PII Dividend Growth Portfolio - 66 Holdings (2024)

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This is my very first post on Seeking Alpha. I have been following articles on Seeking Alpha for last 9 years and over the past 9 years I have slowly amassed a portfolio of over $550K and would love to share the progress of the portfolio as well as the various portfolio strategies that I follow in managing my portfolio so that the readers here on SA can be part of our journey towards our retirement goals.

Introduction

I am 44 years old, and my wife is 43. We are Canadian Citizens who reside in Michigan, USA. We have lived in USA for 9 years (1 year in Virginia; 5 years in Texas – Austin and Houston; 3 years in Michigan). We have lived 11 years in Canada (5 years in Vancouver and 6 years in Calgary).

I have a Master’s degree in Computer Applications and my wife has a Ph.D. in Tourism and 2 Master’s degrees - one of them in Supply Chain, Logistics and Operations and the other in Tourism. We owned a furniture retail store business in Canada for 7 years that we closed recently, and currently my wife is in-between jobs while I am the sole earner now. We don't have a finance degree. We are individual investors so it's needless to mention that whatever I am writing about should not be taken as a buying (or selling) recommendation. Please do your own due diligence before making any decisions.

About Our Portfolio

We are Dividend Growth Investors who have built our portfolio to over $550K ($275K each) consisting of about 33 individually hand-picked stocks in each of our portfolios. When I am going to be writing about our portfolio, it's assumed that I am talking about the larger basket of 66 stocks that are present in our combined $550K portfolio.

When I first started investing back in 2008, it was a very harsh wake-up call because the moment I invested my hard-earned money, the recession hit, and I saw some of my picks going down by 30 to 50%. Luckily for me, I hadn't invested a lot of funds in 2008 and it was great to grab a lot of good companies at a sale. It was a good learning lesson. Over time I have bought ETFs, Emerging Market funds, non-dividend payers, stock screener suggestions, but time and again the dividend growth strategy has supported us very well in building our retirement fund. With the help of David Fish's CCC list and thanks to all the articles here at Seeking Alpha, I am proud to say that I feel on track towards our investment goals.

All the US stocks that I will be writing about are in tax-advantaged accounts (IRA, Roth IRA, or RRSP) unless mentioned otherwise. Currently, all the Canadian stocks that we own are in a TFSA account, which is like a ROTH IRA, but since I am a US Person for tax purposes and in USA the TFSA is not recognized as tax-advantaged, hence even though I am not going to pay any taxes on that account in Canada, I still pay taxes on that account on all the gains and dividends in USA. But the set of Canadian accounts is much less (9% of my portfolio) than the rest of the portfolio which is in tax-advantaged accounts (91%).

Investment Goal

We want to be retired as soon as our passive income can support our living needs. So, the goal of our portfolio is to build a steady stream of wealth through Dividend Growing stocks. Here's a look at how the dividends have grown over the past 10 years in our portfolio. This is not a model portfolio and these results are based on actual dividends received.

Our best monthly dividends were about $2248 in the month of March of 2018. We averaged about $1124 per month of dividend income in 2017 and hope to beat it this year and to continue this streak in many more years to come. In 2013 we saw a dip in the dividends as we took some cash out of our portfolio to invest in our furniture store business thus reducing the capital in our portfolio and hence a dip in the dividends received. Data regarding 2018 includes dividends received in September so we still have 3 more months to go. I am hoping to get over $14,000 in dividends this year.

Portfolio Strategy

I look at several ways to evaluate a stock and whether it should be part of my portfolio or not. Dividend growth investing is a bit of a conservative approach compared to buying stocks that don’t pay any dividends, but over the past decade I have seen that fits best to our retirement goals and hence I am continuing to pose faith in it. Currently I don’t own any ETFs or emerging market stocks but I have owned ETFs such as WisdomTree Global ex-US Real Estate Fund (DRW), WisdomTree Emerging Markets High Dividend Fund (DEM), WisdomTree Emerging Markets SmallCap Dividend Fund (DGS), Vanguard Real Estate ETF (VNQ), iShares MSCI Austria ETF (EWO), and iShares MSCI Spain ETF (EWP) in the past and I like them but they are not part of my strategy of growing dividends anymore and hence they are not part of my portfolio anymore.

Here are some of the factors that help me analyze the stocks.

