Now that we’ve wrapped up 2020 (thankfully!), it’s time to deliver the 4th annual performance review of my dividend Portfolio.

There’s always a lot to cover.  I’ll start by examining my Portfolio performance in 2020.  I’ll follow that up by sharing my Portfolio’s annualized return, or 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 (and my Portfolio contains many of them), 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 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 2020.  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.

 

2020 Portfolio Performance

Let’s start by looking at the performance of my entire Portfolio for 2020.  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 2020, my Portfolio return was a healthy 16.09%.  Early in the year, this seemed like an impossibility.  A stock market downturn started in late February with the rise of the pandemic.  This market downturn lasted about 1 month, and it was severe.  My Portfolio was down over 32% in late March.  Given this, I’m amazed that my Portfolio ended the year with a double-digit positive return.

Unfortunately, despite the positive return for my Portfolio, it did not beat the return of the S&P 500 Index, which posted a 2020 return of 18.38% including dividends.  My Portfolio trailed the index by over 2.3% for the year!  My 1-year streak of beating the index was broken…. definitely a short-lived streak.

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

Due to my Portfolio’s performance in 2020, its annualized return continued to creep upward.  It rose from 12.83% to 13.48%.  Sadly though, my Portfolio has relinquished its lead over the S&P 500 index in annualized return since the start of 2015… it’s now a dead heat! (13.48% vs. 13.48%).

 

 

I’m also tracking the performance of Vanguard’s Total Stock Market Index ETF (VTI) in my table as an additional comparison.  VTI has a little more weighting to mid-cap and small-cap stocks.

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

VTI had the best return of the group in 2020, but still trails my Portfolio and the S&P 500 in CAGR since the start of 2015.  My Portfolio still holds a lead in annualized return results relative to VTI (13.48% vs. 12.54%), despite VTI making up some ground in 2020.

 

2020 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 2020, and thus are no longer part of my Portfolio.  All of these stocks were in my Portfolio to start the year.

Stocks shaded in red were new additions to my Portfolio in 2020 that remained in as the year came to an end.

Stocks shaded in purple were both added and subsequently removed all in 2020.

As you can see, in 2020 I added 8 stocks to my Portfolio, removed 4 stocks, while 2 stocks both entered and departed my Portfolio.  This was nearly the exact same amount of stock movement as I had in 2019.

I calculated the IRR for each stock (see “+ reinv. div.” column) and ranked the stocks from highest to lowest based on this IRR.  For those stocks that weren’t in my Portfolio for the entire year (i.e. those shaded in blue, red or purple), 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 2020), to the last day of the year (or the last day I held the stock in 2020).  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 and enhanced my returns included: Broadcom (AVGO), Caterpillar (CAT), UnitedHealth Group (UNH), Comcast (CMCSA), Automatic Data Processing (ADP), 3M Co. (MMM), Cisco Systems (CSCO), Gilead Sciences (GILD), Realty Income (O), General Dynamics (GD), and Aflac (AFL).  The best transactions were the purchases made during the market decline in late Q1, or shortly thereafter.

On the other hand, a few stocks transactions that negatively impacted my performance included those with CVS Health (CVS), Target (TGT), TCF Financial (TCF) and Exxon Mobil (XOM).  The added loss from TGT was due to my call option being assigned and having to sell at a price below market value on the expiration date.

Regarding the two stocks in purple… I unfortunately initiated positions in these stocks in late January, only to have them fall quickly with the market.  I sold them shortly after they cut/suspended their dividends.  I missed out on any stock price recovery they had after that.

 

 

From the 56 stocks in the table, you can see that 36 had positive returns for me, with The Walt Disney Co. (DIS) leading with a stellar 94.65% return.  In fact, 4 of my top 5 performers in 2020 were new Portfolio additions.  This is primarily due to the fact that I initiated most of these positions during the market dip in March.

My Portfolio benefited immensely from the 77.14% return from Qualcomm (QCOM), as the stock started 2020 as my 2nd largest Portfolio position.  Needless to say, QCOM finished the year as my largest position after gains like that.

