2023-06-22 09:00:00 ET
Summary
- The Dividend Harvesting Portfolio is establishing a new uptrend, with a balance of $12,212.58 after 120 weeks and $12,000 allocated.
- The portfolio generated $13.63 in dividend income in week 120, bringing the 2023 total dividend income to $402.69.
- The author plans to allocate capital toward BDCs in week 121, eyeing Ares Capital, Owl Rock Corporation, and FS KKR Capital Corp.
The Fed decided to pause at the June FOMC meeting, and Fed chair Powell indicated in his speech that nearly all policymakers agree further rate hikes will need to occur in 2023. The CME Fed Watch Tool has already baked in a 74.4% chance of a 25-basis point hike occurring at the next FOMC meeting on July 26th. The hawkish tone didn't stop the S&P 500 from rallying 2.32% this week or the Nasdaq from increasing by 2.78%. The S&P 500 closed the week above 4,400, and we're in a technical bull market as the S&P is up 21.08%, while the Nasdaq has climbed 28.59% over the past year. This is setting up to be an interesting earnings season ahead as the market doesn't believe the Fed will hike several more times this year.
The Dividend Harvesting Portfolio is establishing a new uptrend as it extends its ascent into positive territory. After 120 weeks and $12,000 allocated, the balance of the Dividend Harvesting Portfolio is $12,212.58. Once again, another week of dividend income is in the books as 14 positions generated $13.63, bringing 2023's total dividend income generated to $402.69. Week 120 was reader suggestion week, and in week 118, @Macadoo1117 suggested Arbor Realty Trust (ABR). This suggestion was on my watch list for some time, as it has been mentioned in the past, and @Brad Thomas wrote a great article ( can be read here ) the other day, so I went down the rabbit hole of due diligence. Needless to say, ABR is now a position in the Dividend Harvesting Portfolio series on Seeking Alpha. At the end of week 119, my projected annual dividend income increased by $12.67 or 1.26% to $1,019.49, which is a forward yield of 8.35%.
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 on the growth and tech side of my portfolio some of my positions include Apple (AAPL), Alphabet ( GOOG , GOOGL ), Amazon ( AMZN ), Palantir (PLTR), SoFi Technologies ( SOFI ) and Meta Platforms ( META ).
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 of $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 $297.29 (29.16%)
- ETFs $241.46 (23.68%)
- REITs $223.14 (21.89%)
- CEFs $172.57 (16.93%)
- BDCs $84.95 (8.33%)
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 24 of 2023, I collected $13.63 in dividends, and in 2023 I generated $402.69 in dividend income. YTD, I have generated 82.05% of my 2022 dividend income from 297 dividends which is 55.72% 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.
May has officially ended, and it was my largest month of dividend income to date. Throughout May, the Dividend Harvesting Portfolio produced 57 individual dividends and generated $82.70 in income. This is an increase of 132.89% YoY as my dividend income in May of 2023 jumped $47.19 from May of 2022.
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. I really enjoy the payout calculator feature as this allows me to see my estimated monthly and weekly income and view every dividend rolling in one place. In the first several days of June, some big positions, such as Enbridge ( ENB ), generated its dividend. I am looking forward to more than 50 positions generating dividends as the month progresses. June should be another $80+ month of dividend income.
I have broken this into two sections, positions not generating at least one share per year through its dividend and positions that are. In the section for the positions that are, I have shaded it green and added how many shares annually are being generated and the new future dividend income those new shares will generate. There are currently 23 positions generating at least one new share annually from their dividends, and the new annual dividend income generated from these shares is $67.97.
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.
After what feels like an eternity, ETFs have finally retraced below the 20% level, unfortunately REITS are quickly approaching this level. ETFs and REITs are neck and neck for the top sector after week 120.Individual equities make up 40.52% of the portfolio and generate 29.16% 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 59.48% of the portfolio and generate 70.84% 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%.
In week 120, Enbridge ((ENB)) was still my largest position in the Dividend Harvesting Portfolio. I am pleased that none of the positions exceeds 4.5% of the portfolio value, and the top 10 are leveling out. Regardless of the market rally, there are still many positions I want to allocate capital toward, and I am excited for what the future holds.
Week 120 Addition
Every 10 th week is reader suggestion week, where I allocate that week's capital to a position that has been suggested in the comments or by private message. I have a running list of suggestions on a separate watch list, and unless it's been recommended within the last week or 2, I normally can't remember who recommended it. Thank you to @Macadoo1117 for suggesting Arbor Realty Trust ((ABR)) as this was the position I added. I plan on writing a dedicated article on this company as there is a lot to unpack.
ABR is a REIT that operates in 2 segments, Structured Business, and Agency Business. It primarily invests in bridge and mezzanine loans, including junior participating interests in first mortgages, and preferred and direct equity, as well as real estate-related joint ventures, real estate-related notes, and various mortgage-related securities. REITs have started to make a comeback, and I feel as if ABR is positioned to ride out the remaining time of rates over 5%. ABR pays a dividend that yields 11.84%, with 9 years of dividend growth and a 5-year dividend growth rate of 16.2%. ABR has jumped off its lows, and if it retraces a bit, I would certainly add more to the position.
Week 121 Gameplan
I think week 121 is going to be a BDC week as I am eyeing Ares Capital (ARCC), Owl Rock Capital Corporation (ORCC), and FS KKR Capital Corp (FSK).
Conclusion
Thank you to everyone who made recommendations for week 120, and while I can't add everything, there are many on my running watchlist. Please keep the suggestions coming, as I am always on the lookout for quality companies to add to the Dividend Harvesting Portfolio, and my main dividend account. I can't predict the future, but I feel very good about the next several years, and while this portfolio has stayed pretty close to invested capital over the past 120 weeks, I think there will be a significant uptick in value down the road. Regardless, my main objectives of downside mitigation and ongoing income continue to be met as the Dividend Harvesting Portfolio generates weekly income, and yields 8.35%. Thank you for reading, and I look forward to interacting with everyone in the comment section.
For further details see:
Dividend Harvesting Portfolio Week 120: $12,000 Allocated, $1019.48 In Projected Dividends