Summary
- 2022 was a difficult year in the market, with all three major indices showing substantial declines.
- Despite those market headwinds, my portfolio's dividend income continued to grow at a double-digit rate.
- Strong performances from the energy and healthcare sectors helped the portfolio beat the market.
2022 Market Review
2022 was a difficult year for stocks, as the markets struggled against the headwinds of inflation and higher interest rates. The old adage of "Don't Fight The Fed" apparently works just as well on the way down as it did on the way up.
The Nasdaq was hit especially hard, as it lost nearly one-third of its value while the S&P lost nearly 20%. The Dow Jones was the "winner" but still posted an 8.78% loss.
A rally at the beginning of Q4 kept it from being a historically bad year, but anytime you see double-digit losses for the market it's a noteworthy event.
My portfolio wasn't spared from the carnage, as it also lost value during the year. However, with a loss of just 4.73%, it fared better than the overall market.
Portfolio Historical Performance (Author)
This outperformance was driven by strong returns from the energy and healthcare sectors along with defense company Lockheed Martin ( LMT ). Exxon Mobil ( XOM ) was the biggest winner with a 74.3% gain, while EOG Resources ( EOG ) and Chevron ( CVX ) also grew by 45%+.
There were plenty of laggards to overcome those gains, however, and those laggards came from nearly every other sector of the market.
The tech sector was hit especially hard, while the real estate sector also saw heavy losses.
While it's never fun watching your stocks fall in price those pullbacks provided some nice buying opportunities during the year, which I took advantage of with multiple purchases. These discounts not only provide outsized long-term returns but also allow me to lock in higher than typical dividend yields.
Portfolio Background
Before we get into the details, let's take a step back and go over the history and methodology of the portfolio. For those not familiar with the project, the "DGI For The DIY" portfolio was created in 2013 when I liquidated the mutual funds in my IRA and used the proceeds to create a new portfolio of dividend growth stocks. I've been writing regular updates on the portfolio ever since, documenting its progress and my lessons learned as a Do-It-Yourself Dividend Growth Investor.
I'm now a 44-year-old engineer with four young kids, and while I don't have as much time to write articles about investing as I once did, I still enjoy tracking and managing the portfolio. I share my personal story in an attempt to inspire others to take control of their finances and plan for their future.
Portfolio Guidelines
This is a dividend growth portfolio, so its purpose is to produce a growing stream of dividend income. This is accomplished by buying companies that grow dividends over time, harvesting capital gains and investing the proceeds into higher-yielding companies, and through dividend reinvestment.
I've established the following guidelines to help me reach my goal of consistently and reliably increasing dividend income.
- Buy companies that consistently show positive growth in earnings and translate those earnings into increasing dividend payouts to shareholders.
- Focus on companies that are investment-grade, with S&P credit ratings of BBB or higher.
- Maintain a diversified portfolio spread across multiple industries.
- Consider for sale any company that cuts or freezes its dividend.
- Collect and reinvest dividends into more shares of companies that I own.
The purpose of this portfolio is to produce a passive income stream that will help fund a portion of my future retirement. Being forty-four years old, I have another 20+ years until I reach that goal.
I switched to the DGI strategy in 2013, and in late 2017 I added the goal of 10% annual income growth for the portfolio. I finished that year with $2,005 in dividend income and calculated that with a 10% annual income growth rate, this portfolio could produce over $26,000 in dividend income in 2044 when I turn 66 years old.
Here is my progress so far:
DGI For The DIY - 2022 Income Progress (By Author)
The portfolio remains well ahead of pace, as annual income grew by 14.27% to $3,572, which is nearly 11% higher than the targeted income.
2022 Dividend Income Summary
Looking at the overall numbers more closely, it is encouraging to see how income growth has accelerated in the last two years after just barely clearing the ten percent growth benchmark in 2019 and 2020.
DGI For The DIY: Portfolio Dividend History (By Author)
Portfolio income is approaching another round number milestone that should be reached in 2023. It is on pace to produce over $300 per month in income, which roughly matches what was being contributed by cash deposits into the portfolio when it was built in 2013.
It is satisfying to see how the snowball keeps growing over time, and how compounding makes an ever more dramatic impact as the numbers get larger with portfolio growth.
