3 Stock Buys and 1 Sell

By | April 5, 2020

I bought 3 new stocks and sold one stock to update my dividend portfolio. Specifically, I bought PEP, MO and ED. I sold GIS. I am happy with my choices.

Previously, for just about one business day, I added two new ETFs. Prior to the additions, my portfolio had 18 stocks. I wanted an even number of stocks, and I figured, 20 stocks was a good goal. However, for more diversification, I initially decided to add two exchange traded funds or ETFs to round out my stock portfolio.

The initial two ETFs that I was considering were VYM and VIG. VYM seemed like a no brainer. The ETF focused on high yielding dividends now. VIG looked interesting because of the appreciation potential of the ETF. However, I wasn’t a fan of the dividend yield. After much deliberation, I decided to go with VYM and SPHD.

Did It Make Sense?

Ok, I realize that investing in VYM and SPHD doesn’t seem to mesh well with my current holdings. For example, I’m invested in JNJ, but JNJ is also part of VYM. I was well aware of the redundancies of having an ETF and individual stocks in my portfolio.

Quite frankly, the top holdings in VYM include JNJ, PG, T, XOM, KO, and PFE, all of which I separately own. So why hold these ETFs?

The answer lies in diversification. VYM holds more than 400 companies and SPHD holds a niche 50 stocks. All in all, these two ETFs provide me diversification such that if any of the other individual stocks I’m invested in goes bankrupt, I’m somewhat protected. Although unlikely, it’s possible that more than one of my individual stocks will turn out to be bad investments. This way, with these ETFs, I’m more conservatively invested in the stock market, notwithstanding the redundancies.

So, since they represented 10% of my portfolio, I knew that the value of my portfolio won’t go to zero, notwithstanding the inherent risk in investing individual stocks.

Finally, it didn’t hurt that SPHD pays monthly dividends, even though I wasn’t a fan of it’s expense ratio.

But!!!

For some reason, choosing ETFs didn’t seem right. This portfolio started with a few stocks and it grew to 18 stocks. Adding ETFs didn’t make sense for this blog. So, after owning these ETFs for about one day, I chose to sell them. I’m sure I’ll pay some capital gains, but the money invested in the ETFs totaled about $50. I’ll be fine.

Instead, I did a careful review of my portfolio and decided to buy three stocks and sell one. Let’s first look at the stock that I sold.

Sold Stock

I sold General Mills, ticker symbol GIS. I looked at each of the stocks in my portfolio, and GIS was the only stock that didn’t report a dividend growth. Indeed, according to Seeking Alpha, GIS had zero dividend growth from 2017 to 2018. Seeking Alpha hasn’t yet posted the data for 2019.

Since I started this blog, I mainly wanted to focus on dividend growth companies. To that extent, companies that doesn’t pay a dividend are not included in my portfolio. I would love to own and track growth companies like Google, Tesla and Amazon. But neither of those companies pay dividends and purchasing them and tracking them on this blog wouldn’t make sense. Nothing prevents me from purchasing these stocks, or the above mentioned ETFs separately, but I won’t be tracking them on this blog.

Generally, I want to only hold dividend growth stocks as part of my dividend portfolio. There are three stocks, however, that are grandfathered in, and they are JNJ, PFE and KO. These were the three stocks that started this portfolio. So, even though PFE had lost its dividend aristocrat status in 2008, I still decided to own this company. And, after that, it has increased its dividend every year since.

Good bye GIS. You will be missed.

Stock Buys

ETF

Since I sold the two ETFs and GIS, I had 17 stocks in my portfolio. I wanted an even 20, and so after careful consideration, and with the help of Seeking Alpha and YouTube, I’ve bought the following stocks: Pepsico, ticker symbol PEP, Altria Group, ticker symbol MO and Consolidated Edison, ticker symbol ED. Here’s why.

PEP has a long history of paying dividends. At the time of this writing, PEP’s dividend yield is 3.18% and, more importantly, it has been growing its dividends for 47 years! I was initially hesitant to purchase PEP because I already owned KO, but I got over that quickly. In every way, PEP met my buying criteria. I understand the company, and I have a soft spot for dividend aristocrats. PEP is working its way towards being a dividend king. I’ll be there for the ride.

MO is already a dividend king! Initially, I was a little bit hesitant to purchase this stock because I don’t personally agree with the company’s products. I don’t smoke myself. But, I’m trying to build a portfolio that will one day supplement my income in retirement. I believe that MO can help do that. It also doesn’t hurt that at the time of this writing, MO’s current dividend yield is 8.69% and the dividend growth rate has been either double digits or near double digits when you look at the 1, 3, 5 and 10 year growth history.

Finally, there’s ED. Prior to choosing ED, I initially was going to select the Southern Company, ticker symbol SO. I wanted a utility company in my portfolio, and SO would have added to that diversification. SO has increased its dividends for the past 18 years and it’s well on its way to becoming a dividend aristocrat. However, as I was doing my research, I came across ED which is also a utility company. ED is already a dividend aristocrat and has increased its dividend for the past 45 years. I believe ED will reach dividend king status.

ED is just a safe bet. There is nothing sexy about the rate of dividend growth. It grows around 3% per year. But, as a utility company it provides some diversification and the current yield of 3.92% is respectable.

Conclusion

At the end of it all, I bought 3 new stocks and added them to my portfolio. They are: PEP, MO and ED. I also sold GIS because they recently stopped growing their dividends.

I flirted with the idea of adding ETFs to my portfolio, but I chose to only stick with stocks that I track on this blog (for now). In the future, I will likely use my Robinhood account to invest in ETFs or have a separate pie in M1 Finance that focuses on ETFs. But, for right now, I want to focus on building up my dividend portfolio as quickly as possible.

I think I will keep the total number of stocks at 20 for the time being. The goal is to evenly weight all stocks in my portfolio, so each stock, at present, will represent about 5% of my portfolio. M1 Finance’s dynamic balancing feature will help make that goal a reality.

Eventually, I may get to 25 stocks but, we will see. I almost chose Intel (INTC) or Microsoft (MSFT) over ED, but decided against it. Arguably, it’s a mistake to start off with 20 different holdings (as opposed to 3-4 or so and increase that amount over time), but I’m in this for the long haul. It’s less fun, but I hope it’s worth it in the end.

Now that I have the set number of stocks that I want, it’s time for me to focus on doing what I can to increase the monthly contributions to my dividend portfolio. I’ll leave that for another post.

What do you think of this post? Let me know by commenting below.

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