Second Quarter Update – My Perfect Dividend Portfolio
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So it’s time for the second quarter update for my Perfect Dividend Portfolio, which I began to put together back in December and completed in April. I must take a moment to brag a bit; my portfolio is doing exactly what I wanted, and I am totally happy.
In this article, I'll talk about how my three favorite companies are doing: Cracker Barrel Old Country Store, Meredith Publishing, and Sunoco Logistics Partners.
For more information about my portfolio selection strategy, please read this article.
Portfolio status and future plans
All of the companies scored at least 18 points on my rating system when I chose them. I will re-calculate their score once per quarter. Anything that drops below a 16 will be considered for replacement.
I am also keeping a close eye on the current yield. I intend to reinvest dividends once per quarter, after all ten companies have paid out, and I will reinvest in each company in the order in which I chose it, unless the company no longer scores at least an 18.
My portfolio as a whole is currently yielding 3.8%, with which I am very happy considering my minimum criterion is 3.0%. I'd like to keep the yield on the entire portfolio between 3.5% and 4.0%.
Based on current share prices, the portfolio is up 6%, and it has paid out 1.7% in dividends.
Now, for a quick update on where the individual companies stand today:
My first selection was Abbott Laboratories. Once the company split into two on January 3, I sold the Abbott shares (then yielding only 1.8%) and reinvested in AbbVie shares (then yielding 5.0%). AbbVie paid out its dividend on May 15. The company is currently trading at $42 per share, up 32% from where I bought it in December. AbbVie's rating is a mix of the Abbott Labs and AbbVie metrics, and it now scores a 20 on my scoring system.
While I acknowledge that AbbVie is a new company and separate from Abbott, I believe that the management team will attempt to continue the same dividend growth strategy that Abbott has pursued. Should AbbVie prove to follow a different dividend growth strategy, I will assess and remove it from my portfolio when it becomes necessary.
PartnerRe Limited was my second selection, and it paid a dividend on May 31. It is currently trading at $88, up 9% from where I purchased it. PartnerRe’s dividend yield has dropped to 2.9%, and its score has dropped to 17, so I’m considering it for replacement next quarter.
Enterprise Products Partners paid a dividend on May 7. It is trading at $59, up 21%. Enterprise Products has a 15-year history of raising dividends, and a 5-year DGR of 5.7%. The partnership has increased its dividend twice so far this year; its second quarter dividend was an increase of 7% over the same quarter last year. However, the dividend metrics have softened since I chose it; I am considering it for replacement.
Cracker Barrel Old Country Stores (NASDAQ: CBRL) continues to delight me. The company paid a dividend on May 6. It's trading at $95, up 49%. Interestingly enough, Cracker Barrel's robust share price growth was matched by a significant increase in its dividend (50%), so it is still yielding 3.3%, and it has improved to a 20 on my scoring system.
A blowout earnings report shows that management is definitely doing something right with this company. Cracker Barrel currently pays out a reasonable 38% of earnings, but an even lower 16% of free cash flow, which it actually increased by over 100% year-over-year. Cracker Barrel seems to be doing everything right, and they are rewarding their shareholders as they should.
Meredith Corporation (NYSE: MDP) paid its dividend on June 14. It is trading at $47, a 5-week high, and is up 41% since I picked it. The company is yielding 3.5%, and it has improved to a score of 21 with a hugely impressive 15% 5-year dividend growth rate and projected 15% earnings growth rate.
Meredith is pursuing a Total Shareholder Return strategy, and is committed to increasing shareholder value through share buybacks, generous dividends and strategic business investment. It’s my second favorite company right now.
Lockheed Martin (NYSE: LMT) pays its dividend on June 28, and is trading at $104, up 13%. Lockheed Martin is the only defense-industry company that I have selected, and despite an uncertain economic future, I am still confident in it.
The yield is great, the 5-year dividend growth rate is excellent at 22.9%, and the payout ratio is low enough (51%) that the company can suffer some degree of earnings growth decreases without having to cut the dividend.
Lockheed Martin has not, however, increased its dividend yet this year, so I will be looking for that in the next six months. From previous dividend-paying history, it looks like the company tends to make its increase for the fourth quarter payment.
Sunoco Logistics Partners (NYSE: SXL) is trading at $62, up 9%. It paid its dividend on May 15. Sunoco raised its dividend for the second time this year (has actually done so for 32 consecutive quarters), and is currently yielding 3.7%.
Sunoco Logistics has been increasing its operating cash flows at an annual rate of 18% over the past ten years. The partnership has both a dividend growth rate and projected 5-year earnings growth rate in the double-digits, a low PE, and an astonishing 12-month return of nearly 100%.
Williams Companies paid its dividend on June 24, the second increase of the year, and an increase of 17.5% versus the same quarter last year. It is trading at $32, and is actually down 8% from where I purchased it. Williams still has incredibly good double-digit numbers for dividend growth rate and projected earnings growth rate, so I am not considering its replacement at this time.
Leggett & Platt will pay its dividend on July 15. The company is trading at $30, down 5% from where I bought shares. The dividend yield is 3.8%, but Leggett & Platt is another company that has not raised its dividend yet this year. Based on its previous history, I am looking for an increase within the next quarter.
The last company, Chevron, is trading at $117, and paid its dividend on June 10. The dividend this quarter was increased by 11%, and Chevron is yielding 3.4%. Chevron is also down slightly from where I purchased it.
I will be reinvesting the accumulated dividends into more shares of Cracker Barrel Old Country Store this Friday, June 28.
My original goal with this portfolio was to achieve capital gains similar to those achieved by the S&P 500, as well as significantly better dividends.
At this point, with 6 months’ experience, I am succeeding with my portfolio goals, although I realize this is a very short-term result. I plan to update the portfolio's progress every quarter after dividends are paid.
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Karin Hernandez has long positions in all stocks mentioned. The Motley Fool owns shares of Lockheed Martin. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!