Growth vs Value

Do value stocks perform better than the growth stocks? This question has been debated at many sites and in some years the value stocks have performed better than the growth stocks and in other years it’s been vice-versa. In my stock selection this is not a criteria that I worry about. I don’t choose stocks based on this. And, over the past years I have noticed that the stocks change from being a growth stock to being a value stock quite often. For example, WEC Energy Group Inc (WEC) was considered a Value stock till last week, and today when I checked MorningStar it’s not under-valued anymore and is a Core stock now according to the MorningStar Style. And it might change in a month from now or by the time the article is published. And it’s OK. As long as the company’s fundamentals are good, the company is raising their dividends every year at a healthy rate and I still like to own the company, it will find a place in my portfolio regardless of its style.

Here’s the composition of my portfolio based on growth vs. value as of today (Oct/2018).

Growth, Core, or Value here in the above chart is based on the MorningStar Style. I like keeping a small portion (1% of my portfolio) in physical Gold or Silver, so I have that separate from the rest of the investment. It works perfectly for me as then I have to divide 99% of my portfolio into 66 stocks. The remaining 99% of my portfolio divides into equal weight-age for the 66 stocks resulting in a 1.5% goal for each of the stocks.

If a stock is doing really well and runs away to become 2% or 3% of my portfolio then I re-balance my portfolio by either a) trimming portion of my winners and contributing the winnings to buy the losers, or b) putting all new investment into the stocks that are under-weight and haven't reached the 1.5% threshold yet.

For me since my portfolio has 99% stocks and 1% Gold and Silver, the 66 dividend growth stocks divide into 1.5% portion each. So, for me a full position is full 1.5% of my overall portfolio and this value changes over time as I put more capital in. When I had just 200K in my portfolio then a full position was 1.5% of 200K which was equal to $3K. Today, with over 500K value of my portfolio a full position is 1.5% of 500K which is approximately $7,500 and a half position is around $3750.

If I didn't have 66 stocks and only had 50 stocks then a full position would have been around $10K. So, whatever portion your full portfolio is, you can divide it by the number of stocks you wish to keep and calculate your full and half-positions and then decide to build the portfolio based on that number. Please remember that this number is not static and will keep on changing based on the value of your portfolio. I don't re-balance often, and I only do when the portfolio is very unbalanced or when I put in new funds.

The above approach of keeping equal weight-age or a cap of keeping 1.5% of each stock in my portfolio may not be the approach that you may agree with. Some people like investing in winners and thus keep investing in companies that are performing well instead of pouring money in the losers, and that's okay. I am just trying to reduce my risks and trying to keep a balance in my portfolio. Maybe it's the perfectionist in me. It's possible that my approach may not yield better results than I could achieve, but I am happy with my results so far. I am happy to own the stocks that I have and I am happy to trim winners like V.F. Corp (VFC) or Illinois Tool Works (ITW) and pour the winnings into stocks that haven't performed as well as VFC or ITW.

Market Capitalization

Do large caps perform better than small caps? Should I have more mid-caps in my portfolio? The truth is that in a long-term horizon of 2 or 3 decades it doesn’t matter. What matters is that you have a good balance of stocks from all types of market caps. Having said that, I have tried to keep a perfect balance between large caps and mid-/small Caps. So today my portfolio composition is balanced. I don’t try to actively re-balance my portfolio to match this goal and hence it’s possible that at certain times this composition does not match my goals, but the next time I am adding funds to the portfolio I tend to put more money towards the side that’s under-weight to bring it in balance.As you can see in the charts above, I am a bit low on the small/mid-cap today. So, if I have to add new funds into my portfolio I might prefer to put more money in American Water Works Company Inc. (AWK), CMS Energy Corporation (CMS), and Atmos Energy Corporation (ATO) rather than in NextEra Energy Inc (NEE), WEC and Xcel Energy Inc (XEL). So, if I start with a half-position in AWK, I might start with a quarter position in WEC – till they are all balanced out.

Sector Diversification

I have followed philosophy of dividend growth investors such as @Chowder and have tried to keep a balance between the cyclical, sensitive and defensive dividend growth stocks in my portfolio and I try to keep a formula such as whatever my age is I should have at least that much amount in defensive stocks. So when I was 42 years old, I had 42% in defensive stocks (21% in utilities, 15% in consumer staples, and 6% in healthcare). I attempt to re-arrange my portfolio every 3 years. So, next year when I turn 45 I shall introduce 2 more defensive stocks and reduce 2 of the sensitive or cyclical stocks.

Here’s my current goal that I am working towards based on super-sectors:

Here’s my current goal based on different asset classes:

Portfolio Reveal!

Here’s the full list of our portfolio and their distribution based on the sectors. The ones in bold NEE, ATO, CMS, AWK, WEC, and XEL I don’t have any position currently, but I intend to buy them in the next year. The rest of them I do have half or full positions in.

