This Is What I'm Doing To Beat The Stock Market

June 07, 2022

Are you buying, surviving, or dying?

Dr. Dividend's Financial Freedom Newsletter

June 7, 2022

by Dr. Dividend

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Market Overview

May continued the downward bearish trend we've come to love (or hate). Up until last week, the S&P 500 had experienced seven consecutive red weeks, a rare occurrence that's only happened 4 times prior since 1928. The last decline this lengthy took place in 2001 during the Dot Com Bubble.

The Russia-Ukraine War has raged on and oil demand has skyrocketed. The war, pent-up demand for travel, and a lack of oil production for the past couple of years have created the perfect storm for oil to skyrocket to near all-time highs, currently $118 per barrel. The energy sector has been the lone winner so far this year, rising 60.1% versus the S&P 500's decline of -13.8%. The oil demand will likely continue as the vast majority of the world's machines still require it, and the transition to green energy feels further away than the media leads us to believe in my opinion.

In May, I received $69.13 in dividends from 10 companies. I closed out 2 positions and added to 10 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 consists of 32 long positions spread out over 10 of the 11 main sectors. My 5 biggest positions are in Apple, Home Depot, Microsoft, Starbucks, and Visa in that order. Longtime readers know that I like to keep a limit of 10% for one individual stock to take up in my portfolio. (AAPL) has crept over the mark at 10.3%, but I’m okay with that since AAPL is one of my highest conviction holds and is a core component of my portfolio. I will be working to reduce my overall concentration in AAPL slightly, as I’m looking to add some businesses in the Energy & Consumer Staples sectors.

Another personal rule I have is to not let 1 sector equate to more than 20% of my holdings. Tech stocks currently take up 24.6% and Consumer Discretionary stocks currently take up 20.5% of my portfolio. I know, I know, I'm breaking my own rules. I do have a good reason though. At this time I see both of these sectors as undervalued, and these sectors tend to fall out of favor as we approach a recession. I'm using this time to accumulate blue-chip Tech names as well as blue-chip Consumer Discretionary companies. Going forward, I have my eye on a few names which I'll talk about later on in this issue.

At the time of writing, my portfolio has made gains in 15 of my 32 positions. You can check out my winners and losers below:

Dividend Income

Throughout April I received $69.13 in dividends from 10 companies, here’s how it broke down:

QUALIFIED DIVIDEND (VZ) - $4.60

QUALIFIED DIVIDEND (JPM) - $5.01

QUALIFIED DIVIDEND (BX) - $6.68

QUALIFIED DIVIDEND (AAPL) - $3.45

ORDINARY DIVIDEND (O) - $3.76

QUALIFIED DIVIDEND (PG) - $4.58

QUALIFIED DIVIDEND (ABBV) - $8.50

QUALIFIED DIVIDEND (CAT) - $6.69

QUALIFIED DIVIDEND (SBUX) - $12.28

ORDINARY DIVIDEND (ABR) - $13.58

TOTAL- $69.13

My biggest contributors in April were Arbor Realty (ABR) with $13.58 paid and Starbucks (SBUX) with $12.28 paid this quarter. ABR is a mortgage REIT that provides financing for income-producing real estate by purchasing or originating mortgages. ABR yields 9.22% and it's one of my highest income producers. Just about everyone knows SBUX and if you've been following it this year its price has been beaten down. Buying at this time yields 2.47%, well above the average 4-year yield of 1.88%. I've dissected their business and latest earnings report, and you can check it out here:

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

Here’s what I learned:

🧵👇”

ABR and SBUX combined to pay out 37.40% of my May income. 10 of my holdings pay in the second month of each quarter (Feb, May, Aug, Nov), and while not as lucrative as June will be, I made more in May than in April. Both ABR & SBUX have shown 10+ consecutive years of dividend growth, and I expect to hold both for the long term.

Dividend Raises & Cuts

During May, 2 of my holdings raised their dividend payouts. Medtronic (MDT) raised its dividend by 7.9%, bringing its dividends per share to $2.72. MDT has increased dividends annually for 45 consecutive years and they belong to the highly regarded group of companies called Dividend Aristocrats.

The other company that increased its dividend was Arbor Realty (ABR). ABR raised its dividend by 2.7%, bringing its dividends per share to $0.38. ABR has increased dividends annually for 10 consecutive years and they now join a group of companies called Dividend Achievers.

What did I buy?

Over May, I added to 10 of my positions and opened 1 new position with SoFi Technologies (SOFI). I love the appeal of SoFi's, "One-stop-shop" mentality for all things finance-related. I've begun selling covered calls using my SOFI position and I wrote about their business and recent earnings report here:

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

Here’s what I learned:

🧵👇”

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

Bought 10 MPW @ 17.67

Bought 1 SBUX @ 73.7893

Bought 2 SBUX @ 76.5

Bought 1 AAPL @ 152.8

Bought 1 V @ 195

Bought 1 MSFT @ 266.5

Bought 25 SOFI @ 5.4

Bought 1 AAPL @ 149.8199

Bought 2 SBUX @ 70.6

Bought 1 SBUX @ 70.5099

Bought 25 SOFI @ 5.1799

Bought 3 AAPL @ 142

Bought 1 TGT @ 168

Bought 1 PG @ 147.9799

Bought 3 AAPL @ 142.65

Bought 3 SBUX @ 71.75

Bought 5 WBA @ 41.65

Bought 1 UNH @ 470.5

Bought 2 AAPL @ 137

Bought 50 SOFI @ 7.2

Bought 10 SOFI @ 7.2

Bought 1 NVDA @ 153.5

TOTAL INVESTED: $4,567.25

Overall I invested $4,567.25 during May and these shares contribute to $64 of additional passive income over the next year. These purchases at the time of writing yield 1.34% on market value and 1.41% on cost. These yields look low but keep in mind I added SOFI, which doesn't pay a dividend and that drags down the yield. I’ve currently gained 4.76% on these purchases, equating to $218 of capital gain in less than a month.

