September 2020 Portfolio Update - Investment Bump, USD Recovery

Summary

It’s time for another monthly update, with September investments representing around $12,000 in total, slowly cutting away at my now-sizable cash position. As I said in my previous articles, my goal is:

My target remains to have spent the majority of my savings during 2020 and to be above 98% stocks, if not 99.3%, by December, with a target cash amount of a few thousand dollars.

(Source: June 2020 Portfolio Update)

I mentioned last month that I’ve received a significant cash infusion, and some of this has been put to work this month. All of this has raised my overall dividend coverage, together with USD recovery by a massive 6% of expenses, to where it now stands at 160.16%.

September 2020 news update

September saw the continuation of my investment strategy. I identify opportunities on a weekly basis and invest in 1-3 of them, usually in injections of around €500/$500/~5,000 SEK. I continue to do:

  • Investments in carefully controlled “cash injections,” portioned into an appealing mix of quality, conservative companies, varied in sector and risk.
  • The abandonment of certain companies in favor of higher-quality companies. This does not mean the aforementioned companies are poor investments – but I’d rather buy companies that are rarely on sale as opposed to “just” those I’ve been buying previously.
  • The continuation of my ultra-safe dividend stock list with 4 different tiers. This tool has become invaluable to me to efficiently sort opportunities, safeties, and other factors.

I continue to focus on a mix of higher-yielding dividend stocks as well as qualitative, more low-yielding companies. These days, I’m looking at a target overall yield of about 3.0-4.5% (down from 5% at the higher end).

My portfolio’s total yield is at a current 4.4958%. This, as of September 2020, still includes a large cash portion (causing the drop from last month in yield), larger than 4 entire sectors I hold currently in a 0.65% interest savings account. If invested at a 4-5% standard yield, the invested cash position would result in an overall portfolio yield of 4.74%. I haven’t sold anything significant – the cash position is a result of a large privately-originating cash injection in July/August, and it has nearly put me at pre-pandemic levels of cash.

Here is my current total portfolio allocation in terms of sectors and cash.

(Source: Author’s Calculations and Data, Google Sheets)

My cash position is down around 1.8%. Not that much, given everything, but September is a very strong dividend month – as is October. I forecast the cash position to drop around 1.5% during the coming month if I find opportunities to invest in. In terms of overall balancing, I foresee further increases in IT/Semi as I continue investing here this month – at least, in the undervalued companies found in the sector here.

In terms of financial news during September, the news is focused on COVID-19. The increase in some parts of the world has continued, with numbers up in several European countries, and parts of the UK on lockdown now.

In Scandinavia, and specifically Sweden, the trend continues to be different. Small clusters have appeared in 2 regions, but on a national basis, things are still very much calm.

(Source: Worldometers, COVID-19, Sweden)

The variance to countries like France and Spain is very clear, and odd.

(Source: Worldometers, COVID-19)

However, once again, there have been no real corresponding spikes in mortality despite these trends. I view it as likely that Sweden may be on the verge of a small spike in cases again, but Sweden will not be shut down, nor will we move “backward” in terms of overall restrictions – perhaps with the exception of smaller, local restrictions. As it stands, however, Sweden stands out in the extreme, with even Norwegian infection transmission rates being significantly higher than here.

As I see things, it showcases how futile it is to lock down nations to combat a pandemic such as this one, and it confirms that Sweden remained one of the only nations in the entire world to handle the pandemic in a logical and scientific manner. Even if there is a small spike in cases – or even a large one – I consider a corresponding increase in mortality to be extremely unlikely given the trends seen elsewhere.

So how should investors consider, or “trade” this news or invest going forward?

Buy as things go down, is my stance. We’ve seen entire markets trade off their highs. As I’m writing this article, the Dow is finally slightly below 27,000 again, and we’re seeing some interesting undervaluations appear. I’m trying to sort through them all on a weekly, even daily, basis and find the ones that are most appealing to me and my portfolio.

My intention is to give an update on monthly performance, and the monthly performance in Sweden is a big part of this. The overall tone we’re looking at here is that things are back to normal, with the exception that not all offices have seen all people return to work as of yet – though this is happening slowly as well.

FX continues to be a concern for Scandinavian investors when compared to the past 2 years. The USD, as I’m writing this, has recovered some momentum towards the SEK, meaning that despite all the negative drops of around 4-5% in total over the past week, my portfolio is actually up 2% simply due to positive FX and portfolio mix. However, the current 9+ SEK/1 USD pairing also means that American companies are more “expensive” to me.

As always, FX isn’t a deciding factor in itself, but I may decide on higher levels to invest more – or invest less – due to certain FX trends.

The trends this month show us that it’s time to prepare for a more serious dip, and also take advantage of the one we’re currently seeing. Never stay complacent – stay informed and keep investing!