Source for Dividend Potential, Current Price is Yahoo Finance.

FUSVX, MEFZX, HSRUX, RERGX, and RERGX are all in my 401((k)) and they are not part of my dividend growth investment strategy. I have them because my 401((k)) plan provider does not allow me to invest in individual stocks. Whenever I leave my current job, I will roll these funds over in cash to my Traditional IRA and purchase the funds that belong to my 66 portfolio strategy. Similarly, as per my goals, NUE, KHC and OMI don't fall into my strategy at the moment so I shall sell them and purchase the equities that match my strategy. I am just waiting for the right moment to sell those. When I purchased these stocks I had used a different formula and with my current formula they are not going to give me the peace of mind and the dividend growth that I intend to achieve.

Since I have put a self-imposed limit on the percentage of stocks in any sector, I might be missing out on some very nice companies. For example, if I had more space to add in Healthcare, I will add Medtronic PLC (MDT), or Stryker Corporation (SYK) and maybe Cardinal Health Inc (CAH). And, if I intend to add more Utilities then I would add ONE Gas Inc (OGS), Dominion Energy Inc (D) or Duke Energy Corp (DUK). If I intend to add more Technology stocks then I would add Cisco Systems, Inc. (CSCO), Intel Corporation (INTC) or Microchip Technology Inc. (MCHP). But at this moment there’s no space as per my plans to add these. Since I work in a Technology/Telecom field I don’t want to add any more stocks in these sectors because if I lose my job due to a downturn in these sectors then I would both lose my job as well as the value of my portfolio will go down. As a result, both Telecom and Technology are under-weight in my portfolio. Maybe when I am not dependent on my work income I can add more of these stocks.

Here's a breakdown of my portfolio based on the various super-sectors, and the various industries.Source for S&P 500 Sector weightings: MorningStar

I have added the current composition of the sectors in S&P 500 so that I can compare how much I differ from it. As you can see S&P 500 has 14.10% for Financial Services stock while I have around 9%. S&P 500 has 2.9% for Utilities while I have around 21%.

Here’s a comparison of my dividend yield when compared to the S&P.

David Fish’s CCC List

I have been a big fan of David Fish’s CCC list and it has been an immense help in building my portfolio. Here’s my breakdown of the stocks based on if they are Dividend Champions, or Dividend Contenders or Dividend Challengers. If I have to compare two stocks, then I would prefer to choose a Dividend Contender over a Dividend Champion and a small or mid-cap over a large cap mainly because I still have at least 2 decades left to retire.

My Own Formula

I use a formula to calculate whether I like a stock or not and part of the calculations are based on the 5-year Dividend Growth rate of the stock, it’s current dividend yield and an average of it’s 5-year and 10-year capital gains rate. Over time, I might add more values towards this calculation.

I understand that now these calculations are like looking at the rear-view mirror, as I don’t have any metrics that looks at future growth of the company. But in the future I might tweak my formula to include other metrics. It’s a work-in-progress but so far, I have been very happy with my portfolio’s performance. I might not have beaten S&P 500 over the past 10 years as I don’t have Technology stocks such as Facebook Inc. (FB), Alphabet Inc. (GOOG), or Apple Inc. (AAPL) and don’t have other favorite growth stocks such as Visa Inc (V), MasterCard Inc (MA) or Home Depot Inc (HD) in my portfolio that have performed extremely well since the last recession, but my goal is to have a steady dividend income and build a solid portfolio that can fund both me and my wife's retirement needs. That's the reason why I don't have several stocks that others may have in their portfolio. My portfolio has certainly beaten S&P 500 in its dividend income over the past 10 years and I am satisfied with its performance.

No MLPs or Sin Stocks

I don’t own MLPs and sin stocks. MLPs because even though an RRSP in Canada is like an IRA, any USA MLPs end up taking 15% cut in their distributions even if it’s in a retirement account. I have had Altria Group Inc (MO) and Philip Morris International Inc (PM) before but then I moved out of sin stocks (sold PM and MO) and bought healthcare stocks ABBV, BDX, ABT instead when one fine day I got a knock on my conscience.

Conclusion

I have built this portfolio over the last decade one step at a time. I am glad that the Seeking Alpha community has been through my journey and I am excited to share this data with everyone. I shall be posting more articles about why I choose to invest in these stocks in the future. I hope that I can continue to learn from all of you and some of you may learn something from my portfolio strategy. Thank you for reading.

Passive Income Investor