Dividend Increase Announcements
2022 continued the trend of positive dividend increase announcements in the portfolio. Q1 showed an average of 7.27% YoY growth, and growth accelerated to 9.09% during the final nine months of the year.
Announce Date | Company | Ticker | Previous Payout Rate | New Payout Rate | Sequential Increase | Year Ago Payout Rate | YoY Increase | Dividend Yield |
04/19/22 | Johnson & Johnson | JNJ | $1.0600 | $1.1300 | 6.60% | $1.0600 | 6.60% | 2.79% |
04/20/22 | Kinder Morgan Inc | KMI | $0.2700 | $0.2775 | 2.78% | $0.2700 | 2.78% | 6.06% |
04/25/22 | Ameriprise Financial, Inc. | AMP | $1.1300 | $1.2500 | 10.62% | $1.1300 | 10.62% | 1.42% |
04/27/22 | American Water Works Company Inc | AWK | $0.6025 | $0.6550 | 8.71% | $0.6025 | 8.71% | 1.75% |
04/28/22 | Apple Inc | AAPL | $0.2200 | $0.2300 | 4.55% | $0.2200 | 4.55% | 0.60% |
05/12/22 | Union Pacific Corporation | UNP | $1.1800 | $1.3000 | 10.17% | $1.0700 | 21.50% | 2.55% |
05/26/22 | Flowers Foods Inc | FLO | $0.2100 | $0.2200 | 4.76% | $0.2100 | 4.76% | 3.19% |
05/27/22 | Lowe's Companies Inc | LOW | $0.8000 | $1.0500 | 31.25% | $0.8000 | 31.25% | 1.96% |
06/08/22 | UnitedHealth Group Inc | UNH | $1.4500 | $1.6500 | 13.79% | $1.4500 | 13.79% | 1.34% |
06/09/22 | Target Corporation | TGT | $0.9000 | $1.0800 | 20.00% | $0.9000 | 20.00% | 2.52% |
06/16/21 | Realty Income Corp | O | $0.2470 | $0.2475 | 0.20% | $0.2355 | 5.10% | 4.52% |
07/12/22 | Cummins Inc. | CMI | $1.4500 | $1.5700 | 8.28% | $1.4500 | 8.28% | 2.53% |
08/25/22 | Altria Group Inc | MO | $0.9000 | $0.9400 | 4.44% | $0.9000 | 4.44% | 7.93% |
09/13/22 | Realty Income Corp | O | $0.2475 | $0.2480 | 0.20% | $0.2360 | 5.08% | 4.53% |
09/14/22 | Philip Morris International Inc. | PM | $1.2500 | $1.2700 | 1.60% | $1.2500 | 1.60% | 4.99% |
09/15/22 | Texas Instruments Incorporated | TXN | $1.1500 | $1.2400 | 7.83% | $1.1500 | 7.83% | 2.81% |
09/20/22 | Microsoft Corp | MSFT | $0.6200 | $0.6800 | 9.68% | $0.6200 | 9.68% | 1.00% |
09/28/22 | Starbucks Corporation | SBUX | $0.4900 | $0.5300 | 8.16% | $0.4900 | 8.16% | 1.96% |
09/30/22 | Lockheed Martin Corp | LMT | $2.8000 | $3.0000 | 7.14% | $2.8000 | 7.14% | 2.49% |
10/13/22 | Agree Realty Corporation | ADC | $0.2340 | $0.2400 | 2.56% | $0.2270 | 5.73% | 4.01% |
10/14/22 | McDonald's Corp | MCD | $1.3800 | $1.5200 | 10.14% | $1.3800 | 10.14% | 2.28% |
10/20/22 | Watsco Inc | WSO | $2.2000 | $2.4500 | 11.36% | $2.2000 | 11.36% | 3.25% |
10/25/22 | Visa Inc | V | $0.3750 | $0.4500 | 20.00% | $0.3750 | 20.00% | 0.78% |
10/28/22 | AbbVie Inc | ABBV | $1.4100 | $1.4800 | 4.96% | $1.4100 | 4.96% | 3.88% |
10/28/22 | Exxon Mobil Corp | XOM | $0.8800 | $0.9100 | 3.41% | $0.8800 | 3.41% | 3.13% |
11/03/22 | EOG Resources Inc | EOG | $0.7500 | $0.8250 | 10.00% | $0.7500 | 10.00% | 2.48% |
11/09/22 | Automatic Data Processing Inc | ADP | $1.0400 | $1.2500 | 20.19% | $1.0400 | 20.19% | 2.23% |
11/10/22 | Becton Dickinson and Co | BDX | $0.8700 | $0.9100 | 4.60% | $0.8700 | 4.60% | 1.50% |
