Portfolio Thoughts – June 2023

Dear Readers,

We are half way done with 2023. At the end of 2022, there was a lot of anticipation around a possible recession in 2023. Well, that has not happened (as yet). In fact the broader market is up nearly 12% YTD. But it has not been a smooth ride (seems like it never is). In the midst of all that, we have had some serious questions about the banking sector in the country. We have had mass hysteria around the debt ceiling negotiations, which ultimately fizzled out (some would say as expected).

So what will the remaining 6 months have in store for us? Will see the much anticipated recession finally happen? Will inflation come back under control? Will the Fed ultimately lower interest rates? Your guess is as good as mine! I did notice earlier this week that the eurozone went into a technical recession. So we never know when the ramifications of events from across the pond are going to impact us here.

In any case, I wanted to take a step back and review my portfolio performance, its holdings and my overall goals etc. With half of the year in the books, this seemed like a good juncture to do such a review.

Portfolio Holdings

As we head into potentially rocky times ahead, I wanted to redirect the focus of my portfolio towards my highest conviction stocks, and at the same time, deeply introspect on the role of each holding. This includes cutting down on the losers if there has been a fundamental change in my initial thesis versus the ground reality of the business.

For this reason, I have exited out of the following businesses:

• Church & Dwight (ticker: CHD)
• Digital Realty Trust (ticker: DLR)
• Intel (ticker: INTC)

I have a separate posts elaborating why I exited out of both CHD and DLR. So I will not repeat those arguments here.

I recently exited out INTC after holding the stock for over an year. This was a difficult decision but one that I thought made a lot of long-term sense. INTC stock has been butchered in the last one year. During this time, they have had some horrendous earnings releases, they have cut their dividend by a whopping ~66% and they have also gone through some dire steps such as cut the pay of their C-suite and eliminate bonuses/401(k) match for their employees etc.

I knew heading into position that this was not going to be a smooth ride. But as an investor, there were a few things that irked me about CEO Pat Gelsinger, his team and the Intel board that caused me to re-consider my stance:

• Financial Engineering: If you look through the earnings transcript for Q4 2022, you would notice the CFO making a statement about increasing the life of the production machinery and equipment from five to eight years, which thereby amounts to a reduction of depreciation expense by ~$4 billion. This is an accounting joke and when management starts to indulge in nonsense of this sort, this makes my job as an investor that much harder.
• Board using the stock-price growth as a metric for gauging performance of the CEO: This caught my eye during the perusal of the Def14a proxy filing. In my opinion, using stock-price as a sole metric to gauge performance sets a bad precedent for the exec. This would serve as an incentive to artificially bump up the stock price through all kinds of financial engineering, something which is not favorable to the objectives of a long-term investor like myself. I would instead prefer focusing on other profitability metrics like cash flows, ROIC etc.
• While I have nothing against anyone expressing their faith in private, Pat has made a routine of quoting verses from the bible on Twitter. I know these are tough times, and I respect that everyone is using all means available to them to keep their spirits up. But to keep doing this on a public forum like Twitter? I dunno. I would much rather prefer the CEOs of businesses that I am invested in to be laser-focused (a term Pat uses regularly in his earnings calls) on their job and speak only when necessary.

I think this turn around story will atleast take a couple of years to play its course out. And for the most part, I think Pat may still be the right person to turn around this ship and get it back into the path of growth again. And while I have no doubts about Pat the engineer, I have so far not been as impressed with Pat the CEO and his exec team. More importantly, I do not need to stay invested during the entire duration of this turn-around story. The opportunity cost of holding my capital in this business and not investing it in other winners cannot be ignored. And from my standpoint, the rewards are certainly not worth the risk I am undertaking with this investment.

There are other stocks that are on the radar as far as “summer clean-up” exercise. I will reserve thoughts on them in my future posts.

Top Holdings – By Percentage

The top five holdings in my portfolio are:

1. Microsoft (ticker: MSFT) : 11.88%
2. Texas Instruments (ticker: TXN) : 8.54%
3. Johnson & Johnson (ticker: JNJ) : 6.48%
4. T. Rowe Price Group Inc. (ticker: TROW) : 6.07%
5. Visa Inc (ticker: V): 5.65%

These top 5 holdings together amount for a total of 38.62%. While this is considerably higher than my desirable top-5 total percentage, I am at the accumulation stage of my dividend growth investing journey, so I am not too overly concerned about this. What I am pretty happy with is that my current top-5 is composed of very high-quality businesses with pristine balance sheets. This is a pretty good place to be at as we head into supposedly troubling times ahead.

ETFs versus individual stocks

My portfolio is largely composed of individual stocks, but since I am investing across both taxable and tax-advantaged accounts such as HSA, Roth IRA etc. I am choosing to stick with ETFs for the tax-advantaged accounts, to make my life easier. I am currently invested in two ETFs that are paying me income:

• SCHD – 4.37%
• JEPI – 0.98%

I did a deep-dive Twitter thread on JEPI which I will link here for your benefit.

Covered call ETFs like $JEPI are popular among investors for their high "dividend" yield. However, there are no free lunches in the market.

In this 🧵, I'll share some of my learnings about this ETF. Consider these risks seriously before investing.

Kindly ♥️/RT for outreach 🙏

— Life With Dividends (@LifeWDividends) January 17, 2023

Per my research, JEPI is ideally suited for a market that might trade sideways while its performance might be mediocre if the market is trading upwards. I want to be really careful with this investment because it is very easy to get blinded by the high distribution yield and just throw a lot of money towards this fund.

I am happy with my current allocation for each of these funds. They are performing as advertised and so far have not disappointed me.

My top 5 losers

In this section, I want to look at top 5 positions that have lost the most amount of total value thus far.

1. 3M (ticker: MMM)
2. Verizon (ticker: VZ)
3. Whirlpool (ticker: WHR)
4. T. Rowe Price Group (ticker: TROW)
5. Target (ticker: TGT)

There is no surprise that 3M is on this list. While I hope that this iconic company is able to weather the two separate lawsuits that it is fighting against, I have to admit that this is one of the top stocks that is on the “chopping block” right now. If you are interested, I encourage you to listen to this Dividend Talk podcast episode on the litigation that 3M is involved with and their thoughts on this subject.

