Deep Value Dividend Growth Index Week 21 Update: Dropping Our Highest-Yielding Stock While Overall Portfolio Valuation Keeps Improving

Posted On April 13, 2017 9:44 pm

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

So this week Trump really scaled back on his promises, which should come as no suprise given that Congressional gridlock is a major pain. However, this caused the yield on the 10 year Treasury (proxy for long-term rates) to collapse down to 2.23%. So the bond markets are factoring this week’s rather tepid economic data to suggest that it doesn’t believe that the Fed will be able to raise rates twice more this year, nor start rolling off its $4.5 billion balance sheet by the end of the year (by not reinvesting maturing bonds it holds).

That could create some interesting short-term action, with financials pulling back sharply, while REITs and other interest rate sensitive stocks might recover. If so we’ll be taking advantage of any short-term over reactions, as is our strategy.

Meanwhile, this week I did an indepth analysis of one of our largest, and highest yielding holding, Icahn Enterprises (IEP). Turns out that investing alongside legendary activist investor Carl Icahn is far riskier than I initially thought. The article is coming soon (probably next week) which will layout the exact reasons why I can’t in good consience recommend this stock any longer, but in the mean time we’ve sold IEP and replaced it with a far safer, though lower (6%) yieldin REIT DDR Corp.

On the plus side, our overall portfolio PE has hit a new all time low, now 24% beneath that of the S&P 500. While that doesn’t necessarily protect us from future invevitable market downturns, it does increase the chance that we end up outperforming the market by more than just our yield, and dividend growth might indicate (15.7% CAGR total returns vs 12.6%).

Portfolio Stats:

Portfolio Holdings: 200

Yield: 3.73% (S&P yield 1.96%)
Yield on Cost: 3.78%

Lowest Yielding Holdings:
MercadoLibre (MELI): 0.28%
Shire PLC (SHPG): 0.53%
NVIDIA (NVDA): 0.58%
MarketAccess Holdings (MKTX): 0.61%
Ball Corp (BLL): 0.72%
Dr. Reddy’s Laboratories (RDY): 0.74%
McKesson Corp (MKC): 0.78%
Charles Schwab (SCHD): 0.83%
Fedex (FDX): 0.86%
Cintas (CTAS): 0.86%

Highest Yielding Holdings:
New Residential Investment Corp (NRZ): 11.11%
Golar LNG Partners (GMLP): 10.39%
Dynagas LNG Partners (DLNG): 9.68%
KNOT Offshore Partners (KNOT): 9.14%
Sprague Resources (SRLP): 8.75%
Sunoco Logistics Partners (SXL): 8.71%
Starwood Property Trust (STWD): 8.43%
PennantPark Floating Rate Capital (PFLT): 8.32%
GasLog Partnes (GLOP): 8.29%
8Point3 Energy Partners (CAFD): 8.28%

Valuation Metrics

PE: 14.86 (24% below S&P 500)

Price/Fair Value: 0.86

FCF Margin: 15.94% (vs S&P 500’s 15.36%)

Return on Assets: 7.82% (10% above S&P 500 average)

Return on Equity: 24.46% (15% above S&P 500 average)

Average Market Cap: $11.9 billion (86% belo S&P 500 average)

Projected 5 Year Dividend Growth: 8.84% (50% above S&P 500 20 year median)

Projected Annual Total Return: 12.6% (39% above the market’s historic CAGR since 1871)

Potential Annual Total Return: 15.7% (73% above market’s historical return)

Smallest Market Cap Holdings:
Jernigan Capital (JCAP): $207.0 million
Farmland Partners (FPI): $356.7 million
PennantPark Floating Rate Capital (PFLT): $365.7 million
Medequities Realty Trust (MRT): $372.6 million
City Office REIT (CIO): $376.7 million
Westwood Holdings Group (WHG): $461.3 million
Sprague Resources (SRLP): $580.3 million
Dynagas LNG Partners (DLNG): $623.6 million
Easterly Government Properties (DEA): $771.3 million
KNOT Offshore Partners (KNOP): $806.4 million

Largest Market Cap Holdings:
Apple (AAPL): $740.0 billion
JPMorgan Chase (JPM): $300.4 billion
Wells Fargo (WFC): $256.9 billion
AT&T (T): $247.4 billion
Procter & Gamble (PG): $230.2 billion
Bank Of America (BAC): $223.7 billion
Pfizer (PFE): $201.8 billion
Verizon Communications (VZ): $198.4 billion
Coca-Coal (KO): $183.7 billion
Oracle (ORCL): $181.0 billion
Walt Disney(DIS): $179.0 billion


Portfolio Composition: 

Consumer Cyclical:         33.09%
Healthcare:                         15.88%
REIT:                                        9.64%
Energy:                                     7.93%
Industrials:                             7.54%
Consumer Defensive:        7.47%
Finance:                                    6.11%
Basic Materials:                     4.86%
Tech:                                          4.24%
Utilities:                                    2.29%
Telecom:                                  0.95%


Largest Holdings:
L Brands (LB): 8.16%
DineEquity (DIN): 6.34%
Perrigo (PRGO): 3.62%
Thor Industries (THO): 2.50%
Teva Pharmaceuticals (TEVA): 2.36%
VF Corp (VFC): 2.24%
HollyFrontier (HFC): 1.91%
CVS Health (CVS): 1.81%
McKesson (MCK): 1.66%

Top 10 Holdings: 30.60%

Worst Performers:
Ford (F): -8.17%
Delta Airlines (DAL): -7.64%
Target (TGT): -7.01%
Thor Industries (THO): -6.75%
Charles Schwab (SCHW): -6.57%
TD Ameritrade (AMTD): -6.54%
General Motors (GM): -6.37%
Polaris Industries (PII): -6.37%
Qualcomm (QCOM): -6.23%
Wells Fargo (WFC): -6.01%

Best Performers:
NextEra Energy Partners (NEP): 29.15%
Skyworks Solutions (SWKS): 26.83%
Philip Morris International (PM): 26.57%
Apple (AAPL): 26.16%
KLA-Tencor (KLAC): 25.43%
Broadcom (AVGO): 23.92%
Digital Realty Trust (DLR): 22.98%
Jernigan Capital (JCAP): 22.87%
ONEOK Partners (OKS): 22.11%
D.R Horton (DHI): 21.51%

Portfolio Performance:

Portfolio Annualized Total Return: 9.40%
S&P 500: 8.34%
Outperformance (Alpha): 1.06% (21 straight weeks of beating market,  by 13% so far)

What I’m Watching This Week

Earnings season started out strong, with JPM, and C reporting solid EPS growth. Wells Fargo disappointed but that’s due to the negative effects of its scandal, which will eventually diminish.

This coming week we have BAC (my favorite bank), IBM, JNJ, UNH, and SCHW on Tuesday
QCOM, and AMTD on Wed
DHI, and VZ Thur

In terms of economic data we have industrial output, the Fed’s Beige Book (summary of economy), and industrial capacity utilization. All three are important in the sense that they will give a small look into whether or not corporations are  willing to invest for future growth and accelerate the economy from that end. That might give us some idea of which side of the spectrum Q1 GDP growth will land on, closer to the Atlanta Fed’s 0.6% projection, or the New York Fed’s 2.8%.

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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