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 first purchased 10 shares of Polaris Industries Inc. (PII) on 9/13/16 for $74.71 per share.
Polaris flies under the radar. But considering the fact that the company has increased its dividend for 21 consecutive years, it probably shouldn’t. The dividend growth pedigree is definitely there.
Polaris has a great long-term track record of growing its business. And while the core business is certainly intact – with tremendous gains in their market share for motorcycles – the discretionary nature of their products means that their results can be a bit cyclical.
Nonetheless, I think the stock is attractively valued here. The yield was near 3% when I purchased, which compares quite favorably to the five-year average of 1.7% (that’s a spread of more than 100 basis points, folks). Moreover, the P/E ratio, which is below 14, is substantially lower than its recent historical average.
This purchase adds $22.00 to my annual dividend income.
I then sold 15 shares of Penske Automotive Group, Inc. (PAG) on 9/26/16 for $48.08 per share.
This is a very solid business, if a bit too cyclical for my tastes.
I picked up shares in the business for $38.70 just a couple months ago, so a ~25% run in two months is something to take a look at.
My sale was prompted mostly due to valuation. I valued shares at around $40 back in August. $48 strikes me as a bit pricey here in an industry that could be seeing a peak in the cycle. Furthermore, the company doesn’t have the lengthy dividend growth streak I really like to look for. It’s one thing to sit on a stock with 25+ years of dividend growth when it’s overvalued; it’s another thing to sit on a stock like PAG in a similar circumstance, in my opinion.
This was effectively a small investment that I saw a lot of value in when I bought it, putting aside the dicey recent dividend history. That compelling value isn’t quite there any longer. If it were to fall substantially, I’d be interested in perhaps taking another look. But I sold out completely here.
This sale reduced my annual dividend income by $16.18.
My next transaction involved the sale of 25 shares of Magna International Inc. (MGA) on 9/28/16 for $41.31 per share.
This was simply me lightening up on Magna. I still like the business a lot. I still have a position. But I never intended for the position to be so large. What happened here is that I added more shares as the stock fell into the low $30s, going a bit heavier than I had originally planned on. The intention was to lighten up when it recovered a little, so that’s what I did.
The reason I don’t want to be too heavily exposed to Magna is due to the cyclical nature of its business, which is much like Penske. It, too, lacks that lengthy dividend growth track record I typically look for, but I saw a lot of value in the name as I averaged down.
That said, Magna is super interesting in regards to the dividend: the company has a “corporate constitution” that entitles shareholders of common stock to dividends that amount to at least 10% of Magna’s after tax profits for the corresponding financial year.
Whereas most companies I invest in have that implied relationship, Magna actually spells it out.
Then again, that only gives some protection to the dividend. If profit were to drop precipitously over a short period, or if the company takes a loss, the dividend can easily be cut or eliminated under that constitution.
This sale reduced my annual dividend income by $25.00.
I also purchased 15 shares of Duke Energy Corp. (DUK) on 9/28/16 for $80.81 per share.
Duke strikes me as roughly fairly valued right now. It’s no steal.
But I find the yield, which is well over 4%, as appealing in an environment where yield is so hard to come by. And I think their dividend growth, which is now 12 consecutive years strong, will continue for years to come.
I try to make sure my portfolio has dividend growth stocks across both the respective yield and growth spectra. Duke offers me plenty more current income in exchange for, perhaps, some income growth I might see with other investments. And I’m okay with that. Every business has different dynamics. Every stock offers me something a little different.
This transaction was an addition to shares I already owned in Duke. I don’t foresee myself owning much more than I do, though I might take a look if it were to drop 5% or 10% from here.
This purchase adds $51.30 to my annual dividend income.
Finally, I purchased 20 shares of Williams-Sonoma, Inc. (WSM) on 9/28/16 for $50.11 per share.
I recently covered WSM as an undervalued dividend growth stock of the week, viewing its valuation favorably right now.
The yield was right around 3% when I bought, which is not only compelling in absolute terms but also relative terms – the five-year average yield for this stock is 2%. Investors are right now paying much less for this company’s earnings, sales, assets, and cash flow than they typically have, on average, over the last five years.
This is one of those rare cases where the business is high quality and the fundamentals are still pretty much intact, yet the stock has absolutely cratered. WSM is now down more than 33% over the last year. (This case reminds me a lot of what Tiffany & Co. (TIF) looked like a few months back when I was buying in at $60.)
They’ve increased their dividend for 11 consecutive years now, with impressive dividend increases all along the way. The payout ratio is now at a moderate level, so I suspect dividend growth to moderate. But I think 7% dividend increases are certainly achievable, which, when combined with the yield, would offer a pretty attractive profile in regards to yield and growth.
This purchase adds $29.60 to my annual dividend income.
Overall, I’m really pleased with the moves I made this past month.
I was a little more active than I usually am – and more active than I like to be, in all honesty.
But I saw an opportunity to lighten up on my exposure to the auto space, which is very cyclical. Some of my holdings there have skyrocketed in a short period of time, dropping the yields to less attractive levels, relative to other opportunities.
And those opportunities, being Polaris, Duke, and Williams-Sonoma, all offer better dividend metrics and, arguably, valuations.
Netting everything out, I added $61.72 to my annual dividend income.
This invisible full-time worker of mine just got a raise, baby! Wait, that means I got a raise, too? Yeah!!
The Fund is now worth $309,692.20, and it’s spread out across 104 positions. This is a 0.46% decrease from last month’s value of $311,110.84. The Portfolio page has been updated accordingly.
Keep in mind that the Fund is technically worth a bit more, and actually has 105 positions. But I haven’t received my shares in Versum Materials Inc. (VSM) yet. The spin-off from Air Products & Chemicals, Inc. (APD) should show up in my account within the next day or so. However, I wanted to reflect that which is actual as of today.
Looking forward, I hope to make one stock purchase in November. I’m not investing nearly as much as I typically have been over the last six years, as I’m simply not working and earning as much as I used to. I suppose the urgency to save and invest thousands upon thousands of dollars every month isn’t quite as strong anymore now that I’m financially free. I’ve also started philanthropic giving, which is diverting some of my free cash flow elsewhere. But I suspect I’ll be able to do a little something before November, which is super exciting. Investing remains a passion of mine, even if it no longer really needs to be. As such, I’m looking forward to seeing what opportunities present themselves.
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 about you? Able to take advantage of some solid opportunities this past month? Happy with your portfolio?
Full disclosure: I’m long PII, MGA, DUK, WSM, TIF, VSM, and APD.
Thanks for reading.
Image courtesy of : bplanet at FreeDigitalPhotos.net.