Verizon is an interesting case study. I did a separate deep-dive twitter thread on this business as well (shared below).

$VZ is a popular name in the dividend investing community currently providing ~7% div yield. However, investors are vary regarding the massive debt on their balance sheet, and therefore concerned about div safety.

In this 🧵, I explore this topic further.#investing #dividends pic.twitter.com/EhPAw6Dhui

— Life With Dividends (@LifeWDividends) March 26, 2023

Verizon is performing the role of a bond-proxy in my portfolio. I initiated this position during the initial days of my portfolio and have never sold out it. But after studying the workings of the telecommunication industry, I have to admit that I fail to see how businesses like Verizon and AT&T will be profitable anytime soon. The management at these companies probably also realize this and have tried to add other growth catalysts into their business by acquiring businesses such as media houses. But none of these acquisitions have quite worked out as planned.

And since I already hold several bond-like positions in my portfolio, such as utilities, I might consider selling out of the telecommunication sector and staying out of it for good.

Then we come to the next two losers, Whirlpool and Target. Whirlpool is an interesting beast. On the one hand, it is a well-known powerhouse brand across the world. Every household needs access to washers/dryers for laundry, dishwashers, microwaves, refrigerators and other kitchen appliances. Whirlpool, in combination with other brands under its umbrella such as Maytag and Kitchenaid, provides attractive appliance options to middle-class families at a lower price point. I am also happy with the acquisition of the InSinkErator disposal business, I think this is a great addition to Whirlpool’s portfolio. Whether consumer discretionary spending will pick up or not is anyone’s guess, but I am prepared to hold onto this position for the long-term.

Target has been going through some tough times in the recent weeks. It got dragged into a controversy over supporting merchandise for pride month and appearing to be pro-LGBTQ. Another issue that was highlighted in the last earnings call has to do with the rise of thefts from retail stores around the country, commonly referred to as “shrink”: On the last earnings call, Brian Cornell, CEO of Target, said the following:

Beyond safety concerns, worsening shrink rates are putting significant pressure on our financial results. More specifically, based on the results we’ve seen so far this year, we expect that shrink will reduce our profitability by more than $0.5 billion compared with last year. And while we’re doing all we can to address the problem, it’s an industry and community issue that can’t be solved by a single retailer. That’s why we’re actively collaborating with legislators, law enforcement, and retail industry partners to advocate for public policy solutions to combat organized retail crime.

I did check and Mr. Cornell is not wrong. The same sentiment was echoed by the Walmart execs in their earnings call. I am confident that these issues are short-term in nature and Target should be able to return back to its default operating margin of 7%+ within the next few years.

My top 5 winners

In this section, I want to look at top 5 positions that have gained the most amount of total value thus far.

1. Microsoft (ticker: MSFT)
2. Lockheed Martin (ticker: LMT)
3. Visa (ticker: V)
4. Apple (ticker: AAPL)
5. Aflac (ticker: AFL)

Not surprisingly, we have the two major big tech giants in AAPL and MSFT in this list. MSFT has been a big beneficiary of the AI hype-train that is circling the tech industry at this point. But even after this AI hype fizzles out, given the strategic investments that MSFT has made over the past decade with technologies such as LinkedIn, Github etc. I am very confident in the long-term growth prospects of this business. AAPL has been disappointing as far as dividend income and it seems like management has instead chosen to return value to shareholders in the form of buybacks. But as a business, I have absolutely no complaints! I was just blown away with the capabilities of their VisionPro headset. And I can think of several innovative ways through which they can use this product line to extend their wall ecosystem and further lock-in more customers.

I am happy that Visa is on this list. This is a phenomenal business and one that deserves its own deep-dive post. So I will reserve my thoughts on Visa for now.

The other two entries on this list are businesses that do not get a lot of coverage in mainstream media, but are phenomenal in their own right. AFL, the quacking duck, is about as boring as a business that one can imagine. But it is wonderfully run by someone who I consider is a very tactful and under-appreciated CEO, Mr. Daniel Amos.

LMT gets a lot of flak on social media as a business that enables countries to go to war, causes a lot of damage to humankind and is therefore classified under the category of “sin stocks”. While I understand this reasoning, it is flawed for several reasons. Firstly, every country needs to have a strong army for its own defense and to preserve its sovereignty. While we can always hope for peace and harmonious co-existence between countries, we cannot ignore the reality that power respects power. We do not need to look too far for examples of this situation. Take the current standoff between Ukraine and Russia. So from that standpoint, businesses like LMT do have a market to serve. Secondly, LMT is also involved in aerospace projects which have nothing to do with war. I highly recommend the deep-dive on Lockheed Martin by the folks on the Acquired podcast. There is so much interesting history with LMT that I was not aware of that can help put this company and this industry in perspective.

Dividend Income

My one and only metric for gauging the performance of my portfolio is to track the amount of dividend income it is generating. To this end, my sole focus is to guarantee that this dividend income is across these businesses is safe and adequately covered. This leads me to frequently evaluate the businesses through their revenue growth, their cash flow generation, the strength of their balance sheet and the quality of the management.

Surprisingly, this aspect of evaluating performance is very controversial, with several dividend irrelevance theorists asking why dividend growth investors never compare their portfolio against a broad market index like the SP500. I have written about this aspect previously on my blog, but it is worth highlighting again. Firstly, comparing my portfolio against the SP500 is not an apples-to-apples comparison. My goal is to rely on a portfolio that generates passive income through dividends. If I were to invest in the something like SPY for this purpose, my portfolio yield would be far more lower than what it is today. Secondly, I do not like the sector weightings for SP500. SP500 is more favorably weighed towards Tech (>20%), while Consumer Staples is lot smaller (~10%). This is very different from my desired risk profile and investment appetite.

Thus far, my portfolio has generated a total of $1783.24 in passive income. A majority (~93%) has been through dividends. This is not factoring in income for the month of June. June is supposed to be one of my big months. In spite of that, it does seem like I might be falling just shy of my goal to hit the $6000-mark for annual dividend income.

Over the last three years, the year over year progression for the portfolio is impressive. The portfolio is yielding at around 3.03% with the weighted-average 3yr dividend growth CAGR at around 9.69%. This is even after some disappointing dividend increases from TROW, MMM, AAPL and more recently TGT. I am happy with the spot that I am at with the portfolio, inline with the Chowder Rule.

