2023-04-27 09:00:00 ET
Summary
- The Dividend Harvesting Portfolio is now generating $926.85 in annual dividends, yielding 8.28%.
- The Dividend Harvesting portfolio has a 66.96% record of finishing the week in the black since its inception, 75/112 weeks.
- In week 112, I added to STWD, MO, PDI, VNO, and RITM.
The S&P 500 was basically flat as it declined -0.16%, while the Nasdaq fell -0.57%. Earnings season is upon us, and Tesla ( TSLA ) closed the week down -12.6% after margins compressed more than expected. Next week is going to be interesting as all eyes will be on Amazon ( AMZN ), Alphabet ( GOOGL ), Meta Platforms ( META ), and Microsoft ( MSFT ). The Dividend Harvesting Portfolio swung back into negative territory in week 112, and I am eagerly awaiting what big tech does next week. Overall I am happy with the progress, and I will continue allocating capital on a weekly basis to this portfolio.
After 112 weeks and $11,200 allocated, the balance of the Dividend Harvesting Portfolio is $11,188.14. The account is down -$11.86 or -0.11% on invested capital. In the third week of April, I collected $1.96 in dividend income bringing 2023's total dividend income generated to $248.86. In week 112, I dollar cost averaged into the following positions, Vornado Realty Trust ( VNO ), Altria Group ( MO ), Starwood Property Trust ( STWD ), and Rithm Capital Corp ( RITM ). In week 112, my projected annual dividend income increased by $9.39 or 1.02% to $926.85, which is a forward yield of 8.28%.
I allocate capital toward big tech, funds, dividends, and growth outside of my retirement accounts. These are not my only investments, but I did open a separate account, so I could easily track and document this series. I intentionally created broad diversification throughout the Dividend Harvesting portfolio so I could benefit from sector rotations and mitigate my downside risk. Investors who are too exposed to growth companies or large-cap tech have gotten crushed as the investment landscape changes. On the growth and tech side of my investments, I'm feeling the pain as some of my favorite companies, including Alphabet ( GOOG , GOOGL ), Amazon ( AMZN ), and Meta Platforms ( META ), have been taken to the woodshed.
I'm going to address a question that continues to surface. I'm not trying to beat the market with this portfolio. I love index funds and am invested in several index funds. I love dividend investing due to the stream of cash flow it generates. I don't want 100% of my assets outside of real estate tied to an S&P index fund. I have created a personal investment strategy that works to achieve my investment goals, and having a stream of income generated from dividends is part of my investment strategy. Low-cost index funds are one of the best investments anyone can make in my opinion, and the Dividend Harvesting portfolio is not meant to be a substitute for an index fund. I have read many questions about dividend investing and wanted to start a portfolio from the ground up and document its progress to disprove many misconceptions, including that you need a large amount of seed capital to make dividend investing work for you.
This series has never been about hitting a target yield, generating a certain amount of profit, or beating the market. I had two specific goals with this series. The first was to create a blueprint for constructing a dividend portfolio by documenting the journey starting from the beginning. The second goal was to illustrate how allocating capital each week toward investing, regardless of the amount, would be beneficial in the long run.
Too many people are under the illusion that you need tens of thousands or even hundreds of thousands to benefit from investing. Instead of using my real dividend portfolio as an example, I decided to start a new account, fund it with $100, and add $100 weekly, providing a step-by-step guide to dividend investing. This methodology doesn't have to be used for dividend investing, and it could be as simple as an S&P index fund or a Total Market fund. Hopefully, this series is inspiring people to invest in their future to attain financial freedom.
A historical recap of the Dividend Harvesting Portfolio's investment principles
Investment Objectives
- Income generation
- Downside mitigation through diversification
- Capital appreciation
Below are the fundamental rules I have put in place for this Portfolio:
- Allocate $100 weekly to this Portfolio
- Only invest in dividend-producing investments
- No position can exceed 5% of the Portfolio
- No sector can exceed 20% of the Portfolio
- All dividends and distributions are to be reinvested
Below is a chart that extends from week 1 through the current week to illustrate the Dividend Harvesting Portfolio's Progression
- Blue line is my initial investment $100 in week 1, $1,000 in week 10, etc.
- Red line is the account value at the end of each week
- Yellow line is the annual dividend income the Dividend Harvesting Portfolio was projected to generate after that week's investments and dividends reinvested
The Dividend Harvesting Portfolio dividend section
Here's how much dividend income is generated per investment basket:
- Equities $257.07 (28.46%)
- ETFs $232.61 (25.75%)
- REITs $177.77 (19.68%)
- CEFs $163.72 (18.13%)
- BDCs $72.06 (7.98%)
Collecting dividends can serve many functions in a portfolio. Some investors utilize dividends to supplement their income and live off of them. I'm building a dividend portfolio for myself 30 years into the future. In 2022, I collected $490.76 in dividend income from 533 dividends. In week 15 of 2023, I collected $1.96 in dividends, and in 2023 I've generated $248.86 in dividend income. YTD I have generated 50.71% of my 2022 dividend income from 191 dividends which is 35.83% of the dividends generated throughout 2022.
These dividends allow me to gain additional equity in my investments while increasing my future cash flow in down markets. This style of investing isn't for everyone, but if you're looking to generate consistent cash flow while mitigating downside risk, this method has worked for me. I'm hoping to collect around $1,000 in dividends in 2023, which will be reinvested.
