according to our allocation plan. Next year we will have more cash available (and the allocation plan always calls for a substantial cash position). I’m not going to spend my life fearing the next correction, jumping in and out of the market in the hopes of dodging the “big one”.

I don’t want to tell people that the market ISN’T overpriced, but at the same time I’m not going to let that drive me. Focus on the long term, practicing consistent portfolio management when the market is high as well as when it is low. Those who are fearful of valuations now will often be fearful for other reasons when the market is low. I’ll work to choose my best CURRENT options in either case, regardless of how the market behaves."

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" As a DGI investor, are you better off when the market rises or falls? (Keeping in mind that you have no control over which happens.) Consider a hypothetical stock that costs $100 in Year 0, has $6 of EPS, a 6.5% earnings growth rate, and a 50% payout ratio. Those are the fundamentals that I will use throughout.
(1) If the share price sits at $100 for ten years, while you continue reinvesting dividends, an initial investment of $10,000 will have grown to just $14,868, but the annual income will have increased from $300 to $837. You can think of this as the AT&T scenario, perhaps? In this scenario the earnings and dividends rise over time, but the share price stagnates.
(2) Yet that is a somewhat unusual situation – rising earnings and rising dividends SHOULD be accompanied by rising share prices over longer periods of time. (Albeit ten years isn’t an especially long period of time.) If the yield were to remain constant, then the portfolio value would increase to $25,227 but the income would only increase to $757.Which do you prefer? Despite DGI investors claiming not to care about the share price and portfolio value, my guess is that most people here would prefer the latter scenario. While it might result in 10% less portfolio income, it is hard to pass up an extra $10k in value that could be harvested through trimming. Either situation works out pretty well!
The concerning scenarios are those in which the share price outpaces the fundamentals. Chowder writes about how all value lies in the future, but if that value is recognized too quickly by the market, it can lead to an extended period of under-performance.
(3) Suppose the share price rises immediately after purchase to the “future value” implied by a 3.0% yield on the earnings 10 years from now – and then stays there for ten years? The initial purchase might have been fairly valued. The ending purchase might be fairly valued. But the compounding from the reinvestment is much less effective – the portfolio ends with $23,234 of value, but the income is just $697 in this scenario. A premature increase in the market is clearly inferior to the “steady state” scenario described in (2).
(4) Of course the ugliest scenario is when you purchase at an inflated value and the share price stagnates. Even if the fundamental earnings and dividend growth is strong, and even if the price never falls, the compounding is MUCH less effective when buying at a premium price. If that initial purchase is at $187 (based on a 16.7 P/E for the earnings ten years down the road), then the $10k investment grows to just $12,378 and the final income is just $371. No capital gains, just ten years of accumulated and compounded dividends, but compounding from a low yield doesn’t take you very far.
(5) I’m sure some will point out that scenario (4) assumes a ten year retrenchment from a 31.3 P/E to a 16.7 P/E. Wouldn’t things still work out pretty well if the valuation stays high? Running this scenario definitely results in a higher terminal portfolio value of $21,995 (though that is still inferior to scenarios 2 and 3), but the terminal income in this situation is just $351, a ten-year YOC of just 3.5%!!!
If you buy at a “fair value”, pretty much any scenario works out well! If the share price stagnates, your compounding catches fire and you end up with a terrific terminal income – in fact the best of any of these scenarios! If the share price tracks with earnings, you get almost as much income and a heck of a lot of gains to boot. Even if the share price rises prematurely, short-cutting the compounding, you still end up with strong numbers.
But if you buy at a 30+ P/E, the magic of compounding doesn’t get you nearly as far. Call this the HRL scenario? A current P/E around 30, an initial dividend yield of 1.6%, and steady (but unspectacular) earnings growth anticipated? Maybe CLX or MKC?Again, I want to emphasize that the FUNDAMENTALS of the company are identical in each scenario. Steady earnings growth and dividend growth. Clearly a company that merits a very high dividend safety score.
That’s why I hate this market… The good news is that the bulk of our purchases were made years ago, at much more reasonable valuations. The bad news is that the share price appears to be anticipating the next 5-10 years of gains, which limits my ability to compound income growth through reinvestment. I don’t know whether the valuations will correct over time (scenario 4) or find a “new normal” at this level (scenario 5), but neither is all that attractive for an income investor.
And heck, I’m not even a True DGI!"

