5%+ Dividend Yield Portfolio: Bracing For The Retest (April 2020 Review)
Unless you are solely invested in Technology stocks, your portfolio is likely nothing but a sea of red this year (despite a bump off the lows in April). Basically everything is hurting (no shocker there), but that’s not what I’m focused on at the moment. I’m trying to figure out how supposedly ‘safer’ strategies managed to fail so spectacularly in the face of the virus-induced turndown versus ‘riskier’ strategies. First, some data:
Source: S&P Global
To me, it is exceptionally surprising (and frustrating) that the S&P 500 (which is more and more just a proxy for Big Tech) is crushing the YTD returns for the Low Volatility index by more than 400 pts. Even more surprising is that the S&P 500 Growth index is the strongest factor so far this year (only down 2%!). Literally nothing in my finance education or decade and a half of real-world experience would have let me to predict this. Many readers of my articles are longstanding sufferers at the Value rout of the last decade, but the proverbial volume has now been turned up to 11!
How this all works out is anybody’s guess (and really, we are all just guessing right now). Aside from the energy patch (which has deep woes far beyond COVID-19), anything can happen. What is clear is that we are in a recession (and an employment depression), but how deep and how long are a mystery. That is why I am fairly surprised to see the market down less than 10% YTD. The economy certainly feels more than 10% screwed up to me (remember that consumer spending is 70% of U.S. GDP).
All that said, stocks are certainly ‘on sale’ right now and virtually no entry point for broad-based ETFs or large companies (that won’t go bankrupt) will be a bad one when you look back at its 5 years from now (which is why I am remaining 90%+ invested in the market). However, for those looking more tactically at the current situation, my guess would be that we will have at least one more significant swoon (or more) as the market internalizes that the V-shaped recovery talk is just rosy-colored foolishness and that real damage has been inflicted on the economy which will take a while to grow ourselves back out of.
April 2020 Review
April 2020 showed strong gains with the S&P 500 posting a +12.8% which I lagged with a +8.7%. In 2020, I am tracking at -23.2% which is far below the S&P 500’s -9.3%. For the last 12 months, I am down -18.8% which lagged the +0.9% for the index. However, my 6.0% projected dividend yield is well above the 2.2% yield of the index. (though I expect a LOT of dividend cuts are coming across the board; I have had at least 3 in my individual company portfolio and many, many more in the companies underlying my ETF portfolio)
As for pure cash yield, April 2020 rewarded me with realized dividends of $1,217 (versus $962 in 2019, a pleasant 27% increase). For the last 12 months, my portfolio delivered $16,584 in cash to me (up 4% YoY). My realized yield for the trailing twelve months was 5.2% for my full portfolio including cash reserves. I still have an outside chance of beating my ambitious 2020 yield goal of over $18,000 for the year (an ~10% increase over 2019).
Fear and greed are hard to balance, but I am happy with where I am overall. My yield-focused strategy still makes the most sense to me as paper gains may come and go but cash is forever!!
Since I write for Seeking Alpha primarily to improve my own investment portfolio, I think it is important that you know my objectives. Please consider this context when you look at any advice I give and form your own opinions based on your needs and desires.
- Goal: Attractive, risk-adjusted, absolute returns (5-15% annually) over a long-term time frame while minimizing capital loss and extreme drawdowns.
- Strategy: ‘Enhanced’ dividend growth or DGI strategy that focuses on a core of diversified high yielding holdings (ETFs and individual companies – my general screening criteria: growing companies (YoY EPS growth >0%) with attractive valuations (PEG <1.5 and P/E <20) and strong and safe dividends (yield >4%, payout <90%, and market cap >$500MM), no tobacco stocks or micro caps), supplemented with return-enhancing tools like hedges (derivatives and shorts), commodity exposure, etc., as well as some crazy picks.
- Balance: Blend of ETFs (domestic and international) and individual companies (where there is a compelling reason to own). Seek to not overweight any one sector unless there is a compelling reason to do so (although the nature of these investments leads me to be overweight in traditional dividend-paying sectors like financials, REITs, and energy).
