Time for Another Performance Check
For some background on the idea behind the Performance Check, and the XIRR function used for the calculations, please see my first post in this series.
The series continues with a look at another dividend-paying stock from my Portfolio (this is now the 18th overall). My last Performance Check was 4 weeks ago, when I examined my performance for BlackRock (BLK), which provided an impressive compound annual growth rate of 21.48%. This will be a high bar to clear for today’s Performance Check company.
In this post, I’ll be checking my performance for Quest Diagnostics (DGX). DGX is part of the Healthcare sector, and the Healthcare Providers & Services industry.
DGX operates full-service laboratories, rapid response laboratories, and patient service centers on a national scale. The company has this to say on their investor relations website… “Derived from the world’s largest database of clinical lab results, our diagnostic insights reveal new avenues to identify and treat disease, inspire healthy behaviors and improve health care management. Quest Diagnostics annually serves one in three adult Americans and half the physicians and hospitals in the United States.”
DGX operates through two businesses: Diagnostic Information Services and Diagnostic Solutions. It’s the Diagnostic Information Services business that provides diagnostic testing, information, and services. Meanwhile, its Diagnostic Solutions group includes risk assessment services for insurers, and healthcare information technology offering solutions for healthcare providers.
The company services exist not only under the Quest Diagnostics brand, but several other brands as well. DGX became an independent company when it was spun off from Corning at the end of 1996. It is currently headquartered in Secaucus, New Jersey.
Quest Diagnostics is part of the Fortune 500. The company employs about 47,000 people, and has about $9B in annual revenue.
DGX entered my Portfolio late in 2015. Both price appreciation and dividend growth have been good since then. That combination is something I like to see from my Portfolio companies.
In terms of value, DGX is currently the 35th largest position in my Portfolio (out of 53 positions). When it comes to dividend weighting, DGX is my 41st best dividend payer.
Before jumping into my performance since initiating a position in DGX, let’s first check out the historical dividend growth for the stock…
DGX only started paying dividends in 2004. It wasn’t but a few years later that the Great Recession arrived and DGX dividend growth was stunted. The company held its dividend flat for 4 years (2008-2011) before aggressively resuming dividend growth for a couple of years starting in 2012.
One can see that dividend growth has been waning in the shorter reporting periods. However, it’s still a respectable 7%-9% over the 3-yr. and 5-yr. periods.
After a down year in 2020, dividend growth rebounded nicely to 10.71% with the most recent raise announced this past February.
The dividend growth streak for DGX will reach 10 years if it continues to pay out its current dividend through the end of 2021.
Calculating the current payout ratio is a bit tricky due to the abnormal EPS numbers (due to the pandemic) that DGX posted in 2020, and which it is expected to post in 2021. However, it’s probably safe to say it typically hovers in the 30%-35% range.
My Personal Performance for DGX
Below is a capture of the spreadsheet I keep with my DGX cash flows, and the calculated XIRR (through 4/11/21). Compared to my five legacy Portfolio holdings (PG, RPM, AFL, PEP & JNJ), the table for DGX is small, due to its shorter holding period and small number of transactions. With DGX being a relatively new Portfolio position (about 5 1/2 years), I don’t have a large amount of data/time to factor into the return calculated in this Performance Check. Therefore, as I move forward in the near-term, large price changes can have a significant impact on my annualized return.
Here’s a note with regard to the possible ‘Type’ column entries: EOY Value = End Of Year Value, Dividend = a dividend that was not reinvested (a cash outflow), Options = income from writing options against the shares (another cash outflow).
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.
I started my DGX position on November 6, 2015 with 50 shares at a price of $68.21/sh. Somewhat amazingly, I have not invested any new capital since then. This has resulted in a very straightforward table as shown above.
My yearly returns for DGX have all been positive outside of the negative return posted in 2018.
Ever since initiating my position, I’ve been holding my shares and reinvesting my dividends. Those reinvested dividends have resulted in my position growing by ~5.5 shares, and my position currently stands at 55.488 shares.
