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I have run my public real-money Dividend Growth Portfolio (DGP) since 2008. While it’s generally a buy-and-hold enterprise with little turnover, the DGP is not a passive buy-and-ignore portfolio. The best moniker for it is buy-and-monitor.
This year has been unusual. Circumstances have led me to make more adjustments in the portfolio than normal, including selling completely out of two companies.
January: Trimmed Microsoft (MSFT) and Johnson & Johnson (JNJ)
July: Sold out of AT&T (T)
Trimmed Microsoft again
Just now: Sold out of Hasbro (HAS)
Altogether in 2021, I’ve turned over $18,114 value in the portfolio, or about 12% of the average portfolio value. For an operation that sometimes goes a year without any turnover, this is highly unusual.
The final move listed above is the subject of this article. I decided to sell out of Hasbro (HAS) and replace it with two new positions for the portfolio: The insurance giant Prudential (PRU) and the high-yield ETF QYLD.
Why Sell Hasbro?
I owned Hasbro since 2012. I made a single purchase then and never added to it. That position more than doubled in value, not counting the dividends that the company paid me over the years.
But in the past few years, Hasbro’s fortunes changed, for both fundamental reasons and because of Covid.
The most noticeable change for a dividend-growth investor like me was that Hasbro froze its dividend. Its last increase was in 2019. In the following chart, you can see that Hasbro has now made 10 straight payments at the same amount, and it has announced its eleventh with no increase to be paid in November.
Why Buy Prudential?
Prudential Financial (PRU) was my Dividend Growth Stock of the Month in July.
Here it is summed up:
Things that I like about Prudential are:
High yield at 4.0%
High dividend growth rate, which was 16% per year for the prior 5 years, before dropping to 5% this year. I compute the new 5-year DGR at 12% per year.
Good dividend safety score (75 /100) from Simply Safe Dividends.
Solid, sustainable, profitable business, with investment-grade quality and financial ratings from independent analysts to go along with an A-level credit rating from S&P.
Why Buy QYLD?
The NASDAQ-100 Covered Call ETF (QYLD) was my Dividend Growth Stock of the Month for October.
QYLD is not actually a stock, it’s an ETF. And it’s not a dividend-growth ETF either. Most of its stocks don’t even pay dividends.
What QYLD is, is an income generator. It generates a high yield – 11.3% currently – by writing (which means selling) covered calls on the tech-heavy Nasdaq-100 index.
So overall, QYLD’s dividends don’t grow much, but they’re large.
Why would I add such an animal – high-yield, no-growth — to my dividend-growth portfolio?
Because copious dividends from an income generator like QYLD can be reinvested back into conventional dividend-growth stocks. That, in turn, grows the portfolio’s overall dividend stream by adding more shares of dividend-paying stocks.
By buying conventional dividend-growth stocks using QYLD’s high yield, I can improve the portfolio’s quality, dividend safety, dividend growth rate, and other attractive characteristics.
That’s how I intend to use QYLD.
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