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En respuesta a la pregunta: ¿Entonces empresas que se mantienen con precios bajos mientras se hace reinversión de dividendos (DRIP) funcionarán bien para DGI?.
Las empresas son XOM, T, CVX, MO y PM.texto en negrita

“The three primary factors controlling your future income stream:
(1) Initial yield
(2) Organic dividend growth
(3) Quality – dividend cuts do awful things to dividend income
You are buying those five at excellent yields (XOM, MO, T, CVX, PM). I’m assuming they don’t presently have much dividend growth (I know T does not), but with yields like that you don’t NEED much dividend growth. As long as their Quality remains high, and they avoid dividend cuts, those investments should play out for you.
Note that it takes a LONG time for a 1.6% dividend yield to catch up to a 4.0% dividend yield, even if the former increases 10% annually while the latter increases at a low-single-digit rate. Thus the initial yield (i.e. valuation) matters more to future income than the dividend growth rate does. (Quality is paramount, here as always.)
From a capital gains perspective, you might look at it differently:
(1) The initial valuation (think “yield” or P./E or something similar)
(2) The terminal valuation
(3) Organic growth (dividend growth and/or earnings growth)
(4) Quality!!!
If your initial valuation is lower than your terminal valuation (e.g. buy at a 12 P/E and sell at an 18 P/E, think GIS) you get large gains even if the earnings have increased only modestly. In the reverse scenario, it takes a heck of a lot of organic growth to make up for a retrenchment from a 50 P/E to a 20 P/E (think WMT post-bubble).
And Quality overrides all else. If the business deteriorates and earnings fall, you won’t be seeing any capital gains.”

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"Alentaría a la gente a tener una visión a largo plazo con la inversión de dividendos. Si una empresa es financieramente sólida, uno o dos años de crecimiento más lento no deberían ser un gran problema; en la mayoría de los casos, el “dinero muerto” desaparece en el espejo retrovisor una vez que la empresa alcanza su siguiente racha de crecimiento.

¿Se da cuenta de que las ganancias de NKE se mantuvieron estables de 2017 a 2019? ¡Ahora, de repente, están viendo $ 3.40 / acción durante el próximo año con un crecimiento excepcional proyectado a partir de eso! A finales de 2017, la gente miraba un precio de acción que no había ido a ninguna parte durante dos años, un modelo de negocio que estaba en declive, costos crecientes y EPS plano … Un par de años después son los favoritos de la calle.
Wall Street tiene una capacidad de atención muy corta. Se centran en gran medida en las ganancias del último trimestre y las perspectivas para el próximo año. Los ciclos económicos son más largos que esto: le tomó a NKE un par de años construir el canal DTC que está impulsando su éxito actual.
Y si una empresa de crecimiento agresivo como NKE puede estancarse durante un par de años, considera las implicaciones para las empresas de crecimiento más lento como JNJ, MMM y CSCO. Las ganancias de JNJ bajaron un poco en 2020, y el precio de las acciones estuvo estancado en un canal desde mediados de 2017 hasta mediados de 2020. ¿Ahora? Se ha salido de ese canal a lo grande. MMM cometió algunos pasos en falso, que junto con los ciclos económicos generaron un período de CUATRO años de ganancias planas, pero parece estar nuevamente en la senda del crecimiento nuevamente. CSCO se encuentra en medio de un período de crecimiento más lento, el final aún no está a la vista, pero no veo ninguna razón para creer que finalmente no saldrán de él.
Las comparaciones de CSCO con IBM son un poco prematuras. IBM vio disminuir el EPS de 2013 a 2016, luego se estancó durante dos años y luego disminuyó MUCHO durante los próximos dos años. Por el contrario, las ganancias de CSCO simplemente se han estancado. Existe una gran diferencia entre un crecimiento lento y un crecimiento negativo, ¡especialmente para las empresas cargadas de deudas!"

