My Full-Time Fund is my dividend growth stock portfolio. I think it’s an apt name for it, because it works full time so I don’t have to.
Indeed, the Fund generates five-figure dividend income for me that, when combined with other sources of passive income, allows me to choose my endeavors not based on money but rather happiness and purpose. And that is, in my view, how life should really be lived.
The Fund has undergone a lot of changes over the years – changes which I’ve documented as much as possible along the way. And it’s in that spirit of openness and transparency that I continue revealing to the world exactly where I’m putting my money to work (and keeping my money at work).
I’m incredibly proud of the collection of stocks that now make up my portfolio. These are really fantastic businesses. And I’m very happy to own a very small slice of all of them. They have competitive advantages that allow them to, over longer periods of time, grow their profit and dividends, which in turn grows my wealth and income.
My main goal with the Fund, however, is to grow my passive dividend income. Stock prices go up and stock prices go down (I usually prefer the latter), but it’s really the dividend income the Fund generates that is the backbone of the financial freedom that affords me my lifestyle.
So I’ll go over the transactions from the prior month, showing what I bought (or sold), along with a little discussion on the thought process behind these transactions.
I set out this month to improve the overall quality of the portfolio, while simultaneously increasing the overall yield.
With that in mind, my first move was to sell 40 shares of Computer Programs & Systems, Inc. (CPSI) on 11/4/16 for $22.55 per share.
I completely sold out of this position.
This has been perhaps the most bewildering investment I’ve ever made.
When I first started looking at the company late last year, it checked pretty much all the boxes for me.
The fundamentals were strong. The yield was outstanding. The company was regularly increasing the dividend, and they had a fairly lengthy track record of managing a large dividend. On top of all that, the balance sheet was outstanding: no debt.
Shortly after I invested, the company started moving in the opposite direction.
They took on a good chunk of debt to fund an acquisition that has, so far, proven not to be worthwhile. The company’s fundamentals have quickly and astonishingly deteriorated. Worse yet, the conference calls from management have left me speechless. They either do not realize that they’re struggling or they just don’t want to realize it. Either way, I’ve just been shaking my head after looking at the last few quarterly reports. I don’t think I’ve seen something move so fast in the wrong direction. And to feel like management has no clue of direction is disappointing.
It gets even worse. To in part help service debt they’re not used to having, they adopted a variable dividend policy (which substantially reduced the dividend). So it pretty much moved 180 degrees on me.
I should have sold as soon as the dividend policy changed. But I wanted to see if the company could get moving in the right direction again. Well, they’re not. Perhaps they turn it around. Or maybe they do not. But it’s just not an investment for me.
That’s all right. Sometimes investments don’t turn out as you like. Sometimes you lose. The key is to win far more often than you lose, which is something I’m generally pretty good at.
I was wrong on this one, which I’m okay with. I can live with being wrong but sticking to the plan, whereas making a clear mistake is something that bothers me more (as I’ll talk about below).
This sale reduced my annual dividend income by $38.40.
That capital was immediately redeployed, as I purchased 15 shares of AbbVie Inc. (ABBV) on 11/4/16 for $56.37 per share.
I added to my AbbVie position largely because I believe it’s a high-quality dividend growth stock that currently appears to be undervalued.
Moreover, it’s currently operating at a much higher level than Computer Programs & Systems. Plus, the yield was higher at the time of investment. More income, more dividend growth, and more quality means I’m sleeping better at night already.
This purchase added $38.40 to my annual dividend income.
Keeping with healthcare, I then purchased 10 shares of Cardinal Health Inc. (CAH) on 11/4/16 for $65.68 per share.
I’ve discussed this company at length before.
The only thing that changed between the last time I bought shares and this time is that the stock became cheaper. So it was even more attractive than before. That makes me a very happy long-term investor.
This purchase added $17.96 to my annual dividend income.
Further increasing the quality of my portfolio by kicking out a company that recently cut its dividend, I sold 55 shares of Viacom, Inc. (VIAB) on 11/10/16 for $38.31 per share.
This completely closed my position out.
I’ve never really been a fan of Viacom. Much of its product portfolio is outdated and under assault, and I think they’ve been mismanaged for a long time now. The corporate structure/drama just makes it that much less appealing.
However, the stock became cheaper and cheaper. And I thought it was worth a shot in the low $40s.
Well, I was wrong. Whereas Computer Programs & Systems was baffling, Viacom was just a mistake. I chose value over quality, which is really against my ethos. That’s an error on my part.
