My annual review of DTA’s Income Builder Portfolio will be coming out in early 2021, so I’ll wait until then to grade this year’s total-return and income-growth performances.
As for my final selections of 2020 … we’re talkin’ straight A’s.
Total cost of the buys will be about $1,000, which is DTA’s semimonthly allocation.
Although my “straight A’s” remark obviously was a play on the symbols of AVGO, ABBV and AMGN, these stocks definitely earn their good grades.
Broadcom has been one of the IBP’s best performers since the portfolio’s inception nearly 3 years ago, with a total return of about 85%.
Our first and largest stake — purchased on Aug. 14, 2018 — has crushed the overall market by a nearly 4-to-1 margin.
AbbVie has emerged as the No. 1 dividend-producer of all 37 IBP positions. It is generating about $140 annually, or 5.5% of the portfolio’s income, all while realizing a 33% total return on our first three ABBV purchases.
And Amgen has grown its dividend by more than 50% since we made it the portfolio’s very first buy back on Jan. 16, 2018.
Indeed, it was each company’s recently announced quarterly dividend hike of 10% or more that inspired me to make these my final picks of 2020.
Let’s take a quick look at what’s up with these three companies.
There has been a lot of news for AVGO — just about all of it good — since our Jan. 14 purchase of the semiconductor chipmaker.
During its 2020 fourth-quarter earnings call on Dec. 10, Broadcom announced year-over-year growth of 18% in EPS and 12% in sales. (In the graphic below from Simply Safe Dividends, Q4 2019 data is circled in red and Q4 2020 information is circled in purple.)
The company’s annual growth has been quite impressive, too.
About 20% of Broadcom’s revenue comes from its work with high-end cellphones, and it is anticipating major growth in Q1 2021 thanks to the popularity of Apple’s (AAPL) iPhone 12 family.
Its acquisitions of CA Technologies and Symantec Enterprise also are bearing fruit, as infrastructure software sales increased 36% year-over-year.
That all of this growth occurred despite the global COVID-19 pandemic is especially notable.
Yes, AVGO is firing on all cylinders, which helps explain why we will have to pay a considerably higher per-share price now than we did in 2018 ($209) and early this year ($307).
We last added to our ABBV position on May 18, when we bought about $553 worth of the biotechnology company’s stock after divesting the IBP’s struggling Wells Fargo (WFC) position.
Since then, AbbVie is up about 16.5%, has delivered two solid earnings reports, has raised its dividend 10.2%, and has seen some 21 million ABBV shares bought by Warren Buffett’s Berkshire Hathaway (BRK.B).
And even after all that good stuff, ABBV is poised to see some pretty terrific growth in the years ahead.
Year-over-year sales of Amgen’s newer products grew spectacularly, including 59% for Aimovig, 22% for Repatha and 17% for Parasbiv.
More recently, Amgen won FDA approval for Rianbi to treat adults with non-hodgkin’s lymphoma; received “breakthrough therapy” designation for Sotorasib, a lung cancer medication; and got regulatory approval in China and Europe for several drugs.
Amgen’s financials are as robust as any company in its industry. Just look at this “Financial Sonar” from Jefferson Research:
Shareholders of AVGO, AMGN and ABBV are used to receiving even larger dividend raises than the 10-plus percent that the companies recently announced.
However, given the backdrop of a global pandemic — which has forced numerous companies to freeze, reduce or even eliminate their dividends — double-digit growth is pretty darn sweet.
I will get more into the income implications of these purchases (as well as valuation-related data) in my post-buy article, which will be published on Wednesday, Dec. 23.
Until then, here is a rundown of dividend information from Simply Safe Dividends:
Wrapping Things Up
In making my final choices of 2020 for the Income Builder Portfolio, I could have elected to beef up our smallest positions; gone with the best bargains; added to our total-return leaders; or chosen the IBP’s highest yielders. Or I could have picked a stock we don’t already own.
By going with ABBV, AVGO and AMGN, I believe I have selected a nice combination of fundamentally strong and decently valued income-producers.
I’m betting that these “straight A’s” will keep passing the test, and will continue to be outstanding long-term holdings for the portfolio.
As always, investors are urged to conduct their own due diligence before buying any stocks.
— Mike Nadel
This article first appeared on Dividends & IncomeWe’re Putting $2,000 / Month into These Stocks
The goal? To build a reliable, growing income stream by making regular investments in high-quality dividend-paying companies. Click here to access our Income Builder Portfolio and see what we’re buying this month.