[…]

" “Cuanto más grande es una empresa, más tarda en dar la vuelta. Tengo paciencia”.

El otro factor clave es la fuerza. No puede identificar un núcleo rentable si todas tus marcas son débiles. No puedes darte el lujo de invertir en nuevos sistemas si tienes un gran apalancamiento y tienes dificultades para cumplir con los dividendos.
Las empresas fuertes eventualmente lo resolverán. Las empresas más débiles pueden verse atrapadas en un ciclo de tala y quema, hasta que no quede mucho. Considera el caso de IBM, que ha perdido un tercio de sus ingresos, un tercio de su beneficio bruto y la mitad de su beneficio operativo durante la última década, y está a punto de escindir otra fracción sustancial. Todo mientras que los pasivos se han AUMENTADO en un 30%, porque necesitaban recomprar acciones al papel debido a la caída de EPS.
Las empresas crecen, se expanden, se escinden, se contraen … Es un ciclo sin fin. Los fuertes manejan este ciclo con éxito, mientras que los débiles buscan una solución rápida."

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Quarterly portfolio summary:
JNJ - 6.6% (ought to help drive performance over next five years)
AAPL - 4.7% (can’t sell any without nasty tax consequences)
MSFT - 4.2% (and still a decent value)
ADP - 3.1%
NKE - 3.0%
2.9% to 2.5%: HD, HON, UNP, MMM, UL, RTX, CSCO
2.4% to 2.0%: GOOG, UNH, CVS, ORCL, FB, DEO, SYK, MDT, NSRGY, BRK.B, PG, KMB
1.9% to 1.5%: LMT, AMGN, MRK, INTC, NEE, SO, DUK, HRL, PEP, BDX
1.4% to 1.0%: D, ED, TXN, WEC, JPM, PFE
0.9% down: V, CHD, GS (likely to build V and CHD slowly, likely to ditch GS)
Kind of wondering how I ended up with THIS much ADP, but not complaining. Was a pandemic purchase a year ago. The huge rally pushes my expectations for forward returns down, though. At this time I am expecting five-year returns under 3% for: NEE, TXN, SO, CHD, D, AAPL, ADP, WEC, NSRGY, HON, V, and BRK.B. My method for these numbers is pretty superficial, and tends to underrate both utilities and faster-growth companies, but ValueLine’s numbers average out just 2.8% for this group. So I really shouldn’t be expecting this quarter of my portfolio to beat inflation.
But does that matter? The overall portfolio generates a 2.0% yield with a reasonable expectation of 8% earnings growth, and even at inflated valuations will likely return 6.5% annually over the next 3-5 years. Matching ValueLine’s estimates to a tee. I could improve the numbers on my spreadsheet by selling out of those “overvalued” stocks, but in doing so I would sap a lot of strength from the portfolio. I may trim here and there, but wholesale changes are not in the plan. Not when it would involve selling long-term winners like you see on that list.

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I definitely tend to trade more than most here… What is driving this activity? I thought I would look back at my sales so far this year:

Jan 11 – sold WTRG. Quality downgrades paired with high valuation made it a poor fit for my portfolio. I like the idea of owning a water utility, but I need to find one with stronger quality metrics.

Jan 21 – reduced GOOG, concurrently with adding FB. Now have large positions in both rather than a double-max position in GOOG.

Mar 10 – sold GWW. Good company, but I never really warmed to it. It wasn’t a large position, so if I wasn’t going to build it further then selling made sense.

Mar 12 – sold SYY. Combination of increasing debt, weak dividend safety, and high valuation with arguably diminished forward prospects. I really like the company and their management, but the pandemic closures damaged them and it will take time to repair the capital structure.

Mar 23 – sold T on a downgrade from SSD. It was marginal quality to begin with, and the downgrade pushed it over the edge.

April 9 – trimmed GOOG slightly due to position size.

April 12 – trimmed SYK. Was working on expanding the breadth of my healthcare/devices holdings.

April 14 – sold GS. I really don’t like the company. I’ll blame a bad influence for causing me to purchase it in the first place.

