DGI For The DIY: 2023 Dividend Portfolio Overview

2023 Inventory Market Overview

The market in 2023 was a tricky one to determine because the “Magnificent 7” of huge tech marched larger whereas the remainder of the market spun its wheels ready for the recession that also hasn’t come. The debt ceiling drama was a nothing burger and rising rates of interest and the continuing conflict in Europe have carried out little to sluggish tech down.

All three main indices completed with double-digit beneficial properties for the 12 months, however the 43%+ beneficial properties for the Nasdaq (COMP.IND) are a transparent indication of which shares had been driving the market.

In a typical 12 months, the 24.2% achieve from the S&P 500 (SP500) and 13.7% achieve from the Dow Jones (DJI) could be noteworthy, however they’re dwarfed by comparability to the Nasdaq.

2023 Portfolio Efficiency

The DGI for the DIY portfolio had a profitable 12 months, placing up a ten.34% achieve. This returns the portfolio worth to ranges seen on the finish of 2021, and dividend earnings additionally continues its march larger.

A better weighting in utilities, power, and actual property prompted the portfolio to lag the S&P, DOW, and Nasdaq, however total I am proud of the efficiency.

As you’d anticipate, tech led the best way for me in 2023, with huge beneficial properties coming from Apple (AAPL), Broadcom (AVGO), Microsoft (MSFT), and NXP Semiconductors (NXPI). Extra shocking is the outperformance from industrial firms Lennox Worldwide (LII) and Watsco (WSO), who every returned greater than 70%.

The opposite huge gainers had been Digital Realty Belief (DLR) and the brand new addition to the portfolio, Texas Roadhouse (TXRH), who every gained 34%.

Laggards had been from the healthcare sector, the place Bristol-Myers Squibb (BMY) and CVS Well being (CVS) confirmed 29% and 15% declines. Client staples additionally struggled, led by Greenback Normal (DG), Hormel Meals (HRL), and Medifast (MED). Utility firm NextEra Vitality (NEE) and power firm Chevron (CVX) had been two different notable laggards.

Fortuitously, I held bigger positions within the winners than the losers, so their beneficial properties outweighed the losses. Wanting on the sectors from the winners and losers, it is easy to see why the Nasdaq outperformed the DOW in 2023.

Portfolio Pointers

This can be a dividend development portfolio, so the first focus of the portfolio is a rising stream of dividend earnings. That is achieved by shopping for firms that develop dividends over time and reinvesting dividends into extra shares of firms I personal.

Listed below are the overall pointers I take advantage of to maintain me on monitor with my investments.

• Purchase firms that constantly present constructive development in earnings and translate these earnings into rising dividend payouts.
• Concentrate on firms which are funding grade, with S&P credit score rankings of BBB or higher.
• Preserve a diversified portfolio that’s unfold throughout a number of industries and sectors.
• Selectively reinvest dividends again into extra shares of dividend development shares.
• Think about on the market any firm that cuts or freezes its dividend, or fails to constantly meet my earnings development targets.

This portfolio goals to supply a passive earnings stream that may assist fund a portion of my future retirement. Being forty-five years outdated, I’ve one other twenty or so years till I attain that purpose.

I switched to the DGI technique in 2013, and in late 2017 I added the purpose of 10% annual earnings development for the portfolio. I completed that 12 months with $2,005 in dividend earnings and calculated that with a ten% annual earnings development charge, this portfolio may produce over $26,000 in dividend earnings in 2044, the 12 months I attain 66 years outdated.

Right here is my progress to date:

The portfolio is on a great monitor to exceed these targets, as dividend earnings in 2023 was 7.5% above the $3,543 projection. Between the earnings generated by this portfolio, social safety, and different financial savings, my spouse and I are on a great path towards funding our future retirement.

2023 Dividend Earnings Abstract

Whereas the portfolio had exceeded 10% earnings development for annually of its existence, 2023 didn’t attain that mark. Decrease crude costs resulted in decrease particular dividends from EOG Assets (EOG), and gross sales of some higher-yield slower-growth firms within the portfolio resulted in a step again in payouts.

Dividend earnings was $3,806.81 in 2023, a rise of 6.57% in comparison with the $3,572.18 collected in 2022.

Nevertheless, EOG’s decrease particular dividends resulted in its annual earnings dropping by $95. Had its payouts remained the identical, earnings development would have been 9.2%.

This headwind, together with the promoting out of higher-yielding AT&T (T) and 3M Firm (MMM) in 2022 and decrease earnings development from a few of my larger dividend payers introduced the double-digit development streak to an finish.

Dividend Improve Bulletins

Earnings development was down some in 2023, however there have been nonetheless loads of dividend enhance bulletins within the portfolio. There have been a complete of 54 enhance bulletins made in the course of the 12 months.

