Dividend Update September 2020

The September dividend income is in the books and it has been a busy month. A total of 24 companies paid me and I received $495.71 in dividends. Even though my income is just short of $500 this month, I am celebrating hitting a new record. My 3-months average dividend income has hit $500. I am over the moon.

Dividend Income September

Without further ado, let’s look at the income details of September. Last month I received dividends from 24 different companies which totaled $495.71:

Anthem (ANTM) – income of $4.75
Broadcom (AVGO) – income of $13.00
CenturyLink (CTL), changed to Lumen (LUMN) – income of $25.00
Discovery Financial Services (DFS) – income of $26.40
Ebix (EBIX) – income of $3.00
Enbridge (ENB) – income of $31.00
Gladstone Investment Corp (GAIN) – income of $7.00
Gladstone Commercial Corp (GOOD) – income of $12.52
Home Depot (HD) – income of $24.00
International Business Machines (IBM) – income of $16.30
Intel (INTC) – income of $21.45
Invesco (IVZ) – income of $46.50
Johnson & Johnson (JNJ) – income of $10.10
Lockheed Martin (LMT) – income of $9.60
3M (MMM) – income of $29.40
Microsoft (MSFT) – income of $1.02
NVIDIA (NVDA) – income of $0.48
Realty (O) – income of $14.01
Principal Financial Group (PFG) – income of $28.00
Prudential (PRU) – income of $55.00
Snap-on (SNA) – income of $10.80
Visa (V) – income of $2.10
Walgreens Boots Alliance (WBA) – income of $60.78
Exxon (XOM) – income of $43.50

During the month of September I had several new first time contributors: ANTM, EBIX ad MSFT. While last months’ income was very concentrated around T and UNM, this month is rather spread widely across my holdings, with WBA being the biggest contributor at $60.78 or 12.3%.

The following chart shows my monthly dividend income over time. In September 2020 I received $495.71 compared to September 2019 with $284.25 of income. This is an increase of $211.46 or 74%.

On a year-to-date basis, from January to September I increased my dividend income from $2,147.16 in 2019 to $3,977.91 in 2020, an increase of $1,830.75 or 85%. This significant increase is mostly due to my contributions this year.

Check out my current Dividend Income Table for 2020 and the full overview of all the stocks.

Dividend Changes

In September there have been five dividend increases for the stocks in my portfolio. The table below summarizes the total of $12.52, with an average increase of 3.8%. SBUX and LMT increased their dividend close to 10%. The main surprise was GIS after three years of no dividend increases at all.

I am looking to receive an average increase of 7% to outrank inflation by a large margin. At the same time, some of my high yielding stocks by nature only increase in the range of 2-3%, pulling down the average.

The good thing is there have also been no further dividend cut on any of the holdings in my dividend growth portfolio.

As a result of this change, my PADI decreases by $12.52. At a yield of 3.0%, to achieve this dividend income I would have to deploy $417. The great thing is, I don’t. The dividends alone take care of this.

Expected Dividend Increases for October

The following companies in my dividend growth portfolio have raised their dividend last year:

Omega Healthcare Investors (OHI) – a 1.5% raise expected, going from $0.67 to $0.68 per share

Portfolio Split into Dividend Growth Stocks and Technology Stocks

As mentioned in my introduction of this post I also started to push myself into adding more technology stocks into my portfolio. For this reason I split my portfolio into two sub-portfolios: one for dividend growth stocks and one for technology growth stocks.

Technology Growth Portfolio

In my last monthly review I explained how I split my portfolio into two different owns and that I have started to invest into the following stocks as part of my Technology Growth Portfolio:

• Microsoft (MSFT)
• Amazon (AMZN)
• Apple (AAPL)
• Facebook (FB)
• Alphabet (GOOGL)
• Alibaba (BABA)
• Nvidia (NVDA)
• Visa (V)
• Mastercard (MA)
• Tesla (TSLA)
• Netflix (NFLX)

The reason for this move was to have a certain exposure to what I consider key players for the ever growing technology and digital world as services of this kind will be more embedded into both our professional and private life.

