Portfolio Update for March 2019

Towards the end of a month, I make an update of my stock portfolio. Above all, I look at the changes in market value and sector composition. I do it simply in order to track the progress. That’s it. Do I measure the performance of my portfolio against the broader market? No, I don’t. It’s not my intention to beat or replicate an index such as the S&P 500. So no need to do the comparison then.

My attitude towards investing is rather simple. As a dividend growth investor, I don’t focus on capital appreciation. It’s not that I don’t care whether my positions are in green or red. Not at all. I’m just saying that buying stocks to realize capital gains at a later point in time is not what my strategy is about. Buy low and sell high is speculating. As a dividend growth investor, I’m much more interested in the safety of the dividend and its potential for growth. As a dividend growth investor, I look for solid companies that can continue paying and increasing the dividend. If a business can do that, capital appreciation is likely to follow.

Acquisitions

In March I’ve chosen two stocks that very much qualify as solid companies. Both of these businesses have a comparable dividend yield (~3%) and a similar 5-Yr. DGR (~22%).

On March 6, I have purchased 8 shares of Amgen Inc (AMGN) for a total investment of €1,295.17 ($1,465.28). Amgen is a new position in my DGI portfolio.

This stock shines brightly when it comes to some widely used quality indicators. Take Value Line, Morningstar, SSD or S&P, Amgen scores the best grade almost in every area. The yield is well above 3%. And it’s growing fast! The 5-Yr. DGR sits at 23%. Fantastic, isn’t it? But there is something even more appealing: AMGN generates a lot of Free Cash Flow to keep growing that dividend in the foreseeable future.

On March 8, I have purchased 5 shares of Home Depot Inc (HD) for a total investment of €809.74 ($910.15). This purchase adds 5 shares to my existing position.

Home Depot is a winner, hands down. And you can’t argue against its terrific performance. Historically, HD did not only outperform the market in terms of total annualized ROR, but it has also delivered incredible double-digit dividend growth. The latest raise came in at 32%! Take a look at the yearly growth rates over the course of the past 10 years and you will be amazed. At least, I was. Since winners tend to keep winning, HD is set for future success.

Disposals

Normally, I don’t want to sell any of my holdings. Sometimes, however, it’s necessary. I came to the concussion that this is the case for Lbrands (LB). Truth be told, I did two mistakes in terms of LB. Firstly, I have bought it just because the shares were trading at a very appealing valuation. Secondly, I didn’t sell it as soon as I recognized the low quality of that business. Well, it was about time to dump this fallen angel and move on.

On the 4th of March, when LB’s price climbed by almost 10% (only God knows why), I’ve sold my 30 shares of Lbrands. Luckily, LB was an underweight position, representing only 1.40% of my total portfolio value. Due to the disposal, I’ve realized a capital loss of approx. 300$ (dividends received during the holding period not included). It’s a loss on the one side. But simultaneously it’s a huge win on the other side. I consider it a win because this will hopefully prevent me from doing similar mistakes going forward. Thus, it will save me a lot of money and easily outshine the minor loss caused by this transaction.

To put it together, LB taught me one important lesson: don’t buy a stock simply because it’s cheap. Quality is much more important. Especially in the long run. Don’t compromise on it! So I took the money from a low-quality LB and shifted it to a high-quality HD. Simple as that.

SF Portfolio Snapshot

As of March 29, 2019, I’m invested in 29 companies.
The SF Portfolio has a total value of €52,630 ($59,210) and is expected to generate €1,853 ($2,085) in pre-tax forward annual income.

(Equity Allocation: March 2019)

I have slightly adjusted the sector naming, taking over the nomenclature from Morningstar. Consumer Staples changed to Consumer Defensive, Consumer Discretionary is renamed to Consumer Cyclical, etc. Just some minor things. Furthermore, I have modified the sector classification of SBUX (it was under Consumer Staples in my prior listing). According to Morningstar, restaurants are kept under Consumer Cyclical.

TOP 10 Holdings

(Top 10 Holdings: March 2019)

Looking at the TOP 10 portfolio positions, some things have changed compared to February. First, Altria (MO) has taken over the lead. This is largely due to the run-up in capital appreciation. From its 52-week low at the end of January, MO’s share price has climbed by almost 30%. As a result, MO is my largest position, representing 6.3% of total portfolio value.