11/21/22 | Hormel Foods Corp | HRL | $0.2600 | $0.2750 | 5.77% | $0.2600 | 5.77% | 2.44% |
11/29/22 | McCormick & Company Inc | MKC | $0.3700 | $0.3900 | 5.41% | $0.3700 | 5.41% | 2.08% |
12/06/22 | Mastercard Inc | MA | $0.4900 | $0.5700 | 16.33% | $0.4900 | 16.33% | 0.62% |
12/08/22 | Broadcom Inc | AVGO | $4.1000 | $4.6000 | 12.20% | $4.1000 | 12.20% | 3.05% |
12/08/22 | Bristol-Myers Squibb Co | BMY | $0.5400 | $0.5700 | 5.56% | $0.5400 | 5.56% | 3.16% |
12/09/22 | Abbott Laboratories | ABT | $0.4700 | $0.5100 | 8.51% | $0.4700 | 8.51% | 1.90% |
12/12/22 | Amgen, Inc. | AMGN | $1.9400 | $2.1300 | 9.79% | $1.9400 | 9.79% | 3.53% |
12/13/22 | WEC Energy Group Inc | WEC | $0.7275 | $0.7800 | 7.22% | $0.7275 | 7.22% | 3.40% |
12/13/22 | Realty Income Corp | O | $0.2480 | $0.2485 | 0.20% | $0.2465 | 0.81% | 4.54% |
12/15/22 | CVS Health Corp | CVS | $0.5500 | $0.6050 | 10.00% | $0.5500 | 10.00% | 2.73% |
12/13/22 | Stag Industrial Inc | STAG | $0.1217 | $0.1225 | 0.68% | $0.1217 | 0.68% | 4.14% |
8.45% | 9.09% | 2.87% |
Lowe's showed the most significant growth with a 31.25% increase, followed by Union Pacific, Automatic Data Processing, Target, and Visa all at 20% or better. Meanwhile, Stag Industrial grew its payout by just 0.68% and Philip Morris by just 1.6%.
When factoring in the impact of dividend reinvestment the portfolio is continuing to exceed my targeted goal of double-digit income growth. I remain on a good track to keep the streak going in 2023.
Portfolio Transactions
I was fairly active in 2023 as I took the opportunity to sell off a few slower-growing companies and replace them with ones that have shown more growth.
I made seven sales during the final nine months of the year, trimming my stake in Apple and liquidating positions in several others.
2022 Portfolio Sales (By Author)
The trim in Apple brings it down to an equal weight position in the portfolio. I still like the company, but its dividend growth has slowed considerably in recent years. Considering its paltry 0.6% yield I decided to take some profits in the stock and move that capital to other ideas.
The sales in Flowers Foods ( FLO ), AT&T ( T ), Walgreens Boots ( WBA ), and 3M Company ( MMM ) were all due to stagnating growth. All four companies were producing less than 5% annual dividend growth and in the case of AT&T a dividend cut.
I still have a few stocks in similar situations, so there could be some more shuffling later this year as I shift to focus more on growth than income.
With self-directed dividend reinvestment, I now have more opportunities to buy over the course of the year. Between that and the capital recovered from stock sales, it was a busy year of making purchases.
Q2-Q4 Portfolio Buys (By Author)
I worked on building new positions in Agree Realty ( ADC ), Extra Space Storage ( EXR ), T. Rowe Price ( TROW ), Texas Instruments (TXN), Tractor Supply ( TSCO ), Medifast ( MED ), and Comcast ( CMCSA ) during the year.
