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Deep Value Dividend Growth Index Week 26 Update: 6 Months Of Crazy, Market Beating Volatility

Posted On May 22, 2017 12:54 am
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Click here to read up on the intro to this portfolio, the theory behind it, and its methodology.

Weekly Economic Data Review

Overall the economic news continues to be good, with industrial production beating expectations and up 2.2% YoY. In addition, home equity levels are rising, leading indicators continue to trend up, and home builder confidence was up as well.

Meanwhile corporate earnings season, which is now complete, was a huge win. S&P 500 revenue and EPS grew 7.2%, and 14.7% YoY.  Even excluding energy, which benefited from rising oil prices, those figures were 5.3%, and 10.4%, respectively. Better yet? we’re seeing upward revisions across all sectors of S&P 500, in terms of Q2 sales growth.

This tells me that, despite the fact that tax reform has essentially no chance of passing this year, we still have plenty of built in growth in the economy. In fact, thanks to the above, plus the continued strong labor market, the Atlanta Fed raised its Q2 GDP growth target from 3.6% to 4.1% this week. Meanwhile the New York Fed GDP Nowcast also increased, from 1.9% to 2.3%.

While the spread between those estimates is vast, the overall trend is highly positive and should help keep the economy humming even if tax reform never occurs.

Portfolio summary:

It was a crazy week for us, with REITs continuing to plunge which we took full advantage of. In the middle of the week energy prices helped to fuel a crash in energy stocks as well, so that only added to the buying opportunities.

In fact, this is a trend that has been pretty common for the DVDGI in its first six weeks. As some sector gets beaten down we load up, and that starts to skew the portfolio dispraportionately into a few industries. Of course reversion to the mean means that over time things will balance out, as out of favor stocks recover, and the high-fliers cool off and pull back.

What matters is that our focus on high-quality, value dividend growth names have thus far done exactly what was expected, beaten the market every week for 6 months straight. Now of course, such streaks can’t go on forever, since no strategy works all the time, but that’s the beauty of being a contratian. Over the long-term you end up winning more than you lose, and can wind up with very impressive returns indeed.

 

Portfolio Stats:

Portfolio Holdings: 200

Yield: 3.91% (S&P yield 1.95%)
Yield on Cost: 3.97%

Lowest Yielding Holdings:
MercadoLibre (MELI): 0.22%
NVIDIA (NVDA): 0.41%
Shire PLC (SHPG): 0.48%
MarketAccess Holdings (MKTX): 0.71%
Dr. Reddy’s Laboratories (RDY): 0.72%
McKesson Corp (MKC): 0.73%
Expedia (EXPE): 0.79%
Charles Schwab (SCHD): 0.84%
FedEx (FDX): 0.84%
Nordson Corp (NDSN): 0.84%

Highest Yielding Holdings:
New Residential Investment Corp (NRZ): 11.96%
Golar LNG Partners (GMLP): 10.87%
Dynagas LNG Partners (DLNG): 10.85%
New Senior Investment Group (SNR): 10.59%
Energy Transfer Partners (ETP): 9.30%
KNOT Offshore Partners (KNOT): 9.24%
Starwood Property Trust (STWD): 8.88%
Sprague Resources (SRLP): 8.84%
GasLog Partners (GLOP): 8.55%
Global Medical REIT (GMRE): 8.33%

Valuation Metrics

PE: 15.36 (22% below S&P 500)

Price/Fair Value: 0.85

FCF Margin: 17.78% (vs S&P 500’s 21.27%)

Return on Assets: 7.85% (7% above S&P 500 average)

Return on Equity: 23.31% (8% above S&P 500 average)

Average Market Cap: $11.5 billion (87% below S&P 500 average)

Projected 5 Year Dividend Growth: 10.14% (72% above S&P 500 20 year median)

Projected Annual Total Return: 14.11% (56% above the market’s historic CAGR since 1871)

Potential Annual Total Return: 18.1% (100% above market’s historical return)