April 16 – sold ORCL. Bought it a month earlier on valuation, dumped the entire position on the rebound. I believe other tech companies are better positioned long term.

April 19 – trimmed ADP, HD. Fully valued and exceeding position limits.

April 21 – sold SO. Marginal quality, fully valued.

May 7 – trimmed CVS. Position limits.

June 1 – sold HD to add a full position in LOW. No room to hold both at that size.

June 3 – sold OGN. Not interested in owning that spinoff (or most spinoffs).

Reasons for selling:
Quality concerns: WTRG, SYY, T, SOAdding a similar company: GOOG, HD, SYKPosition sizes: GOOG, ADP, HD, CVS
Bad fit for me: GWW, GS, OGN
Valuation trade: ORCL

I did reference valuation as a secondary consideration in multiple trades. When a marginal stock or a large position is substantially undervalued (e.g. CVS or T), then I struggle with greed and can be slow to sell. But when I believe it is more or less fully valued (not necessarily overvalued), then it is easier for me to move on and improve the quality or balance of the portfolio.

The only one which was really driven by valuation was ORCL. I bought it primarily because it was selling at a 30% discount. I sold it when that discount had narrowed to 15%, for a 20% gain. But I might have sold it anyways, even if the share price hadn’t responded? It is one of those “good enough” companies that pass the metrics but don’t inspire me with their quality and outlook.

Note that I revised my investment plan in early April, adopting an income-focused approach while also adjusting the way I treat my IRA balances (I had previously discounted them by 25% to account for taxes). These changes messed with some of my allocations, leading to some of the moves later that month.

The only transaction with tax consequences was (part of) the sale of SYY on March 12. All other transactions were in IRAs. I generally do not sell in our taxable account unless there are quality concerns, so the turnover there is low.

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Muy interesante (y larga) conversación acerca de la reinversión y del cálculo del DGR (dividend-growth-rate) ya que no es la suma dividido por el número de empresas.

"Consider, for example, a portfolio with three equal-weighted positions. Call them WPC, PEP, and NKE. (A real portfolio will have more than three positions, but that merely complicates the calculations. It doesn’t really change the mathematics.)

WPC has a 5.43% yield and (according to SSD) 1.0% dividend growth in the last year. PEP has a 2.82% yield and 5.1% dividend growth. NKE has a 0.68% yield and 12.0% dividend growth. If I average these numbers, I get a 2.98% yield and 6.03% dividend growth. Right?

Unfortunately it doesn’t work that way. In an equal-weighted portfolio, yield averages. If I had $10k invested in each at that yield, then I’m anticipating $543 of dividends from WPC, $282 from PEP, $68 from NKE, for a total of $893. A 2.98% yield on the $30k portfolio. But the impact of the dividend growth isn’t weighted by the size of the position, but by the contribution to the income stream! Applying those growth factors for one year, my next year’s dividend income might be $548, $296, and $76 respectively, for a total of $921. Just 3.1% dividend growth!!!

Another way to look at it? That 1% DGR for WPC added $5.43 of income. That 12% DGR for NKE added $8.16 of income. PEP added $14.38, more than both of the others combined! (Sweet spot of moderate yield and moderate growth.)

Again, this isn’t specifically about those three companies or about the numbers I pulled from SSD. Doesn’t make a difference whether the numbers are right or wrong, and I’m not trying to tell anybody what they should own. But the fundamental mathematical point is that the dividend growth rate of the higher yield securities counts more heavily (is weighted on more dollars) than the dividend growth rate of the lower yield securities.

My take on this?

Lower-yield companies with high DGR don’t really do much to increase your portfolio income. Not directly at least, unless they are held in MUCH larger size than the other positions. However, high-growth companies will also tend to deliver strong capital appreciation over time. This helps to support my strategy of trimming a portion of this growth to build other positions that aren’t growing much on their own. And once I came to that conclusion, there was little reason for me to care about the DGR of these companies or even whether they paid a dividend at all. AAPL, MSFT, NKE, FB, and GOOG all serve an essentially identical role in my portfolio. AMZN as well, once it is built in size.

