Dr. Dividend’s Financial Freedom Newsletter - Issue #3

May 01, 2022

Did you survive the worst start to the year since 1939?

Dr. Dividend's Financial Freedom Newsletter

May 1, 2022

by Dr. Dividend

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Market Overview

If you're reading this, congrats on surviving April! April 2022 was one of the toughest months we investors have had to stomach. We're off to the worst start of a year since 1939! Headlines continued to drive the market from both the ongoing Russia-Ukraine conflict and Inflation Reports (8.5% for anyone keeping score at home). Earnings Reports slaughtered some of the most well-known companies in the world (see Amazon & Google) to some of the most coveted growth stocks (thoughts and prayers to TDOC holders). April was an extremely volatile month that had some investors panic selling. It was the month to know what you hold and be diversified. Too many people got smoked in their high growth portfolios and there may be more downside to come. This is the time to assess your portfolio, cut any positions you aren't planning on holding, and properly diversify to avoid too much exposure in one sector. On the flip side, if you are confident in a position have conviction! It's not the time to sell your high conviction holdings at a loss, it's the time to take advantage of a discount on your favorite companies. You don't want to look back in the future wishing that you bought back at April 2022's price levels.

In April, I received $37.19 in dividends from 5 companies. I closed out of 4 positions and added to 13 positions and even started 1 brand new position. In the next segment, we’ll dive deeper into my portfolio, its dividends, and more!

The Portfolio

My portfolio now consists of 32 long positions spread out over the 11 main sectors. My 5 biggest positions are in Home Depot, Apple, Google, Microsoft, and Visa in that order. If you remember from my first issue, I like to keep a limit of 10% for one individual stock to take up in my portfolio. (HD) was very close at 9.7%, but I’ve since reduced it to 8.6% to limit my exposure to one single position.

Another personal rule I have is to not let 1 sector equate to more than 20% of my holdings. Consumer Discretionary stocks had taken up 21.6% of my portfolio, but I’ve worked to limit my exposure and reduced it to 19.8% of my overall holdings. I did this primarily by adding to my tech and communications holdings, both of which took a big hit this month.

At the time of writing, my portfolio has made gains in 18 of my 32 positions. You can check out my winners and losers below:

Dividend Income

Throughout April I received $37.19 in dividends from 5 companies, here’s how it broke down:

QUALIFIED DIVIDEND (WMT) $2.81

QUALIFIED DIVIDEND (WPC) $10.57

ORDINARY DIVIDEND (O) $3.75

QUALIFIED DIVIDEND (MDT) $6.30

QUALIFIED DIVIDEND (MO) $17.76

TOTAL- $37.19

My biggest contributors in April were Altria Group (MO) with $13.76 paid and W. P. Carey (WPC) with $10.57 paid this quarter. MO is a diversified tobacco and cannabis company yielding 6.48% and it has been a business that I have leaned on during these bear market times. It's provided me with stable dividends and great capital appreciation. WPC is a REIT yielding 5.23% and it has helped keep my portfolio afloat as well, due to its diversified real estate holdings and their triple-net lease structure. If you'd like to learn more about REITs and triple-net leases, check out my previous article about Medical Properties Trust! 

Dr. Dividend’s Financial Freedom Newsletter - Have you been looking to protect your portfolio in these uncertain times? Check out my DD on MPW below!

MO and WPC combined to pay out 65% of my April income. April is one of my slower months as many of my holdings don't pay in the first month of each quarter (Jan, Apr, Jul, Oct). Both MO & WPC pay a hefty dividend so I'd expect them to take up a big portion of my income, however, I'd like to decrease my overall dependency on them. I don't want to add positions just for the sake of income in these months, but if the opportunity presents itself to add a dividend payer in these months I'd be happy to take it.

Dividend Raises & Cuts

During April, 2 of my holdings raised their dividend payouts. Proctor & Gamble (PG) raised its dividend by 5%, bringing its dividends per share to $3.68. PG has increased dividends annually for 66 (!) consecutive years and they belong to the highly regarded group of companies called Dividend Kings.