Long story short: I realized that I am trying to shortcut again on what I consider my main strategy which is dividend growth investing and decided to liquidate again all of these Tech stocks. Another reason is the level of high valuations which I consider may not continue for much longer and that the performance might suffer as a result.

There is no more Technology Growth Portfolio and I am all in on the Dividend Growth Portfolio.

The Dividend Growth Portfolio

In the Dividend Growth Portfolio I hold 45 different companies. Here is an overview of the status.

Purchases

I opened two new stock positions in my portfolio which I consider undervalued and with both dividend growth and value appreciation potential. I also added to 7 of my existing positions.

Purchase #1: Anthem Inc. (ticker: ANTM)

Anthem is one of the largest private health insurance organizations nationwide, providing medical benefits to roughly 42 million medical members. The company offers employer, individual, and government-sponsored coverage plans. Anthem differs from its peers in its unique position as the largest single provider of Blue Cross Blue Shield branded coverage, operating as the licensee for the Blue Cross Blue Shield Association in 14 states. Through acquisitions, such as the Amerigroup deal in 2012, Anthem’s reach expands beyond those states through government-sponsored programs such as Medicaid, too.

Number of shares: 5, increased position to 10 shares
Average cost: $246.99
Annual dividend: $19.00
Dividend yield: 1.54%
5-year DGR: 12.83%
EPS Forward: $22.47
P/E: 10.99
Payout Ratio: 17%
Dividend Safety Score: 99

Purchase #2: Automatic Data Processing (ticker: ADP)

ADP is a leading global provider of Human Capital Management (HCM) solutions. It competes in the human resources administration services industry. It provides services that satisfy companies’ human resources needs, such as payroll processing and benefits administration. ADP was founded in 1949 and has its headquarters in Roseland, New Jersey.

Number of shares: 14, increased position to 30 shares
Average cost: $130.10
Annual dividend: $50.96
Dividend yield: 2.80%
5-year DGR: 13.22%
EPS Forward: $4.99
P/E: 26.07
Payout Ratio: 73%
Dividend Safety Score: 97

Purchase #3: Comcast Corporation (ticker: CMCSA)

Comcast is a cable network and television corporation. The core cable business owns networks capable of providing television, Internet access, and phone services to roughly 59 million U.S. homes and businesses, or nearly half of the country. Comcast acquired NBCUniversal from General Electric in 2011. NBCU owns several cable networks, including CNBC, MSNBC, and USA, the NBC broadcast network, several local NBC affiliates, Universal Studios, and several theme parks. Sky, acquired in 2018, is the dominant television provider in the U.K. The firm is also the largest pay-television provider in Italy and has a presence in Germany and Austria.

Number of shares: 10, increased position to 40 shares
Average cost: $44.00
Annual dividend: $9.20
Dividend yield: 2.09%
5-year DGR: 13.30%
EPS Forward: $2.44
P/E: 18.03
Payout Ratio: 38%
Dividend Safety Score: 89

Purchase #4: CVS Health Corporation (ticker: CVS)

CVS Health is an integrated healthcare-services provider. Legacy CVS combined both the largest pharmacy benefit manager, processing about 2 billion adjusted claims annually, and a sizable pharmacy operation, including nearly 10,000 retail pharmacy locations primarily in the U.S. Adding a managed-care organization with over 23 million medical members gives the company a strong position in the insurance industry.

Number of shares: 40, new position
Average cost: $57.31
Annual dividend: $80.00
Dividend yield: 3.49%
5-year DGR: 12.70%
EPS Forward: $7.23
P/E: 7.93
Payout Ratio: 28%
Dividend Safety Score: 67

Purchase #5: General Dynamics Corporation (ticker: GD)

General Dynamics is a long-cycle defense contractor and business jet manufacturer. The firm’s segments include aerospace, combat systems, marine, information technology, and mission systems. The company’s aerospace segment creates Gulfstream business jets. Combat systems mostly produces land-based combat vehicles, such as the M1 Abrams tank. The marine sub-segment creates nuclear-powered submarines, among other things. The information technology business primarily serves the government market. The mission systems segment focuses on products that provide command, control, computers, intelligence, surveillance, and reconnaissance capabilities to the military.

