Dave Van Knapp’s Dividend Growth Portfolio

Updated December 1, 2017. Stocks added this year are highlighted in the left column.

What Happened in November

  • The portfolio received $377 in dividends from 8 of the 22 companies in the portfolio. So far in 2017, the portfolio has received 79 dividend payments totaling $3293. That is about 9% more than last year at the same time.
  • The portfolio’s current yield is 3.4%, down from 3.5% last month.
  • The portfolio’s yield on cost – meaning the annual dividend run-rate divided by the portfolio’s original value in 2008 – reached a new all-time high in November of 8.1%. In other words, the portfolio is now delivering 8.1% of the original investment per year in cash payouts.
  • I trimmed McDonald’s (MCD) to get it under 10% of the portfolio. I then purchased two other stocks with the proceeds.
  • The portfolio ended November worth $109,755, up $3632 from last month. It is up 16% for 2017 and +135% over its lifetime (9.6 years).

Transactions in November

As explained in the next section, I trimmed McDonald’s (MCD), because the position had grown well beyond the 10% maximum-size guideline for this portfolio. I reinvested the proceeds into 2 other stocks.

The portfolio received $377 from 8 companies during November: AT&T (T), Lowe’s (LOW), Alliant Energy (LNT), Hasbro (HAS), Omega Healthcare Investors (OHI), Procter & Gamble (PG), Realty Income (O), and HCP (HCP).

Trimming and Replacing McDonald’s 

In October, McDonald’s continuing price increases caused it to expand beyond 12% of the portfolio. It had been over 10% for several months before that.

McDonald’s upward price tear caused its dividend yield to fall, as shown here:

The business plan for the portfolio has 7 guidelines about selling or trimming positions, and 3 were pertinent here. Guidelines (b), (f), and (g) all applied.

So I decided to trim the position and put the money to work elsewhere. Here’s what I did.

  • Sold about $3300 of McDonald’s, taking its position size back to about 9% of the portfolio.
  • Opened a new position in Smucker (SJM), which was the Dividend Growth Stock of the Month for October, 2017.
  • Added to my existing position in Realty Income (O).

I accomplished several goals with these trades, including better diversification and an immediate increase to the dividend stream. Both Smucker and Realty Income have higher yields than McDonald’s, so the redeployment of the money raised the dollar value of dividends coming into the portfolio.

Prior to the trades, the annual income of the portfolio was $3738. After the trades, it became $3783, which is about a 1% increase.

For a complete analysis of these trades, please see I Just Bought These Two Stocks for My Dividend Growth Portfolio (November 4, 2017).

Dividend Payments Expected in December

This display from Simply Safe Dividends’ Portfolio Analyzer shows that payments will come from 11 companies totaling $368. December includes the first dividend payment from Smucker (SJM), which was just purchased in November. The payout from Realty Income will also be larger after buying more shares in November.

Reinvesting Dividends

I collect dividends in cash. I reinvest the cash when it totals $1000. Right now it’s at $1041.

I collect dividends in cash. I reinvest the cash when it totals $1000. Right now it’s at $1041.That means that I will make the 4th and last dividend reinvestment for 2017 this month. As soon as I select the stock and buy it, I will write an article about the purchase.

So far in 2017, there have been 3 dividend reinvestments. Please see these articles for more information:

Dividend Increase Calendar

This table shows the schedule of dividend increases for 2017. Nearly all are known.

That makes 25 announced raises this year for the portfolio’s 22 stocks. I am still awaiting Ventas’ announcement of an increase for December.

Although Chevron is listed as a December announcement, I am not expecting them to raise their dividend this year. Since the oil-price crash in 2015, Chevron seems to have moved to an every-other-year increase schedule. They last increased their dividend in December, 2016, and it was a minimal increase just to keep their 30-year streak of dividend increases alive. I expect their next increase will come in 2018.

HCP did not discuss raising its dividend during its 3rd-quarter conference call. They did state that “we will continue to have a solid cash flow base to cover our dividend,” and they noted that their credit rating outlook has been raised to “positive” by S&P.

I continue to hold HCP despite its frozen dividend, because (1) I expect at some time they will resume annual increases, (2) it is such a small position in the portfolio, and (3) its yield is quite high. Before the cut in 2016, HCP had been a Dividend Champion with 31 straight years of increases.

Simply Safe Dividends rates the safety of HCP’s dividend at 60 out of 100 points, unchanged for the past couple of months and still in the “safe” zone.

Next 12 Month’s Anticipated Dividends

Here is the display by E-trade of expected dividends by month over the next year. The estimated payments (shown in purple) will become known as dividend declarations and increases are announced over the next 12 months.

Yield on Cost and Current Yield

Yield on cost is the portfolio’s yield on the original money invested when I started the portfolio. The projected 12-month total from above is used to calculate yield on cost: $3783 / $46,783 = 8.1%. That’s up 0.1% since last month, and it is the highest ever recorded for this portfolio.

That’s the way things are designed to work: The yield on cost goes up regularly, which is just another way of saying that the dividend income goes up regularly. In a nutshell, this portfolio is now paying me dividends at the rate of 8.1% of the original investment each year. Every 12 months I get back 8.1% of the amount that I originally spent, with the expectation that amount will regularly rise.

In 2017, the yield on cost of this portfolio has risen from 7.4% to 8.1%. The annual dividend run-rate has increased 9% from $3473 at the beginning of the year to $3783 now.

