My Dividend Growth Portfolio (DGP) is meant to illustrate dividend growth investing in real life. Real life happened over the weekend.

I got news that persuaded me to sell two stock positions. After I made the sales, I made two purchases.

Let me tell you about the sales first.

The DGP has had two healthcare REITs whose dividends were frozen. In my monthly reports, I stated that I would hold the stocks but keep an eye on their dividend safety and await further information on when they will resume increasing their dividends.

Over the weekend, bad news came in on one of the stocks. Simply Safe Dividends lowered the dividend safety score on Omega Healthcare Investors (OHI) from 55 to 40 points on a 100-point scale.

That ranks as an “unsafe” dividend.

The other company, HCP (HCP) has a middling score of 55, and its dividend has been frozen since the end of 2016.

I decided it was time to let both of them go as being too risky to hold any longer. So on Monday, March 5, 2018, I sold both of them when the market opened. This display shows the executed sell orders.

And this display shows the transaction summaries.

Net proceeds from the two sales were $4090. (Also, notice the aqua dot: In a stroke of fortunate timing, I received the most recent dividend from HCP 3 days before I sold it. A nice parting gift.)

I had time over the weekend to contemplate how to reinvest the proceeds. On the rare occasions that I sell something from this portfolio, I reinvest the money quickly.

I decided to split the money and buy the following:

• Amgen (AMGN), which I had just added to the portfolio as a dividend reinvestment a couple weeks ago. It’s a very high quality bio-pharmaceutical company with a dividend safety score of 93. Its current yield is 2.9%, and it has raised its dividend for 7 straight years.
• Verizon (VZ), the telecommunications giant. I had selected Verizon as my Dividend Growth Stock of the Month in late 2016 (see article). It has a dividend safety score of 73, current yield of 4.9%, and dividend-increase streak of 13 years.

With these two purchases, I was able to increase the quality and dividend safety of the portfolio quite a bit and relinquish two stocks that had become headaches to monitor. Sometimes the original investment thesis for a stock evaporates, and that’s what happened with the two healthcare REITs. While this is a low-turnover portfolio, sometimes in real life you’ve got to let something go.

As soon as the sell orders for the two REITs executed, I entered orders to buy Amgen and Verizon, which executed immediately. Here are the order summaries:

And here are the transaction summaries.

I spent $3963 on the two purchases, getting 43 shares of Verizon and 10 shares of Amgen in return. $127 went unspent, so that goes into the dividend kitty for my next dividend reinvestment. (I reinvest dividends when the kitty gets to $1000.)

While the portfolio’s overall quality and dividend safety rose after making these two swaps, the portfolio did suffer a setback in its income stream. The two REITs were both high-yielders. So the new stocks will not – at first – generate as much income as the two stocks that were sold.

Here is a display from the Portfolio Analyzer at Simply Safe Dividends before the transactions.

And here is the display after the transactions.

As you can see, the annual income run-rate dropped by $229/year, and the portfolio’s yield dropped from 3.8% to 3.6%.

The good news is that the portfolio’s Dividend Safety score rises from 75 to 79, and the Dividend Growth score rises from 36 to 39.

It will take a few months for the dividend run-rate to climb back to where it was. But in the long run, the portfolio is a much better collection of stocks after dropping the REITs and replacing them with Amgen and Verizon.

Here are the dividends expected from the new shares:

AMGN: $1.32/share x 4 payments/year x 10 shares = $52.80/year. The next payment should come in June, and the next increase should come next March.

VZ: $0.59/share x 4 payments/year x 43 shares = $101.48/year. The next payment should come in May and the next increase in October.

The increased position in Amgen and the new position in Verizon will show up in the next monthly portfolio update.

— Dave Van Knapp