Reviewing September 2020 dividends and projecting future dividends

(Source: Author’s Calculations and Data, Google Sheets)

The total amount of dividends paid out from my private portfolio this month, in combination with interest income from my savings, was $2,502.12. This has been reinvested. My September dividends came in according to plans. Only one company had cut the dividend, and this was a small position. As you can see in the expected dividends for October, next month promises to be even stronger than September.

The current average monthly dividend income from my private portfolio, based on the calculation of annual dividends ($34,885/12), is $2,907.08. The reason for this drop despite reinvestments compared to the last month of August is the corresponding USD strength, which raises the dividends in terms of SEK, but actually lowers them in terms of USD.

Below, you can view my average income from dividends in relation to expenses (in SEK) for the year 2019/2020. As you can see, it increased significantly, and following a long, 4-5 month trend of negative ups and downs, we’re finally back on top, higher than during April of 2020. This also includes that several companies have not yet put their dividends back to normal – so there’s more to “get” here.

As I’m writing this article, the building company Skanska (OTCPK:SKSBF) as well as Essity (OTCPK:ESSYY) have elected to restore their dividends. These infusions will be welcome additions of capital which will be reinvested according to my overall plan.

(Source: Author’s Calculations and Data, Google Sheets)

Thanks to continuing investments, I’ve managed to keep my overall income coverage very high and above 160%. Once more companies start raising dividends again, I’ll likely experience a massive coverage increase – but this could be year/s off.

Some of the companies which have paid me dividends during this month include:

Annual Dividends/Bi-Annual Dividends

Quarterly Dividends

  • JPMorgan Chase (JPM)
  • Principal Financial Group (PFG)
  • Qualcomm (QCOM)
  • United Healthcare Corporation (UNH)
  • BlackRock (BLK)
  • Home Depot (HD)
  • Prudential Financial (PRU)
  • Northrop Grumman (NOC)
  • McDonald’s (MCD)
  • Whirlpool (WHR)
  • 3M Company (MMM)
  • Walgreens Boots Alliance (WBA)
  • PPG Industries (PPG)
  • Snap-on Incorporated (SNA)
  • Emerson Electric (EMR)
  • UPS (UPS)
  • Johnson & Johnson (JNJ)
  • LyondellBasell (LYB)
  • Archer-Daniels-Midland (ADM)
  • Macerich (MAC)
  • Amgen (AMGN)
  • Honeywell (HON)
  • Cummins (CMI)
  • Aflac (AFL)
  • Visa (V)
  • Reinsurance Group of America (RGA)
  • Intel Corporation (INTC)
  • Parker-Hannifin Corporation (PH)
  • Kroger (KR)

Monthly Dividends

  • Realty Income Corporation (O)
  • Exchange Income Corporation (OTCPK:EIFZF)

Overall, I’m very pleased with the dividend mix in terms of companies, as it includes a far improved mix of payors in terms of quality compared to 2018/2019 – and I intend for this to continue going forward, in terms of quality.

Monthly Purchases

My purchase approach continues to guide my investment decisions as we move forward.

I only purchase stocks I consider fairly valued or undervalued. I don’t mind sitting with some (or a lot) of cash on hand, as my goal of financial independence from dividend stocks is reached, and I am in no position where I feel I “have” to invest in anything or keep any certain amount of money in or outside of the market.

(Source: July 2020 Portfolio Update)

This month, the following transactions were made in my private investment account:

  • Purchased stock/increased exposure to the Omnicom Group (NYSE:OMC). This purchase was in response to the stock’s undervaluation and factors discussed in my article on the company, “Wolf’s Corona Discounts: Omnicom Group
  • Purchased stock/increased exposure to General Dynamics (GD). This purchase was in response to the stock’s undervaluation, thanks to the latest drops.
  • Purchased stock/increased exposure to Prudential Financial. This purchase was in response to the stock’s undervaluation, thanks to the latest drops.
  • Purchased stock/increased exposure to CVS Health (CVS). This purchase was in response to the stock’s undervaluation, thanks to the latest drops.
  • Purchased stock/increased exposure to AT&T (T). This purchase was in response to the stock’s undervaluation and factors discussed in my recent articles.
  • Purchased stock/increased exposure to Cardinal Health (CAH). This purchase was in response to the stock’s undervaluation and factors discussed in my recent articles.
  • Purchased stock/increased exposure to Cisco (CSCO). This purchase was in response to the stock’s undervaluation and factors discussed in my article on the company, “Cisco Systems: Undervalued Once Again
  • Purchased stock/increased exposure to Archer-Daniels-Midland (ADM). This purchase was in response to the stock’s undervaluation and factors discussed in my article on the company, “A Dividend Stock From Each Sector – May 2020
  • Purchased stock/increased exposure to Intel Corporation (INTC). This purchase was in response to the stock’s undervaluation and factors discussed in my recent articles.
  • Purchased stock/increased exposure to AvalonBay Communities (NYSE:AVB). This purchase was in response to the stock’s undervaluation.
  • Purchased stock/increased exposure to Federal Realty Investment Trust (FRT). This purchase was in response to the stock’s undervaluation.
  • Purchased stock/increased exposure to Pinnacle West Capital Corporation (PNW). This purchase was in response to the stock’s undervaluation and factors discussed in my article on the company, “Pinnacle West Capital Corporation – A Utility With A 12% Upside
  • Purchased stock/increased exposure to Diageo (DEO). This purchase was in response to the stock’s undervaluation and factors discussed in my recent article, ” Diageo: Not Significantly Undervalued, But Still A Buy “.