I’ve always reiterated Warren Buffett’s famous stance that it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price, but I didn’t listen to that sage advice here. I invested in a mediocre company at a really good price. The price dropped, but that’s only because the company continues to struggle and dish out plenty of corporate drama. It’s just not a business for me here. Never really was, but I let the potential value entice me. The dividend cut sealed the deal, even if I didn’t realize it right away.
This sale reduced my annual dividend income by $44.00.
Quickly redeploying that capital, I then purchased 35 shares of Welltower Inc. (HCN) on 11/10/16 for $61.21 per share.
This is a new position for the Fund.
Welltower offers me everything I’m looking for.
More than a decade of dividend growth? Check. Big yield? Check. Great fundamentals? Check. Welltower is growing its underlying profit (FFO) at a nice clip, along with that big (5.5%+) yield.
Welltower was the last healthcare REIT I wanted to own, but I just never got around to picking up shares for one reason or another. So many stocks, so little capital. That problem is made even worse now that I’m not investing as aggressively as I used to. But it’s all been rectified now.
This swap also boosted my Fund’s yield and income quite a bit, too. That’s just icing on an already delicious cake.
This purchase adds $120.40 to my annual dividend income.
My last transaction for the month saw me purchase 10 shares of National Grid PLC (NGG) on 11/30/16 for $57.26 per share.
This was an addition to an existing position, where I averaged down.
Although this company doesn’t show up on typical dividend growth stock screens, it actually has a track record for dividend growth stretching back to at least the late ’90s. But because the exchange rate impacts what US investors receive (National Grid pays its dividend in British pounds), payments can fluctuate. The only real hiccup for National Grid over the last couple decades occurred in 2011, as they slightly cut the dividend due to a rights issue that was designed to fund ongoing projects that would improve their generation mix (moving toward cleaner energy) while simultaneously maintaining their credit rating.
Nonetheless, it’s one of the largest utilities in the world, operating the electric and and gas transmission system in England and Wales. In addition, they do significant business in the Northeast of the US.
It isn’t growing terribly fast (a hallmark of most utilities), but it does offer a yield of ~5.2% here. And with dividend growth that’s expected to be at least in line with UK RPI inflation, it’s one of the larger dividends available that’s almost guaranteed to keep coming and continue growing for the foreseeable future and beyond.
This purchase adds $29.87 to my annual dividend income.
In addition to the moves I made, there were some moves made by companies I own stakes in.
Specifically, Yum! Brands, Inc. (YUM) spun off its operations in China into a separate company, Yum China Holdings Inc. (YUMC). As such, YUMC is a new position for the portfolio. I’m excited about its prospects as an independent company and anxiously awaiting more information on the dividend going forward.
In addition, HCP, Inc. (HCP) spun off its portfolio of skilled nursing facilities, which are largely tied to the operator HCR ManorCare. HCR ManorCare has had issues with operations; they’re also facing an investigation by the Department of Justice over billing practices. The spin-off is a new, independent company called Quality Care Properties Inc. (QCP). In all honesty, I’m not terribly enthusiastic about this spin-off, but it’s probably too small of a position for me to do anything with. At this time, I’m just holding it.
Netting everything out, I added $124.23 to my annual dividend income.
So that’s an extra ~$10 per month that I’ll be collecting over the next year, adding just a little bit more freedom and luxury to an already free and luxurious life.
The Fund is now worth $310,239.95, and it’s spread out across 106 positions. That’s a 2.8% increase over last month’s published value of $301,857.85.
Many of the sectors I’m heavily exposed to (especially REITs and Consumer Staples) have been really hammered lately, which is really just wonderful. Although I’m not nearly as active as I used to be, I still looking forward to intermittently picking up equity in some great companies at solid prices.
A few stocks that look appealing to me right now (in terms of valuation and having room in the portfolio) are CVS Health Corp. (CVS), VF Corp. (VFC), Diageo PLC (DEO), Abbott Laboratories (ABT), and Nestle SA (NSRGY). Many high-quality domestic utilities are also a little cheaper now than they’ve recently been. I should be able to make at least one stock purchase this coming month, but it’ll really depend on capital availability and needs. Either way, I’m excited to see how things unfold.
As a final note, I recommend using Personal Capital to manage your portfolio. It aggregates your accounts and gives you powerful visualizations that are actionable. The best thing of all is that it’s free!
How did November go for you? Is your collection of businesses operating as planned? Looking forward to any particular stock purchases?
Full disclosure: I’m long all aforementioned stocks except CPSI and VIAB.
Thanks for reading.
Image courtesy of: bplanet at FreeDigitalPhotos.net.