Hello everyone!  I’m delivering my 2nd annual performance review of my dividend Portfolio a little later than I anticipated, but here it is.

I’ll not only examine my Portfolio performance from 2018, but I’ll share its Compound Annual Growth Rate (CAGR) since the beginning of 2015.

I feel it’s important to evaluate my Portfolio as a whole, comparing it to a reference to gauge its performance.  In this case, the reference is an index, the S&P 500 stock index.  Since most stocks with long dividend histories tend to be large cap stocks, using the S&P 500 index seems appropriate.  If my Portfolio is lagging the index, I might examine my holdings further, looking for the cause of the under-performance.  Is it an individual stock or two facing a significant temporary setback, or a fundamental issue with my overall stock selection?  Could it be that I’m underweight in the best performing sectors?  Maybe I’m beating the index, and I determine I want to stay the course.  In any case, having the performance data can help me to steer my Portfolio in the right direction.

Of course, I want to beat the index over time, otherwise one could argue that I’d be better off just investing in the index.  However, even if I don’t beat the index, I like the control I get with building my Portfolio and thus controlling which stocks are part of it.  I can decide if I want to skew my Portfolio for growth instead of income, or vice versa.  I can also overweight sectors that I like (technology, healthcare, financials, industrials), and underweight those I don’t (utilities, communication services, energy).

Once again, I’ve also tracked the performance of my individual Portfolio stocks for 2018.  This way I can potentially feed the strongest stocks if their prospects are still bright, and perhaps weed out the weaker ones by replacing them with better alternatives.

 

2018 Portfolio Performance

Let’s start by looking at the performance of my entire Portfolio for 2018.  I’ve calculated the Internal Rate of Return (IRR) by keeping track of all cash inflows and outflows from my Portfolio.  Inflows are essentially fresh capital I’ve invested, while outflows are proceeds from stock sales, or dividends that are not re-invested.  The IRR takes into account the timing of my inflows and outflows, as well as the re-invested dividends.

For 2018, my Portfolio return was -5.03%.  That doesn’t sound too terrible, especially given the way the markets finished 2018.

For the 2nd year in a row though, this return lagged behind the S&P 500 Index, which posted a 2018 return of -4.42% including dividends.

Note – I’ve obtained my S&P 500 return numbers from here.

Due to my under-performance in 2018, I now trail the S&P 500 index over the 4-year period, as you can see in the table below.

 

I added Vanguard’s Total Stock Market Index ETF (VTI) to my table for an additional comparison this year.  VTI has a little more weighting to mid-cap and small-cap stocks.

In the case of VTI, I show returns without dividends being reinvested.

 

2018 Individual Stock Performances

In the table that follows, stocks that aren’t shaded at all were in my Portfolio at both the start and end of the year.  I expect this to be the norm for most of my Portfolio stocks.

Stocks shaded in blue were sold in their entirety during 2018, and thus are no longer part of my Portfolio.  As it turns out, all of these stocks were in my Portfolio to start the year.  However, that won’t always be the case, as stocks may be both purchased and sold in the same calendar year.

Stocks shaded in red were new additions to my Portfolio in 2018 that remained in as the year came to an end.

As you can see, I added 8 stocks to my Portfolio, while removing 4 stocks.

I calculated the IRR for each stock (see “+ reinv. div.” column) and ranked them from highest to lowest based on this column.  For those stocks that weren’t in my Portfolio for the entire year (i.e. those shaded in blue or red), I use a simple return.  If I had used the IRR calculation in these cases the percentage returned would have been noticeably incorrect, especially for those stocks with short holding periods.

There are percentages in two columns.  The first column (price appreciation only), shows the return of the stock from the beginning of the year (or the first day I held the stock in 2018), to the last day of the year (or the last day I held the stock in 2018).  This just shows how the stock performed price-wise over the time period I owned it.  The second column (+ reinvested dividends) shows the percentage return given price appreciation, plus the timing of reinvested dividends, plus the timing of any buys and sells during the year.

