2023-07-06 09:00:00 ET
Summary
- The markets ended the first half of 2023 strong, with the Nasdaq and S&P 500 appreciating significantly. The future performance will depend on the Fed's decision on interest rates.
- The Dividend Harvesting Portfolio is back in positive territory, generating $31.45 of dividend income in the last week of June. The portfolio includes big tech, funds, dividends, and growth outside of retirement accounts.
- My investment strategy is not about beating the market but creating a steady stream of income through dividends. The portfolio is diversified to mitigate downside risk and capital is allocated weekly.
The markets finished the first half of 2023 in a position of strength. In the last week of June, the S&P 500 climbed 2.25% while the Nasdaq appreciated by 2.03%. YTD, the Nasdaq has been ripping higher as it put together a 32.74% run, while the S&P 500 has increased by 16.38%. We're in a technical bull market as the S&P 500 has appreciated 27.46% from its 52-week lows, and the Nasdaq is off its 52-week lows by 36.67%. As strong as the markets feel, we're still a ways from creating new highs as the S&P still needs to climb by roughly 7.78%, and the Nasdaq needs another around 16.46% to take out the previous highs. Much will depend on the Fed and the July meeting, which comes 20 days from when this article will be published. The CME Group is baking in an 84.3% chance that the Fed will raise rates by another 25 basis points, so we will have to wait and see how the markets react to whatever Jerome Powell announces.
Once again, the Dividend Harvesting Portfolio is back in the black. After a -$311.20 swing to the downside, leaving the Dividend Harvesting Portfolio in the red by -$98.62 in week 121, it just took a $391.46 swing to the upside, putting it back in positive territory. After 122 weeks and $12,200 allocated, the balance of the Dividend Harvesting Portfolio is 12,492.84. The last week of June was a strong week as $31.45 of dividend income was produced, bringing 2023's total dividend income collected and reinvested to $435.40. In week 122, I purchased 1 share of Altria Group ( MO ), 2 shares of Kinder Morgan ( KMI ), 1 share of Arbor Realty ( ABR ), and 1 share of the Goldman Sachs BDC ( GSBD ). At the end of week 122, my projected annual dividend income increased by #12.29 or 1.19% to $1,044.40, which is a forward yield of 8.36%.
Steven Fiorillo, Seeking Alpha
The overall performance of the Dividend Harvesting Portfolio
The Dividend Harvesting Portfolio is back in the black and continues to achieve its investment goals. Over the previous 122 weeks, the balance has stayed within a respectable range when correlated to invested capital. One of the goals is to construct the underlying holdings to put risk mitigation front and center. This is why there are 87 positions within the portfolio. I can't pick every company that will appreciate so I have constructed a well-rounded income-producing portfolio that will produce income around the clock while navigating future economic events.
Steven Fiorillo, Seeking Alpha
The Dividend Harvesting Portfolio dividend section
Here's how much dividend income is generated per investment basket:
- Equities $303.42 (29.05%)
- ETFs $242.83 (23.25%)
- REITs $225.19 (21.56%)
- CEFs $172.95 (16.56%)
- BDCs $100.01 (9.58%)
Steven Fiorillo, Seeking Alpha
Steven Fiorillo, Seeking Alpha
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 26 of 2023, I collected $31.45 in dividends, and in 2023 I generated $435.40 in dividend income. YTD, I have generated 88.75% of my 2022 dividend income from 324 dividends which is 60.79% 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.
Steven Fiorillo, Seeking Alpha
Steven Fiorillo, Seeking Alpha
Another month has passed as June has come and gone. This means there is another month of data for the YoY monthly dividend income chart. In June of 2023, the monthly dividend income increased by $36.66 or 85.81% YoY. I continue to see large monthly growth rates YoY in dividend income generated, and I look forward to seeing how this progress throughout 2023 and for many years to come.
Steven Fiorillo, Seeking Alpha
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.