Which brings to mind another mathematical conclusion – the boost to dividend income from reinvesting dividends depends solely on the yield of the shares being purchased with those dividends. If I’m reinvesting NKE dividends into NKE, then I get a 0.7% boost to my DGR from that reinvestment. If I reinvest them into WPC, then I get a 5.4% boost to the DGR. Thus selective reinvestment of dividends into the higher-yield securities can generate greater DGR than the yield of the portfolio might suggest.

Again, these conclusions are basic mathematics. Simple stuff that is entirely agnostic to your investment approach and your goals. Do with it what you will.

(1) Higher-yield securities weight more heavily in “organic” dividend growth than lower-yield securities, leading to a lower portfolio DGR than an “eyeball” average might suggest.

(2) The boost to DGR from reinvestment of dividends is exactly equal to the yield of the securities purchased with those dividends, allowing the investor a high degree of control over this aspect."

[…] Pregunta

"Could you please expand on the following? It seems like if “A” is true than perhaps “B” can’t be true?

A.)"Higher-yield securities weight more heavily in “organic” dividend growth than lower-yield securities, leading to a lower portfolio DGR than an “eyeball” average might suggest."

B.) “Thus selective reinvestment of dividends into the higher-yield securities can generate greater DGR than the yield of the portfolio might suggest.”

Respuesta

"“A” refers to “organic” dividend growth, the result of company dividend increases. It averages over a portfolio weighted by the dividend income of the position, and thus high-yield positions factor in much more heavily. The dividend growth of NKE doesn’t move the needle in my portfolio, despite being one of my six largest positions and an excellent dividend grower.

“B” refers to the dividend growth generated by reinvestment of dividends. The added percentage from this aspect is exactly equal to the yield of the purchases securities, regardless of the source of the dividends.

Thus somebody who owns a slow-growth 6% yielder and uses those proceeds to purchase low-yield growth stocks is hammering their dividend growth on both fronts. Which is fine, of course, if that is what their strategy calls for."

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No estoy hoy para traducir del ingles, pero lo que yo entiendo, que es lo que hago, es ponderar el incremento de dividendo con lo que pesa esa accion en mi cartera.

Es decir, una accion que incremente el dividendo un 20% pero que solo pondera un 0,8% en mi cartera tendra poca influencia en el DGR total de la cartera

Sin haber leído el texto más que en diagonal, entiendo que no es eso lo que dice, sino ponderar el DGR por el peso de los dividendos de cada acción al total de dividendos de la cartera (proporcional a yield posición * peso posición)

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Es lo que dice @jgr23

En mi hilo lo aclaré (creo) un poco más.
Miguel Ángel, la cosa también está muy relacionada con el yield de la empresa en cuestión. Pero lo que viene a decir es que las empresas de bajo yield, aunque tengan un aumento muy importante en crecimiento de dividendos, tendrán poco efecto en el DGR global de tu cartera A MENOS que tengas un porrón de esas acciones (incluso llega a decir un 50% del peso).
La media aritmética del yield es la real, pero la del DGR tiende a ser mucho más baja de lo que pensamos.
Reinvirtiendo en empresas con yield alto o vendiendo revalorizaciones de las growth para comprar dividendos (como tú haces) logras aumentar en mayor medida el % de dividendos.

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Yo me referia al calculo de la DGR total de la cartera, tal como lo hacia yo, como decia, no me lo he leido.

No se como lo haceis por aqui pero para el calculo yo considero la ponderacion de la posicion. No se si estara bien hecho pero me da un dato de DGR, eso si, bastante bajito.

La forma que comentas @jgr23 pues la verdad es que no se cual sera la mejor o la mas correcta, no tengo ni idea, lo que si tengo claro es que por ponderacion de dividendos frente a dividendos totales a mi me penaliza el crecimiento, creo, ya que las mayores ponderaciones de dividendos se me dan en empresas con alto yield y bajo o nulo crecimiento.

Quizas un dia de estos la calcule de la otra forma para comparar.