Goals for the blog

I have already spoken about the possibility of missing on one of my goals to do with the PADI. Let us talk about some of the other goals.

I have so far reviewed two really high-quality books this year. I am confident that I will be able to finish reviewing two more books to complete my goal of reviewing 4 books in this year.

I also wanted to complete 5 deep-dive posts for my positions. For this specific goal, I seem to get better discussion and traction on my deep-dive threads on Twitter than on this blog. If you are interested, I will include a link to my collection of Twitter threads for companies that I have covered so far.

Dear #fintwit

I enjoy studying businesses/funds and writing deep-dive threads on this medium. Hope you have enjoyed reading them as well.

For your benefit, here is a mega-collection of all the deep-dive threads on my account thus far. 👇

Please ♥️ and RT for better outreach 🙏

— Life With Dividends (@LifeWDividends) June 13, 2023

My last goal was to have 2 guests on this blog. I was a little conflicted between having guests write posts, doing written interviews or starting a podcast series where I can interact with these guests in an audio format. I am leaning towards the final option, but the paucity of time is a real issue. We shall see.

Wrapping up

If you are with me and have been reading thus far, thank you very much for your patience! This has been a long post but one where I discuss my thoughts around the portfolio, the blog itself, how I need to set up the portfolio w.r.t times ahead and also go over the portfolio performance briefly.

I encourage you to do the same with your portfolios, your finances and your other important matters periodically to safeguard yourselves from any future surprises.

Cheers!

Investing in Banks

Dear Readers,

I have been super busy between work and daily family activities leaving very little time to even look at my portfolio. Having said that, I have been watching the banking crisis unfold from the sidelines. This is a still a developing story and we do not know what lies ahead in this saga. My intention here is to not react but instead look for broad patterns and see how this story fits in my long-term picture as far as my portfolio.

Banks have been interesting investments ever since the GFC and the implosion of Lehman brothers in 2008. Having spoken to several investors who lost a lot of money during that period, I can understand when they are very wary while investing in banks. There is also the rise-and-rise of fintechs and online-only banks which has left the traditional brick-and-mortar bank branches to be rather useless. How often do you visit a bank branch in person? Once a year maybe? Yeah, you are not alone. There are very few reasons why you would want a in-person interaction at a bank: cashier’s check, money order etc.

But despite of the risk of several of these smaller banks, statistics show that the average retail customer would still prefer to hold their primary account at one of the larger traditional banks. This includes things like, say, a direct deposit for the bi-weekly paycheck. And there is a huge reason for this…..TRUST.

The whole SVB implosion saga underlines this perfectly. The general sense is that a bank-run like scenario could play out with a smaller bank, but would NOT happen with a more traditional bank like JP Morgan Chase or Wells Fargo.

I am invested in JP Morgan Chase (ticker: JPM), one of the largest banks in the US, if not the world. My investment thesis is that while traditional banking may not be disrupted by any major technological changes in the immediate future, I cannot see how a country’s economy would function without such banks altogether. But one part of me was always vary of a bank-run like scenario. Therefore, to safeguard my investment, I had to go to with a bank that was well managed, had a strong balance sheet AND, more importantly, a massive customer base. JPM was the one that checked all of these boxes.

Bank-run scenarios aside, I am also vary of the fact that banks are highly levered businesses with poor ROIC trends. JPM is hovering around the 6-7% ROIC ratio and trades at almost a 1.5 Price/Tangible Book Value ratio at the time of writing this. JPM has been a good dividend payer. However, since the last stress tests, JPM’s board decided to NOT raise the dividend last year citing “capital allocation challenges in the near term”, even though they had the clearance from the Fed to raise it if they wanted to. JPM is currently yielding near 3.1% with a 5-year dividend CAGR of nearly 13% and a dividend growth streak of 8 years.

So what is my stance with JPM after this episode? I am going to continue HOLDing this stock but will not be adding at current prices since I feel the stock is richly valued. I am, however, planning to downgrade this stock from a “Core” Holding to a “Bond-like” holding with maybe a smaller percentage allocation.

Portfolio Update – October 2022

Dear Readers,

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)
4	3M (MMM)
5	Clorox (CLX)
6	Lockheed Martin (LMT)
7	Johnson and Johnson (JNJ)
8	Verizon (VZ)
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
2	Microsoft (MSFT)	Growth
3	T Rowe Price Group (TROW)	Growth
4	Lockheed Martin (LMT)	Growth
5	Visa (V)	Growth
6	Johnson and Johnson (JNJ)	Core
7	Clorox (CLX)	Core
8	Whirlpool (WHR)	Bond-like
9	The Home Depot (HD)	Growth
10	3M (MMM)	Bond-like

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.

Sector allocation

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.

Sector	Current	Target
Consumer Discretionary	11.32%	8%
Consumer Staples	12.22%	17%
Energy	0.30%	3%
Industrials	12.26%	10%
Finance	19%	14%
Healthcare	8.72%	15%
Information Technology	22.14%	17%
REIT	6.89%	6.5%
ETFs	3.11%	5.5%
Utilities	1.85%	3%
Telecommunication	2.18%	1%
Total	100%	100%

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.

Category allocation

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:

Category	Current	Target
Core	34.76%	35%
Growth-like	45.31%	45.90%
Bond-like	18.53%	17.50%
Speculative	1.41%	1.60%
Total	100%	100%

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.

Summary

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.

Dividend Increases – Feb 2022

We are living in interesting times. While I would normally refrain from talking about politics on this blog, some news items are just hard not to talk about. News just broke out today about Russia’s invasion of Ukraine. I sincerely hope and pray for the families in Ukraine and the other affected areas.

Towards the end of the day, I wanted to take a quick peek at what Mr. Market’s reaction to this news was like. I was surprised to see that S&P500 end up 1.5% higher than the start of the day! This just confirms that it is almost impossible to rationally predict how the market is going to react to anything. And this is exactly why I stick to dividend growth investing. I stand a chance to rationally predict the outcome of the dividends paid out by the companies I am invested in. But relying on capital appreciation is a bit of a lottery.

Lets talk about something a little more positive though. With earnings season in full swing, this was also the time for dividend increase announcements. And I had a few of them to report here:

• T. Rowe Price (ticker: TROW) : TROW stock is getting hammered since the start of the year. It has seen a drop of nearly 26% since mid January. One of TROW’s peers, BlackRock (ticker: BLK), a stock that I do NOT own, is also seeing a similar drop in the same time frame. A did a quick peek of the fundamentals of TROW and, AFAICT, nothing with the company itself has changed. When I looked through the earnings call transcript, I did see one comment from the CEO Rob Sharps: “It was a challenging year for net flows with redemptions concentrated in U.S. equity growth portfolios, partly driven by client rebalancing after a period of robust returns.” The analysts and Mr. Market seem to have hung onto that comment. From what I can tell, this is a well run company with extremely good margins and no debt. And management was not concerned with the stock price drop either. They announced a 11.1% increase to their quarterly dividend. This marks the 36th consecutive year of annual dividend increases since their IPO, quite outstanding! The stock is currently trading at a FWD price to earnings ratio of 11.54 with a dividend yield of 3.38%.

• 3M (ticker: MMM): 3M had a fairly decent quarterly earnings release. But the stock has got hammered since the start of the year like TROW, seeing a drop of nearly 20%. In this case though, there is a legitimate concern. 3M recently lost a lawsuit around defective earplugs sold to the US military. 3M also has a lot of debt on their balance sheet and management has been focusing on paying that off (as they should). In the midst of all this, the board announced a 1 cent increase to their quarterly, similar to last year. This naturally made a lot of investors grumpy. While I am not super happy about this situation, I am still reasonably confident about this company’s long-term future. But having said that, I will be keeping a close eye on the management’s actions in the coming few quarters and decide accordingly. The stock is currently trading at a FWD price to earnings ratio of 13.87 with a phenomenal starting dividend yield of 4.06%.
• NextEra Energy (ticker: NEE): NEE is another one of these stocks that has seen a significant drop of nearly 19% from its highs late last year. The only reason I could attribute to the stock drop was the leadership changes happening within the company, with the previous CEO Jim Robo stepping down expressing a desire to retire after a decade long tenure. He is now replaced by John Ketchum, who was previously CFO. While that is ongoing, I think the fundamentals of the company are still intact and they expect a double-digit earnings growth and nearly 8% profit growth for the rest of the year till 2025. The board announced a nice 10% hike to their quarterly dividend. The stock is currently trading at the FWD price to earnings ratio of 25.86 and with a decent starting dividend yield 2.35%.
• Whirlpool Corp. (ticker: WHR): Whirlpool is one of my recent entries in my portfolio after having been on the research watchlist for a long time. I finally pulled the trigger a few months back. The corporation boasts of some strong brands under its umbrella. The company has clearly been a beneficiary of the work-from-home trends introduced due to COVID. However, from what I researched, the profit margins, more specifically the ongoing EBIT margin (this is the metric that the management likes to cite in their presentations) have been improving from below 2% in 2008 after the GFC to about 6% before COVID news hit us. Since then the margins have improved to nearly 8% in 2021. I also like that the management has been very shareholder focused by aggressively buying back shares and also dividend increases. This last increase of 25% was therefore not all that surprising. The stock is trading at a FWD price to earnings ratio of 7.17 with a solid starting dividend yield of 3.54%.
• Church and Dwight (ticker: CHD): CHD is within the bond-like category in my portfolio. Good solid brands like Arm and Hammer, Oxiclean, Trojan etc. I think these are staples for any household and they are not going anywhere in the next decade. The board announced a 4% quarterly dividend increase. The company has paid a quarterly dividend for nearly 121 years! Quite staggering! While the dividend increase itself is disappointing considering the current inflation levels, I understand caution on the part of the management considering the economic environment we are in with frequent supply chain issues and pricing challenges with retailers. The stock is currently trading at a FWD price to earnings ratio of 30.03 with a lousy starting dividend yield of 1.09%.
• Intel Corp. (ticker: INTC): Another recent entry into my portfolio, INTC reported its fourth quarterly earnings recently and announced a 5% hike to their quarterly dividend. CEO Pat Gelsinger reiterated the focus towards delivering on their IDM 2.0 strategy. Mr. Market, however, decided to focus solely on the gross margin contraction of 3.2% and the stock tumbled. The stock is currently trading at a FWD price to earnings ratio of 12.85 with a solid starting dividend yield of 3.27%.
• Home Depot (ticker: HD): HD delivered a strong quarter once again and at the same time announced a 15% hike to their quarterly dividend, making this their 140th consecutive quarter where they have paid out a cash dividend. This dividend increase surprised me as I was expected a hike closer to around 9-10%. Immediately after the release, the stock dropped an astonishing 9% because management forecasted that they expect slower growth and thinner margins in the coming year. The stock is currently trading at a FWD price to earnings of 19.25 with a nice starting dividend yield of 2.4%.
• Pepsi Co. (ticker: PEP): I reserved the last spot for the newest entry into the Dividend King, PepsiCo announced a 7% dividend increase recently after a strong quarter. PEP is one my core holdings and it is a darling of the dividend investing community for a reason. The stock is currently trading a FWD price to earnings ratio of 24.87 with a decent dividend yield of 2.55%.

So there ya go. Those were the dividend increase announcements that I received since the start of the year. Some of these were along expected lines, some very surprising in a good way and some very disappointing. But I will take them which way they come!

Do you own any of these companies? What increases have you received so far this year? Let me know in the comments below!

PS: You can also connect with me on Twitter @LifeWDividends.

Portfolio Update – New positions

A few companies have been on my radar/watchlist for a while now and I decided to pull the trigger recently when I saw them approach a reasonable price. I am wary about every new position that I initiate, because I very rarely sell and considering the limited bandwidth available to me to track these companies for several years to follow, I want be extremely careful. I am also mindful about the total number of companies I am invested in for this same reason. Currently, this is at a manageable number.

So, lets get right into the portfolio update and the new positions I have added recently.