Number of shares: 25, increased position to 50 shares
Average cost: $140.46
Annual dividend: $110.00
Dividend yield: 3.13%
5-year DGR: 10.52%
EPS Forward: $11.04
P/E: 12.72
Payout Ratio: 40%
Dividend Safety Score: 97

Purchase #6: Prudential Financial Inc. (ticker: PRU)

Prudential Financial is a large, diversified insurance company offering annuities, life insurance, retirement plan services, and asset management products. While it operates in a number of countries, the vast majority of revenue is generated in the United States and Japan. Prudential is the second- largest life insurance company in the U.S.

Number of shares: 50, increased position to 100 shares
Average cost: $64.89
Annual dividend: $220.00
Dividend yield: 6.78%
5-year DGR: 13.01%
EPS Forward: $9.36
P/E: 6.93
Payout Ratio: 47%
Dividend Safety Score: 75

Purchase #7: Bristol-Myers Squibb Company (ticker: BMY)

Bristol-Myers Squibb discovers, develops, and markets drugs for various indications, such as cardiovascular, oncology, and immune disorders. A key focus for Bristol is immuno-oncology, where the firm is leading in drug development. Unlike some of its more diversified peers, Bristol has exited several non-pharmaceutical businesses to focus on branded specialty drugs, which tend to support strong pricing power.

Number of shares: 20, new position
Average cost: $59.30
Annual dividend: $36.00
Dividend yield: 3.04%
5-year DGR: 2.49%
EPS Forward: $6.27
P/E: 9.46
Payout Ratio: 29%
Dividend Safety Score: 79

Purchase #8: Iron Mountain Inc. (ticker: IRM)

Iron Mountain Inc is a record management services provider. The firm is organized as a REIT. Most of its revenue comes from its storage business, with the rest coming from value-added services. The firm primarily caters to enterprise clients in developed markets. Its business segments include Global RIM Business; Global Data Center Business; and Corporate and Other Business.

Number of shares: 50, increased position to 100 shares
Average cost: $29.76
Annual dividend: $123.70
Dividend yield: 8.31%
5-year DGR: 12.19%
EPS Forward: $2.23
P/E: 13.34
Payout Ratio: 110%
Dividend Safety Score: 40

Purchase #9: Snap-on Incorporated (ticker: SNA)

Snap-on is a manufacturer of premium tools and software for professional technicians. Hand tools are sold through franchisee-operated mobile vans that serve auto technicians who purchase tools at their own expense. Snap-on currently operates three segments—repair systems and information, commercial and industrial, and tools—which accounted for 31%, 38%, and 31%, respectively. Its financing arm generates 8% of consolidated revenue and 24% of operating income.

Number of shares: 10, increased position to 20 shares
Average cost: $141.23
Annual dividend: $43.60
Dividend yield: 3.09%
5-year DGR: 16.26%
EPS Forward: $9.21
P/E: 15.33
Payout Ratio: 47%
Dividend Safety Score: 99

As you can see, during the market dip in September, I went on a shopping spree to take advantage of the lower entry prices. Most of the deployment has been made on margin. As a result, I have added $692.46 of dividend income to my PADI. On an investment amount of $16,630.83 including fees it comes to an average dividend yield of 4.16% and a weighted Dividend Safety Score of 75.5 points.

Check out my current Dividend Growth Portfolio and the full overview of all the stocks I hold in it.

Dividend Safety

One of the key metrics for my future passive income is how safe it is. For this reason I have started to track my Dividend Safety Score. For this score I use the weighted dividend safety punctuation from Simply Save Dividends combined with the dividend income of each of my stocks. The higher the score the safer the dividend income.

Dividend Safety Score

For September, the Dividend Safety Score is 59.6 for my dividend growth portfolio, up by 1.9 points compared to last month.

The increase is due to the deployment of money into stocks with a higher average score than previously held and the raises on dividends.

I consider the score of below 60 somewhat at the lower acceptable end and my target is a score of 70. I want to have achieved this by the end of next year. My plan is not to sell low rated stocks but instead re-balancing to high scoring ones when deploying more money.

I strive to continuously add to my portfolio and here really the focus is on high quality stocks. The re-balancing happens over time as new money deployed lowers the proportion of the low scoring stocks. I have seen that this works just fine at other dividend growth investor portfolios.