Note: I violate these guidelines constantly, so please call me out on it!
Portfolio Composition as of April 30, 2020
|Security||Type||Div Yield||Market Value||Last Month Value||Monthly Gain/Loss (%)|
|SPDR S&P 500 High Dividend ETF (SPYD)||ETF||7.3%||$19,488||$17,220||13.2%|
|Invesco S&P SmallCap High Div Low Vol ETF (XSHD)||ETF||8.4%||$9,402||$8,622||9.1%|
|Fst Tst Dow Jns Glbl Sel Dvd Idx ETF (FGD)||ETF||10.4%||$8,570||$7,960||7.7%|
|Xtrackers MSCI World ex US Div Yld Hdgd ETF (HDAW)||ETF||5.1%||$8,099||$7,636||6.1%|
|Invesco S&P Emerging Markets Low Volatility ETF (EELV)||ETF||5.2%||$7,496||$7,008||7.0%|
|PowerShares S&P 500 High Div Low Volatility ETF (SPHD)||ETF||6.1%||$6,598||$6,002||9.9%|
|iShares Evolved U.S. Innovative Healthcare ETF (IEIH)||ETF||1.5%||$5,688||$5,066||12.3%|
|FlexShares Intl Quality Dividend Defensive (IQDE)||ETF||6.5%||$5,441||$6,354||-14.4%|
|SPDR S&P Biotech ETF (XBI)||ETF||0.0%||$4,670||$3,872||20.6%|
|Invesco S&P Intl Devd High Div Low Vol ETF (IDHD)||ETF||8.4%||$4,378||$4,179||4.8%|
|Legg Mason EM Low Vol High Div ETF (LVHE)||ETF||4.8%||$4,271||$3,904||9.4%|
|Legg Mason Int’l Low Vol High Div ETF (LVHI)||ETF||5.9%||$4,270||$4,136||3.2%|
|Global X S&P 500 Quality Dividend ETF (QDIV)||ETF||4.3%||$4,229||$3,722||13.6%|
|Global X NASDAQ 100 Covered Call ETF (QYLD)||ETF||12.2%||$4,014||$3,854||4.2%|
|Xtrackers MSCI EAFE High Dividend Yield Equity ETF (HDEF)||ETF||5.2%||$3,872||$3,686||5.0%|
|Franklin FTSE United Kingdom ETF (FLGB)||ETF||6.1%||$3,784||$3,548||6.7%|
|iShares MSCI China Small Cap ETF (ECNS)||ETF||3.8%||$3,610||$3,472||4.0%|
|iShares Asia/Pacific Dividend ETF (DVYA)||ETF||7.8%||$3,159||$2,841||11.2%|
|Global X MSCI Portugal ETF (PGAL)||ETF||4.7%||$2,634||$2,468||6.7%|
|iShares International Select Dividend ETF (IDV)||ETF||9.7%||$2,391||$2,260||5.8%|
|iShares MSCI Malaysia ETF (EWM)||ETF||3.6%||$2,355||$2,320||1.5%|
|Global X MSCI China Comm Services ETF (CHIC)||ETF||0.6%||$2,269||$2,161||5.0%|
|Iron Mountain (IRM)||REIT||9.9%||$9,672||$9,520||1.6%|
|Blackstone Mortgage Trust (BXMT)||REIT||10.7%||$9,412||$7,448||26.4%|
|Prudential Financial (PRU)||Company||6.8%||$6,237||$5,214||19.6%|
|Sabra Health Care REIT (SBRA)||REIT||13.6%||$4,308||$3,669||17.4%|
|Tanger Factory Outlet (SKT)||REIT||18.5%||$3,760||$2,500||50.4%|
|KKR Real Estate Finance Trust (KREF)||REIT||10.4%||$3,156||$3,002||5.1%|
|New Residential Investment (NRZ)||REIT||3.1%||$3,130||$2,575||21.6%|
|Kinder Morgan (KMI)||Company||6.7%||$2,802||$2,561||9.4%|
|National Health Investors (NHI)||REIT||7.7%||$2,753||$2,476||11.2%|
|HSBC Holdings (HSBC)||Company||0.0%||$2,573||$2,801||-8.1%|
|Banco Santander (SAN)||Company||0.0%||$2,170||$2,350||-7.7%|
|PacWest Bancorp (PACW)||Company||11.3%||$2,024||$1,792||12.9%|
|STORE Capital (STOR)||REIT||7.0%||$2,007||$1,812||10.8%|
|Occidental Petroleum (OXY)||Company||2.6%||$1,660||$1,158||43.4%|
|Teva Pharmaceutical (TEVA)||Company||0.0%||$1,074||$898||19.6%|
|VARIOUS POSITIONS OF <$1,000 VALUE||VARIOUS||2.0%||$2,277||$2,000||13.8%|
|FIXED INCOME TOTAL||3.3%||$18,964||$19,659||-3.5%|
|Amer Century CA High Yield Municipal Fund (BCHYX)||Mutual||3.3%||$18,964||$19,659||-3.5%|
|SCHWAB ROBO-ADVISOR TOTAL||2.0%||$11,649||$10,699||8.9%|
|ProShares Short S&P 500 (SH)||ETF||1.3%||$4,840||$5,532||-12.5%|