• Whirlpool Corporation (ticker: WHR): WHR falls in the Consumer discretionary sector and the Household appliances industry. The company manufactures and markets home appliances and related products and boasts of several well known brands: Whirlpool, KitchenAid, Maytag, JennAir, Affresh, Bauknecht etc. As a consumer, I have been using Whirlpool appliances around my house for several years. The company shows cyclical behavior and more recently, the stock price has seen a slump due to margin pressures. This after a solid earnings growth during most of 2020 and early 2021. The stock is currently trading at a FWD price to earnings of 8.65 (below its 5-year average of 10.25), EV/EBITDA ratio of 5.78 (5-year average of 7.46). Return on Invested Capital (ROIC) percentage of around 19% (5-year average is around the 10% mark). The five year free-cash-flow (FCF) CAGR is around 19.4%. The stock is currently yielding a dividend of around 2.45%, payout ratio of around 21%, with a 5-year Dividend CAGR of around 7%. They have a history of increasing their quarterly dividends for the last 11 years with the most recent increase being around 12% I am keeping a close eye on the current ratio and the short-term liabilities. Not something that is worrying at the moment though. I am choosing to add WHR into the bond-like category of my portfolio as I am not expecting stellar growth in the coming years, but this will give me some good steady cash flow at a reasonable yield on cost.
• Intel Corp (ticker: INTC): This has been on my watchlist for a while now and I was mostly staying away because of the previous CEO and management. Thankfully, the old management team has gone away and we have a new CEO, Pat Gelsinger, who was previously at VMWare. My first recollection of Pat was when I read a book he co-authored regarding Programming the 80386. The original Intel 8086 was the one of the first microprocessors I studied back in my undergrad days and, frankly, it propelled me towards the career I have today. So Intel holds a special place in my heart. Anyways, I digress. Pat is exactly what Intel needs at this moment as far as leadership in concerned, after years of incompetent management at the helm. The stock got hammered after the recent earnings call and there is a lot of unwarranted pessimism around this business. As far as I am concerned, the fundamentals of the business look solid to me. This is $200 Billion market cap company with by sheer revenue numbers the largest semiconductor company in the world. The stock is trading at a 9.65 FWD price to earnings ratio (5-year average around 12.05), EV/EBITDA around 6.21, ROIC is around 18%. The stock is currently yielding a dividend of around 2.73%, payout ratio of around 26% and a 5-year Dividend CAGR of around 6%. They have a history of increasing their quarterly dividend for the last 7 years with the most recent increase being around 5%. The only concern here is if they will be able to sustain their dividend growth in the coming few years given that they are expecting some capital expenditures due to a investments in a new foundry business. I am not as much concerned about this, because I think this is what management should be doing to turnaround this business after several years of misses.
• Snap-on Incorporated (ticker: SNA): The third addition is from the Industrial sector and another one that has been on my watchlist for a while. SNA markets and manufactures a wide category of tools, equipment, PC-based and handheld diagnostic products. They were founded in 1920 and happened to notice some of their products in use when I was checking out my car being serviced at the service station. Surprisingly, companies like this do not get talked about a whole lot in mainstream or social media. Like several of its peers, SNA is also facing supply chain constraints and these headwinds have caused the stock price to drop. The stock is currently trading at a 14.57 FWD price to earnings ratio (about in line with their 5-year average) and a EV/EBITDA of 9.9 (a shade below their 5-year average of 10.03). ROIC is at about 15%. FCF 5-year CAGR is at a stellar 14.9%. SNA is currently yielding a dividend of 2.70% with the 5-year dividend CAGR at an outstanding 15.01%, payout ratio at around 39.37%. They have a history of increasing their quarterly dividend for the last 7 years. I am relatively confident about the growth prospects of SNA given its existing portfolio and have therefore put this in the “Growth” category of my portfolio.

So there you go. Are any of these companies in your portfolio? What do you think about them?

Thanks for reading thus far..

Johnson and Johnson in the news

One of my “core” holdings, Johnson and Johnson (ticker: JNJ), has been in the news A LOT more recently. And while I typically do not reach to news especially when I consider is “noise” as far as my long-term outlook of the business, when the news item has a significant impact on my strategy, it is worth bringing-up here and laying down my thoughts on the subject.

So late last week (12th of Nov, 2021), news broke out that JNJ is planning on splitting its consumer products business from its pharma and medical devices businesses and create two independent publicly traded companies.

The press-release on JNJ’s investor page states that the “new Johnson and Johnson” i.e. the business division containing the pharma and medical devices portfolios, will be headed by Joaquin Duato, current Vice-Chairman of the Executive Committee, after Alex Gorsky, the current CEO, transitions over that role. Alex Gorsky would continue to serve as Executive Chairman. The new Consumer Products company (name TBD) will have a separate board of directors and executive leadership which will be announced in due course.

The split-up is planned to be completed by end of 2022. It is intended to be a tax-free separation.

The news release also states the following regarding shareholder dividend:

In addition, it is expected that the overall shareholder dividend will remain at least at the
same level following the completion of the transaction.

Obviously, there are not a whole lot of details in this press release and we will need to wait and see how this whole thing plays out.

Having said all that though, I am not very surprised by this decision. In my deep-analysis post for JNJ on this blog back in August this year, when I analyzed the major drivers for the revenue for the company in the last five years, I was surprised to see that the consumer health and medical device’s revenue contribution percentage was essentially flat or even slighting declining for the last 5 years.

This trend is consistent for a few more years before that as well. Most of the growth in the company has been from the pharma business segment. This changed my outlook slightly, because I was under the false impression that JNJ was like a “healthcare ETF” given the diversification within its business. At least this is the narrative that is touted all around the internet whenever you read about JNJ.

Such a split-up is not unique to JNJ. In the recent past, we have seen such split-ups in the healthcare industry with atleast two other big business houses: Pfizer (ticker: PFE) spun-off its UpJohn business segment and combined it with Mylan to form a business solely focused on biosimilars called “Viatris”. Similarly, Merck (ticker: MRK) completed its spin-off of Oragnon.

So how do I view this news then? I think it is a positive decision. In Peter Lynch’s “One Up On Wall Street“, he states that huge companies are slow movers in terms of their revenue growth. JNJ is a massive business with a market cap in excess of $430 billion. This split-up will help each individual company focus on its business and help drive revenue growth better.