Smallest Market Cap Holdings:
Global Medical REIT (GMRE): $170.6 million
Jernigan Capital (JCAP): $219.7  million
Farmland Partners (FPI): $318.0 million
City Office REIT (CIO): $366.1 million
Medequities Realty Trust (MRT): $377.8 million
PennantPark Floating Rate Capital (PFLT): $451.5 million
Westwood Holdings Group (WHG): $470.1 million
Dynagas LNG Partners (DLNG): $552.6 million
Sprague Resources (SRLP): $605.3 million
GasLog Partners (GLOP): 690.6

Largest Market Cap Holdings:
Apple (AAPL): $800.8 billion
JPMorgan Chase (JPM): $304.1 billion
Wells Fargo (WFC): $268.6 billion
AT&T (T): $236.9 billion
Bank Of America (BAC): $232.5 billion
Procter & Gamble (PG): $221.5 billion
Pfizer (PFE): $195.2 billion
Novartis (NVS): $191.0 billion
Anheuser-Busch InBev (BUD): $190.5 billion
Verizon Communications (VZ): $186.9 billion

Portfolio Composition: 

Consumer Cyclical:    28.39%
Healthcare:                   16.15%
REIT:                             14.14%
Energy:                           9.47%
Basic Materials:             6.45%
Industrials:                     6.29%
Finance:                           5.69%
Tech:                                 5.67%
Consumer Defensive:    5.55%
Utilities:                            1.36%
Telecom:                           0.82%

Largest Holdings:
L Brands (LB): 6.53%
DineEquity (DIN): 4.46%
Teva Pharmaceuticals (TEVA): 3.34%
TerraNitrogen (TNH): 3.10%
Perrigo (PRGO): 3.04%
Kimco Realty (KIM): 2.62%
Helmerich & Payne (HP): 2.16%
McKesson (MCK): 2.12%
DDR Corp (DDR): 2.03%
Expedia (EXPE): 1.96%

Top 10 Holdings: 31.36%

Worst Performers:
Dynagas LNG Partners (DLNG): -6.39%
Gilead Scienes (GILD): -6.31%
Teva Pharmaceuticals (TEVA): -6.25%
Brinker International (EAT): -6.24%
DineEquity (DIN): -6.07%
General Motors (GM): -5.82%
HollyFrontier (HFC): -5.62%
TD Ameritrade (TAMTD): -5.41%
SL Green Realty (SLG): -5.31%
Twenty-First Century Fox (FOXA): -5.27%

Best Performers:

Energy Transfer Partners (ETP): 40.90%
Broadcom (AVGO): 37.28%
Apple (AAPL): 36.91%
Delphi Automotive (DLPH): 35.42%
NextEra Energy Partners (NEP): 32.22%
Digital Realty Trust (DLR): 28.85%
Unilever (UL): 28.22%
Vail Resorts (VAIL): 27.51%
Hasbro (HAS): 25.10%
Novo Nordisk (NVO): 24.51%

Portfolio Performance:

Portfolio Annualized Total Return: 11.40%
S&P 500: 10.28%
Outperformance (Alpha): 1.12% (26 straight weeks of beating market, by 11% so far)

What I’m Watching This Week

 

The most important economic news will be: Michigan consumer sentiment, initial and existing home sales, and initial jobless claims

We’re also set to get the second reading of Q1 2017 GDP growth, so hopefully that gets upgraded from the terrible 0.7% first reading.

And as far as stocks go, OPEC is meeting on Wed, which will dominate oil markets. Any dip in crude could give us a chance to pick up more high-yield MLP names. Meanwhile I’m hoping that REITs continue downward, because you can never own too much Real Estate. It’s where most of the world’s millionaires are made after all;)

About author

Dividend Sensei

I'm an Army veteran and former energy dividend writer for The Motley Fool. I'm a proud co-founder of Wide Moat Research, Dividend Kings, and the Intelligent Dividend Investor. My work can be found on Seeking Alpha, Dividend Kings, iREIT, and the Intelligent Dividend Investor. 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 24 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 and achieving long-term financial goals.

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