VZ - The Dividend Collectuh's 18 Stock Tim Duncan Portfolio

2023-05-23 11:26:34 ET

Summary

• Invest in high-quality stocks for the long term/mostly investment grade companies.
• The goal of this portfolio is to collect weekly dividend checks that cover my monthly expenses in retirement.
• To obtain financial freedom from passive income in the next 7-10 years.

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Portfolio Thesis

The goal is to structure my dividends to pay me on a weekly basis. I dollar-cost average into the market on a weekly basis and/or when it provides a discount into high-quality, investment-grade companies. The idea is to use this strategy to build a portfolio that pays me dividends for years to come. Eventually creating a dividend snowball effect with enough income to cover my monthly expenses in retirement. The timeframe for this financial freedom is 7-10 years. After structuring my portfolio to pay me dividends biweekly, I decided to structure it to pay me weekly. I believe with this structuring, I will be able to compound my dividends at a much faster rate. All dividends in this portfolio are currently reinvested until reaching financial freedom.

Introduction

My name is The Dividend Collectuh because I enjoy collecting my dividends weekly. I am active-duty military (Navy senior enlisted, Boatswain's Mate, Chief Petty Officer). I'm due to retire from the Navy on October 31st, 2023. This makes 21 years and 3 months of active-duty time served. My goal with this weekly series is to give investors and the everyday blue-collar worker a new perspective on investing and creating another stream of income. I believe with this portfolio structuring, I will be able to reach financial freedom much quicker.

Portfolio Rules

My rules are pretty simple. Invest in high-quality/investment-grade stocks. Stocks in the Tim Duncan Portfolio emulate his style of play. He was one of the best power forwards the game of basketball has ever seen. Arguably the greatest. Most older folks know how good Tim Duncan was on the court. He was not a high-flyer like Vince Carter. Not strong and swift like LeBron James. Not small and blazingly quick like Allen Iverson. He was what young kids nowadays would consider boring. He was tall and although not the most exciting to watch, he was always consistent and efficient. Two big fundamentals that made him and his team so successful! That's why I named my portfolio after him. My goal is to own no more than 20-25 boring, consistent, and efficient individual stocks. And with that, I present The Tim Duncan Portfolio. Here is the month of May weekly portfolio holdings pay schedule.

Weekly Payers in the Month of May

1st week dividend check: Verizon ( VZ ). Investment grade BBB+. A favorite among income investors. One of the top 3 telecom giants in the world. Dirt cheap valuation. Blue-chip stock with a safe 7% yield.

2nd week dividend checks: Medifast ( MED ) and Agree Realty ( ADC ). This is the only non-investment grade company within the portfolio. But I believe with its conservative dividend payout ratio, current dividend yield, dividend growth history, and low debt, MED has the potential to become a major player within the personal care products space. MED just reported Q1 2023 earnings of $3.67 beating analyst's estimates by $1.27 and revenue of $349M beating analysts' estimates by $29.5M. In my opinion, this stock is undervalued and offers a dividend yield of around 7.5% and debt of only $26.1 million which shows the competency of the management team, especially in the high interest rate environment we're currently in. This enables the company to invest in future growth prospects and weather any prospective economic downturns. This is why I invest in it - it has all the qualities of an investment-grade stock.

ADC is my only monthly payer in the portfolio. BBB investment rating. I like to call ADC, Realty Income's ( O ) baby brother. ADC recently reported Q1 FFO estimates of $0.98 beating analyst's estimates by $0.01 and revenue of $126.62M beating by $2.13M. Current yield of 4.4%. 68% of its tenants are investment-grade companies themselves, including Walmart ( WMT ), Home Depot ( HD ), and Dollar General ( DG ). With Agree Reality, you will not get a ton of growth, but it's more of a safety play for compounding, a Tim Duncan.

3rd week dividend check: NNN REIT ( NNN ). Formerly known as National Retail Properties. BBB+ investment rating from S&P. Currently, yielding 5% and 33 years of consecutive dividend raises. NNN recently reported Q1 FFO of $0.80, which comfortably covers the quarterly dividend payout of $0.55. Its top tenants include the likes of 7-Eleven, Mister Car Wash, and Camping World.

4th week dividend check: And lastly, one of my favorites and most well-known companies, the world's leading coffee retailer, Starbucks ( SBUX ). BBB+ investment rating by S&P. Current dividend yield of about 2%. SBUX recently reported Q2 earnings of $0.74 exceeding analyst's expectations by $0.09. This equates to a payout ratio of about 72%. Payout is on the higher end of what I like to see, but with the reopening of China, I have no doubt SBUX will continue on its path to growth in the coming years.

Some Metrics Used in My Stock Selection

The goal of the Tim Duncan Portfolio is to create a passive stream of income from a mixture of high-yield, investment grade stocks with adequate diversification among the 11 sectors. I have a mixture of REITs, BDCs, and common stocks. As you may know, REITs along with BDCs are required to pay out at least 90% of their earnings in the form of dividends. This perfectly aligns with my long-term goals. For me, the most important metric to look at is a company's cash flow. Cash from operations minus capital expenditures = free cash flow . Does the free cash flow cover the dividend being paid out? Next, I look at the earnings payout ratio. REITs and BDCs are required to payout 90% of their earnings, so a high payout ratio is not out of the ordinary. As long as it's not above 100%. A quality company should never give away more than it earns. Otherwise, with common stock, I typically look for a payout ratio of 40-60 percent. Then, I look at the income statement. Is net income growing? Is EPS increasing? Is the company conducting share buybacks? Price to earnings ratio (P/E). How is their P/E compared to their industry peers? What is their 5-YR average? Like previously stated, I typically dollar-cost average into my stocks on a weekly basis. This is what my annual dividend income would be in 10 years calculating an annual 5% dividend growth rate and 2% annual stock price growth.

Summary/Conclusion

I'll be the first to admit I can be impatient at times. But I understand that it is a marathon and not a sprint. I often have to remind myself of the hare and the tortoise. Slow and steady wins the race! Steady rising passive income is the main focus and primary goal of the Tim Duncan Portfolio. It is very important to me to invest in what I consider to be high-quality companies, while purchasing them at an under or fair value price. One day I may consider owning more than 25 stocks in the portfolio, so I always keep an eye out for other high-quality companies. In future articles, I plan to discuss my process and holdings in detail and include a watch list section, so you can see the companies I am considering at the time.

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