Dividend Portfolio Update January 2020

January is in the books and what a month it’s been. As explained in my previous month update I took the decision to basically liquidate my account with my previous broker and re-start with a new brokerage firm. The big sell off took place in December and my PADI went down to only $173 at closing 2019.

January was therefore quite the opposite. With my funds now available I have started to rebuild my portfolio. I deployed $70,910 in the stock market. One of the mayor changes is concentrating this portfolio on high quality US dividend stocks with the possibilities to write options.

Base Line Cost

One of the key metrics for dividend investors is the Yield-on-Cost (Y-o-C). I was wondering how I should consider the shift to the new account. I figured that it would be most realistic to consider the original investment, adjust for the tax impact on any gains/losses and take the new purchase price into account.

In December I already repurchased a position I held in the previous account Gladstone Investment Corporation (GAIN). I used to hold 60 shares and decided to top up and go to 100 shares in the new account.

The calculation goes as follows for GAIN:

In summary, my original cost for 60 shares was $593.61 or $9.89 per share. With the sales value of $14.68. this means I made a profit of $286.99, which left me with funds of $826.07 after tax. For the purchase of 100 new shares at $14.24 I had to inject $597.93 additional funds. Hence, in total to buy these 100 shares I needed the original $593.61 + new money of $597.93 = $1,191.54. As a result, the average cost for these 100 shares is now $11.92. I think that this is a good way of reflecting my real cost per share and if I invest again in stock that I already held before, I will employ the same logic. If it is shares of new companies that the new cost is the baseline.

The below table shows the transition from one account to another with the new average cost per share for each individual company.

Stock Purchases

As already mentioned before in my post from last month I used this opportunity of switching accounts to clean up a bit and kick out basically European shares which I purchased in the very early stages of my dividend investing. I did not really apply the criteria back then which I apply now. Additionally, European companies tend to adjust their dividend to the annual results which may lead to cuts and increases which are somewhat unpredictable.

From the above table you can already see that I added quite a few new companies to my portfolio. So, lets get over the numbers for the new additions.

Purchase #1: Broadcom Inc. (ticker: AVGO)

Number of shares: 5
Average cost: $305.99
Annual dividend: $13.00
Dividend yield: 4.25%
5-year DGR: 55.55%
EPS Forward: $23.31
P/E: 13.1
Payout Ratio: 56%
PADI: $65.00

A company in the Information Technology sector, about fairly valued as shown in the FastGraphs chart, a great yield at 4.25% with a payout of 56%. It has a massive 55% 5-year DGR. I don’t expect that to be as high in the future but it should still be substancial. Adding $65.00 to my PADI.

Purchase #2: General Dynamics Corporation (ticker: GD)

Number of shares: 20
Average cost: $177.69
Annual dividend: $4.08
Dividend yield: 2.30%
5-year DGR: 10.52%
EPS Forward: $12.71
P/E: 13.98
Payout Ratio: 32%
PADI: $81.60

The FastGraphs chart shows a pretty picture. The stock is fairly valued and has plenty of room to grow its dividends witn a payout ratio of 32%. A rather low yield of 2.3% but I want to add more and more quality stocks to my portfolio. Let’s see if these 10% dividend growth rates persist in the future.

Purchase #3: Kinder Morgan, Inc. (ticker: KMI)

Number of shares: 50
Average cost: $21.38
Annual dividend: $1.00
Dividend yield: 4.68%
5-year DGR: -10.99%
EPS Forward: $0.98
P/E: 21.82
Payout Ratio: 102%
PADI: $50.00

The payout ratio is high and there was a dividend cut in 2016 which leave still a negative 5-year DGR. At the same time, neww projects should cover it in the future. For now this will remain a small position in my portfolio.

Purchase #4: Omega Healthcare Investors, Inc. (ticker: OHI)

Number of shares: 30
Average cost: $43.27
Annual dividend: $2.68
Dividend yield: 6.19%
5-year DGR: 5.58%
FFO Forward: $3.19
P/FFO: 13.56
Payout Ratio: 84%
PADI: $80.40

Now this ones comes with a whopping 6.2% yield and stands really good looking into the future. A Payout of 84% for a REIT is fantastic and price is still in the fair value region, maybe slightly overvalued.