Am I as excited about the consumer health business as I am about the “new JNJ”? Not so much. I never really owned JNJ for its consumer health business alone, but rather for the overall conglomerate and also the quality of its management. I think the “new JNJ” piece of the business has still a lot of value and growth left.

I have not yet made up my mind about the consumer health piece of the business. A lot will depend on how to business is structured, the quality of the management and the overall brand value. I will need to research that independently to make a decision on what I intend to do with that.

The point of this post is not a “I told you so..” moment. Rather, it is reinforce this notion that all businesses, as with life itself, are subject to change. And the value of doing your own research by reading the fine print of the businesses you own, is priceless.

Happy investing!

Disclosure: JNJ part of “core” category of my dividend portfolio. No positions in PFE or MRK at this time.

Monthly Income Update – October 2021

I have been relatively quiet on my blog for the last couple of weeks. This is for a few reasons: I had to take care of a few projects around the house that had been pending from a while. I finally got around to checking one of big projects from this list a couple of weeks back. Apart from that, work and family responsibilities have made things incredibly hectic leaving me with very little time in the day to even look at my portfolio or follow investing news.

Not that any of this is a problem. My investing strategy is catered for such situations. It is one of the primary reasons why I rely on dividend growth investing. I can focus on my life while my investments take care of themselves and generate a steady cash flow.

October was supposed to be a “slow” month for me in terms of dividend income. This is yet another aspect that does not worry me one bit. I do not invest in companies with an eye on their dividend payout dates. When a company ends up paying dividends is immaterial as long as they maintain the frequency and also keep up with their periodic increases. It all averages out eventually.

Okay, enough talk. Lets get into the update itself.

Dividend Income Received

	Company/ETF (ticker)	Amount
1.	JP Morgan Chase (JPM)	$9.00
2.	Realty Income (O)	$9.33
3.	STAG Industrial (STAG)	$3.05
4.	CareTrust REIT (CTRE)	$5.34
	Total	$26.72

So 4 companies contributing a total of $26.72 for the month. At the same time last year, I had a grand total of $1.27 for dividend income. So the YoY growth is still quite appreciable. $26 might seem very disheartening at this stage. After all, that is not going to be helpful in paying any bills. But as I have illustrated in one of my previous posts, it is not the present cash flow that I am focused on, rather it is the future cash flow.

While there was nothing much to write about in terms of dividend income, there has been plenty of action and news to follow and I have been skimming over that whenever I had a chance.

Dividend Increases

With the Q3 earnings in full flow during this month, I was keeping a track of certain companies and their expected dividend increases. The following were of interest:

• Albertsons Companies (ticker: ACI): ACI went public around mid 2020 after several years of delay. It was a speculative bet and so appropriately placed in that category of my portfolio. That said, I was familiar with the chains covered under this company including the Albertsons, Safeway and Randalls grocery stores and a fairly good understanding of their business itself. My evaluation deemed this as a interesting value opportunity and I initiated a position late last year. I am happy that I did, I have more than doubled my investment since then. ACI announced a 20% increase to their quarterly dividend. I will be “promoting” this position from the “speculative” to the “growth” category as I think the management is steering this business in the right direction
• AbbVie (ticker: ABBV): I wanted to pay close attention to ABBV’s debt profile and see if things were on track from their Q3 report. They were. And, as expected, ABBV announced a 8.5% increase to their quarterly dividend.
• Visa (ticker: V): The next double-digit hike came from V. A nice 17.2% quarterly dividend hike. Nothing much to say here. Just solid quarterly results as expected.
• ExxonMobil (ticker: XOM): And the final increase of a whopping 1% from the “Big Oil” giant, ExxonMobil. This was done to maintain its dividend aristocrat status. Am I disappointed? Nope! I understand why the management is doing it and I would be happy if they can use their cash flow to pay down debt. And the fact that management is committed to its dividend policy even after one of the worst oil markets, speaks a lot to me.

Other news

Realty Income announced the completion of its merger with VEREIT (ticker: VER). Realty income also announced the spin-off of its office-related assets into a new REIT called Orion (ticker: ONL). The arrangement is such that for every 10 shares of O held, the O stockholders would receive 1 share of ONL. At present, I plan to simply sit on these newly received shares of ONL and decide at a later point in time regarding what I would like to do with them.

Buys and Sells during this month

Big buys: VZ, LMT, CLX, JNJ

Staying in the game purchases: MMM, AFL, PG, CTRE, DLR, DGRO, O, SCHD, STAG

No sells during this period.

LMT dropped appreciably during this month after their lower guidance post their earnings call. This created a buying opportunity. VZ and JNJ also saw a dip. These are at close to reasonable value for me, so I decided to add to my positions. Similarly, CLX continued its “reversion to mean”. I was happy to buy and add more at these prices.

The “staying in the game” purchases are simply dollar-cost averaging into the stocks since the threshold for number of days since the last purchase made had expired (threshold configurable based on the category of the holding in my spreadsheet setup). The tranche size is dependent on the current valuation of the stock in question (i.e. smaller tranche size for an overvalued stock).

Summary

Another month is in the books. I plan to get back to more regular writing on the blog, time permitting of course. I am re-reading Peter Lynch’s One Up on Wall Street again. So I hope to cover that through a book review in one of my future posts.

Thank you for reading thus far and drop a comment to let me know how your month went by.

PS: You can now also connect with me on Twitter @LifeWDividends.

Dividend Increases – September 2021

September of 2021 is already here! I cannot believe how quickly time is flying by. I am incredibly busy at my regular day-job and then with family after that, leaving literally no time for even looking at my dividend portfolio. Is that a problem? No! This is precisely the reason why I have chosen an investing strategy that does not require regular baby-sitting. I do the one-time deep analysis on a business and if everything checks out and I get to buy the business at a reasonable value, I invest in it. And then I sit and wait for this seedling to grow into a plant and eventually a tree. These businesses will return cash back to me as dividends. Along the way, they will also increase that cash since they are making more money than they need, and they choose to return the excess cash back to their shareholders as a thank-you.