In most cases, when I don’t make additional buys or sells of the stock during the year, the second column percentage will be slightly higher than the first column by the stock yield (+ or – a bit given the timing of the reinvested dividends).  However, in those cases where I did make additional buys or sells of the stock during the year, the return can be affected rather dramatically, based on the size & timing of my transaction.  Thus, I wanted to highlight those stocks, as it can help explain some of the larger than normal differences in my return versus that of just the stock price return.

A few stocks in which I made timely transactions included Realty Income (O), Pepsico (PEP) & Abbvie (ABBV).  With Altria (MO) and Skyworks Solutions (SWKS), I actually reduced my return percentage a bit with untimely transactions.

 

From the table you can see I had 10 stocks with at least a +10% return, led by a 34.32% return from Omega Healthcare Investors (OHI), which had a nice bounce back from a poor 2017.

I also had 13 stocks with a -10% return, or worse, with Bank OZK (OZK) being the worst at -51.81%.  Ouch!

Recall that my overall 2018 Portfolio return was -5.03%.  So, 26 of my Portfolio stocks finished with a better individual return than that, and the other 20 finished with a lower return.

 

Here are the return percentages for the individual holdings in chart form, offering a different way to look at the data.  Unfortunately, there was more red than green in 2018.

 

The individual sectors of the S&P 500 that performed better than the entire index in 2018 were: Healthcare, Utilities, Consumer Discretionary, Information Technology, and Real Estate.

The individual sectors of the S&P 500 that performed worse than the entire index in 2018 were: Consumer Staples, Communication Services, Financials, Industrials, Materials & Energy.

 

Summary

I sadly trailed my performance benchmark in 2018.  Additionally, I fell behind with respect to CAGR when comparing to the S&P 500 since the beginning of 2015.  However, I’m not so far behind that a good 2019 can’t put me back in front.

I had quite a few significant losers during 2018.  Their losses really escalated during the last quarter of 2018 during the market correction.  My 5 biggest losers came from 5 different sectors, so it’s hard to pin my losses on being overly invested in a particular sector.

I’d expect some of the best stocks from 2018 to potentially cool off in 2019, while some of the worst performers might be poised for a better 2019.  In fact, some my 2018 laggards are already off to a good start after the first 4 months of trading in 2019.

While I was disappointed to lag behind my benchmark in 2018, I’m optimistic that I can perform better.  I’m not planning to change much of what I’m doing unless my slight under-performance continues.  I’m encouraged by the possibility of having another 2016 in which I outperformed the index by a few percentage points.

 

As I continue to hold many of these stocks over time, you’ll see occasional Performance Check posts on them, detailing their returns for me over longer periods of time than just a single year.  So, keep your eyes peeled for those.  I’ve already offered up 7 of those for these stocks: PG, AFL, RPM, PEP, JNJ, AL & GILD.  The most recent post always updates the returns of the stocks profiled in previous posts.

 

Bonus Section – Spreadsheet Data

For interested readers, this section shows my table of spreadsheet data (inflows & outflows) used for the IRR calculation for my dividend Portfolio in 2018.  The IRR formula used is provided below the table.

 

The only data needed for the calculation is in columns A & B, which is the transaction date, and the dollar amount of the transaction, respectively.  Buys are inflows to the Portfolio, while sells, and paid dividends that are not re-invested, are shown as Portfolio outflows.

The info in columns C & D is not needed, but I keep it to help me recollect what the transaction was.

As for the formula, it’s this simple: =XIRR(B137:B190,A137:A190,0.1), which I paste into a cell where I want to show my Portfolio return.  One must alter the cell locations in the formula to match those where your data is contained in your spreadsheet.

For the data in my table, you should get -5.03%, assuming your ‘portfolio return’ cell is formatted to be a percentage with 2 decimal places.

If you end up calculating your 2018 portfolio return, I’d love to hear how you did.

‘Til next year…