The portfolio’s current yield is also calculated from the annual dividend run-rate: 3783 / $109,755 = 3.4%. (The divisor is the current value of the portfolio rather than its original value.) So the portfolio is projected to yield 3.4% on its current value over the coming 12 months.

The 3.4% current yield dipped 0.1% after remaining at 3.5% for several months. It often varies from month to month, as dividends increase and the portfolio’s total value fluctuates.

Minor variations in current yield have no long-term significance. Yield is a percentage calculation. The payouts measured in dollars continue to increase as raises kick in and new shares are purchased. If the portfolio’s total value keeps pace with its rate of dividend increases, current yield stays flat.

For comparison to this portfolio’s 3.4% yield, the S&P 500’s current yield is 1.8%. The 10-year Treasury rate is 2.4%.

Consistent Dividend Growth

The stocks for the Dividend Growth Portfolio have been picked for their ability to generate a steady stream of growing dividends. I eventually intend to live off the dividends in retirement (whereas now I reinvest them).

Increases in the portfolio’s dividend stream come from three sources.

  • Companies raise their dividends regularly. See the Dividend Increase Calendar above.
  • New shares are added through dividend reinvestment, as illustrated by the addition of Qualcomm and Lowe’s this year. The new shares generate dividends of their own, thus increasing the total income flow.
  • Occasionally I make changes to the portfolio that impact its dividend stream. As discussed earlier, in November I trimmed McDonald’s and used the proceeds to buy more Realty Income and open a new position in Smucker. The net effect was to increase the dividend run-rate.

The graph below shows the dividends that I have received each year since the portfolio was started.

The rising green bars illustrate the core goal of this portfolio: Reliable growing income. The 2017 and 2018 green bars are estimates. The estimate for 2017 should be solid at this point, while the estimate for 2018 is a SWAG at 8% more than 2017.

The red dot on the 2017 bar shows the actual dividends received thus far in 2017, which is $3293.

You might note that the dividends received through November of 2017 are just a hair short of all the dividends received in 2016.

Total Returns

Dividend growth investors get good total returns too. That’s no surprise! Consistently buying and collecting shares of quality companies, reinvesting their dividends, and purchasing at good valuations all tend to produce good total returns as well as a healthy income stream.

The value of the portfolio has grown 135% from its original size in June, 2008. It started at $46,783. It is now worth $109,755.

If the same money had been invested in the S&P 500 Index via the ETF called SPY, with dividends reinvested, it would have increased 130% to a total value of $106,655. That portfolio would be yielding 1.8% compared to the DGP’s 3.4%.

Background: What is the Dividend Growth Portfolio?

To see the Business Plan for this portfolio, click here. To learn more about the origins of the portfolio, see An Introduction to My Real-Money Dividend Growth Portfolio.

Remember, the DGP is not presented as best or a model. Rather, its purpose is to provide a live demonstration of what you can accomplish with dividend growth investing, and what it is like to run a real portfolio.

— Dave Van Knapp

For a list of all of my articles about my portfolio, see below.

Dividend Growth Portfolio Articles

I Just Bought Another $1,000 of Cisco (CSCO) for My Dividend Growth Portfolio– December 6, 2017
I Just Bought McDonald’s (MCD) and Smucker (SJM) for My Dividend Growth Portfolio
– November 4, 2017
I Just Bought Lowe’s (LOW) for My Dividend Growth Portfolio
– August 28, 2017
I Just Bought Another 18 Shares of Qualcomm (QCOM)– May 18, 2017
I Just Bought 18 Shares of Qualcomm (QCOM) for My Dividend Growth Portfolio
– February 21, 2017
I Just Bought Another $1,000 Worth of Cisco (CSCO)
– November 3, 2016
I Just Bought Boeing (BA) For My Dividend Stock Portfolio
– August 10, 2016
I Just Bought 45 Shares of Southern Company (SO)
– May 6, 2016
I Just Bought 47 Shares of Ventas (VTR)
– April 14, 2016
I Just Bought 60 Shares of Cisco (CSCO)
– February 16, 2016
I Just Sold My Shares of Kinder Morgan (KMI)
– December 14, 2015
I Just Bought Another 30 Shares of AT&T (T)
 – November 23, 2015
My Dividend Growth Portfolio Delivers a 7%-Plus Yield on Cost Already
 – October 17, 2015
I Just Reinvested $1,000 in Philip Morris International (PM) – August 27, 2015
I Just Bought Another 24 Shares of Coca-Cola (KO)
– May 26, 2015
Why I Decided to Hold All 19 Stocks in My Dividend Growth Portfolio
– April 15, 2015
Why I Sold Some Johnson & Johnson (JNJ) and Pepsi (PEP) – January 24, 2015
I Just Bought Another 30 Shares of AT&T (T) – January 14, 2015
This Portfolio Generates Dividend Income That Rises 15% Per Year – November 10, 2014
I Just Bought More Shares Of Procter & Gamble (PG) – October 1, 2014
I Just Sold Lorillard (LO) and Bought HCP Inc. (HCP) – July 16, 2014
This Real-Money Portfolio is a Cash Machine – July 10, 2014
I Just Bought Ventas (VTR) for My Real-Money Portfolio – May 28, 2014
I Just Sold Darden Restaurants (DRI) – April 11, 2014
Why I Sold All of My Shares of Intel (INTC) – March 31, 2014
An Introduction to My Real-Money Dividend Growth Portfolio – March 15, 2014