|ProShares UltraShort S&P 500 (SDS)||ETF||1.4%||$2,290||$3,045||-24.8%|
|TOTAL + CASH||$16,995||6.0%||$305,296||$281,770||+8.7%|
Portfolio Moves in April 2020
Share Sale – iShares Long-Term Corporate Bond ETF (IGLB): Sold all 50 shares in this bond fund ETF at $67.30 on Apr 15.
- Sold this bond fund to build up my cash reserves for future equity investments.
Share Sale – Vornado Realty Trust (VNO.PK): Sold all 50 shares in this REIT at $42.00 on Apr 15.
- Sold this REIT that I purchased in March for a 20% profit to build up my cash reserves for future equity investments.
Share Sale – Goldman Sachs – Preferred D (GS+D): Sold all 200 shares in this bank preferred stock at $20.00 on Apr 15.
- Sold this preferred stock that I purchased in March for a 33% profit to build up my cash reserves for future equity investments.
Despite the (premature?) optimism of the stock market in April, I am nervous that optimism has replaced pessimism, instead of data. Humans are emotional creatures, so this is not entirely unexpected but no one (including market participants) knows the true short-term (let alone medium- and long-term) impacts on companies that comprise the stock market. (heck, even Amazon (NASDAQ:AMZN) said it was flushing all of its Q1 2020 COVID-19 profits on infrastructure upgrades to protect workers, not make workers any more productive than they were when this year began).
That said, I still firmly believe that assets will be eventually repriced in an appropriate way and will go higher in years to come (however, those with woes before the virus will still have woes afterwards. I’m looking at you, energy sector). From a liquidity perspective, I feel like I have to be ready for this moment and have not had to panic-sell anything; however, for those out there with leverage or in liquidity traps, remember that the market can stay irrational for a very long time. Take care of yourselves (financially, physically, and emotionally). This is gonna suck for a while and I’m not sure that we have seen true capitulation yet.
With a hat tip to Jeff Miller at NewArc Investments whose ‘Weighing the Week Ahead’ is the single most valuable thing I read every week, I will separate my thoughts into two buckets: ‘Likely Signal’ for front of mind topics and ‘Probably Noise’ for things in the press that don’t bother me much at this point with regards to how it might impact equity markets.
- More liquidity-driven failures caused by virus lockdown (this is still mostly main street at the moment, but the infection will spread to larger firms as this lockdown continues)
- U.S. ‘earnings recession’ (soon to be a depression) continues as businesses continue low reinvestment rates amidst coronavirus, trade wars, and other fears.
- Anything 2020 U.S. politics
- Miracle coronavirus cures (note: please don’t drink bleach)
Disclosure: I am/we are long ALL POSITIOS AS MENTIONED. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The author is an amateur who has a history of getting calls both right and wrong with zero predictive power. Trade at your own risk and never rely solely on this author’s opinion. Also, as I have no knowledge of your circumstances, goals, and/or portfolio concentration, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended.