Overview
The “ETF” we started at the beginning of the year continues to generate ever-growing dividends. So far, 57 payments have been received from the 29 stocks in the portfolio.
That is also the “yield on cost” for someone who purchased the portfolio when it was launched.
That yield (based on original amount invested) is expected to increase as companies increase their dividends.
So far this year, 21 increased payments have been received.
In future years, we can expect the yield on cost to advance well beyond the current yield.
Background
On January 1, as a special project for Daily Trade Alert, I launched DVK’s Dividend Growth “ETF” on Motif Investing.
Motif allows you to set up a multi-stock portfolio and buy it for a single commission. A portfolio on Motif acts like an ETF in many respects. For example:
• You can designate the total amount you want to invest (say $10,000) and Motif will calculate the exact number of shares (whole and fractional) that you get for each stock in the portfolio. It places that number of shares in your account.
• For the price of a single commission, you get instant diversification. The entire portfolio is purchased at a single time with a single commission.
The idea behind our “ETF” is to present a dividend growth portfolio with broad interest across the dividend investing spectrum. It contains a diversified lineup of stocks from many industries with varying yields and dividend growth rates.
All 29 stocks have at least 5-year streaks of raising their annual dividend. This pie chart shows the diversification of the portfolio:
Dividend Calendar
The table below is the Dividend Calendar for the portfolio.
• Green cells indicate the months when dividend payments are expected for each stock.
• Yellow cells indicate payments that are also increases.
• Yellow cells with numbers show the percentage increase already received or announced.
• Yellow cells without numbers mean that an increase is expected but not yet known.
Most of the stocks normally increase their dividend once each year and pay quarterly (that is, 4 times per year). Two stocks have different schedules.
• Realty Income (O) usually increases 4 times per year and pays monthly.
• Simon Property Group (SPG) has been inconsistent over the past few years. It pays quarterly, but it has increased its dividend 1, 2, or even 3 times per year over the past several years.
2017 Dividend Calendar for DVK’s Dividend Growth “ETF”
Dividend increases noted by percentage in yellow cells.
The calendar was constructed by examining the payment histories of the stocks for the past 1-2 years. As we will see below, the months of expected payments sometimes vary.
First Half Results
As explained in the January report on this “ETF,” for reporting purposes I scale all amounts to a standardized investment of $10,000 in the portfolio.
So…
• Dividends are the amounts that would be paid on the number of shares (whole shares and fractions of shares) that you would own if you’d invested $10,000 at the beginning of the year.
• Price changes are based on an initial investment of $10,000.
Dividends
In the first 6 months of 2017, most of the 29 stocks in the portfolio paid at least 2 dividends. Altogether there were 57 distributions received, and 21 of them were increases.
Here are the dividends received on a $10,000 portfolio in the first half of 2017.
2017 Dividends Received from DVK’s Dividend Growth “ETF”
Based on $10,000 total investment on January 1, 2017
The total dividends received through the end of June, 2017 is $161.19.
Note that although 4 payments would normally be expected in January, only one was received. This is because on January 1, 2017, the first day the portfolio was available for purchase, the ex-dividend days for 3 stocks had already passed, so it was too late to qualify for the January dividends. This was a one-time start-up situation. Future Januaries will receive all payments.
The Portfolio Analyzer tool on Simply Safe Dividends projects an annual income for this portfolio of $350. That equals a current yield of 3.50%. (That is up from the first-quarter estimate, which was 3.44%.)
Several companies in the portfolio will have dividend increases coming in the last 6 months of the year. That will raise the income stream beyond what the analyzer tool now projects.
Price Changes
Through July 17, the aggregate market prices of the shares in the portfolio has only increased $16 to $10,016. Good price gains in some stocks have been washed out by price drops for other stocks.
Here are the three best price gainers so far in the portfolio:
• Amgen (AMGN) is up more than 20%.
• AbbVie (ABBV) is up about 16%.
• Johnson & Johnson (JNJ) is up about 15%.
These stocks have dropped in terms of price:
• Target (TGT) is down 27%.
• Grainger (GWW) is down 26%.
• Tanger Factory Outlets (SKT) is also down 26%.
Notice that 2 of those 3 (Target and Tanger) are retail stocks. Retail in general has fallen this year as the market tries to figure out how much brick-and-mortar retailers will suffer over the long term from the rise of online retailing (e-commerce). While there are strong opinions on the subject, no one really knows the outcome yet.
Since the goal of this portfolio is to generate a rising stream of income, I am not too worried at this time about the price drops in those 3 companies. I am more interested in the long-term growth in cash flow that the portfolio produces.
Simply Safe Dividends rates the safety of dividends on a 0 to 100-point scale. The safety scores for the 3 companies are 81 (TGT), 97 (GWW), and 89 (SKT). In other words, their dividends seem pretty safe at the current time.
Total Return
The total return of the Dividend Growth “ETF” is:
Total Return = Dividends Received + Price Change
Plugging in our numbers, we get:
Total Return = $161 + $16 = $177.
