Background
On January 1, I launched DVK’s Dividend Growth “ETF” on Motif Investing. If you haven’t followed the story before now, click here to see the last article before the portfolio was launched. It shows the final stock selections, and it also contains links to earlier articles about the project, including how and why the portfolio was created.
Finding the “ETF” on Motif
Now that the portfolio exists, my intent is to report on it quarterly. Of course, you can consult the “ETF” at any time by viewing it on Motif’s site. (If you are not a member of Motif, go there the first time via the ad at the bottom of this article. That way, if you decided to join Motif or buy anything there, you will get the benefit of the offer in the ad.)
You can easily look at the portfolio directly at Motif. Just put “vanknapp” into the search box, like this:
There is only 1 result for this search:
If you then click on the blue title of the motif, you will go to the portfolio’s main page. Here is the summary information at the top of that page.
Note the following:
• The creation date of 12/31/2016 is shown. That’s the day that I launched the portfolio on Motif. Of course, the markets were closed for the holiday, so the first day for trading this motif was 1/3/2017.
• “Motif Index” is a proprietary performance tracker that starts at 1000 the day the motif was established. Its current level (993) indicates that the value of the portfolio has declined 0.7% since then. As will be discussed later, this is a price-only performance tracker. Dividends are ignored.
• The Description is my thumbnail sketch of the portfolio. It is limited in length, and they will not allow a working link in it (otherwise I would link here to Daily Trade Alert).
• Their Volatility and Valuation graphics suggest that the portfolio is low in volatility and about average in valuation at the current time.
The two buttons in the upper right can be used if you have an account with Motif.
• The blue button, BUY MOTIF, lets you purchase the portfolio.
• The gray button, REBALANCE MOTIF, allows you to customize the portfolio. For example, say you like the general portfolio but can’t stand the idea that Altria (MO) is in it, because you refuse to invest in tobacco companies. Using the gray button, you could remove Altria, replace it with a different stock (or just leave the slot empty), and buy your customized portfolio without having to re-create the entire thing from scratch.
Beneath the header is a complete table of the stocks in the motif. Here is the top portion of that table:
The table goes on to list all 29 stocks in the portfolio. Beneath the table is a box with this information. Note that “RTN” means return.
My Own Experience
On January 3, the first trading day of 2017, I entered an order to buy the “ETF” as soon as the market opened. The cost was a single commission of $9.95. In other words, I was able to buy a well-rounded portfolio for the price of just 1 commission.
[ad#Google Adsense 336×280-IA]That is one of the benefits of ETFs in general and this ETF-like portfolio: Instant diversification.
If the amount of money you invest translates to fractional shares, Motif computes those and credits your account with the exact number of whole and fractional shares corresponding to how much you invest.
This portfolio contains 29 stocks.
All of the positions were filled within about 3-4 minutes after the market opened.
So the prices that I received were not always exactly the market’s opening prices for each stock, but they were all extremely close, within pennies.
Since then, the portfolio has been running just as any ETF would run. Its price reflects the prices of the underlying stocks. Dividends have begun to flow into my account.
Portfolio Returns
I confirmed with Motif’s customer service that their return figures do not include dividends. That is unfortunate, because collecting rising dividends is the central reason that this portfolio exists. Dividends will provide a significant portion of the portfolio’s total return over time.
I will try to fill in that hole by reporting periodically on the portfolio’s progress here.
For my reporting, I want to have a standardized base amount for easy comparisons. So what I have done is “normalize” the number of shares to be the equivalent of what an investment of $10,000 would have purchased.
The benefit of reporting this way is that it matches how many funds are reported on. For example, Morningstar reports on funds based on the performance of an initial $10,000 investment over time. Here is an example.
The results are scalable: That means that if you want to see what the results would be for a $100,000 investment, just multiply everything by 10. Similarly, if you want to see the results for a $1000 investment, just divide everything by 10.
Over time, I hope to develop similar reports for the Motif portfolio.
Dividends
A few days ago, I received my first dividend from the portfolio. Here is how that looks in my account’s transaction log.
You can see that:
• On December 22 last year, I funded my account with a $10,000 deposit. It sat in cash until I purchased the portfolio.
• On January 3, I bought the “ETF.”
• On January 25, I got my first dividend, from Cisco (CSCO). I received $3.24 for the 12.48 shares that I own.
I know that does not sound like much money, but over time, the dividends will pile up and account for maybe 40%-50% of the portfolio’s return. It will be fun to watch that progress as time goes on. In my reporting, I intend to include not only price changes but also total returns including dividends.
I created a dividend calendar for the portfolio. This calendar shows probable payment dates based on past company history.
• Payment months for each stock are indicated by green.