The other company that increased its dividend was Apple (AAPL). While I shouldn't be upset with a raise I was a little disappointed in Apple's dividend hike of 4.5%. They did offer a MAJOR $90 billion share buyback plan, but after the strong quarter they had and seeing the $28 billion in cash on hand they have, I was hoping for a better increase. This was Apple's lowest dividend increase in the 10 years it has paid them and I wrote more about it in this thread:

“I spent hours analyzing $AAPL business and earnings reports so you don’t have to

Here’s what I learned:

🧵👇”

What did I buy?

Over April, I added to 13 of my positions and opened 1 new position with Alphabet (GOOG). I bought GOOG as opposed to GOOGL for a couple of reasons.

First, it’s important to understand that Google split its stock into 3 classes: A, B, & C. GOOGL represents Class A shares and GOOG represents Class C. Class B shares were retained by founders Brin and Page and a few select directors. Where this gets interesting is that each class has different voting power, Class A has 1 vote per share and Class C has 0 votes per share. Normally I’d choose to have the voting power however in Google’s case it doesn’t really matter. Class B shares have 10 votes per share and if 100% of Class A voters were to vote one way, Class B voters could still mathematically win by voting the other way. The market also prices Class A shares higher.

The other reason is that in the past 5 years, GOOG has outperformed GOOGL by 7.75%. I wrote a thread detailing my GOOG thesis as well as their earnings report which you can read here: 

“I spent hours analyzing Google’s business and earnings reports so you don’t have to

Here’s what I learned $GOOG

🧵👇”

Without further ado, here’s a list of all my buys in April:

Bought 1 TGT @ 210.65

Bought 1 UPS @ 205.25

Bought 1 UPS @ 198.7

Bought 5 MPW @ 21.0799

Bought 2 AAPL @ 169.72

Bought 1 MSFT @ 285.7

Bought 1 NVDA @ 216.9199

Bought 1 ABBV @ 169.8273

Bought 1 ABBV @ 162.5599

Bought 1 ABBV @ 162.5

Bought 5 MPW @ 19.9599

Bought 5 WBA @ 44.2997

Bought 1 ABBV @ 157.3499

Bought 1 AAPL @ 167.157

Bought 1 UNH @ 533.75

Bought 2 SBUX @ 79.63

Bought 3 WBA @ 44.7499

Bought 5 MPW @ 19.6599

Bought 1 SMG @ 110.8

Bought 3 NEE @ 77.2799

Bought 1 AAPL @ 166.6

Bought 1 SMG @ 103.69

Bought 5 MPW @ 19.09

Bought 2 SBUX @ 78.245

Bought 1 AAPL @ 163

Bought 1 V @ 202.9552

Bought 2 AAPL @ 157.5493

Bought 1 GOOG @ 2,340

Bought 1 ABBV @ 142.25

TOTAL INVESTED: $7,262

Overall I invested $7,262 during April and these shares contribute to $106 of annual income over the next year. These purchases at the time of writing yield 1.53% on market value and 1.46% on cost. These yields look low but keep in mind I added GOOG, which currently doesn't pay a dividend and that drags down the yield. I’ve currently lost 4.31% on these purchases, equating to $313 of capital loss in less than a month.

What did I sell?

My theme for April was to consolidate and know what you own. I sold 4 of my positions this month, Walmart (WMT), Johnson & Johnson (JNJ), National Grid (NGG), and Disney (DIS) each for different reasons.

I sold my shares in WMT for a profit in an attempt to reduce my overall portfolio positions and redundancies. I already hold Target (TGT) which fills most of the same demand WMT does, and I'm more impressed with TGT's history of dividend payments. In the past 10 years, TGT has raised its dividend by 11.38%, whereas WMT has only raised theirs by 4.08% in the same 10-year timeframe. The redundancy and compared dividend growth rate is what prompted me to sell WMT.

