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Deep Value Dividend Growth Index Week 20 Update: Disappointing Growth But Earnings Seasons Promises Plenty of Buying Opportunities

Posted On April 10, 2017 1:45 am
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Click here to read up on the intro to this portfolio, the theory behind it, and its methodology.

So the jobs report for March was a bit disappointing, with just 98,000 jobs created. By itself that’s not a bad number, especially since wages grew 2.7% YoY, and unemployment fell to 4.5%.

However, ADP’s estimate of 263,000 had many hoping that the first two month’s ganbuster jobs numbers would continue. Turns out those were largely created by warm weather causing a temporary boom in construction.

Now the big question is how quickly can GDP grow, without the fiscal stimulus that Trump promised us, (which is likely to take much longer than initially hoped for). Estimates range from the Atlanta Fed’s 0.6% to the far more optimistic New York Fed’s 2.8% projection. If the economy can accelerate its growth towards 2.5% in 2017, and corporate earnings can indeed grow at around 8% to 9% as expected, and wages keep rising, resulting in higher consumer spending, than even if we don’t get tax reform this year, the market should still hold up nicely.

If not? Well then we’ll get that correction I’ve been yearning for.

Meanwhile, we were crazy busy this week, buying up ever larger blocks of L Brands (LB) shares, as they plummetted seemingly day after day. Then on Friday they jumped 11%, potentially indicating the market has found a bottom for one of the most hated, and undervalued stocks on Wall Street. That helped to boost our portfolio’s yield past 4%, so now just over double the market’s yield.

That was also helped by our taking advantage of the market’s freak out over 8Point3 Energy Partners’ announcement that its sponsors might be selling their stakes. Where the market sees fear and panic, we see opportunity.

Portfolio Stats:

Portfolio Holdings: 200

Yield: 4.05% (S&P yield 1.94%)
Yield on Cost: 4.11%

Lowest Yielding Holdings:
MercadoLibre (MELI): 0.27%
Shire PLC (SHPG): 0.54%
NVIDIA (NVDA): 0.56%
MarketAccess Holdings (MKTX): 0.61%
Ball Corp (BLL): 0.72%
Dr. Reddy’s Laboratories (RDY): 0.73%
McKesson Corp (MKC): 0.78%
Charles Schwab (SCHD): 0.80%
Fedex (FDX): 0.82%
Cintas (CTAS): 0.86%

Highest Yielding Holdings:
Icahn Enterprises (IEP): 12.0%
New Residential Investment Corp (NRZ): 11.30%
Golar LNG Partners (GMLP): 10.47%
Dynagas LNG Partners (DLNG): 9.85%
KNOT Offshore Partners (KNOT): 9.08%
8Point3 Energy Partners (CAFD)
Sunoco Logistics Partners (SXL): 8.64%
Sprague Resources (SRLP): 8.51%
Starwood Property Trust (STWD): 8.48%
GasLog Partnes (GLOP): 8.27%

Valuation Metrics

PE: 15.14 (22% below S&P 500)

Price/Fair Value: 0.86

FCF Margin: 16.10% (vs S&P 500’s 15.36%)

Return on Assets: 7.40% (4% above S&P 500 average)

Return on Equity: 22.0% (4% above S&P 500 average)

Average Market Cap: $11.8 billion (86% below S&P 500 average)

Smallest Market Cap Holdings:
Jernigan Capital (JCAP): $204.7  million
Farmland Partners (FPI): $358.4 million
PennantPark Floating Rate Capital (PFLT): $366.0 million
Medequities Realty Trust (MRT): $370.1 million
City Office REIT (CIO): $385.0 million
Westwood Holdings Group (WHG): $482.2 million
Sprague Resources (SRLP): $583.5 million
Dynagas LNG Partners (DLNG): $611.4 million
Easterly Government Properties (DEA): $783.5 million
KNOT Offshore Partners (KNOP): $828.8 million

Largest Market Cap Holdings:
Apple (AAPL): $750.4 billion
JPMorgan Chase (JPM): $305.6 billion
Wells Fargo (WFC): $271.8 billion
AT&T (T): $249.2 billion
Bank Of America (BAC): $230.9 billion
Procter & Gamble (PG): $227.7 billion
Pfizer (PFE): $203.0 billion
Verizon Communications (VZ): $199.5 billion
Oracle (ORCL): $182.7 billion
Coca-Coal (KO): $182.6 billion
Phillip Morris International (PM): $178.0 billion

Projected 5 Year Dividend Growth: 8.68% (47% above S&P 500 average)

Projected Annual Total Return: 12.8% (41% above the market’s historic CAGR since 1871)

Portfolio Composition: 

Consumer Cyclical:         31.38%
Healthcare:                         15.42%
Industrials:                          11.02%
REIT:                                       9.07%
Energy:                                    8.23%
Consumer Defensive:       7.67%
Finance:                                  6.09%
Basic Materials:                    4.79%
Tech:                                          4.27%
Utilities:                                    2.18%
Telecom:                                   0.91%

 

Largest Holdings:
L Brands (LB): 7.84%
DineEquity (DIN): 6.13%
Icahn Enterprises (IEP): 3.65%
Perrigo (PRGO): 3.55%
Teva Pharmaceuticals (TEVA): 2.30%
VF Corp (VFC): 2.14%
Thor Industries (THO): 1.86%
HollyFrontier (HFC): 1.80%
CVS Health (CVS): 1.73%
McKesson (MCK): 1.61%

Top 10 Holdings: 32.61%

Worst Performers:
Target (TGT): -7.27%
HollyFrontier (HFC): -7.23%
Ford (F): -7.18%
Toyota Motor (TM): -6.94%
Kimco Realty (KIM): -6.49%
Thor Industries (THO): -6.26%
General Motors (GM): -5.48%
Delta Airlines (DAL): -5.25%
Polaris Industries (PII): -5.21%
Magna International (MGA): -5.01%

Best Performers:
Skyworks Solutions (SWKS): 32.49%
NextEra Energy Partners (NEP): 31.64%
Apple (AAPL): 28.21%
Broadcom (AVGO): 27.98%
Philip Morris International (PM): 27.17%
KLA-Tencor (KLAC): 27.03%
ONEOK Partners (OKS): 25.47%
Phillip 66 Partners (PSXP): 22.65%
Digital Realty Trust (DLR): 21.96%
Valero Energy Partners (VLP): 23.17%

Portfolio Performance:

Portfolio Annualized Total Return: 9.69%
S&P 500: 8.81%
Outperformance (Alpha): 0.88% (20 straight weeks of beating market,  by 10% so far)

What I’m Watching This Week

Earnings season kicks off this week with JPMorgan Chase and Wells Fargo. I’ll be very interested to see whether or not higher rates finally start making an impact to the bottom line, and of course there’s the bigger question of whether or not corporate earnings can grow without the fiscal stimulus the market was expecting to pass this year. Any market freakouts could make for some great buying opportunities, which naturally we’ll be all over.

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, Investorplace.com, and TheStreet.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 20 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 4% to 5% yield
2. Offers 9% to 10% annual dividend growth
3. Pays dividends AT LEAST on a weekly, but preferably, daily basis

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