The first month of 2023 is already in the books! And amidst all of this talk of recession, the market has actually held up pretty well, up by almost a 7% in the last month. However, there was news circling around regarding layoffs in Big Tech. Layoffs are quite disruptive for the impacted workers. Having been through one myself, I know and feel for the affected workers. It can be especially challenging if you are an immigrant and working on a work visa in the US as the regulations for finding work within a stipulated time period are extremely tight. If you or your friends/family have been impacted in the recent layoffs, I send across my best wishes to you and hope that you can come out stronger from this experience.
As for me, my family and I are recovering from a terrible winter storm that hit Texas this last week. While this storm was not as bad as the one from 2020, it was bad nonetheless. Most of the trees around the city and the neighborhood have been wrecked by the storm, stores were low on supplies and major parts of the city were without power for pretty much the whole week. Thankfully, we are now past this and are looking forward to some warmer weather.
Alrighty, there is plenty to talk about as far as this month, so lets get down to the numbers for how the portfolio did in the first month of 2023.
Dividend Income Received
|Sl No.||Company / ETF (ticker)||Amount|
|1||Albertsons Co (ACI)||$144.88 (special dividend)|
|2||J P Morgan Chase (JPM)||$36.76|
|3||Pepsi Co (PEP)||$12.98|
|4||Realty Income (O)||$24.57|
|5||CareTrust REIT (CTRE)||$6.82|
|6||Digital Realty Trust (DLR)||$46.72|
|7||STAG Industrial (STAG)||$3.99|
|8||Orion Office REIT (ONL)||$0.30|
|9||JP Morgan Equity Premium Income ETF (JEPI)||$6.82|
So a total of $283.84 from 9 companies/ETFs. At the same time last year, I had earned a total of $145.60. And back in January 2021, I had earned a total of $13.25. So I am very happy with the YoY growth progress.
Obviously, the stand-out payment for this moment was from ACI. This special dividend was supposed to be paid out back in November last year. Unfortunately, the payment got stalled due to several state AGs appealing against the dividend payment, calling this payment as “illegal”. I have no idea as to what was the central argument for the state AG’s case. I simply cannot understand how a special dividend payment by a company to its shareholders can be illegal. Regardless, common sense has ultimately prevailed and the US courts have rightly thrown this case in the dustbin, exactly where it ought to belong.
Sells during in this month
While my typical holding period for stocks is forever, there are some exceptional cases where I might need to sell out of a given position. I made two such calls during the month of January.
Firstly, I completely sold out of Church and Dwight (ticker: CHD). CHD was an interesting call and one of my bets in the Consumer Staples space. Their brand portfolio is very solid with several strong brands that have withstood the test of time. The macro fundamentals are also sound. However, I had the following concerns:
- While their brand portfolio is solid, most of their brands are still “second best” choices for consumers and at a comparable price point to the first choice brands. In this light, atleast over the next few years, I am not actually seeing a growth catalyst. I was hopeful that the management would be able to leverage their brand power and be able to somehow grab market share from the first-choice players. In the two years that I have followed this business, I am not seeing a great evidence of this phenomenon. I can understand that some of the macro-economic conditions have not helped them. But that is the nature of this landscape and unfortunately there are no prizes for runner-ups.
- The starting yield is fairly low (1.31% at the time of writing). In order for this to be a meaningful investment, I would need to see some evidence of intent from management for dividend growth. It seems (to me atleast) that the management is not aligned with my objectives on this front, as is evident from the last two dividend increases (low single digit hikes).
- I already own Procter & Gamble (ticker: PG) and Clorox (ticker: CLX) in my portfolio, both of whom rank so much higher in terms of a high-quality businesses. I do not need another similar business which is not as high-quality in my portfolio.
My second sell was iShares Dividend Growth ETF (ticker: DGRO). Dividend growth ETFs are interesting investment vehicles for a dividend growth investors. I certainly see the value add as far as a “set it and forget it” strategy. However, I am always skeptical about certain aspects with ETFs in general. At present, I own SCHD which is a very high-quality dividend growth ETF. I also own JEPI which is a good bet in markets that will either trade sideways or downwards. Given these investments, it was hard for me see what exactly was DGRO bringing to the table. Perhaps it gives me exposure to a far larger basket of stocks that both JEPI and SCHD. Also the overlap in weightage across different sectors is not as pronounced. However is this diversification really necessary? I already have enough of my capital invested in broad-market low-cost index funds and ETFs for this reason. Consequently, I decided to close my DGRO position, take my gains and look for better investment opportunities.
Buys during in this month
I initiated a new position in Union Pacific Corp (ticker: UNP). I have been researching this business since November last year and the price entered into an attractive range for me to initiate a position. I have a fairly popular twitter thread where I did a deep-dive on UNP. Take a look if you are interested.
As far as other buys, I continued adding a small tranche to my existing position in Verizon (ticker: VZ). VZ is doing the job of a bond-proxy in my portfolio and in an environment when the market is trading in upward direction due to some craziness, I want to sit on sidelines and keep investing in my bond-proxies.
I did not write any new option contracts during this month. However, my existing covered call contract expired on the 20th of January in-the-money. This meant my shares got called away as the option was assigned. While this is not ideal, I am not at all disappointed with this outcome. This was a risk I was willing to take when writing this option contract and I also got to sell my shares at a price of my choosing.
When point that I would like to highlight is that with option trading, I am cultivating a bad habit of frequently checking the market for the stock prices, especially for the asset that is held under the option contract. This is one of the things that I could easily avoid doing with dividend growth investing. Perhaps it is something that I need to train myself to be better at.
We are in the midst of the earnings season and I have one eye on the few businesses that are on my “naughty list”. In particular, Intel (ticker: INTC) and 3M (ticker: MMM). Both these businesses reported quarterly results that were bad. INTC, actually, was not bad. It was horrendous!
With both these stocks, I am continuing the hold as these are bets were I have calibrated the percentage allocation based on my risk appetite. Atleast with INTC, I know for a fact that the turn-around story will take atleast until 2024-25 to play out. At that point, I will know if Pat Gelsinger and team have flopped or have managed to turn around this sinking ship. With MMM though, I was utterly disappointed with the tone and attitude of the management during the earnings conference call. And it looks like I am not alone in this regard. I read that one of the larger investors in 3M also fired a warning shot at Mike Roman, the 3M CEO, basically stopping short of asking him to resign.
If that were not enough, I read in the news that the bankruptcy court denied Johnson and Johnson’s (ticker: JNJ) move to offload the talc lawsuits by declaring that particular business unit under bankruptcy.
I am long in all these stocks and I will continue to hold and monitor each of these positions over the next few months.
If you thought dividend growth investing was easy, boring and mundane, well think again! There was so much happening during this month and we are barely getting started with 2023. I am excited about what is in store in the months ahead and hope to be on the lookout for new buying opportunities as and when they present themselves.
Thank you for reading thus far and keep investing with a margin of safety!