What is the Performance Check?

From time to time I’ll do a personal performance check on the dividend paying stocks in my Portfolio.

I’ll review individual stock performance, and it will cover the stock’s performance since I first purchased it.  Note – at the end of each calendar year I’ll review the performance of the entire portfolio as a whole.

The review will allow me to evaluate whether or not I’m getting an acceptable return on my investment.  If the stock is falling short of expectations, I can consider replacing the stock with a better alternative.

I’m looking for an annual return, which includes dividends, of approximately 9% to 11%.  For stocks with a large market capitalization I might accept 7% to 8% since they tend to grow more slowly, while stocks with a smaller market capitalization I might be looking for 12%+ due to faster expected earnings growth.

Since stock returns can be quite volatile in the short term, I’ll only plan to review stocks that I’ve held for at least 2-3 years.  Luckily, I’m starting this series of posts with 5 stocks that I’ve held since the mid-to-late 1990s, so I have data that encompasses a large number of years.

 

XIRR

To calculate my return, I use the XIRR function in Excel.

The XIRR function returns the Internal Rate of Return (IRR) for a series of cash flows.  In this case, the cash flows correspond to my initial investment in a particular stock, and the subsequent purchases and sales that occur at irregular intervals.  The IRR is an annualized yield, and it takes into account the timing of my purchases and sales.  My dividends are not shown as cash flows, as I reinvest those, and thus they don’t leave the investment account.  Instead, they remain in the account and factor into the annualized return.

 

My Personal Performance for PG

For this initial Performance Check post, I’ll begin with the first dividend paying stock I ever purchased, Procter & Gamble (PG).  My initial purchase of PG came in the summer of 1995 in a Dividend Reinvestment Plan, or DRiP, that I opened at the same time.

Below is a capture of the spreadsheet I keep with the PG cash flows, and the calculated XIRR.  The table is a bit long for this post due to all the entries, so I broke it up into 3 pieces, duplicating the header each time.

Here are some notes with regard to the ‘Type’ column entries:

OCP = Optional Cash Purchase;  OCW = Optional Cash Withdrawal;  EOY Value = End Of Year Value

Note – the prices reflect two 2:1 stock splits, as well as a spinoff, that have occurred since my initial investment.

The duplicate EOY Value entries at the end of each year (one negative, one positive) do not affect the cash flow, and can be thought of as boundary markers, allowing me to make the individual yearly return, and the annualized total return calculations.

 

 

You’ll notice there have been only two withdrawals over the 22+ years I’ve had PG.  The first was back in 1995 when I gifted a share to a good friend of mine.  The second came in 2016 when I had to sell the fractional shares as a result of closing my DRiP account and transferring the shares to my brokerage account (I was only allowed to transfer whole shares).

Otherwise, it’s been only a smattering of small OCPs here and there… never more than $300 at any one time.

The net investment into PG over the years has been $3,507.16.  This is not my cost basis though, as this net investment does not include reinvested dividends.

Meanwhile, the current value is $11,145.95.

The annualized total return ends up being 9.41%, covering my initial purchase on 8/15/1995, all the way to 9/15/2017.

One interesting note here is that my investment timeframe for PG includes two significant bear markets.

 

Summary

What I like about the performance check is that I can see my yearly returns, as well as the annualized ones through the end of each calendar year.  I can also keep an eye on how the annualized return is changing over time.  A prolonged downward trend is sure to draw my attention and call into question my continued investment.

My 9.41% annualized return for PG meets my desired target return.  Given the size and maturity of the company, I would say I’m more than happy with that return.

Since I’ve held PG for so long, I will most likely add return calculations for just the past 10 years and past 5 years, looking for signs of a performance slow down.

As I said, this is the first of at least 5 performance checks that I’ll be doing in the next few months.  Hopefully, you find these interesting.  Let me know if you have any questions about what you see in the spreadsheet.

Do you have similar performance checks for stocks in your portfolio?  If so, please share some of your annualized return numbers!  Let me know what criteria you have for acceptable performance.