• Months with expected dividend increases are highlighted in yellow. I show the actual increase percentages once they are known. At this time, I know the increases through February.
The 29 stocks in the portfolio are expected to deliver 123 dividend payments in 2017, of which 32 should be increases.
When dealing with dividends, there are several important dates to keep straight:
• Declaration date: The day that the company announces its next dividend.
• Ex-dividend date: Often just called the ex-date, this is the first day that the company trades without the right to receive the next dividend. In order to receive the next dividend, you must have owned the stock on the day before the ex-date. This cutoff date is required because of…
• Record date: The day you must be on the company’s records as a shareholder to receive the dividend. As a practical matter, this leads to the necessity of the ex-date, because enough time must be allowed for your purchase of the stock to be recorded in the company’s records.
• Payable date: The day the dividend will actually be paid.
Let’s look closer at the Cisco payment that I received. This is Morningstar’s depiction of Cisco’s dividend declaration.
As you can see, the dividend that I just received was declared over a month ago, on 12/7/16. I bought the portfolio on 1/3/17, so I owned the stock 1 day ahead of the ex-date of 1/4/17. That made me eligible to receive the dividend.
The payable date was 1/25/17, which we saw was the date that the dividend was credited to my account.
Cisco’s declared amount was $0.26 per share. Since I own 12.48 shares, I was credited 12.48 x $0.26 = $3.2448, which was rounded to $3.24.
Dividends are usually paid quarterly, although you can see in the calendar that one company, Realty Income (O), pays monthly.
I am a big fan of Simply Safe Dividends, and they offer a great Portfolio Analyzer tool. I loaded the portfolio into the Analyzer, using the adjusted share amounts to represent a $10,000 initial investment as described earlier.
This is the header on the Analyzer page. It shows a current dividend yield of 3.42% (versus my original goal of about 3.5%). It also indicates:
• The annual income based on information known now. As we saw in the calendar earlier, we do not know most of the dividend increases yet to be declared this year. Therefore, it is likely that by the end of the year, the income will be higher than this early projection.
• The average Dividend Safety Grade – 89 – suggests that this portfolio has very safe companies, which was an important factor in selecting stocks.
• The beta – 0.67 – suggests that this portfolio should be less volatile than the market, on average.
Next is the whole portfolio as shown in the Analyzer. You can see the number of shares of each stock that would have been purchased with a $10,000 investment, the weights of the different stocks, how prices have changed since the portfolio was launched, and so on.
Simply Safe Dividends has other great displays. This one shows the expected income by month. Again, this is based on information known now, so it does not include extra monies to be received when dividend increases are declared.
Note that in the January dividends information, all of the ex-dividend dates except Cisco and Realty Income (O) had passed before I bought the portfolio. That means in January, the only dividend I will receive will be Cisco’s. Realty Income’s dividend will be paid in February, and I will receive all of the other payments as shown in the calendar earlier.
Another display looks backward, showing the income that this portfolio would have produced in years past.
As you may know, I am leery of back-tests, because they show performance based on what would have happened had you known to pick these stocks 10 years ago. Past performance cannot be reliably extrapolated into the future.
On the other hand, past performance provides clues. It suggests that these companies have been raising their dividends steadily, which of course we hope will continue into the future. The most recent 1-year dividend growth of 6.6% meets the goal of 6% per year that I established for the whole portfolio.
A few years from now, I hope that the actual income performance of our “ETF” will look something like this chart.
The final display shows the diversification of the portfolio across economic sectors. You may remember that we wanted a well-rounded portfolio.
The portfolio is, in fact, pretty well-rounded. Note the 10% allocation to Technology. A few years ago, you probably would not have seen this, as tech companies were not paying dividends. But in the last few years, some tech companies have reached a stage of maturity that they have enough money to both fund growth and pay dividends (and in some cases, buy back shares too). Thus this portfolio contains Cisco, IBM, and Qualcomm (QCOM).
One final reporting display will show the dividend events for the portfolio. Through the end of January, it looks like this.
Closing Note
Daily Trade Alert has created a pull-down menu at the top of every page for this project, indicated here by the yellow dot.
We have not finished creating all of the content for this “hub page,” but over time we hope to populate it with background information, current performance information, and the like.
Going forward, I expect to write a quarterly article on the portfolio and its returns. If changes are made to the portfolio, I will also write a real-time note explaining the change. I do expect such changes to be rare. The portfolio is designed to take advantage of the buy-and-collect philosophy of dividend growth investing.
Unlike with a real ETF, if I make a change to this portfolio, that would not automatically be applied to others who bought the Motif portfolio. They would need to make the change themselves to their own portfolio (if they agreed with the change). As I said, I expect such changes to be rare.
— Dave Van Knapp