The following companies that I invest in, have increased their dividends in the past month:

• Microsoft (ticker: MSFT): The board of directors at Microsoft Corp. declared a increase in their quarterly dividend, with the new dividend at $0.62 per share. That is a 11% increase in their quarterly dividend. MSFT has been increasing their dividends for the last 11 years. Their 5-year dividend CAGR is about 9.24%. In addition to the dividend increase announcement, the board also approved a share repurchase program for $60 billion.
• Texas Instruments (ticker: TXN): TXN’s board of directors approved a quarterly dividend increase of nearly 13%, going from $1.02 to $1.15. TXN has been increasing its quarterly dividends for the last 18 years. The dividend increase is slightly lower than the stunning 5-year CAGR rate of 21.83%. But I am not at all worried because the company, its CEO and the board are committed to their shareholders.
• Realty Income (ticker: O): O’s board of directors approved the 112th common stock dividend increase. The monthly cash dividend increased from $0.2355 to $0.236 per share. This may look like much, but considering this is a monthly payer, I will take it. The CEO and President Sumit Roy said the following, “Our Board of Directors has once again determined that we are able to increase the amount of the monthly dividend to our shareholders, marking the 112^th increase since our company’s public listing in 1994. With the payment of the October dividend, we will have made 615 consecutive monthly dividend payments throughout our 52-year operating history.” Lets just digest that last part again: 615 consecutive monthly payments! Steady as they go!

Do you own any of these stocks? Did you receive dividend increases through your other holdings? Please let me know in the comments below.

M1 Finance : 1-year review

School season has begun here in the US, and as a parent, this usually means busy weekdays. But thankfully, I am going in with an investing strategy specifically catered to this very situation i.e. I can focus on my work and life while my invested capital works in the background to generate more cash.

I mentioned in one of my previous posts regarding how I have been using M1 Finance for my individual brokerage account to manage my dividend portfolio. I have now spent over an year with this firm and I thought it was a good time to sit down and start penning down my thoughts about this brokerage service, things I like about it, things that I don’t quite like as much and looking ahead.

Hopefully, this will serve as a honest review of the brokerage service for someone that is getting started in investing and looking around for a brokerage.

Why did I choose M1 Finance to begin with?

There are plenty of options available to the average retail investor in terms of brokerage services here in the US. Firstly, there are the big-name established brokerage firms that have been around for a long time such as: Vanguard, Fidelity, Charles Schwab, E-Trade etc. Then, there are the relatively newer options such as Robinhood, WeBull, Acorns, M1 Finance etc.

About an year back, I wanted to explore this space a little. I already had exposure to some of the big-name brokerage firms because of some employee-based stock plans, retirement accounts etc. And while these brokerage firms are stable and the services they offer are reliable, the overall experience of investing through them was a little inefficient. For instance, the user-interface (UI) available on the web-portal to the retail investor seems either so dated, or very confusing or just needs some improvement.

In contrast, the new kids-on-the-bloc were offering a refreshing experience in terms of the UI, including better mobile apps, zero-commission fees on trades and also the option of trading with fractional shares. The zero-commission fees on trades, in particular, was a significant game changer and, now, several of the big-name brokerages also offer the same service to the average retail investor. Given that I already had some accounts with the big-name brokerage firms, I decided to give one the newer options a try, and chose M1 Finance based on some initial research.

Another thought that was brewing in my head: While my wife generally has no interest in investments and finance-related matters in general, I did not want to scare here away by using a brokerage whose interface was too verbose, confusing and overwhelming for the first time user. Perhaps, a more beginner-friendly refreshing UI might even ease her into this work, if she wanted to dabble in it for any reason whatsoever.

M1 Finance – quick peek

M1 Finance has a unique approach in terms of how an investor can maintain his/her portfolio. The portfolio is maintained as a “pie”, wherein each pie is a collection of stocks or more pies called “slices”. M1 Finance offers a collection of example pies that the investor can choose from OR the investor is free to build his/her custom pie.

Image Source: M1 Finance

The investor can allocate percentages to each of the “slices” within the pie such that they total to a 100%. The allocations can be changed at any time during the life of the portfolio. When the investor deposits cash into the brokerage account, M1’s algorithm uses the cash to issue trades such that they conform the percentages allocations set by the investor. M1 also offers an “auto-invest” option such that this process can be automated. Whenever a specific allocation percentage goes over the target allocation set by the investor, M1 auto-trading algorithm classifies this slice weighting as overweight and instead invests any new deposited cash towards slice weightings that are underweight.

Trades on M1 can only happen during mornings when the markets open for the day. M1 plus, another tier of membership, offers afternoon trades as well. However, M1 plus membership comes at a cost of $125/year, at the time of writing this post.

M1 offers services such as regular individual brokerage account, Traditional and Roth IRA accounts, custodial accounts, trust accounts etc. They also offer other banking services such as M1 spend (debit card), M1 credit card with 2% cash back that gets automatically reinvested into your investment account, M1 borrow (loans) etc. I have not used any of the other services outside of the investment account.

Source: Reddit

The Good

1. Excellent user-interface: The user-interface for both the website as well as the mobile APP (I have tried iPhone APP) are phenomenal and refreshingly better than some of the big-name counterparts. I have generally never had any issues with the UI and it has operated reliably during the last one year. It is extremely easy to place a trade and very easy to track portfolio performance using their time-weighted return metric. The landing page of your portfolio typically shows a graph of over portfolio’s total worth since the day it was first created. In addition, it is easy to track how much dividends have been earned during the entire lifetime of the portfolio, or simply doing the last week, month or day. It appears that M1 has eliminated a lot of clutter and kept the user-interface simple for the beginner investor.
2. Unique approach to portfolio management: The “pie” based view does take a little while to get used to, but once you get it, it is actually a pretty simple way to manage a portfolio. For instance, your portfolio could be based on something like a lazy 3-fund portfolio i.e. three ETFs or index funds: one corresponding to the total stock market, one to the total bond market and one the international stock market with a percentage split for each of the funds. It makes complete sense to have this represented as a “pie” with each “slice” being one of these three funds. It then becomes very easy to which “slice” has grown to be overweight and where you could deposit your capital to ensure that your target allocations are maintained.
3. Auto-invest: The auto-invest feature is pretty interesting. If I wanted to put my portfolio management into “auto-pilot” mode, I could do so with M1’s auto-invest feature. I would simply need to setup a “auto-deposit” from my banking account such that a fixed amount of cash would be withdrawn each month/week and deposited into my brokerage account. Once the cash lands here, it will be automatically used for trading per the target allocations for each of my stocks/slices. This removes emotion out of the investing and place trades at regular intervals by simply dollar-cost averaging into positions that are underweight.
4. Fractional shares : I think this particular feature is a game-changer. If I can own a piece of Amazon (ticker: AMZN, trading at $3316 at the time of writing) or Google (ticker: GOOGL, trading at $2828 at the time of writing) with just $50, that is not at all a bad deal. There is a good possibility that I may not have enough capital at a given time to own one share of AMZN or GOOGL. A lot of the big-name counterparts still do not offer fractional shares but this is slowly changing.