March is over, and it was a record month of dividend income, generating $78.88. YoY March's dividend income has increased by $45.58 or 136.88%. Looking at the graph below, the YoY increase in dividend income has been drastic. I am looking forward to seeing what April brings, as it will be the first month with three years of data.
I found a tool that can track and visualize my monthly and weekly dividend income. I plan on showing this graph rather than the full year as it's a better visualization than what I had created. In week 112, I added to existing positions, so the number of dividends generated didn't increase. It's getting very interesting seeing the amount of monthly dividend income being generated and the number of days that dividends are produced. I am currently on track to produce dividends in 14 days during April.
The goal of generating enough income from the dividends to purchase an additional share per year has been the never-ending project of this portfolio. There are now 19 positions generating an additional share per year. I am continuously working on getting more positions over the 100% threshold. I think I can finish 2023 with at least 25-30 positions generating a share per year from their dividends. I added to my positions in MO, STWD, RITM, and VNO this week. While looking at the grid below, I almost want to make a pact to get every company between 50-99% into the 100%+ category by a certain date.
The Dividend Harvesting Portfolio Composition
Many of the readers have asked if I could break down the individual positions within these sectors. I created pie charts for each individual sector and have illustrated how much each position represents of that sector of the Dividend Harvesting portfolio. Since I only have one position in Food & Staple Retailing and Industrials, I did not make a chart for those. 3M ( MMM ) and Walgreens Boots Alliance ( WBA ) represent 100% of those sectors. The charts will follow the normal portfolio total I have constructed. Please keep the ideas coming, as I am happy to add as much detail to this series as I can.
ETFs are starting to get closer to the 20% threshold, but in week 112, ETFs still remained the largest section of the Dividend Harvesting Portfolio's composition. Individual equities make up 41.55% of the portfolio and generate 28.56% of the dividend income, while exchange-traded funds ("ETFs"), closed-end funds ("CEFs"), real estate investment trusts ("REITs"), business development companies ("BDCs"), and exchange-traded notes ("ETNs") represent 58.45% of the portfolio and generate 71.44% of the dividend income.
I have a 20% maximum sector weight, so when a singular sector gets close to that level, I make sure capital is allocated away from that area to balance things out. This is the first time I have exceeded 20% in a single sector of the portfolio. I will be allocating capital away from ETFs for a while to get this sector under 20%.
Industry | Investment | Portfolio Total | % of Portfolio |
ETFs | $2,326.89 | $11,188.14 | 20.80% |
REIT | $1,993.67 | $11,188.14 | 17.82% |
Closed End Funds | $1,553.18 | $11,188.14 | 13.88% |
Oil, Gas & Consumable Fuels | $1,197.45 | $11,188.14 | 10.70% |
Financials | $769.16 | $11,188.14 | 6.87% |
Communication Services | $688.92 | $11,188.14 | 6.16% |
BDC | $659.98 | $11,188.14 | 5.90% |
Consumer Staples | $673.35 | $11,188.14 | 6.02% |
Utility | $307.93 | $11,188.14 | 2.75% |
Technology | $238.63 | $11,188.14 | 2.13% |
Pharmaceuticals | $243.47 | $11,188.14 | 2.18% |
Food & Staple Retailing | $215.39 | $11,188.14 | 1.93% |
Industrials | $215.23 | $11,188.14 | 1.92% |
Independent Power & Renewable Electricity Producers | $99.03 | $11,188.14 | 0.89% |
Cash | $5.87 | $11,188.14 | 0.05% |
In week 112, the JPMorgan Equity Premium Income ETF ( JEPI ) remained the largest position in the Dividend Harvesting Portfolio, while Verizon ( VZ ) declined much closer to 4%. I am getting more comfortable with the idea of adding VZ and Enbridge ( ENB ). I may wait another week before I do. While I do have a 5% limit, I want to get the top 10 a bit flatter due to what occurred in my sector allocations.
Week 112 Additions
In week 111, I added to the following positions:
- Altria Group ( MO )
- Starwood Property Trust ( STWD )
- Vornado Realty Trust ( VNO )
- Rithm Capital Corp ( RITM )
Altria Group
- MO is still very tempting as its yield exceeds 8%. I think MO is undervalued, and even though it's not an exciting stock, it has a long-term track record of growing earnings and its dividend. I recently wrote a dedicated article which can be read here , about my investment thesis on MO. MO is committed to dividend growth and has indicated that they see the dividend continuing to grow at a mid-single-digit rate annually through 2028. I will continue to add shares of MO off and on until its generating one share annually from its dividends.
Starwood Property Trust
- What can I say, I couldn't resist. Grabbing STWD at an 11% yield was just too enticing. I think STWD is undervalued, and I am happy to add shares here and there of what could possibly be my favorite REIT.
Vornado Realty Trust
- SL Green Realty ( SLG ) beat on FFO and Revenue in their Q1 earnings this week. I think this is a sign that the selloff in NYC real estate may be overdone. Don't get me wrong, occupancy rates are still a concern, but I think VNO is a well-run REIT with solid properties across NYC. I decided to dollar cost average into my position.
Rithm Capital Corp
For further details see:
Dividend Harvesting Portfolio Week 112: $11,200 Allocated, $926.85 In Projected Dividends