July looks like it will be a big month as each week, there is double-digit income being produced and roughly $93.36 of expected dividend income for the month. We're starting out the first week of July strong, with almost $20 of dividend income being produced. Looking at the chart below, the last week in July may be the first time I have had dividend income generated every day throughout a single week. I am getting closer and closer to my first $100 dividend income month in this account, and eventually, each month will be generating at least $100 of dividend income.
The Dividend Tracker
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 24 positions generating at least one new share annually from their dividends, and the new annual dividend income generated from these shares is $72.43. MO, KMI, and ABR are right on the bubble, so I plan to get them to cross the 100% threshold very soon, and if there is a pullback in SL Green Realty ( SLG ) I would like to get that back to generating a share annually from its dividends.
Steven Fiorillo, Seeking Alpha
The Dividend Harvesting Portfolio Composition
Steven Fiorillo, Seeking Alpha
REITs have finally overtaken ETFs as the largest segment of the Dividend Harvesting Portfolio in week 122. Individual equities make up 49.90% of the portfolio and generate 29.05% of the dividend income, while exchange-traded funds ("ETFs"), closed-end funds ("CEFs"), real estate investment trusts ("REITs"), and business development companies ("BDCs"), represent 60.10% of the portfolio and generate 70.95% 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%.
Steven Fiorillo, Seeking Alpha
Steven Fiorillo, Seeking Alpha
Steven Fiorillo, Seeking Alpha
In week 122, Enbridge ( ENB ) fell to the 2 nd largest position in the Dividend Harvesting Portfolio as Verizon ( VZ ) reclaimed the top spot. 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, I still want to allocate capital toward many positions, and I am excited about what the future holds. MO could creep up to the top spot soon, as I plan on allocating more capital to this position soon.
Steven Fiorillo, Seeking Alpha
Week 122 additions
In week 122 I allocated all the weekly capital toward the following companies:
- Altria Group ((MO))
- Kinder Morgan ((KMI))
- Arbor Realty ((ABR))
- Goldman Sachs BDC ((GSBD))
Altria Group
- I think MO is undervalued, and the dividend now has an 8.3% yield. MO has been clear that it plans on increasing its dividend annually and has forecasted a clear path for EPS growth. MO is being punished because of its underlying business, but I believe shares will eventually appreciate due to its fundamentals.
- From the 2018 fiscal year thru 2022, MO has grown its adjusted diluted earnings by $0.83 at a CAGR of 4.9%. MO's CFO wrote an open letter addressed to shareholders and discussed MO's continued focus on the dividend being a high priority for management. Income investors should find comfort that over the previous 53 years, MO has increased the dividend 57 times. The dividend that MO generates is in a league of its own as the dividend has increased to $3.76 from $3.20 since the end of 2018 at a CAGR of 4.1%. To put shareholders at ease, Mr. Mancuso stated that going forward MO will adopt a progressive dividend goal that focuses on annual dividend growth and they will no longer focus on allocating 80% of EPS toward the dividend.
- MO is difficult due to ESG and personal opinions, but it's hard to discount the fact that MO is a highly profitable company and its products are legal. Nobody is forced to invest in MO, and for investors who don't mind investing in what others call a sin stock could be getting shares at a great valuation with a large dividend yield. I am looking to the future and see MO continuing to generate a large dividend and potentially increasing in value.
Atria Group
Kinder Morgan
- I recently wrote an article on KMI ( can be read here ) outlining my bull thesis. Based on the data from the EIA and IEA, natural gas production will continue to increase, which is bullish for KMI as it has one of the largest pipeline systems in North America. I like investing in companies with hard assets that are almost impossible to replace, and unlike tech, you can't just raise money and compete in the pipeline sector. KMI has a large moat and I feel the sector is undervalued.