In percentage terms, that is a return of 1.8% for the first half of 2017. Most of that value increase was from the dividends themselves.
In this “ETF,” dividends are not automatically reinvested. That is the same as with actual ETFs, which simply credit the dividends to your account. You can reinvest them if you wish, but the ETF does not do it for you.
If the dividends were being reinvested, total return would be larger. The effect of reinvesting dividends is illustrated in my own Dividend Growth Portfolio. Of course, you could also reinvest the dividends from this “ETF.” This project illustrates how the “ETF” itself works, not how an investor might use the funds generated.
Volatility
When I selected the stocks for this portfolio, I deliberately favored stocks that have displayed low price volatility over the years. There were two reasons:
• Historically, low-volatility stocks tend to outperform high-volatility stocks.
• Lower price volatility can help psychologically when the market tanks. Low-vol stocks should tank less, providing less opportunity for price panic.
The volatility can be seen both in Motif’s and Simply Safe Dividends’ displays.
Motif shows volatility on a spectrum, and this portfolio lands in their second-least-volatile category. Simply Safe Dividends displays beta, which is a measure of volatility compared to that of the S&P 500. At 0.71, that means that the “ETF” should be only 71% as volatile as the index.
Dividend Safety
I also deliberately selected stocks with good dividend safety. To gauge safety, I used the Dividend Safety Grade from Simply Safe Dividends.
In their Portfolio Analyzer, Simply Safe Dividends computes the average safety of the whole portfolio. As of the middle of July, here is their grade:
That’s 86 points on a scale of 100, meaning that overall the portfolio’s dividends appear to be very safe. The grade is practically unchanged from when I opened the portfolio at the beginning of the year.
Dividend Events
Another interesting thing to keep track of is the record of dividend payments, increases, and cuts in the portfolio. Here’s the scoreboard for the first half of the year.
Dividend Events for DVK’s Dividend Growth “ETF”
Since Inception January 1, 2017
Further Information to Help You
How to Find the Portfolio on Motif
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.)
To find the portfolio at Motif, just put “vanknapp” into the search box, like this:
There is only 1 result for this search, which is DVK’s Basic Dividend Growth “ETF.”
If you then click on the blue title of the motif, you will go to the portfolio’s detail page. Here is the summary information at the top of that page.
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 if you want to.
• The gray button, REBALANCE MOTIF, allows you to customize the portfolio. For example, say you like the general portfolio but find Altria unacceptable, 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 portfolio from scratch.
Scalability of Results
As discussed earlier, the results shown in this article have been standardized to an initial investment of $10,000.
The results are scalable. That means that if you invested, say, $1000, your dollar paybacks would be 1/10th the size shown here. If you invested $50,000, your dollar results would be 5 times the size shown here.
In terms of percentages, all the results are the same no matter how much is invested.
How to Find Information about the Portfolio on Daily Trade Alert
Daily Trade Alert has a pull-down menu at the top of every page for this project, indicated here by the yellow dot.
Go there to find information about how the portfolio was created, its goals, how the individual stocks were selected, and prior articles about the portfolio.
— Dave Van Knapp
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Dave’s Disclosure: On January 3, 2017, I invested about $10,000 in this “ETF” so that I have skin in the game. I am not building the Motif portfolio to make money outside my investments, but Motif has a royalty program under which I will receive $1 every time someone purchases or rebalances the portfolio discussed here. My interest in building this portfolio is for educational value, plus to have another illustrative real portfolio tracking forward. I believe that real-time portfolios are more educational and psychologically realistic than back-tests. Back-tests utilize 20-20 hindsight, and they do not challenge many of the issues that investors face in managing a real portfolio.
DTA’s Disclosure: When Dave approached us with his idea to build a general purpose dividend growth “ETF” the public can invest in (and that would offer several advantages over a true ETF), we were thrilled about the opportunity. Not only would it provide value to our readers, but it’d give us another way to help get the word out about our favorite long-term strategy: dividend growth investing. That said, it wasn’t until a few days before the January 1st, 2017 launch of Dave’s “ETF” that we discovered that Motif Investing offers an affiliate program for publishers like us who refer potential new customers to them. Since we were already referring our readers to Motif Investing via links in Dave’s articles, as a new affiliate of Motif, we will now simply be paid for doing what we’ve been doing for free. We will get paid a $45 commission on every completed and approved brokerage application at Motif that is sourced from our site. There’s no extra cost to you if you sign up for a Motif account through an ad on DailyTradeAlert.com. If there was, we wouldn’t be doing this. Instead, there’s actually potential upside: As an affiliate, from time to time we’re able to offer special incentives that you may otherwise miss out on. See the banner below for the current offer. Rest assured, our new position as a Motif affiliate will in no way impact the quality of Dave’s research or stock selection in his dividend growth “ETF.” After all, as Dave mentioned above, he’s got skin in the game, as he’s started off with an initial investment of almost $10,000 in his “ETF”.