What did I sell?

I sold 2 of my positions this month, Verizon (VZ), and Google (GOOG), each for different reasons.

I sold my shares in VZ for a slim profit in an attempt to redirect my capital into higher growth investments. VZ did provide portfolio stability and a nice yield but very little capital appreciation. VZ also has shown very minuscule dividend growth, with an anemic 2.51% raise compounded over the last 10 years. I'm looking to invest this money into a company that offers better dividend raises, as well as greater capital appreciation.

In the case of Google, I sold for a gain but not because there was anything wrong with the company. I only sold it because it was such a large percentage of my portfolio, and my broker doesn't offer fractional shares at this time. If GOOG were to fall I might not have capital available to buy a full share. If I were to buy a full share, GOOG would take up too big of a percentage of my portfolio for my liking. I fully plan on repurchasing shares after the stock split so if the stock were to dip after my entry, I'd have some room to add and lower my cost basis. I did some DD on Google 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

🧵👇”

What am I looking to add?

In the next month, I am looking to add to a few positions if we continue this downtrend. I'm planning to build my positions in AAPL, SBUX & WBA up to 100 shares each to begin selling weekly covered calls on each position. My eyes are on a few companies I’d like to add if we continue lower. Primarily I’m looking at Costco (COST) as I believe they have a business built to withstand a recession, a top-notch company culture, and loyal members with a strong connection to the company. I'd like to buy under the 5-year average P/E of 36.2x. I'm also looking to add a small position in Sherwin-Williams (SHW) but like COST, shares would need to come down significantly for me to add. SHW currently trades at 39.16x P/E.

The S&P 500 index-tracking ETF SPY was down as low as $380.54 on 5/20 and has posted its first weekly gain for the first time since the 7 consecutive red weeks we've endured, dating back to April 10th. CPI inflation data will be published Friday, June 10th and I'll be watching which direction the market moves.

The majority of my net worth is in stocks and while I'm young and have room to take risks, I do not want to be too concentrated in one asset class. As a result, I'm building positions in asset classes that aren't closely correlated with the stock market.

The first asset I'm looking into buying is gold, a proven asset class for thousands of years that's largely uncorrelated with the market.

The next asset I'm looking to buy is Series I Bonds. Series I Bonds or "I-Bonds" are bonds sold by the US Government and their interest rates coincide with the inflation rate. Currently, they offer a guaranteed 9.62% and must be held for a minimum of 1 year. Their lifespan is 5 years and you may sell them early, however, you will forgo 3 months' worth of interest.

The last uncorrelated asset class I'm looking to invest in is Private Real Estate. Private Real Estate is an asset class that was previously unattainable by the public until companies like Fundrise came along. Fundrise offers various real estate portfolios to meet your investing needs, and they've beaten the stock market and publicly traded REITs so far in 2022. You can sign up with the link below:

With Fundrise, you can invest in a low-cost, diversified portfolio of institutional-quality real estate. We combine state-of-the-art technology with in-house expertise to reduce fees and maximize your long-term return potential.

Real estate has traditionally been one of the most sought-after asset classes for professional investors — now it’s available to you.

Final Thoughts

The month of May tested a lot of investors' stomachs for sure. Seven straight weekly declines haven't happened in over 2 decades and what some view as a time for panic, I view as a buying opportunity. I've been buying names I see as fairly valued or undervalued every week and if we go lower, I'll just buy more. Future me will be thanking today's me for the decisions I made in 2022. I've developed a plan and stuck with it and now just need to wait for the fruits of my labor.

I'm looking at entering a position in both COST & SHW but their Price to Earnings Ratios are simply too high for my liking. I'm hoping for a pullback in both of those names and I'll be building positions in both. They're both super solid names that have stood the test of time and have loyal customers to show for it.

I will always love dividend-paying stocks as an investment but I've taken a long look at my investment portfolio and have decided that I don't want to be too concentrated in one asset class. Going forward, I'll be buying Gold, Series I Bonds, and Private Real Estate through Fundrise to diversify my holdings and reduce the correlation to the stock market and the macroeconomics that comes with it. Don't worry, I'll still be buying dividend-paying stocks, I'll just be directing some funds to alternative investments as well.

In June I'll be watching CPI data closely and watching the direction of the market. What happens in the Russia-Ukraine war is yet to be determined but I'll be watching oil prices as well. I've begun to research some Canadian Oil companies due to my friends in the Canadian Oil Mafia and I plan on scaling into some companies in that sector. I wish you all a profitable June filled with compounding dividends!

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.

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