- Some shareholders of KMI are still stuck in the past and look at KMI as a company that cut its dividend by -75.49% in Q1 of 2016. It's been 7 years since then, and KMI has delivered on its plan of financial discipline, repaying in excess of $11 billion of its debt . While deleveraging its balance sheet, KMI has provided shareholders with 6 consecutive annual dividend increases and increased the quarterly dividend from $0.125 to $0.2825. As the global population expands the amount of energy needed to sustain our way of life will increase. The EIA and IEA both project that natural gas production will increase and KMI has over 70,000 miles of pipeline dedicated to natural gas and moves 40% of the natural gas produced in the U.S. My view is that as production increases so will the demand for volume throughout KMI's network and this will push shares and the dividend higher.
Seeking Alpha
Arbor Realty
- ABR was a position I added in week 120 based on the reader suggestions, and I am continuing to add to the position so it generates 100% of its share price from its dividends. The dividend growth has been fantastic over the years, and ABR looks like it can be a long-term winner in the portfolio.
- Over the past decade, ABR has increased its quarterly dividend by 250% as it's gone from $0.12 to $0.42. Since the pandemic occurred, unlike other REITs, ABR has increased the quarterly dividend 11 times as its grown from $0.30 to $0.42.
- ABR has also been moving on positive news. ABR was recently included in the S&P SmallCap 600 index which made shares jump 7.3% in after hours upon the news being released. The recent dividend increase for ABR was 5% as the quarterly dividend went from $0.40 to $0.42 in May. ABR is also crushing analyst estimates as in Q1 ABR generated $0.62 of non-GAAP EPS which was a $0.16 beat while also growing its revenue by 29% YoY and beating estimates by $7.79 million. ABR is a growing REIT that I have my eye on and I plan on continuing to add shares in the Dividend Harvesting Portfolio.
Goldman Sachs BDC
- When it comes to BDCs I am looking for a strong dividend payer at a fair price. I concentrate on the price to net investment income ((NII)), if the BDC is trading at a discount to its net asset value ((NAV)), and the dividend metrics. I track the largest BDCs and compare how they are trading as a group. I normally want to see that a BDC is generating more than $100 million of NII as a personal threshold.
- I decided to add to GSBD again because I see value in its shares. GSBD has generated $226.4 million in NII over the TTM which places its NII to market cap at 6.71x. This is well below the peer group average of 8.56x which makes it a good value in my eyes. I am also getting shares of GSBD under its NAV, as its trading at -3.88% to NAV. Any time there is an opportunity to pay under NAV for income-producing assets, I pay close attention, especially when the dividend yield exceeds 10%. GSBD is currently yielding 12.97% compared to a peer group average of 10.54%. GSBD checks off all the boxes for me and I now have enough shares in the Dividend Harvesting Portfolio where it is generating more than 1 share annually from reinvesting its dividends.
Week 123 gameplan
As much as I want to add to MO, KMI, and ABR again, I am probably going to allocate week 123's capital toward financials. We're heading into earnings season, which will be kicked off by financials. Citigroup ( C ) announced a 4% dividend boost and logged a $1 billion buyback in Q2. I have felt C was undervalued for a long time and will probably add to my position in C, and Truist Financial Corporation (TFC) in week 123. With the remaining capital, I may add another share of ABR or KMI. We'll see what happens.
Conclusion
The Dividend Harvesting Portfolio is back in the black once again and continues to generate dividends around the clock. Over the past 122 weeks, I have invested $100 per week and built a portfolio that has mitigated downside risk well and is projected to generate $1.044,40 in future dividend income. As the months and years progress, the amount of dividend income generated on a weekly and monthly basis will continue to grow, and it's going to be very interesting to see how the snowball effect truly compounds. No matter if the market continues to appreciate or retraces, I will continue to allocate capital and build out the Dividend Harvesting Portfolio. Thank you for reading, and I look forward to interacting with everyone in the comment section.
Steven Fiorillo, Seeking Alpha
Steven Fiorillo, Seeking Alpha
For further details see:
Dividend Harvesting Portfolio Week 122: $12,200 Allocated, $1044.40 In Projected Dividends