Purchase #5: Bank OZK (ticker: OZK)

Number of shares: 173
Average cost: $29.57
Annual dividend: $1.04
Dividend yield: 3.52%
5-year DGR: 14.87%
EPS Forward: $2.90
P/E: 10.20
Payout Ratio: 36%
PADI: $179.92

OZK is clearly undervalued as shown in the FastGraphs chart shown. Nevertheless, there is a resistence for the price to go back as the short-term outlook is negative. That being said, the yield is good and the payout of 36% leave a lot of room. The dividend growth rate is also very high.

Purchase #6: Pfizer Inc. (ticker: PFE)

Number of shares: 50
Average cost: $37.20
Annual dividend: $1.52
Dividend yield: 4.09%
5-year DGR: 6.72%
EPS Forward: $2.67
P/E: 13.93
Payout Ratio: 57%
PADI: $76.00

Pfizer comes with a good yield of 4.1% and a reasonable payout ratio of 57%. The share seems slightly undervalued following FastGraphs valuation chart.

Purchase #7: Texas Instruments Inc. (ticker: TXN)

Number of shares: 30
Average cost: $126.86
Annual dividend: $3.60
Dividend yield: 2.84%
5-year DGR: 20.95%
EPS Forward: $5.19
P/E: 24.44
Payout Ratio: 69%
PADI: $108.00

Clearly TXN is not cheap. A P/E ratio of 24.44 and the FastGraphs chart indicating a possible overvaluation. Nonetheless, I want to build my portfolio around high quality stocks with great dividend growth. 20.95% for the 5-year DGR is just up my alley. The payout ratio is a little high too, but as indicated the expected growth of the company will make this number go down. 

Purchase #8: Exxon Mobil Corporation (ticker: XOM)

Number of shares: 50
Average cost: $62.12
Annual dividend: $3.48
Dividend yield: 5.60%
5-year DGR: 4.90%
EPS Forward: $3.09
P/E: 20.10
Payout Ratio: 112%
PADI: $174.00

This is one of the companies in the Energy sector which has been suffering the low market prices. However, if things turn right this stock might just be the one to cash in. The current payout ration is a bit worrying but it was managed in the past.

That’s it for the new additions to my portfolio. January obviously has been an active month. I added 8 new companies which I did not hold previously. On the other end, there are quite a few companies that did not make the cut and after closing my position with the previous broker these will not be added for the moment to my dividend growth portfolio.

  • Banco Sabadell (BME:SAB)
  • Banco Santander (BME:SAN)
  • Daimler (XETRA:DAI)
  • Enagas (BME:ENG)
  • Iberdrola (BME:IBE)
  • Mapfre (BME:MAP)
  • Naturgy (BME:NTGY)
  • Repsol (BME:REP)
  • Schaeffler (XETRA:SHA)
  • Total (PARIS:FP)
  • Best Buy (NYSE:BBY)
  • CVS (NYSE:CVS)
  • Kraft-Heinz (NASDAQ:KHC)

I still consider bringing back into the new portfolio:

  • CenturyLink (NSYE:CTL)
  • International Business Machines (NYSE:IBM)
  • Principal Financial Group (NASDAQ:PFG)

Conclusion

I started to rebuild my dividend growth portfolio with the new broker and have massively invested into several companies, eight of which are new ones. At the same time, I let go of 13 companies which I do not plan to invest in in the near furute. My investments bring it to a total of $71,178 and my PADI at the end of the month stands at $3,374.80. I am still far of the $4,000 level which I had reached already at the end of last year but I have still about $15,000 in cash for additional purchases.

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Disclosure: At time of writing long ABBV, AVGO, DFS, ENB, ET, GAIN, GD, GIS, GOOD, HD, KMI, MMM, MSM, O, OHI, OZK, PFE, PRU, SKT, T, TXN, UNM, VZ, XOM

Disclaimer: I am not a professional investment or financial advisor. The information presented on this site represents my personal dividend growth journey and it is for informational purposes only. Opinions expressed are my own and should NOT be relied on or taken as investing advice. I have no knowledge about your personal situation and before you make any investment decision you should exercise due diligence and must do your own research. Always consider seeking advice from a professional financial and tax advisor.