The Bad

1. Customer Service: The customer service experience with M1 has been a mixed bag. While it was pretty great when I started out with it, there were days when it would be impossible to get a real person to talk to either over the phone or via email. This is a pretty fundamental aspect of a brokerage service. I should be able to reach out and talk to a real person if I have questions about the account, my statements or any feature on the portal.
2. Moving holding between “pies”/”slices”: This is perhaps the most frustrating aspect of M1 Finance. If you add a stock to a particular “pie”, and invest with that configuration, if you have to move the same stock over to a different “pie”, you cannot do so readily and there is a possibility that the act of doing so will cause you to sell the stock and then re-buy it for the same amount in the new pie configuration. This is not ideal for several reasons: this would change by cost-basis for the stock, and would also be classified as a taxable event. To explain this with an example, say I was interested in investing in Visa (ticker: V), but I placed in a pie called “Finance” and bought 10 shares of V. Say I now wanted to move this holding into a new pie called “Technology” (because Visa can be classified as a Technology company as a well), I would not be able to do so without first selling my shares for V from my “Finance” pie and then re-buying shares worth the same amount in my new “Technology” pie. It appears that people have been requesting this feature since the last few years now, but M1 does not really have a clear answer for this.
3. Apex clearing house: M1 uses Apex as their clearing firm on the back-end. While this has not turned out to be a huge problem during the last year, I need to open a separate account with Apex clearing to have access to data regarding my portfolio with M1, such as stock trades placed, cost basis etc. I would rather have this data be made available through M1 itself rather than have to go through a second source of information.
4. FINRA / SIPC: Reputable brokerage firms in the US are all registered members of SIPC and/or FINRA. Per SPIC regulations, M1 Finance can support customer claims of upto $500,000, with $250,000 is cash claims. While M1, through their Apex clearing house, claims to have additional insurance over SIPC coverage, it is not clear if it would be a safe option to maintain your assets with this firm if and when your portfolio exceeds this amount. In comparison, the big-name brokerage firms have been around for a lot more longer and are more reputable and trust-worthy for larger portfolios.
5. Trading windows: As things stand, M1 only allows you to trade stocks at one (two if using M1 plus) time during the day. And this is early in the morning when markets open up. This clearly means that M1 is NOT suitable for day-trading. This is not such a huge deal for me, since I am a long-term investor, Having said that, I would like to have the flexibility to buy stocks when I please or when I sense an opportunity at any stage during the day when the markets are open. I would like decide for myself when to buy or sell a stock rather than have a restriction imposed on me due to my brokerage service.

Summary

I am pretty happy with trying out M1 for a year, but I think the time has come to move my investing journey over to a different brokerage due to the cons I have listed above. At present, Fidelity seems to be offering a good option for a move. They are a firm that has been around for a really long time. So I will have absolutely no concerns about insurance coverage for my assets if it grows into a large value. They have recently updated their user-interface to catch up to the modern age, offer fractional shares (atleast through their mobile app) etc.

Eventually, I would also like to begin trading options to supplement my monthly dividend income. M1 does not offer this option at present, and Fidelity does.

The transfer of assets from M1 will result in a taxable event, since the existing fractional shares will not be transferred and would have to be sold. But this is not so much of a concern for me since this move is the right thing to do from a long-term perspective.

I might return back to M1 Finance for a new account if things improve and if they have actively worked on some of my concerns listed above.

Until next time…

Disclosure: Long V, No positions in AMZN, GOOGL in my dividend portfolio.

Dividend Increase – July 2021

Quarter 2 earnings season are in full swing as I write this. However, it is time for another entry to one of my favorite categories. I love talking about dividend increases, as I treat it similar to a pay hike. In this case though, I am being paid more for doing absolutely nothing! My contribution is simply analyzing a great business and investing my capital in them. The business does its thing and eventually returns cash back to me as a thank you. I simply take that cash and reinvest it. Eventually, this compounding snowballs into a machine that generates steady cash flow. This, in summary, represents the power of dividend growth investing.

In today’s post, I am going to talk about Stanley Black and Decker Inc. (ticker: SWK). Stanley Black and Decker recently announced a quarterly dividend hike of nearly 13%. This represents the 54th consecutive year of dividend increases for this company. Per Seeking Alpha, the 5 year dividend CAGR rate is 4.94%. So this recent dividend hike is certainly well above the 5-year rate.

Their CEO, James M. Loree, said the following in the press release following the dividend hike:

“I am pleased to continue our trend of consecutive annual dividend increases, which reflects the continued confidence we have in the cash generation potential of the company.  A strong and growing dividend is a key element of our shareholder value proposition, and is consistent with our capital deployment philosophy to deliver approximately half of our excess capital to shareholders over the long term.”

This is very pleasing to hear and shows that the management and board of directors at this company are committed to the interests of their long-term shareholders.

Stanley Black and Decker has been a beneficiary of the work-from-home and lockdown dynamics due to the pandemic in the last year. It is natural to expect people locked in their homes using this time to finish up some DIY projects around the house. Stanley Black and Decker boasts of several great brands such as Stanley, DeWalt and Black & Decker. I am a huge fan of the DeWalt power tools especially, I think they are best in class.

I will cover this company in a far greater detail in a future post. For now though, I will just enjoy this raise and look for next investment opportunity! A sincere and huge thank you to the hard-working employees at Stanley Black and Decker for this gift!

Do you own SWK in your portfolio? Did you receive any other dividend hikes in July? Please drop a comment below and let me know.

Until next time..

Disclaimer: Long SWK