In the case of Johnson & Johnson, I sold for a gain due to the upcoming spinoff. JNJ is planning to spin off its consumer products segment of the business (Neutrogena, Listerine, Band-Aid) and is keeping the Pharmaceuticals and Medical Device as its core business moving forward. I already hold AbbVie, a pharmaceutical company, and Medtronic, a medical device company. I didn't want a portfolio redundancy moving forward and after reviewing financials, MDT outperformed JNJ's Medical Device segment and ABBV is one of my higher conviction holdings with a more robust pipeline of drugs. Going forward, I'd rather hold ABBV which specializes in pharmaceuticals, and MDT which specializes in medical devices than hold all 3 companies or just JNJ which does both at an acceptable rate, but not exceptional in my opinion.

I sold my shares of National Grid purely due to their lack of dividend growth and I already hold a utility company in Next Era Energy. Over the last 10 years, NGG has only grown its dividend by a measly 1.44%. NGG was near all-time highs when I sold and in recessionary times utility companies usually peak so I figured if I was going to sell, now was a good time.

I sold Disney at a loss for a couple of reasons. DIS had paid a dividend from 1989 to 2020 and suspended it due to the COVID-19 pandemic. A dividend cut should be the last resort for any company and that was a red flag to me, but I gave them some slack due to their parks and cruises being closed. Management has stated they're committed to reinstating the dividend but after about a year of travel and no dividend reinstatement, I grew concerned. It gets even worse. Disney is making new headlines with its fight with Florida Governor Ron DeSantis over the "Don't Say Gay" bill. Disney is publicly opposing this bill and on April 22nd, DeSantis signed a bill stripping Disney of its self-governing status. Up until this point, DIS existed as its own entity, and its Reedy Creek district has allowed it to save millions of dollars by levying taxes, building its own roads, controlling its own utilities & more. Disney has been estimated to save millions of dollars per year by having this district and losing it will take an enormous chink out of their bottom line. With all these risks swirling around Disney, I took the loss before it got any worse.

What am I looking to add?

In the next month, I am looking to add to a few positions if we continue this downtrend. The S&P 500 index-tracking ETF SPY was down as low as $411.21 on 4/30 and it's within $1 of the 2022 low set on the day of the Russian invasion of Ukraine. CPI inflation data came in even higher at 8.5%, 0.6% higher than the previous 7.9% figure.

While researching some boring companies that have had great returns to shareholders, I came across a name you’re probably familiar with, Sherwin Williams. (You can read a thread on those companies here👇)

“For great returns you have to find the next $AAPL or $AMZN right?

But what if I told you boring businesses you use everyday provide fantastic returns with growing dividends?

Here’s 5 of the best boring businesses

👇”

I never paid much attention to the paint brand but their history of dividend raises and reliable products intrigues me. The Materials segment of my portfolio is not a huge portion, but materials companies like Sherwin Williams supply products that we use no matter the economic outlook. I’ll be thoroughly researching the company in my next article so stay tuned for that!

I’ve also made it a goal to start selling covered calls, and I’d like to start by selling Apple. Apple is my highest conviction holding and I don’t plan on selling for a looooong time. Apple has an extremely liquid options chain with weekly options for sale and I plan on building up a position to sell deep out of the money calls for some extra income.

Final Thoughts

April was a brutal month but weirdly enough, I’m very thankful for it. April forced me to be a very focused investor, and I removed a lot of redundancies in my portfolio. This month showed me the weaknesses in my portfolio and humbled me a lot. The market is an entity bigger than us and it’s critical to know what you own, be confident and be properly diversified. We might not have even seen the worst to come, so take this time to assess your holdings.

I’m also very thankful for the discounts the market has given us. In the past, a drawdown like we’ve experienced would have had me sweating, nervous, and possibly panic selling. I’ve adopted such a long-term view and have re-wired my brain to see these prices as reasons to buy, not reasons to panic. Easier said than done but when you zoom out, the market has always gone higher after a drawdown. I just make sure I follow my rules and stick to my plan. I wish you a profitable May filled with opportunity! Let the dividends compound!

If you liked this newsletter be sure to share it on Twitter and tell your friends! This newsletter takes a lot of effort to write and I appreciate any feedback and tips.

P.S. If you’re looking for a brokerage to open an investing account, try WeBull! They have an intuitive, modern user interface with great charting tools and let you place commission-free trades. Check it out! You get 2 free stocks just for signing up!

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