Here’s my 6th annual performance review of my dividend Portfolio.

After putting out the 2021 annual review in August of last year, I vowed to be more timely with the post for 2022.  Well, I think I’ve accomplished that, as it’s only February!

As usual, I’ll start by examining my Portfolio performance in 2022.  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).

In an effort to drill down beyond the Portfolio level, I’ve also tracked the performance of my individual Portfolio stocks for 2022.  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.

 

2022 Portfolio Performance

We’ll start by looking at the performance of my entire Portfolio for 2022.  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 2022, my Portfolio return was –9.13%.  On the face of it, this appears to be a disappointing result.  However, comparatively this return was actually pretty good, as the S&P 500 index had a -18.11% return, including dividends.  This nearly 9% difference was the largest I’ve had relative to the S&P 500 since I began tracking performance.

My Portfolio performance was only 2%-3% better than the S&P 500 index for most of the year, but the delta grew substantially in the final quarter of 2022.

Thankfully, I was able to stop the two-year stretch I had of trailing the S&P 500 index.  My Portfolio tends to lag the index when the market does well, but outperforms the market in tough times like we had in 2022.

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

Due to my Portfolio’s performance in 2022, its annualized return (or CAGR) sank almost 4 percentage points, from 15.19% to 11.22%.  However, I was able to open up a bigger lead on the S&P 500 in CAGR since the start of 2015.  The lead is now greater than 1 percentage point, at 11.22% vs. 10.20%.

 

 

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.

My Portfolio stretched its lead in annualized return results relative to VTI as well (11.22% vs. 9.61%).

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

 

2022 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 2022, and thus are no longer part of my Portfolio.  However, all of these stocks were in my Portfolio to start the year.

Stocks shaded in red were new additions to my Portfolio in 2022 that remained in as the year came to an end.

Stocks shaded in purple were both added and subsequently removed all in 2022.

As you can see, in 2022 I added 8 stocks to my Portfolio, removed 4 stocks, while 1 stock both entered and departed my Portfolio.  This was nearly the exact same amount of stock movement as I had in 2019, 2020 & 2021.  It’s strange how this has worked out.

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 2022), to the last day of the year (or the last day I held the stock in 2022).  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 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: Pinnacle West Capital (PNW), National Retail Properties (NNN), Caterpillar (CAT), Merck & Co. (MRK), STORE Capital (STOR) and Medtronic (MDT).  In each of these cases they were timely buys which made the difference.

On the other hand, I did have a few stock transactions that negatively impacted my performance.  These included ones for General Dynamics (GD), 3M Co. (MMM), Medical Properties Trust (MPW) and V.F. Corp (VFC).  In the case of GD I trimmed before the stock rose significantly.  In the case of the other stocks I mentioned, it was an additional purchase(s) that only saw the stock price continue to decline after I bought.

Regarding the one stock in purple… I bought STOR early in 2022, thinking I had a new long-term holding.  However, months later STOR agreed to be bought.  I sold STOR about one quarter before its acquisition closed in early 2023, as I felt it was close enough to the price I’d be getting at close, and I wanted to put those investment dollars to work elsewhere instead of waiting.

 

 

From the 64 stocks in the table, you can see that 27 had positive returns for me, with Merck & Co. (MRK) leading the group with an impressive 49.76% return.  The 40.43% gain from Lockheed Martin (LMT) was my only other stock topping 40%.

After 3 years in a row with 5 stocks delivering returns over 50%, I had zero such stocks in 2022.  Gains were hard to come by, as you could imagine.  Given how negative the markets were in 2022, I’m surprised I had as many stocks that ended up positive for the year.  Of course, 7 of those 27 positive stocks were new Portfolio additions in 2022, so I had an advantage in getting to choose when I made my investment during the year, as opposed to my existing holdings which rode the down market from the beginning of the year.

You can see from the table that of my 37 stocks that had negative returns in 2022, 17 of those stocks had returns south of 20%.  That’s a lot to overcome, which I couldn’t do.

My worst performer was V.F. Corp (VFC), which posted a return of nearly -60%.  Meanwhile, Medical Properties Trust (MPW) posted a return that came up just shy of -50%.  The Walt Disney Co. (DIS) followed a bad 2021 with an even worse 2022, returning -43.91%.  This is the most red I’ve seen in several years (since 2018).

Thanks to reinvested dividends, and a timely buy for one of my stocks, I managed to turn negative price appreciation for the year into a positive return.  This occurred with National Retail Properties (NNN) and Altria Group (MO).  The timely buy was with NNN, while the big yield of MO was the driver in going from red to green.

Recall that my overall 2022 Portfolio return was -9.13%.  Yet somehow, 39 of the 64 stocks in the table (easily more than half) finished with a better individual return than my Portfolio overall.  This seems counterintuitive.  However, it was because many of my largest Portfolio positions had some of my worst returns in 2022.  This included Qualcomm (QCOM), T. Rowe Price Group (TROW), Nike (NKE), Fastenal (FAST), Lowe’s Companies (LOW), BlackRock (BLK), Union Pacific (UNP) and Broadcom (AVGO).

 

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 -18.11% put up by the entire index in 2022 were:

• Energy (65.7%)
• Utilities (1.6%)
• Consumer Staples (-0.6%)
• Healthcare (-2.0%)
• Industrials (-5.5%)
• Financials (-10.5%)
• Materials (-12.3%)

For the 2nd year in a row, the Energy sector was the top performer, after being the worst in each of the 3 years prior.  Not having an Energy stock in my Portfolio certainly didn’t help my cause in 2022.  Utilities was the only other sector to post a positive return.

 

The individual sectors of the S&P 500 that performed worse than the entire index in 2022 were:

• Real Estate (-26.1%)
• Information Technology (-28.2%)
• Consumer Discretionary (-37.0%)
• Communication Services (-39.9%)

Each of these sectors was noticeably worse (8 percentage points or more) than the S&P 500 index.

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 2008.  Once you get there, let your mouse hover over one of the sectors.

 

Summary

My dividend Portfolio recorded a negative return in 2022, but one that was oddly satisfying.  Satisfying because I handily outpaced the return of the S&P 500.  Essentially, I posted a -9% return in my Portfolio.  This was 9 percentage points better than the -18% return from the index.

27 of 64 stocks delivered a positive return.  MRK provided my best return of nearly 50%.  Another 17 stocks delivered at least 10%+ returns.

This left 37 stocks posting a negative return.  Most importantly, some of my largest holdings were my worst performers.  Otherwise, I could have notched an ever better return.  A whopping 25 stocks had returns of -10% or worse.  Most disappointing were the terrible returns from DIS, MPW & VFC, with my VFC return nearly reaching -60%.

After 2 years of under-performing the S&P 500 index, my Portfolio turned it around and bested the index in 2022.  This allowed my Portfolio to extend its annualized return (CAGR) lead since the beginning of 2015 to better than 1 percentage point over the S&P 500 (11.22% vs. 10.20%).

 

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 2022.  The IRR formula used is provided below the table.

 

 

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(B372:B436,A372:A436,0.1), 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 -9.13%, assuming your ‘portfolio return’ cell is formatted to be a percentage with 2 decimal places.

 

If you end up calculating your 2022 portfolio return, I’d love to hear how you did.

I’ll be back this time next year with my annual performance review covering 2023.  It will be here before you know it!