2022 wooden numbers with coins on the table

baona

“It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.”

-Warren Buffett

This is a quote I consistently come back to when deploying new capital into the portfolio. I’ll never be able to tick the bottom, but as long as I think the price is relatively attractive and the company is high quality, I’m fine pulling the trigger. I’m buying high quality companies every two weeks, which forces me to accumulate companies slowly and average my prices over months. My lack of selling positions means I won’t be forced to allocate a large chunk of money at any point. If that time comes, expect me to be significantly more attentive to price and value (I think there’s a Buffett quote for that too, ha).

As a housekeeping matter, I noted in my October 2022 update that I was closing in on 10% dividend growth this year. I'm happy to report that my projected 2022 dividend growth has officially eclipsed the 10% threshold due to a combination of new shares and dividend increases. While I'd rather be well in excess of 10%, I faced some headwinds earlier this year with the timing of ETF sales that make me content with the 10% growth. Those same sales are allowing me to super charge future growth which is already bearing fruit since I'm closing in on 20% projected 2023 dividend growth. I imagine I will exceed that mark in December 2022 or January 2023.

Now here is how I allocated my dividends and monthly savings.

Pooled Dividend Reinvestments

On December 1, 2022, I put my November 2022 dividends to work. As a reminder, I focus mainly on portfolio weighting with my dividend reinvestments. I added shares of Comcast Corporation (CMCSA) at $36.96; Target Corporation (TGT) at $164.56; and Essex Property Trust (ESS) at $222.30. This allocation was consistent with my year-end 2022 goal of continuing to focus on blue chip companies yielding in excess of the market.

I’ve added CMCSA numerous times this year as the stock price decayed, most recently in my rebalancing where I added heavily around $30 per share. While shares have rocketed since then, I still wanted to add. CMCSA remains a medium-sized position in my portfolio and I don’t think I will add as aggressively as I did this year moving forward. As long as CMCSA’s price remains in this range, I’ll be content to allow it to compound. If the price dips I may allocate some December dividends to fill out the position. I feel pretty comfortable with CMCSA being a bit under 2% of the portfolio. It’s not one of my highest conviction names, but I believe it’s a quality name I want to own for decades.

TGT has had a hard year. While I keep thinking the worst is behind it, every earnings report shows how difficult inventory management (and theft?) impact discount retailers. WMT’s focus on groceries (WMT is a staples company while TGT is a discretionary) has helped it weather the storm far better than TGT. While TGT’s share price has been annihilated, I’m still bullish long-term. The last time I added to TGT through dividend reinvestments was in September 2022, so I felt it was time to add a bit more. TGT remains a small position. I’ll likely add every now and then if it remains under a 1.5% of my portfolio weighting and its yield stays above 2.5%.

I quickly discussed ESS in my Top 10 article noting I’d like to see it drop out of my top 10 at some point, but I would not hesitate to add if I thought it was attractive. While a lot of my portfolio is off its recent lows, ESS (and other apartment REITs) have remained beaten down, for largely good reasons given the rising rate environment. Still, when you have a long-term view on the market, yearly gyrations can be largely ignored if you’re partnering with quality companies. Numerous articles on Seeking Alpha have spoken about the value in the apartment REIT sector, so I won’t rehash anything, but I will note that it’s one area in the market that I still think is attractive. So much so that I’ve added Mid-America Apartment Communities, Inc. (MAA) to my watchlist to pick up some diversification with ESS’s west coast focus.

Monthly Savings

I put my monthly savings to work and picked up shares of Union Pacific (UNP) on November 4 at $195.56 and November 21 at $209.36; Qualcomm (QCOM) on November 4 at $106.25; The Estée Lauder Companies Inc. (EL) on November 21 at $227.93; and The Coca-Cola Company (KO) on November 22 at $62.22.

As noted in late October 2022, I initiated a position in UNP with the plans to acquire shares at a regular cadence moving forward. Even though UNP has rallied off its lows, I still increased my cost basis to buy more shares since it’s a position I want to be meaningfully bigger. I’d like my three rails (Canadian Pacific (CP), Canadian National (CNI) and UNP) to combine to be my largest position in the next few years.

QCOM is a company I’ve felt under allocated to, and (as I've said previously) would like to see QCOM get to the 2%-3% portfolio weighting. I’m bullish on QCOM’s growth prospects with automotive and IOT letting QCOM become more than a traditional patent/mobile chip company. For anyone who wants to learn more about QCOM, Acquired did an excellent deep dive on the company.

While the largest chunk of my savings was allocated to UNP and QCOM, I used the remainder of my savings to build up two smaller positions.

First, KO. It’s a company I wished I owned more of and finally decided to add a bit with its yield at ~2.8%. I don’t think KO will make me rich, but it’s a solid company to have in my portfolio for years. When the market was tanking earlier this year, KO held up well and kept the dividends coming in. My wife and I are also just big fans of the products, so we like to think some of the money we spend on their products comes back to us. I don't foresee KO becoming a 1%+ weighting mainly because I can't imagine allocating that much capital to it. It's a position I plan to add to every now and then if it's weighting falls too far below 0.5% which is where I like to keep my smallest positions. If and when more positions make it into the portfolio, I can easily see allowing KO to drop to 0.25%-0.4% or wherever I set my mental weighting floor.

The last bit of savings went to EL. While the company is undergoing several challenges, including its large exposure to China and retailer inventory issues, it’s still a best in class name in a brand-loyal market and a solid long-term pick. While I never imagine being overweight EL, it’s a position I intend to own long-term and would be fine to see it approach a 1% portfolio weighting. EL was one of the smallest positions in the portfolio and I wanted to add a bit since I haven't purchased shares in quite some time. As I add more positions in the coming years, EL will probably always hover somewhere between a 0.4% and 0.8% weighting.

