Dividends Are Pouring Into DTA’s Income Builder Portfolio [Quarterly Review]

Three months and six stocks into what we expect will be a multiple-year endeavor featuring dozens of companies, dividends have started pouring into DTA’s Income Builder Portfolio.

Already, we can see the income stream growing. We are confident that year after year, month after month and week after week, the IBP will do its job.

Daily Trade Alert will continue making $2,000 available each month for me to divide between two stock buys, and I remain very excited about this unique opportunity to build a real-money, real-time, Dividend Growth Investing portfolio from scratch.

Given that the IBP has existed only since Jan. 16, it’s impossible to measure year-over-year income growth yet. But the green shaded area in the following table offers a reasonable simulation:

The column titled Q1 2017 INCOME* assumes I had bought the same number of shares of each company on the same dates last year.

In the case of 3M, for example, the portfolio would have received $1.175 in dividends for each of 4 shares, making for Q1 2017 INCOME of $4.70. (The SHARES column shows MMM with 4.0225 because the portfolio received .0225 of a share through dividend reinvestment in March.)

I then calculated the percentages in the INCOME GROWTH column using the actual income received in Q1 2018 along with the estimated 2017 figure.

Our MO, NEE and D positions were not purchased before their Q1 ex-dividend dates.

Their income will start to build in the second quarter.

The three companies the IBP owned in time to receive Q1 dividends would have seen their income grow 12% over the first quarter of 2017.

That’s outstanding, a figure I’d love to see every year.

Twelve months from now, when we have gotten through Q1 2019, we will start being able to provide accurate year-over-year income-growth data. Until then, I will do these simulations each quarter.

Here is some more income-related information:

ANNUAL INCOME shows the projected yearly income for each position given the most recently announced dividend (DIV/YR).

For example, Pepsi announced that it would be raising its quarterly dividend to .9275 starting with its June payment. I multiplied that times 4 to arrive at a $3.71 annual dividend, and then I multiplied that by 9.0675 shares to get to $33.64 in projected annual income.

The last column, PCT PORT, shows the percentage of the IBP’s income produced by each position. Right now, Dominion is projected to produce about 25% of it; as more companies are added, that obviously will decrease.

Through dividend reinvestment – a concept informally called “dripping” — the AMGN, MMM and PEP positions each added a fraction of a share. Next quarter, those partial shares also will receive dividends, which will be reinvested again. That’s compounding for fun and profit, baby!

Safety In Numbers

I ran the IBP through the Simply Safe Dividends screen and learned that the portfolio has a robust 3.49% yield so far. It would have been higher had Pepsi’s yield been determined by its next dividend rather than its last.

The green boxes in the table above show SSD’s Dividend Safety scores. Five of the IBP’s six companies have “Very Safe” ratings of 92 or higher. Dominion’s is a “Safe” 75. Following is a chart of what the scores mean:

What About Total Return?

Although building an reliable, growing income stream is the IBP’s main mission, the portfolio’s Business Plan notes that “solid total return” is a secondary goal.

Here is some pertinent information regarding the portfolio’s performance. All data is as of market close on the first quarter’s final trading day, March 29, 2018:

As you can see, NextEra was the only company to experience a gain. That’s quite a contrast from 3M’s double-digit loss and Amgen’s nearly 9% decline.

AMGN and MMM were the first two stocks bought for the Income Builder Portfolio; unfortunately, the market started heading down shortly after the 3M purchase.

Several macro conditions – most notably President Trump’s steel tariff and his Twitter attacks on Amazon (AMZN) – got investors in the selling mood. Industrials such as MMM were hit especially hard by the tariff talk.

I am not the least bit concerned about the IBP’s Q1 total-return performance. DGI is a long-term strategy, and it can be foolhardy to draw conclusions even after many years – let alone after a few months. To wit:

I highlighted that paragraph to underscore the importance of patience for all investors, but especially DGI practitioners.

Time To Shop?

I will reveal the IBP’s next stock in an article Saturday, April 7; it will be a company not already in the portfolio. Nevertheless, this recent market pullback might have created buying opportunities for those interested in some of the names the IBP already owns.

For example, Amgen, the biotech giant that was the portfolio’s very first buy, has an attractive 13.0 “blended price/earnings ratio,” according to FAST Graphs.

Dominion, the IBP’s most recent addition, is trading about 20% lower than Morningstar’s $84 Fair Value Estimate. Given D’s 16.7 forward P/E ratio, Morningstar calls it a “4-star value.”

Pepsi is considered a “Strong Buy” by CFRA, which has assigned PEP a 12-Month Target Price of $128 — about 14% higher than where it is trading.

For what it’s worth, I recently added to the Pepsi and Dominion positions in my personal portfolio.

Altria and 3M are high-quality companies but they’re not bargains even after their 2018 declines. Neither is NextEra, which has performed better over the last couple of years than just about any regulated electric utility out there.

The above information is not me saying, “Buy AMGN, D and PEP now, but lay off MMM, MO and NEE.” The only recommendation I am comfortable making is that each investor should do his or her own thorough research.

Wrapping Things Up

One of the calming things about DGI is that even in turbulent times for the market, the income stream continues to grow.

Seeing the ever-increasing stack of Divvy Dollars in my personal portfolio helps filter out the “noise” and keeps me from trying to jump off Mr. Market’s Roller Coaster From Hell!

Graphic from Morningstar

I will do these updates every quarter, but any investor who wants to monitor the IBP’s progress more closely can go to Daily Trade Alert’s home page, hover the cursor over the Dividend Growth Investing tab and then select Income Builder Portfolio from the drop-down menu.

— Mike Nadel

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