Saturday, January 22, 2022

Week in Review

While overall a disastrous week in the market, the Dividend Town portfolio is functioning as designed. When I built the portfolio one of the things that I'm KEENLY aware of is exposure to risk. As the back half of 2021 was wrapping up I saw nothing but risk in the marketplace. 

  • Real inflation
    • In my 9-5, I have seen the inflation risk first hand. From product shortages, higher input costs, and sky-high freight costs, higher interest rates were always an outcome.
  • Sky high evaluations
    • Everything feels reminiscent of the early 2000's where any idea is met with wild evaluations. No income?  No problem!  I love great ideas as much as the next person, but profit (or future profit) drives stock prices, not hope.
  • Relentless pumping of crypto and NFTs
    • Love the concept of decentralized finance, but not ready for prime time yet. 
    • I'll agree there's utility in NFTs, but 99.9% of what I see is based off greater fool theory. 

I've been on this merry-go-round twice, in the early dot.com era and real estate bubble era and I know where this goes. This time I'm in control of the finances instead of fund managers or blind indexing.

While I'm still heavy in tech, it's nowhere near the weighting of the S&P and Nasdaq. Invesco QQQ sector weighting for the Nasdaq weightings. After the run up of the last two years, I really don't want the risk associated with that heavy of a tech weighting.
As a result, the portfolio only lost 4.4% this week compared to the NASDAQ at 7.6% and the S&P 500 at 5.7%. While there may be more of a drop to go, I believe there will be a return to value and other unloved sectors this year that should benefit the weighting over time. 

Dividends this week ($134):
  • CTRE - $26.50
  • SRE - $34.10
  • STOR - $38.50
  • POR - $35.26
Dividend hikes:
  • I neglected to mention on Jan 14th BlackRock hiking their dividend 18% from $4.13 to $4.88 a share. This increased annual income by $15. 
Purchases, deployed some of the cash from cleanup a few weeks ago:
  • Added 18 shares to ($POR) Portland General Electric Company, yielding 3.28%. 
  • Added 39 shares to ($BKH) Black Hills Corp, yielding 3.56%.
  • Added 35 shares to ($AFL) Aflac, yielding 2.63%. 
  • All purchases pushed up holdings to at least 100 shares unlocking the ability for additional income via covered calls.
Options:
  • Holding an AMC $17 put expiring in July. 
  • Verizon iron butterfly expiring next week looks like it might be in the money. Need to finish between $50.33 and $53.67.  
  • Sold one put for Comcast at $50 expiring 01/28. Happy to hold this one to balance out my communications sector which is underweight.
  • Flipped some Nike puts for $93.
  • Flipped some Peloton puts for $106.
Website:
  • Added a dashboard page showing how I track progress.
Have a great weekend!

Saturday, January 15, 2022

Week in Review

"Have a plan. Follow the plan, and you'll be surprised how successful you can be. Most people don't have a plan. That's why it's easy to beat most folks." - Bear Bryant

Do you ever look out in the distance and see storm clouds rolling in? Do you panic as they approach? Did you pay attention to the weather report from last week? Did you make preparations? 

Over the last few weeks as I review the Dividend Town portfolio I feel prepared for what comes next. The plan is to invest in high-quality dividend growth stocks, maintain a more reasonable sector weighting than the market, and generate income via cash-secured puts and covered calls.

If I take the existing portfolio and measure the historical dividend growth, there's a 7.6% increase each year over the last 10 years. Without any stock appreciation or reinvestment, my annual income would have gone from $2.8K to $7.8K. 

SimplySafeDividends.com Dividend Growth

Continuing this trend, assume a 5% appreciation in share price annually, reinvestment of dividends at 2.7%, a dividend growth rate of 7.6% and $15K a year contribution, the current ~$300K will reach ~$2.2M and generate $82K of dividend income a year. 

Dividend Town Graphs

So what if things don't go as planned? I plan for a few contingencies.
  • Dividend cuts: I use SimplySafeDividends and monitor their Dividend Safety score. Of the dividend producing stocks I invest in, only Medifast is rated Borderline Safe, the rest of the companies are Likely Safe (>60%). 
  • Consistent trend of dividend growth: 50 of the 52 dividend generating companies in the portfolio issue consistent dividend increases each year. Of those 50, the average number of consecutive year increases is 22. That's through good times and bad times. 
  • Consistently great companies: I use a custom screener that I refresh each week with input from a variety of sources. I then apply a series of weightings against ~1,700 companies and force rank them based on growth, quality, dividend safety and some other factors. The companies that rise to the top is where I will invest.
  • From that list, I need to make some choices. Is it overvalued/undervalued? For value, I calculate a blended average of fair values from a variety of sources, throw out the high/low, then apply a discount for highly ranked companies or a premium for poorly ranked companies.
  • Watching my sector risk: This is my biggest fear about index investing. 
    • For example, take $XYLD. It's an S&P 500 Covered Call ETF. It's in my portfolio. Generates a great yield (~9.0%). Mirrors an index. What's the sector breakdown look like? If I committed more of this index, do I want the risk of ~30% of my portfolio tied to Tech?
From https://www.globalxetfs.com/
    • Tech dominates the financial news, but it doesn't always dominate returns. On the Novel Investor, there's a great diagram showing top performance by year. 
https://novelinvestor.com/sector-performance/

All the above are elements of the strategy and keys to executing the plan. As the quote above mentioned, I'll follow the plan to be successful.

Dividend activity this week was good, netting $142 total. 

Option activity was good this week as I closed a few puts against $EMBK thanks to The Bear Cave.
  • Closed the call end of my $ABBV strangle for a $94 loss, but keeping the put option open. Expires on 01/28 at $135 strike. I do believe this is overvalued slightly so I'll keep this open.
  • Closed a covered call against $WLK, netting $100 gain. I'm glad to have this stock in my portfolio, but some of the swings lately have been churning for option activity. 
  • Closed my puts against $EMBK for a $420 gain. 
  • Remaining open: Verizon Iron Butterfly, $AMC put for June expiration, $HIMX call for June expiration (currently underwater)
Overall performance was good, gaining 0.62% this week vs. S&P, NASDAQ and DJIA all negative. 

I'm currently working on a few books from Kuppy's Book List. Really enjoying Tomorrow's Gold on the perspective of looking for future trends. 
  • You can be a Stock Market Genius
  • Tomorrow's Gold 
Over the next two months I'm considering narrowing the portfolio from ~60 stocks to ~40. I'd like to have more targeted bets but need to think critically before taking any type of action. I asked the question on this Twitter thread earlier this week and there's a large range of answer. It's good food for thought.

Have a great weekend!