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Por poner un ejemplo simple para que se vea la diferencia:

Cartera de 1000€

  • 50%: Altria, Yield 10%, DGR 2%
  • 50%: Visa, Yield 1%, DGR 20%

Dividendos año 1: 55€ (50+5)
Dividendos año 2: 57€ (51+6)

DGR Ponderado por peso de la posición: 11%
DGR Ponderado por peso de los dividendos: ~3.6%

La segunda opción es la que te dice lo que han crecido orgánicamente los dividendos de tu cartera. Si usas la media aritmética de DGR los dividendos en el año 2 serían 61.05€, que no se ajusta a la realidad. Depende lo que quieras medir puede tener más sentido usar una ponderación u otra.

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Sencillo y perfecto el ejemplo

Gracias @jgr23

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Ejemplo clarito y sencillo

Yo utilizo esta ponderación para el seguimiento de mi cartera.

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I track 49 positions on SSD, which includes all of our equity investments except for a modest holdings in VEXAX, CREF, and the TIAA Real Estate account which together total about 9% of what is listed here.

Top ten holdings: JNJ (5.2%), AAPL (4.5%), MSFT (4.5%), NKE (3.9%), GOOG (3.3%), FB (2.7%), LOW, RTX, CSCO, UNP, CVS (2.4%). Okay, so that’s eleven positions – but as you can see the last six are pretty tightly grouped.

I’ve switched to a dividend focus for planning purposes, with a goal of increasing the dividends from this portfolio by 8% per year between now and April 2030, roughly 8.5 years. Thus we are looking to almost double our annual dividend income over that period. The current dividend yield is just 1.99%, and as you can see a LOT of our largest positions pay little or nothing at this time, so we have plenty of room to “trade up for yield” should that seem advisable. But the “organic” DGR as calculated by SSD is 6.3% this year, 6.5% over the last five years, and 7.8% over the last ten years. Continuing savings and reinvestment of dividends are likely to increase this by 2.5% to 3.0% per year. Thus I am reasonably confident that we will nail the 8% target even without significantly changing the portfolio balance.

My major focus over the last few years and going forward has been to maintain portfolio quality. We have three positions with an SSD score under 70 – SPG, JPM, and CVS. I believe SPG is one of the highest quality mall REITs, possibly the best, and am comfortable with the level of risk on that (smaller) position. I don’t wholly understand the “borderline” rating on JPM, given my perception of it as the strongest of the big banks, and again am not going to fret that risk. And CVS just released yet another strong earnings report! I expect their credit and quality ratings will start to rise over the next six months.

That said, I also anticipate that some positions will deteriorate in quality, requiring some small adjustments. A few years back I saw D as being strong – yet at this time their quality metrics are weaker than my other utility holdings almost across the board. I sold out of D and now have our 10% utility allocation split equally between DUK, ED, ES, NEE, WEC, and PEG. To me that is a nice mix of quality, yield, and (a little) growth. This trade would have cost us a little dividend income, except that we were adding cash to the positions at the same time.

Sector allocations:
Defensive 45%: 10% Utilities, 15% Staples, 20% Health

Sensitive 40%: 7.5% Discr., 5% Comm., 12.5% Industrial, 15% Tech.

Cyclicals 15%: 7.5% Financials, 7.5% Real Estate

…note that I have V and ADP classified as “Financials” for these purposes, so if you are using standard classifications then about half of that 7.5% should really be Technology. I’m not being rigid with these numbers either, a couple of them are off by 1%. They are more guidelines than anything else.

By design, this is a reduced-beta portfolio. SSD calculates the beta at 0.79. Between that and the generally strong quality, I expect this portfolio would perform well in a bear market/recession, with both a smaller price decline and fewer dividend cuts than the overall market.

No trades in August or September or October.

Moves yesterday:

  • Sold D, bought ES, added to DUK, WEC
  • Trimmed ADP, added to V
  • Trimmed MSFT, added to SYK

“Trimming” options outstanding against a portion of NKE and ABT – but in both cases I’m as likely to roll or cover the options as I am to allow the shares to be called away. It is lightweight trading, but with minimal portfolio implications.

So as you can see, not much happening here, and that is barely worth talking about. The trades are designed to keep the portfolio aligned with the goals, not necessarily to maximize returns, so I’m sure others are taking the opposite side of these trades for perfectly good reasons.