Looking forward

For the next month, I’ve decided to keep an eye on the following companies and may extend my position in one or several of them, depending on which offers particularly appealing valuations at the time:

  • AbbVie (ABBV)
  • AvalonBay Communities
  • Bank of Nova Scotia (BNS)
  • Federal Realty Investment Trust
  • Bristol-Myers Squibb (BMY)
  • General Dynamics
  • Pinnacle West Capital Corporation (PNW)
  • Reinsurance Group of America
  • AT&T
  • Omnicom Group
  • Intel Corporation
  • Cisco Corporation
  • Prudential Financial
  • CVS Health
  • British American Tobacco (BTI)
  • Philip Morris (PM)
  • Cardinal Health

The list is long, and frankly, those aren’t all of the stocks I’m viewing at this time – but they’re some of the “core” and more importantly, some of the safer, undervalued companies currently out there.

Where to go from here as a dividend growth investor?

Despite the case numbers somewhat surging back up, I’ve stopped expecting that we’ll see a more aggressive downturn resulting from yet another surge in corona fears in the next few coming months. Instead, I’m continually allocating capital on a weekly basis into the most appealingly valued dividend stocks.

While we may see smaller dips, I don’t see any catalyst for any sort of large-scale drop coming. The US election proves to be an interesting race, not in the least for its effect on the overall market. It bears watching, and I’m mostly in a holding pattern for the time being. I continue to invest on a continual basis, but I’ve no plans to make any concerted, large-scale investments during these times.

The best we can hope for, as I see it, is to continue picking out individual companies for one reason or another trade at discount valuations.

We can find discounts in sectors such as REITs/real estate and Financials, as well as interesting names in key sectors that haven’t surged back up with everything else. I intend to, as always, write monthly pieces on what stocks I believe you should look at for the coming month of September of 2020.

Additionally, my investment approach continues to guide me; in particular, when it comes to my current classification system.

My approach has morphed more along the lines of keeping things simple. For a core investment portfolio with the goal of servicing one’s life with the capital and dividends necessary to sustain the lifestyle you’re looking to have, you need not overcomplicate your methodology. It may, in fact, be damaging to your goal to do so.

In my work to evolve my own picking process, I’ve found that I’m investing in and looking at more and more stocks that others may consider boring, or stocks which some may consider being too “low yield” to be appealing. In finance, for instance, I much prefer investing in safer companies yielding 3-4% than unsafe ones yielding 6-7% – where “safer” is my definition based upon the data points I track using my own QO-system.

(Source: June 2020 Portfolio Update)

Once you’ve reached your individual goal, you may construct portfolios with the goal/s of achieving significantly higher rates of return and, in so doing, accept higher levels of overall risk.

The fact is, over 70% of my investments over the past few months have risen in value significantly. These include, but are not limited to Intel, CVS Health, Realty Income, Pinnacle West Capital Corporation, Prudential Financial, British American Tobacco, Diageo, and Bristol-Myers Squibb. Some, such as Walgreens and some real estate have performed poorly in the shorter term, but this should only serve as a caution for valuation at the time of investment – my goal is still the very long term. Still, the fact that Intel has appreciated nearly 11% since I bought the stake (including FX), bears mentioning.

Wrapping up

Going forward, I know that many of the investments made this year will realize their gains in the very long term. Payouts will return to normal levels, the markets will at some point return to more of a state of normalcy, and we’ll leave the pandemic behind us. I’m trying to put capital to work in accordance with my strategy. I now hold 8% in cash – and this is not necessarily something I view as positive. I’m still more of a subscriber of the “Cash is Trash” mentality, though I still find it challenging to go “all in” in a very short time. I keep investing and know that eventually, this cash position will actually go down further as more cash is put to work in these excellent companies.

Continue considering your long-term investment goals and where you want to be in 1 year, 5 years, and 30 years. These things, not the whims of writers or other investors, should guide your own investments.

I hope this article finds you to be still in good health and in good spirits. Let me know if you’ve any questions, comments, or considerations.

Disclosure: I am/we are long ALL STOCKS MENTIONED. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: While this article may sound like financial advice, please observe that the author is not a CFA or in any way licensed to give financial advice. It may be structured as such, but it is not financial advice. Investors are required and expected to do their own due diligence and research prior to any investment.

I own the European/Scandinavian tickers (not the ADRs) of all European/Scandinavian companies listed in my articles.