October is expected to be a slow month for me as far as dividend income. We are also right in the middle of a busy earnings season with several companies reporting their quarterly earnings in what is a very challenging macro-economic environment. I generally only look at quarterly earnings superficially as I am more focused on reading annual reports. That said, I will earmark a few companies for quarterly earnings study especially if I am seeing some worrying trends.
In this post though, I decided to take a closer look at my portfolio and see if there are some loose ends that need to be tied up. Nobody really knows how the markets will shape up in the coming few months, if we are heading into a recession or already in a recession, and for how long this recession will last and what will the recovery be like. One thing is for sure, we are already starting to see trends that denote a “reversion to the mean” like scenario atleast for some sectors. Will other sectors follow suit? Your guess is as good as mine.
It also seems like I have missed updating the portfolio section of my blog for a while. So this is a good excuse to update that. Lets get right into it.
Portfolio macro statistics
At the time of writing this, I have a total of 38 holdings which comprises individual stocks and also ETFs. These holdings are spread across a taxable brokerage account and also my other retirement vehicles such as IRA, HSA etc. The number of holdings is something that I used to care about at the start of my journey. Part of my psyche always prompted me to hold fewer positions, the rationale being: fewer positions, lesser research, less mental bandwidth expended to track these positions. While this makes sense in theory, I now realize that it is impossible to fine-tune this number. Companies split up for good and bad reasons into smaller/leaner businesses. Companies merge with other companies for good and bad reasons. Each of these movements will cause some ripples in my portfolio with the number of holdings growing and shrinking. So is this such a big deal? Maybe. But it is not something that I will pay that much attention to from hereon.
The overall yield of my portfolio is 3.213%. I am actually relatively happy with this number. I know a lot of folks in the community are boasting far higher portfolio yields than this. But everyone’s investing horizon and goals are different, even if we all are trying to use dividend growth investing as a strategy. Some of us are more risk-averse than others. I am certainly someone who values my sleep at night and therefore that much more conservative in my strategy. The weighted 3-year dividend CAGR for my portfolio is around 9.66%. I am particularly happy about this number, as this shows that I am prepared to sacrifice a little more of the current yield of my portfolio for more potential dividend growth. Considering my time horizon and my investing goals, this is far more important metric to me than the current yield.
Another important metric is the weighted yield-on-cost for my portfolio. This was a fairly difficult metric to calculate given that a few of my holdings such as REITs, ETFs are spread across several accounts. While I will not report it here for brevity, I am happy with this number as well. I have generally focused my buys at times when that particular sector was struggling. A few examples: I bought XOM during 2020 when Big Oil was struggling, I bought heavily into LMT during 2021 when I saw value there and similarly I have been buying into Tech for the majority of 2022 when this sector has been hit the hardest.
My top 10 largest dividend payers right now are:
|Sl No.||Company/ETF (ticker)|
|1||Texas Instruments (TXN)|
|2||T Rowe Price Group (TROW)|
|3||Whirlpool Corp (WHR)|
|6||Lockheed Martin (LMT)|
|7||Johnson and Johnson (JNJ)|
|9||JPMorgan Chase (JPM)|
|10||The Home Depot (HD)|
Other than maybe a couple of holdings, I am pretty happy with the overall composition of this list. I am particularly worried about 3M with their litigation risks. Other than 3M, Verizon is going to face a lot of headwinds in the near-term with their massive debt due to 5G expansion and also losing subscribers to T-Mobile. But with both these companies, I think the dividend is reasonably safe although dividend growth will be mediocre for the next few years.
If I look at the top 10 of my portfolio per weight, the table look as follows:
|Sl No.||Company / ETF (ticker)||Category|
|1||Texas Instruments (TXN)||Core|
|3||T Rowe Price Group (TROW)||Growth|
|4||Lockheed Martin (LMT)||Growth|
|6||Johnson and Johnson (JNJ)||Core|
|9||The Home Depot (HD)||Growth|
While the above list is not particularly concerning, in the coming months, I would like to displace the “Bond-like” holdings with more “Core” holdings.
Unlike the number of holdings, sector allocation and diversification is pretty important to me. I find it important to keep track of which sectors I am overweight or underweight in. I do not want to over-leverage myself in any one sector.
The following table shows what my current allocation is like and also my target allocation.
I was not surprised to see that I am currently overweight in the tech sector, as I have been buying pretty consistently into these holdings for the majority of this year. Similarly, the recent dip in TROW has allowed me to aggressively build up that position, which explains why Finance is also overweight.
As we head into the next few months, I will be looking for ways to increase my holdings in Consumer Staples and Healthcare.
One of the aspects of allocation that I care about is maintaining a tiered strategy in allocation. I call these individual tiers as “categories”, for lack of a better word. The four categories are: Core stocks, Growth-like stocks, Bond-like stocks and speculative stocks.
Core stocks represent the foundation of my portfolio. These are my sleep well at night stocks, classic blue-chip companies that have rewarded shareholders for decades and still have gas left in the tank to continue to do that for the next couple of decades atleast. Core stocks have predictable cash flows and dividend growth.
Growth-like stocks are companies that are relatively younger in their journey. They are in the midst of aggressive expansion and could possibly mature into core stocks within the next two or decades. These stocks have higher dividend growth rates but relatively low starting yield.
I do not intend on holding bonds in my portfolio but would like to use some bond-proxies to de-risk the portfolio. Bond-like stocks achieve this function in my portfolio. These stocks provide higher starting yields but have very slow dividend growth. Some of this could be due to the nature of the business and sector itself (eg. utilities and telecommunications), while sometimes this could be due to the life of the business having reached the twilight years of its lifecycle.
Speculative stocks are stocks that are incredibly risky and ones where I have the least confidence in. These will be the smallest allocation in portfolio.
Each of these stocks have a specific role to play in portfolio and as a part of the the overall portfolio help me play offense-defense in a balanced manner. This balance is a pretty important consideration for me and helps me safeguard the portfolio against my own biases. Without this balance, I will have a tendency to go on a buying spree and over-extend myself on category which could result in irreversible damage in the long-run.
At the time of writing this, my category allocation is as follows with the target allocations mentioned as a separate column:
The numbers in the target column are summed up from the target allocations for each holding in my portfolio. If I look at my current allocation, I am not too far off from my target percentages.
I hope you enjoyed this post and gathered a few ideas to structure your portfolio for the interesting times ahead. If you gathered some value from this post, please consider liking/sharing this content with your family and friend circles.
Stay strong and happy investing!
Disc: This post is NOT financial advice. Please consider doing your due diligence and research prior to investing in the stock market. Full disclaimer here.