The Tractor Supply purchases have done well, while the Medifast and Extra Space Storage buys have not. Tractor Supply and Extra Space recently announced some nice dividend increases that have me optimistic that they were good choices. Medifast typically raises in March, so I'm hopeful they will give me a reason for optimism as well.
I also made an opportunistic buy of Starbucks ( SBUX ) in May on its big dip, which brought the position up to full weight in the portfolio. This paid off, as the purchase is up nearly 50% in the 9 months since.
Portfolio Holdings
Taking those transactions into account, this is how the portfolio stood at year-end.
By Author DGI For The DIY - 2022 Portfolio Holdings (By Author)
My portfolio value declined by 4.7% from the end of 2021 total, but the projected annual income reached a new record at $3,523, which is a 7.8% increase from the $3,269 projection at my last update.
That income growth is especially welcome to see as it happened despite a dividend cut and eventual sale of shares in AT&T.
Portfolio Weighting
The weighting of the portfolio saw a significant shift in 2022, as the energy sector had its run and technology saw its big decline.
Here is where the weighting stood at the end of 2021.
Portfolio Weighting - End 2021 (By Author)
And this is how things looked at the end of 2022.
Portfolio Weighting - End 2022 (By Author)
Energy made a big jump, moving from a 7.5% weight to 11.9% while the multiple purchases in Agree Realty and Extra Space Storage moved the Real Estate weight from 9.7% to 10.4%.
Meanwhile, Information Tech dropped from 19.0% to 16.1% and Consumer Discretionary dropped from 14.1% to 12.6%.
On the income side, those same buys moved Real Estate up from 14.8% to 18.2% while big dividend increases from Lowe's, Home Depot, and Target moved the Consumer Discretionary share from 7.8% to 9.0%.
On The Radar
I've had an active start to 2023 by adding a couple of new names to the portfolio.
Texas Roadhouse ( TXRH ) is a stock that I don't see discussed often among DGI investors, but it's a company with a tremendous track record. It has grown EPS at a 15.6% annual rate over the last 15 years, with 9% or better growth in every year but 2020. That year was also the year they cut the dividend
However, I am willing to give the company a mulligan as COVID-19 caused a shutdown of the entire restaurant industry which resulted in an 82% drop in earnings. While I would have liked to see the company keep the dividend intact, I can understand why they chose to suspend it during those unprecedented times.
15-Year FAST Graph for Texas Roadhouse (By Author)
Growth has returned since then, as 2021 earnings were more than a dollar higher than 2019's and the company has returned to its trend of double-digit growth.
The company announced a 20% dividend increase along with last week's earnings release , which moves the dividend yield back over the 2% mark. This is a stock I plan to continue adding throughout the year.
Bank OZK ( OZK ) is another that I'd long watched but never added to the portfolio. The Arkansas-based regional bank is another company with a strong track record of good growth that I plan to start building a position in.
The company has produced 16% annual earnings growth over the past 15 years and has grown its dividend for the past 27 years. It's grown the dividend at an impressive 17.6% annual rate over the past decade and by 12.2% over the past 5 years.
15-Year FAST Graph for Bank OZK (By Author)
The financial sector is severely underweight in my portfolio at just 2.9%, so I think it's worthwhile to get a bit more exposure to the sector. Bank OZK seems like a good place to start doing it.
Closing Thoughts
Like many times over the years, uncertainty remains in the markets. There are concerns about runaway inflation, a growing national debt, rising interest rates, and worldwide conflict.
At times it can be difficult to tune out that static and focus on the good things in your portfolio. I have to remind myself that I own stocks that have been growing their dividends for 50+ years and have done so through similar or worse times than these.
Hormel, Johnson & Johnson, Lowe's, McDonald's, Altria Group, and Target have all been growing dividends since the '70s and earlier, and I suspect most of them and many others that I hold will continue to do so in the years ahead.
The portfolio seems to be on solid footing in spite of the uncertainty. It withstood a bear market in 2022 and continued the streak of double-digit dividend income growth. Recent dividend increases have me confident that it will do it yet again this year.
I hope this update finds you all well, and I wish you Happy Investing in the year ahead!
For further details see:
DGI For The DIY: 2022 Dividend Portfolio Review