The typical annual enhance of seven.31% was led by a 19.6% enhance from Texas Roadhouse (TXRH), 15.79% from Mastercard (MA), 15.56% from Visa (V), 13.9% from UnitedHealth Group (UNH), 12.9% from Financial institution OZK (OZK), and 12.0% from Tractor Provide and Automated Information Processing (ADP).

Three (TXRH, OZK, and TSCO) of these seven firms are latest additions to the portfolio as I proceed to swap stagnant positions for larger development.

Nevertheless, there are nonetheless higher-income, lower-growth names on the record with T. Rowe Value (TROW), Realty Earnings (O), Sempra Vitality (SRE), Agree Realty (ADC), Philip Morris (PM), and Hormel Meals (HRL) all producing earnings development beneath 4%.

I think extra of those slower-growth names may meet the chopping block within the months and years forward in the event that they proceed to lag.

2023 Portfolio Gross sales

Whereas that is typically a “hands-off” portfolio, I do sometimes make strikes to trim obese positions and take away laggards. Eight trades had been made in 2023, with the trimming of positions in Apple and Digital Realty, and the liquidation of positions in Kinder Morgan (KMI), Goal (TGT), Dominion Vitality (D), McCormick & Firm (MKC), Qualcomm (QCOM), and Medifast (MED).

Goal and Qualcomm have each gained practically 40% since their gross sales, whereas Dominion Vitality, McCormick, and Medifast have all seen unfavorable returns.

Medifast was considered one of my largest errors lately, as I began shopping for it in mid-2021 and made a number of purchases earlier than the sale. The place ended up shedding over half of the invested {dollars} and the dividend minimize meant misplaced earnings as nicely.

2023 Portfolio Buys

With dividends now being collected and selectively reinvested, inventory purchases are way more frequent than gross sales within the portfolio.

There have been 32 buys made in 2023, with the beforehand talked about Medifast being the worst performer of the bunch. The very best was Texas Roadhouse (TXRH), with three totally different purchases over the 12 months seeing returns of >48%.

Probably the most frequent purchases had been in Financial institution OZK (OZK), which noticed a giant drop early within the 12 months in the course of the regional financial institution disaster. I made eight separate purchases of it throughout 2023, with all however the first seeing constructive beneficial properties, and it has now grown right into a full-sized place.

Another lucky buys embrace NXP Semiconductors at +30%, American Tower Corp. at +23%, and Additional House Storage at +36%.

Finish of 2023 Portfolio Holdings

Following these trades, that is how the portfolio stood as of 12 months’s finish.

A powerful 12 months by Broadcom has made it the most important weighting (5.48%) within the portfolio. My transfer to commerce Worldwide Enterprise Machines (IBM) out for it in January 2019 and Might 2020 has been a windfall, as Broadcom has grown greater than four-fold in contrast with ~40% beneficial properties by IBM over the identical interval.

The remainder of the highest 5 consists of Watsco (3.87%), Lowe’s Corporations (3.53%), Microsoft (3.48%), and EOG Assets (2.96%).

Listed below are the general portfolio weightings for worth and earnings at 12 months’s finish.

On The Radar

I preserve a watch record of 162 firms as a part of my portfolio monitoring course of, so I’ve all the time obtained concepts able to go when sufficient money builds up within the account for a brand new buy.

Listed below are just a few names that look attention-grabbing to me at present costs.

Starbucks (SBUX) is buying and selling close to 52-week lows and at a PE of simply 21.4X 2024 estimates, which is a 26% low cost to its typical PE of 29. The inventory now yields 2.6%, and I anticipate dividend development to proceed at a double-digit charge together with earnings.

UnitedHealth Group (UNH) is one other high-quality firm buying and selling close to 52-week lows and a big low cost to its historic valuation. The inventory now trades at simply 16.4X 2024 estimates, which is a virtually 20% low cost to its regular PE of 20.5.

The corporate has grown EPS at a 16.5% charge over the past decade and is projected by analysts to keep up a double-digit development charge going ahead. This seems a horny entry level for many who’ve been ready for an opportunity to purchase one of many higher long-term performers out there.

Xcel Vitality (XEL) has suffered together with many shares within the utility and actual property sector, and was additionally hit with issues about its potential legal responsibility for wildfires in Texas.

The value drop has shares buying and selling at a 15 PE, which is a 21% low cost to Xcel’s regular PE of 19, and has introduced the yield over the 4% mark, which is a rarity for the corporate.

Closing Ideas

Greater rates of interest and a few shuffling of positions slowed earnings development in 2023, however the portfolio stays forward of goal and on a great path for continued development.

A busy household life and work schedule have stored me from being as energetic as I as soon as was on Searching for Alpha, however I nonetheless take pleasure in following the market and managing this portfolio. I have been offering updates on it for over a decade now, and am hopeful that I can proceed doing so within the years forward.

I hope this replace finds you nicely and I want you all pleased investing for the remaining three quarters of 2024.

Editor’s Be aware: This text discusses a number of securities that don’t commerce on a significant U.S. alternate. Please concentrate on the dangers related to these shares.