Second, Home Depot (HD) represents a new position in the TOP 10 ranking. In March, I have added 5 shares to my existing position, bringing the stake of HD to 4.3%. HD replaces Union Pacific Corp. (UNP) in the ranking of 10 largest holdings.

Sector weightings

(Sector weightings: March 2019)

Due to prior mentioned capital gains of MO and the purchase of Amgen (AMGN), the portfolio weighting shifted more towards defensive assets. In the long run, I’m aiming for a defensive share of 50%. The remaining 50% will be equally portioned between the cyclical and sensitive sector. So the defensive-sensitive-cyclical breakdown ideally should look like this: 50%-25%-25%. Yes, it’s quite conservative, especially when considering my age. But the highest priority is to construct a portfolio that has a reliable and growing dividend income. Keep in mind, that most of the dividend cuts during the recession came from the sensitive and cyclical sectors. In case we see another recession coming soon, I’ll be quite happy holding many defensive businesses.

Summary

Taken as a whole, things are going according to plan. The portfolio is growing – and so does the income stream. To maintain that for the future, I simply stick with my plan and focus on buying high-quality businesses. At the end of the day, quality will provide both: capital appreciation and income growth. That is why I won’t be shy to pay a fair price (or sometimes even a premium) for an excellent stock. Any good investment is going to outgrow any valuation. I learned that the hard way in the past. Valuations have kept me out of owning wonderful businesses. On the other hand, I have purchased some cheap stocks that got even cheaper after a while. Guess what, quality is rarely on sale. I’d rather pay a little bit more and own quality than paying a discount and own mediocrity. Happy investing to you all!

8 Comments

  1. Div.Income March 30, 2019 at 6:25 pm

    Hi,

    congrats on your investments, both companies give a certain stability to your portfolio. At the moment I do not have them in portfolio. But this can change in the future.

    Keep up the good work.

    cheers

    Reply
    1. Snugfortune March 31, 2019 at 9:52 pm

      Hopefully. I welcome stability with open arms:)
      I’m curious to see whether you are going to end up owning HD or AMGN (or both) in your portfolio.
      Cheers

      Reply
  2. Dirk March 31, 2019 at 8:55 am

    Hi,
    nice moves this month. I am quiet sure it’s going to be worth it.
    Just another Question: I am from Germany too and wonderring how to deal such “small” positions without paying a huge percentage of fees for avery Transaction. Who is your broker in Germany with this low fees to make it worth to trade such small positions?

    Reply
    1. Snugfortune March 31, 2019 at 10:24 pm

      Hi Dirk,
      I don’t know what you consider a small position, but personally I feel comfortable paying a fee of 1-1.5% of the total investment. Usually, I prefere to accumulate at least 1.000 EUR and then invest. Sometimes when adding to existing positions (such as in case of HD), I aslo invest slightly smaller amounts. But that’s also fine for me. As long as the fees don’t get disproportional, there is no need to be concerned about them. Just find a setup that you feel comfortable with and invest in high-quality businesses on a regular basis.
      Thanks for stopping by.

      Reply
  3. Dividend Diplomats April 3, 2019 at 3:27 am

    Very nice and thorough summary Frankie. I like it a lot. The additions are very solid and because of you, I am going to look more into AMGN. You aren’t going to win them all with LB. It seems like you have learned the right lessons from it and will apply them to your next stock purchase. Overall, I like it a lot.

    Glad you think things are moving and progressing as you’d like. Keep up the great work my friend!

    Bert

    Reply
    1. Snugfortune April 3, 2019 at 9:47 pm

      Thank you, Bert!
      Glad I drawed your attention to AMGN. VL, Morningstar, S&P and SSD say it’s a high-quality business. I believe them:)
      I’m curious to see whether you end up buying some shares.

      Reply
  4. dividendcompounder April 22, 2019 at 7:13 am

    I liked your analysis and graphic layout. Your portfolio is well-constructed and diversified. I’m going to look in some names you mentioned. Will come back to see how you’re doing. 👍

    Reply
    1. Snugfortune April 22, 2019 at 11:29 am

      Hello and welcome Dividendcompounder,
      I’m glad you found some value in the analysis and the layout. During the past weeks, I have made some adjustments to my portfolio. And I’m not finished yet:)
      So the portfolio will look slightly different with the next update.
      Thanks for your visit and comment.

      Reply

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