Let’s look at the actual distribution. I use the same classification as Simply Safe Dividends as it makes it easy to spot the categories.

As you probably know the different classes and their respective score ranges are:

In my portfolio 57% is in the Safe and Very Safe category which has very little risk of being cut. Another 32% is Borderline Safe. The remaining 21% are Unsafe or Very Unsafe. I need to monitor especially the unsafe positions closely. A cut by 50% on these stocks means that my PADI will drop by about $700. This is already quite some risk.

For each individual stock in my portfolio the current score is as follows:

I hold 14 companies in the highest category and another 16 companies is the second highest category. Overall, my portfolio contains many high quality dividend stocks with a safe dividend score.

On the other end we see the red alarming light with CTL, now LUMN. Luckily this is only a small position and I have also a sold option which boosts the return. I am not concerned about this one.

I am, however, very closely monitoring LADR as it is my largest position for dividend income, and this after their 50% dividend cut. A further cut may hurt my performance significantly. GOOD and ET are also smaller positions and not require any further attention. The score for IRM surprises me as I consider the business model valid. The payout for a REIT is at its limit but my additions in September should play out. I will have to monitor closely if there are any negative signs.

When combining the dividend safety score with the income the picture looks as follows:

You can see that the largest group is the Borderline Safe category, closely followed by the Safe one. However, the Very Safe category is only ranked 4^th in weight. In order to bring the safest group to the largest portion of dividend income, with my current portfolio size, I need to add about $1,100 of dividend income. At a starting yield of 3%, this amounts to investing about $36.000 only in stocks of the highest category.

Another way of looking at the dividend safety is by yield and score. For each of my holdings I compare these values to visualize the figures which clearly lets you draw some general conclusions.

The dots represent my yield-on-cost with the color of the dividend safety score. The blue lines indicate the current yield of these stocks. The grey dots represent companies that either do not pay a dividend or are not covered by SSD.

There is a clear correlation between yield and safety score. On the left hand side (apart from the grey dots) we have the low yield, high safety score companies. The further we go to the right, the lower the dividend safety score becomes but it typically comes with a higher yield.

In the midst of the market crash in March I decided to focus more on high quality dividend stocks and this is shown nicely in this chart. There are quite a lot of darker green dots and the blue line (current yield) is below the dot (yield on cost). Companies recovered quite nicely after the low.

At the same time, there a quite a few companies, especially of the mid to low safety score, which have not recovered and the blue line is above the dot, typically for oil and gas companies and the finance sector.

On the right hand side you can also see the extreme values that stocks can take on. ET has a yield on cost of above 20%. Others also above 10%. However, one of my goals going forward is not to chase the yield as we can so clearly see that it comes with a lot of risk.

Projected Annual Dividend Income (PADI)

With the significant of money deployed in September my PADI accordingly increased significantly, too. It stands now at $6,644 compared to $5,934 at the end of August. This is a rise of $710 or 12.0%.

I now consider that I need to just pour in money to pay off the margin on which I am building this. I still have a few put options on stocks which I would be willing to buy if the share price falls below the strike price at maturity. However, there are very few candidates and it is very unlikely. Hence, for the rest of the year there should be no more additions, unless I gain significant amounts from options trading.

Dividend Yield

The current yield of the shares in my portfolio is 5.4%, an increase of +0.2 compared to last month. The investment yield for my dividend growth portfolio is 5.2%, without change compared to August. For this yield I compare the current dividend income with the purchase price of the underlying shares. My yield on cost (YoC) is lower at 4.7%, up 0.1%, because of losses taken from options which also required additional funding without adding new dividend income.

Conclusion

The dividend income for September was $495.71 from 24 different companies, a 74% increase over September last year. My PADI stands at $6,644 which marks again a new record. My original target for this year of $5,000 was already reached in June.

The dividend safety score of my portfolio is 59.6, an increase by 1.9 points but still significantly below my recently set target of 70. My analysis has shown that 57% of my dividend income is categorized as safe, up by 5% compared to August, but there are still a few stocks with a high risk of being cut.

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Disclosure: At time of writing long on all above mentioned

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.