Best of luck in your investing, whatever path you follow!

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Our (almost) end-of-year portfolio:

Taxable accounts:
61% individual equities, 39% cash/CDs less estimated tuition obligations
Retirement accounts:

73% equities (91% individual equities, 9% funds), 8% real estate and REITs, 15% TIAA Guaranteed Annuity, 4% cash/ITM covered calls.

Utilities (10%): DUK, ED, ES, NEE, PEG, WEC (roughly equal weighted)
Consumer Staples (16%): WMT, NSRGY, PG, PEP, UL, KMB, MKC, CHD, HRL, DEO
Health Care (20%): JNJ, CVS, UNH, BDX, AMGN, SYK, MRK, MDT, ABT
Consumer Disc. (8%): NKE, LOW, MCD, AMZN
Communications (6%): GOOG, FB
Industrial (11%): RTX, UNP, MMM, LMT, HON
Tech (15%): AAPL, MSFT, CSCO, TXN, INTC
Financials (7%): ADP, BRK.B, V, JPM
Real Estate (8%): TIAA Real Estate Acct (40%), DLR, WPC, O, SPG

Positions eliminated this year: T, D, WTRG, HD, PFE, SO, SYY, GWW, VWO

Positions added this year: ABT, AMZN, CHD, ED, ES, FB, LMT, LOW, MKC, MCD, PEG, V, WMT

Commentary:

Exited T on March 23, on quality downgrades. Took a small capital loss that was offset by dividends received. Glad to be free of that dog, I'll let others gamble on a rebound as they struggle to find a form for the company that can grow. Added FB in this sector.
Replaced D, SO, and WTRG with ED, ES, and PEG. Largely driven by quality metrics in this, as I'm not looking for much growth from this sector. (Obviously my new selections won't show much of that, though a couple of my other utility holdings might.)
Swapped HD for LOW. The two businesses are very similar, and at this time I believe the valuation/growth favors LOW.
Swapped PFE for ABT to shift the balance a little from pharma to devices. Both businesses have benefited from COVID demand so it is somewhat a neutral move in that regard.
Swapped SYY for MCD, based on quality/outlook. SYY is weaker than before the pandemic, and I did not feel that was adequately reflected in the price discount.
Swapped GWW for LMT on valuation and yield. GWW was never really in my wheelhouse, but it was too good a bargain to pass up when I bought it.
Added smaller positions in AMZN, CHD, MKC, V. I want these quality companies in my portfolio, and as the market was topping this year it gave me the opportunity to initiate positions without sacrificing too much value.
Added WMT this week on strength and value.

Concerns, such as they are:

AAPL is 5.1% of the portfolio, more than I am comfortable with given the valuation and yield. Struggling to sell any given the capital gains tax the sale would incur at this point.
NKE is 3.6% of the portfolio, working to trim it through options (thus far I've covered the options profitably on dips but eventually the shares will be called away)
Sooner or later I want to swap back from LOW to HD, or more likely split the position between the two.
CVS and UNH are now both top-12 positions. Love both companies, but that is too much exposure in that industry.

Metrics as calculated by SSD:

1.96% yield
0.74 Beta
94% likely safe, 4% borderline (SPG, JPM), 2% unrated (VXUS)
6.5% 5-year dividend growth
Projected income comfortably exceeds our target for April 2022.

AÑADO:
“Plenty of people will ask why I bother picking my own investments if I’m not going to beat the S&P500? Hope the above makes that clear? Our results do NOT beat the S&P500. Given the 30% allocation to fixed income, and the consistent emphasis on quality/defense, neither the overall results nor the equity portion should be expected to beat the S&P500. Yet these results are tailored to our goals and easily beat any risk-comparable strategy that I’ve considered. I estimate ~14% annualized returns over the last five years. Achieving our goals is what matters to me.”

