Maintaining a Balanced Portfolio: February 2017

The Nobel Prize winner Harry Markowitz stated that ‘a good portfolio is more than a long list of good stocks and bonds. It is a balanced whole, providing the investor with protections and opportunities with respect to a wide range of contingencies.’

In building my portfolio I strive for balance - with respect to companies, sectors, high yielders and high dividend growth stocks. During my relatively short time as a dividend growth investor I have learned that this balance is much more like an art than an exact science.

For instance when looking at the table below, it is clear that my actual portfolio diverges quite a bit from what I initially set out as an ‘ideal’ portfolio sector allocation.


Looking at the differences in portfolio allocation between ‘Ideal’ and ‘Actual’ in a chart makes the contrast even more clear.

One reason I am ‘over invested’ in Real Estate is the fact that 2015 and 2016 offered many attractive valuations in this sector. For instance I added to my W.P. Carey position a number of times during dips - resulting in the fact that this REIT is now a cornerstone position of my portfolio. The same goes for several Healthcare and Lodging REITs (Omega Healthcare InvestorsLaSalle Hotel Properties, etc) that were attractively priced.

On the other hand I struggled (and continue to struggle) to find attractive valuations and dividend growth in Consumer Staples. Unilever is on my radar but is currently showing huge gyrations due to a possible takeover bid and subsequent retraction thereof by Kraft Heinz. I bought shares of Diageo in early 2016 for ~$102. I would like to add more to this position if the price would come down to around ~$104. CVS  remains an attractive candidate due to it’s high dividend growth rate. However, with 35 shares in my portfolio I am most likely done adding here.

Bottom line for me is that any ‘Ideal’ Sector allocation is always much more like a guideline than a law. I will likely hold off on buying new Real Estate companies in the near future and try a little harder to find good value in Consumer Staples, Financials and Information Technology. I might even change my mind and add some Utilities.

However, with 38 high quality dividend growth stocks in my portfolio my main concern remains a stable, predictable and growing dividend pay-out. The diversification in sectors and companies - no company position exceeds ~6% - continues to provide me with protections and opportunities.

How do you approach portfolio diversification? More or less rigid than I do? Leave a comment/reply to share your thoughts!

New Buy: Qualcomm Inc. (QCOM)

Although I like composing watchlists, I like executing on them even more. At the beginning of this month I put three companies in my crosshairs and yesterday I pulled the trigger on the first one.

As my first buy of the month I bought an additional 34 shares of Qualcomm Inc. (QCOM) for a total of $1,890.87. In this post I break down my reasons for adding to the existing QCOM position in my portfolio and what this means for my forward dividend income. 

Qualcomm develops, designs, manufactures, and markets digital communications products and services in China, South Korea, Taiwan, the United States, and internationally. The company operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI).

In October of last year the company announced the acquisition of NXP Semiconductors for a total of $47 billion. Through this acquisition Qualcomm will be able to grow faster in future industries such as drones and self driving cars.

My original purchase of Qualcomm dates back to November of 2015 when the stock was at $48.80. I initiated a modest position of 16 shares back then.

After that purchase Qualcomm enjoyed a rally to ~$70. More recently the stock showed a sharp decline due to several competition and patent issues.

I tend to like price drops because they are potential buying opportunities. However, as a DGI investor I don’t care too much about price at any given day but try to focus on other factors. One of these factors is the fact that Qualcomm is a dividend contender, boasting 14 years of dividend increases. The current yield is an appealing 3.86% with a payout of 65%.

Qualcomm’s Earnings per Share (EPS) show a 5 year annualized growth of +7.13%. At my time of purchase the Price/Earnings (PE) ratio was 16.75, below the 5 year average of 18.18.  

Both the current as well as the 5 year average PE are lower than the industry average, indicating that QCOM is currently undervalued as compared to other Semiconductors & Semiconductor Equipment stocks.

In their February 11 report S&P Capital IQ marks Qualcomm as a 4 star buy with 12 month target price of $70.

Given Qualcomm’s dividend of $0.53  per share and it’s quarterly payout this buy means an addition of $72.08 to my forward dividend income.

What do you think about Qualcomm right now? Leave a comment/reply to share your thoughts!