Just like last year, I had 5 stocks that delivered returns over 50%.  However, gains this year were not as widespread across my Portfolio.  Still, it was more green than red, and it was a nice positive result overall.

You can see from the table that my 4 worst performers in 2020 were all purged from my Portfolio before year’s end.  Poor performance plus dividend cuts/suspensions factored heavily in my decision to sell them.  I believe most, if not all of these stocks have had a bounce back in share price since I sold them, which means that their performance would have been much better than what I recorded had I held them.  Still, their performance during the tough times of 2020 put each stock in a spotlight, and I didn’t like what I saw.  I feel my Portfolio is better off without them.

Recall that my overall 2020 Portfolio return was 16.09%.  So, 25 of the stocks in the table finished with a better individual return than my Portfolio overall.

 

Here are the return percentages for the individual holdings in chart form, offering a different way to look at the data.

 

For reference, the individual sectors of the S&P 500 that performed better than the entire index in 2020 were:

• Information Technology (43.9%)
• Consumer Discretionary (33.3%)
• Communication Services (23.6%)
• Materials (20.7%)

For the 2nd year in a row, Info Tech led the way, pulling the entire index higher in 2020.

The individual sectors of the S&P 500 that performed worse than the entire index in 2020 were:

• Healthcare (13.5%)
• Industrials (11.1%)
• Consumer Staples (10.8%)
• Utilities (0.5%)
• Financials (-1.7%)
• Real Estate (-2.2%)
• Energy (-33.7%)

Financials, Real Estate and Energy finished with negative returns for the year.  Energy was by far the worst-performing sector.  This was the 3rd year in a row that Energy was the worst-performing sector in the S&P 500 index… not a good trend to say the least.

Here’s a link to a colorful website page that shows each S&P 500 sector’s performance versus the overall index for every year since 2007.  Once you get there, let your mouse hover over one of the sectors.

 

Summary

An incredible recovery from a late Q1 plummet is how I’d characterize market performance in 2020.  I tallied a bit more than a 16% return in my Portfolio, with nearly 2/3 of my stocks delivering a positive return.

New Portfolio additions DIS, AVGO, SYY and MSFT were joined by existing holding QCOM, and led my gainers in 2020.  My top performer was DIS with a return of 94.65%.

Decliners included several stocks I eliminated from my Portfolio before 2020 came to a close: KTB, CAKE, WFC and XOM.  KTB was my worst performer with a return of -51.38%.

Unfortunately, I under-performed my S&P 500 benchmark by 2.29% in 2020.  Thus, my Portfolio’s annualized return since the beginning of 2015 is no longer better than that of the S&P 500.  Instead they are neck and neck.  Perhaps I can pull ahead again by the end of 2021.

Anytime my Portfolio can finish the year with a positive return it’s a good thing.  Double-digits returns are even better.  In that regard, 2020 did not disappoint.

 

As I continue to hold many of my Portfolio 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.  I wrote 4 Performance Check posts in 2020, bringing the total of stock performances reviewed to 16.  Here are the stocks reviewed thus far: PG, AFL, RPM, PEP, JNJ, AL, GILD, TROW, FAST, WPC, O, GNTX, QCOM, XOM, SWKS & ITW.  Note – the most recent post always updates the returns of the stocks previously profiled.

 

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 2020.  The IRR formula used is provided below the table.

There was a good deal more Portfolio activity in 2020 compared to 2019.  Q1’20 was especially active.  I had so many transactions I had to paste the table into this post in two different sections.

 

 

The only data needed for the calculation is in the ‘Date’ and ‘Amount’ columns, aka columns A & B.  Buys are inflows to the Portfolio, while sells, and paid dividends that are not re-invested, are shown as Portfolio outflows.

The info in the ‘Type’ and ‘Notes’ columns is not needed, but I keep it to help me recollect what the transaction was.

As for the formula, it’s this simple: =XIRR(B222:B293,A222:A293,0.1), 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 16.09%, assuming your ‘portfolio return’ cell is formatted to be a percentage with 2 decimal places.

If you end up calculating your 2020 portfolio return, I’d love to hear how you did.

‘Til next year…