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"Growth Positions:

Acknowledging that this is a DIVIDEND growth board, roughly 1/4 of our portfolio is invested in “pure growth” stocks, with yields under 1%. My favorites here, with earnings growth of 14%+ projected:

AMZN – results driven by AWS, with huge investments in logistics… Valuations still high, and growth rates coming down, but I intend to build this one slowly

FB – tremendous earnings growth and cash flow… I worry a little about the money being pored into the “metaverse” pipe dream, but stranger ideas have worked out. Their core business (media/advertising) isn’t going away.

NKE – the industry leader in Direct-To-Consumer channels, re-envisioning the way that top brands market and distribute their product. Brands matter more than ever when buying online, since you can’t see what you are getting until it arrives, and NKE is one of the best in this regard.

MSFT – incredible market dominance in multiple arenas, with shockingly few anti-trust issues (they worked through that a decade ago)

GOOG – I don’t like the company any better than I like AMZN or FB, but they have an unassailable position in media/advertising and their fingers in enough other pies that they should be able to continue to find growth – until they eventually decide to start sending that cash flow to shareholders.

DIS – easily the strongest IP library in the media/streaming business, and the acknowledged leader and transferal to merchandising. As a parent of young children, I don’t want them anywhere near Disney products. As a parent of teens, I have to acknowledge that they do what they do VERY well. One of the long-term winners in this niche.

Large positions in FB, NKE, MSFT, and GOOG. Smaller position in AMZN. Sold out of DIS in March/April 2019 and finally May 2020 (the last at $108 per share on concerns of pandemic weakness). Bought back in today at $156. I could have done much better if I had held through the 1Q21, but then my other holdings have also done very well over the last year and a half. The bigger mistake would be staying away from a great company just because I didn’t time an earlier trade well."

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Buena explicación de la razón por la cual en 2020 decidí empezar a comprar tecnológicas a pesar de los precios que tenían y seguían subiendo.
Buenos precios ahora para un punto de entrada, siempre con vistas a futuro.

DIS, FB, and GOOG are real-life "disruptors”…

DIS is my favorite name in the streaming space, as I believe they have the best content library. They aren’t going to eliminate HBO Max or NFLX or anything silly like that, but they will be one of the 3-5 big winners in the space. They have the revenue and profits to fund a long-term build-out and don’t need to turn a profit from their streaming operations any time soon. Streaming is something like 10% of content consumption, so there is a LOT of room for growth in this segment.

FB owns enough of the social media channels that it is the single dominant player in the space. Their business model (monetizing consumer data) is probably not workable in the long run, but the endgame is likely a hybrid free/subscription model (as Seeking Alpha is trying to adopt), with FB taking a cut of the proceeds. Platform operations are the best! You don’t have to invest in content or marketing, just build the platform and let others do their thing.

GOOG is on the verge of maturing from pure-growth to profitability and dividends. I expect the top line to slow, while the bottom line shows robust growth for another ten years. Again, they are largely a platform operation. The trick will be to keep them (along with AMZN, AAPL, FB, and MSFT) from owning everything.

People aren’t factoring in the long-term potential of the tech giants."

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:face_with_monocle: :face_with_monocle:

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"My personal portfolio – which definitely isn’t in the green, but has fallen less than the S&P500 YTD. (I’m definitely not a strict DGI.)

Utilities: 10% ED, WEC, DUK, NEE, PEG
Staples: 14% WMT, DEO, NSRGY, PG, UL, KMB, PEP, HRL-
Healthcare: 22% JNJ***, MDT, AMGN, MRK, CVS, SYK, ABT, UNH
Communications: 6% GOOG**, DIS-, FB-
Discretionary: 8% SBUX, HD, NKE, AMZN, WSM-
Industrials: 11% RTX, LMT, UNP, MMM, HON
Technology: 20% AAPL**, MSFT**, TXN, V, CSCO, ADP, INTC, GLW, INTU
Financials: 4% BRK.B, JPM
Real Estate: 5% WPC, O-, DLR-, SPG-

Most positions in the 1.5% to 2.6% range. JNJ, AAPL, MSFT, and GOOG total 18% of the portfolio. O, HRL, DLR, DIS, FB, WSM, SPG, and INTU are all under 1.5%.
Checking out for a bit, thanks for the ideas!"

8 Me gusta