Deep Value Dividend Growth Index Week 16 Update: Here Comes The Correction!

Posted On March 12, 2017 10:55 pm

Click here to read up on the intro to this portfolio, the theory behind it, and its methodology.

Friday’s jobs report was excellent, with 235,000 jobs created, unemployment declining to 4.7%, labor participation increasing, and wages growing 2.8% year-over year. That not just means that America’s economic growth continues to chug along nicely, but also that rising wages could lead to acceleration in the coming years, even if we don’t get tax reform this year (which is looking more likely).

As for our portfolio it’s taken a beating over the last two weeks, courtesy a major REIT correction, (the industry is down 6% due to the certainty of a March rate hike), as well as oil prices falling to $48. That’s due to rising US shale production that is putting pressure on our midstream MLPs. However, while this means that our portfolios lead over the market has shrunk, it also creates immense long-term buying opportunities that we’re making the most of.

Portfolio Stats:

Portfolio Holdings: 200

Yield: 3.61% (S&P yield 1.93%)
Yield on Cost: 3.71%

Lowest Yielding Holdings:
MercadoLibre (MELI): 0.28%
NVIDIA (NVDA): 0.56%
Shire PLC (SHPG): 0.51%
MarketAccess Holdings (MKTX): 0.58%
Ball Corp (BLL): 0.71%
Dr. Reddy’s Laboratories (RDY): 0.74%
Charles Schwab (SCHD): 0.75%
McKesson Corp (MKC): 0.76%
Fedex (FDX): 0.83%
Nordson (NDSN); 0.87%

Highest Yielding Holdings:
Icahn Enterprises (IEP): 11.37%
Golar LNG Partners (GMLP): 10.54%
Dynagas LNG Partners (DLNG): 10.43%
KNOT Offshore Partners (KNOT): 9.45%
Sprague Resources (SRLP): 8.87%
Ladder Capital (LADR): 8.57%
Sunoco Logistics Partners (SXL): 8.65%
Starwood Property Trust (STWD): 8.58%
PennantPark Floating Rate Capital (PFLT): 8.29%
GasLog Partners (GLOP): 8.10%

Valuation Metrics

PE: 15.05 (19% below S&P 500)

Price/Fair Value: 0.90

FCF Margin: 16.28% (vs S&P 500’s 3.69%)

Return on Assets: 7.53% (13% above S&P 500 average)

Return on Equity: 25.64% (20% above S&P 500 average)

Market Cap: $13.9 billion (83% below S&P 500 average)

Smallest Market Cap Holdings:
Jernigan Capital (JCAP): $195.5  million
Farmland Partners (FPI): $341.9 million
Medequities Realty Trust (MRT): $347.8 million
PennantPark Floating Rate Capital (PFLT): $376.6 million
Westwood Holdings Group (WHG): $481.5 million
Sprague Resources (SRLP): $572.8 million
Dynagas LNG Partners (DLNG): $578.5 million
Easterly Government Properties (DEA): $714.3 million
KNOT Offshore Partners (KNOP): $783.2 million
Oxford Industries (OXM): $881.0 million

Largest Market Cap Holdings:
Apple (AAPL): $732.4 billion
JPMorgan Chase (JPM): $325.0 billion
Wells Fargo (WFC): $295.2 billion
General Electric (GE): $269.2 billion
AT&T (T): $262.6 billion
Bank Of America (BAC): $253.3 billion
Procter & Gamble (PG): $234.7 billion
Anheuser-Bush InBev (BUD): $209.6 billion
Pfizer (PFE): $203.4 billion
Verizon Communications (VZ): $201.5 billion

Projected 5 Year Dividend Growth: 7.8% (32% below S&P 500 average)

Projected Annual Total Return: 11.5% (27% above the market’s historic CAGR since 1871)

Portfolio Composition: 

Consumer Cyclical:         26.20%
Healthcare:                         16.14%
REIT:                                     10.20%
Industrials:                          9.98%
Consumer Defensive:      9.21%
Energy:                                   9.35%
Finance:                                 7.16%
Tech:                                        4.38%
Basic Materials:                   3.82%
Utilities:                                  2.14%
Telecom:                                 1.43%

Smallest Holdings
Delta Airlines (DAL): 0.16%
Marathon Petroleum (MPC): 0.17%
Prologis (PLD): 0.17%
Spirit Realty (SRC): 0.17%
Host Hotel & Resorts (HST): 0.18%
Oxford Industries (OXM): 0.18%
Sprague Resources (SRLP): 0.18%
Farmland Properties (FPI): 0.18%
Anheuser-Bush InBev (BUD): 0.18%
Physcian’s Realty Trust (DOC): 0.19%

Smallest 10 Holdings: 1.76%

Largest Holdings:
DineEquity (DIN): 5.70%
L Brands (LB): 3.40%
Perrigo (PRGO): 3.01%
Teva Pharmaceuticals (TEVA): 2.96%
HollyFrontier (HFC): 2.28%
CVS Health (CVS): 1.90%
Gilead Sciences (GILD): 1.84%
VF Corp (VFC): 1.80%
Terra Nitrogen (TNH): 1.57%
Hanesbrands (HBI): 1.56%

Top 10 Holdings: 24.22%

Worst Performers:
Kimco Realty (KIM): -7.88%
Macerich (MAC): -7.79%
Federal Realty Investment Trust (FRT): -7.47%
Toyota (TM): -7.04%
Simon Property Group (SPG): -7.00%
Air Products & Chemicals (APD): –6.75%
Golar LNG Partners (GMLP): -6.73%
Compass Minerals International (CMP): -6.73%
Ramco-Gershenson Properties (RPT): -6.11%
Target (TGT): -6.09%

Best Performers:

MercadoLibre (MELI): 33.88%
NetEase (NTES): 32.86%
Broadcom (AVGO): 32.73%
Skyworks Solutions (SWKS): 27.76%
MarketAxess Holdings (MKTX): 24.62%
Apple (AAPL): 24.45%
Amgen (AMGN): 24.10%
Philip Morris International (PM): 24.05%
KLA-Tencor (KLAC): 22.63%
Altria (MO); 21.61%

Portfolio Performance:

Portfolio Annualized Total Return: 9.76%
S&P 500: 9.44%
Outperformance (Alpha): 0.22% (16 straight weeks of beating market,  by 2% so far)

What I’m Watching Next Week

Wed the Fed will raise interest rates by 25 basis points, however what is really interesting is how much more aggressive its dot plot (long-term rate forecast) will become. This might be another major catalyst for Treasury yields to soar, and REITs and other rate sensitive stocks, (such as MLPs and utilities) to crash. I’m very excited at the opportunity to continue adding at higher and higher yields, locking in even stronger income, and thus future long-term total returns.


About author

Dividend Sensei
Dividend Sensei

I'm an Army veteran and former energy dividend writer for The Motley Fool. I currently write for both Seeking Alpha, Simply Safe Dividends, and DividendSensei.com My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams, and enrich their lives. With 22 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and income streams. I'm currently on an epic quest to build a broadly diversified, high-quality, high-yield dividend growth portfolio that: 1. Pays a 5% yield 2. Offers 7% annual dividend growth 3. Pays dividends AT LEAST on a weekly, but preferably, daily basis

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