The following price chart is also helpful to see. It shows the stock price change since my initial purchase on 11/6/2015.
You can see a prominent price decline starting in the summer of 2018 through the end of that year, as well as quick decline and recovery in the first half of 2020 (pandemic). In general though, the price trend looks pretty good, as its generally moving up as we move right.
As of 4/11/21, DGX is up year-to-date for me, climbing 6.76%. That’s a good start to 2021, but it lags the S&P 500 performance in 2021.
The yield for DGX (as of 4/11/21) is just a shade under 2%, at 1.96%. This is about on par with its 5-yr. average yield, and just less than my average Portfolio yield of 2.25%. Thanks to the dividend growth of DGX over the years, my yield on cost for the stock is 3.48%.
DGX currently has a value weighting in my Portfolio of 1.28%. This is definitely less than an average-sized position. As noted earlier, this is my 35th largest position out of 53 stocks. Its dividend weighting is even lower, at 1.08%.
All DGX dividend payments I’ve received since my position was started have been reinvested.
My current investment in DGX is $3,412.50. My cost basis, which includes $539.19 in reinvested dividends, is $3,951.69.
Meanwhile, the current value is $7,219.54, which reflects a capital gain (on paper) of $3,267.85. The annualized total return ends up being 14.23%, covering my initial purchase on 11/6/2015, through 4/11/2021.
Summary
While DGX failed to reach the 20% annualized return level of the past couple of stocks I’ve reviewed, its 14%+ annualized return for me is more than acceptable.
Though DGX has a below average yield for my Portfolio, its annualized return rate suggests I keep a place for it amongst my stocks. This is something I plan to do.
Given the performance of DGX, I’m a little surprised that I’ve failed to build up this position at all. Perhaps that’s something I can get done in the months/years ahead.
Here’s hoping I can continue to have DGX deliver such positive performance numbers well into the future, too.
Performance Check Comparisons
Bringing the returns for all my other Performance Check stocks up-to-date allows for the comparison in the table below.
The Performance Check stocks I’ve reviewed in the past are: PG, RPM, AFL, PEP, JNJ, AL, GILD, TROW, FAST, WPC, O, GNTX, QCOM, XOM, SWKS, ITW & BLK.
The table’s rightmost column shows the year of my initial purchase for each stock, just to provide some detail with regard to how many years are part of the annualized return.
Also note, XOM was sold due to poor performance, so annualized returns are no longer provided for that stock.
DGX debuted in my performance table with its annualized return of 14.23%. This puts it in about in the middle of the pack when comparing to the other stocks I’ve reviewed thus far.
So what kind of movement has there been in the table since my last Performance Check 4 weeks ago? Well, 15 stocks improved on their annualized returns, while only 1 declined compared to last time. Obviously, the past 4 weeks have shown some good performance.
I had another stock join the 20% club – Skyworks Solutions (SWKS). That brings the total number of stocks from the table providing a 20%+ annualized return to 6.
The biggest mover to the upside was BlackRock (BLK), increasing its annualized return 2.47%, from 21.48% to 23.95%.
The biggest mover to the downside with regard to annualized returns was my only stock to decline since the last Performance Check, and that was Gentex (GNTX). The annualized return of GNTX slipped 0.25%, from 17.52% to 17.27%.
As a group, my Performance Check stocks continue to deliver excellent returns. While DGX may not have boosted the collective return, it certainly didn’t do anything to hurt it.
Only one stock in the group shows an annualized return of less than 8%, and that’s Gilead Sciences (GILD) at 1.89%. However, that’s better than the 1.62% it reported at the last Performance Check. We’ll see if GILD can keep its return moving in a positive direction.
On deck for my next Performance Check is Union Pacific (UNP). I would guess that UNP has provided very positive returns for me as well. Better than the just reviewed DGX? Come back next time to find out!
Have you been holding a stock for a few years, but don’t have a good idea of the return the stock has provided for you? It could be time for a Performance Check! I look forward to your comments, as well as you sharing return numbers for any Performance Checks you’ve done.