Dividend Raises

Last month my portfolio saw four dividend raises, three of which were surprising for various reasons, and no cuts (which is one of the main goals, no dividend cuts to the core quarterly dividend).

I will discuss them in order.

The Estée Lauder Companies Inc. (EL)

As discussed above, I recently added to EL so I won’t rehash things. I was pleased to see the double digit dividend growth, which I continue to expect to see going forward. The big knock on EL’s dividend history is that it didn’t pay a dividend in May 2020, which was the right decision. EL resumed its dividend the next quarter and has provided 10.4%, 13.2% and 10.0% hikes to the quarterly dividend ever since. I'm not a huge fan of investing in companies with a history of pausing or cutting the dividend, but as my list of stocks continues to rise (and I am fully prepared for it to balloon over the next few decades as I look to really diversify my passive income) I'll like add one or two companies with a troubling history as long as they don't end up accounting for a large chunk of the passive income.

ConocoPhillips (COP)

I wasn’t entirely sure if COP would hike its dividend with the variable dividend in place. Last year, COP announced its dividend increase in September. Since we hadn’t heard anything, I was prepared for the company to maintain its dividend and distribute excess cash through the variable policy and share repurchases. I was pleasantly surprised to see the double digit increase. Along with the variable dividends and strong price appreciation, COP was the best single returning share for me this year on a percentage basis. I wish I would have purchased more last year, but I’m content that I made the move at all.

EOG Resources, Inc (EOG)

EOG was another surprising raise for the same reason as COP. The variable dividend policy is quite generous, so I assumed EOG would focus on that and maintain its current dividend amount. EOG has an unpredictable hiking schedule (most recent prior hikes were in 11/2021, 2/2021, 2/2020, and 5/2019). I thought we may see another hike in February 2023, but I’m thrilled with the November hiking schedule. EOG and COP have been fantastic investments for me. The generous dividends have been readily put to work throughout the year.

Automatic Data Processing, Inc. (ADP)

ADP was the big shock of November with a dividend raise that made me think the Seeking Alpha article made a mistake at first. ADP is a position I’ve held for quite some time and it's been a perennial winner. I will likely be allocating some dividend reinvestments next year to build up my ADP position.

Portfolio

Here is an early December snapshot look at my portfolio:

Company

Ticker

Allocation

Core Dividend Growth

37.077%

Microsoft Corporation

MSFT

7.629%

Apple, Inc.

AAPL

55.309%

Canadian National Railway

CNI

3.331%

Air Products and Chemicals, Inc.

APD

2.673%

Essex Property Trust, Inc.

ESS

2.565%

AbbVie, Inc.

ABBV

2.552%

Canadian Pacific Railway

CP

2.481%

Comcast Corporation

CMCSA

1.803%

Qualcomm Incorporated

QCOM

1.713%

Vulcan Materials Company

VMC

1.157%

ConocoPhillips

COP

1.076%

EOG Resources, Inc.

EOG

1.034%

CVS Health Corporation

CVS

1.027%

Starbucks Corporation

SBUX

0.882%

Union Pacific Railway

UNP

0.704%

The Coca-Cola Company

KO

0.653%

NextEra Energy, Inc.

NEE

0.515%

High Dividend Growth

47.004%

Broadcom, Inc.

AVGO

4.702%

Moody's Corporation

MCO

4.419%

Visa, Inc.

V

4.342%

Mastercard Incorporated

MA

4.173%

BlackRock, Inc.

BLK

4.098%

Texas Instruments Incorporated

TXN

3.852%

Lowe's Companies, Inc.

LOW

3.076%

Costco Wholesale Corporation

COST

2.893%

The Home Depot, Inc.

HD

2.858%

S&P Global, Inc.

SPGI

2.669%

Automatic Data Processing, Inc.

ADP

2.304%

American Tower Corp

AMT

2.268%

Danaher Corporation

DHR

1.948%

Old Dominion Freight Line, Inc.

ODFL

1.700%

Target Corporation

TGT

1.247%

Estee Lauder Companies, Inc.

EL

0.455%

High Yield

5.207%

Altria Group, Inc.

MO

2.162%

Realty Income

O

1.933%

Verizon Communications Inc.

VZ

1.112%

Non-Dividend

9.011%

Alphabet, Inc.

GOOGL

3.606%

Netflix, Inc.

NFLX

3.148%

Meta Platforms, Inc.

META

2.196%

Olaplex Holdings

OLPX

0.060%

Other Bets

1.320%

Hilton Worldwide Holdings, Inc.

HLT

0.614%

Financial Institution A

--

0.428%

The Walt Disney Company

DIS

0.279%

Cash

0.381%

Conclusion

Even though the 10% dividend growth threshold has been breached (and readers of my other articles know that means I can start allocating 25% of my dividend reinvestments/monthly savings to non-dividend payers) I will still focus my monthly savings on companies yielding in excess of the market for the remainder of the year (the exception being EL above which, when combined with the other three investments, still provided a market beating yield).

This will set up my portfolio well heading into 2023 when the 20% growth threshold should be passed early. I will then likely allocate up to 50% of my dividend reinvestments/monthly savings to non-dividend payers as long as I can continue to increase the yield of my portfolio. I'm very excited to start really looking at some names I've long had my eyes on (specifically the non-dividend payer list on that article).