Year 2009 was the first time that I made my goals public. It has been a truly a roller coaster ride. The year started with equity markets going down steeply, and then it came back up quite significantly. Throughout the year I continued to add good quality dividend growth stocks in my portfolio. So how did my dividend portfolio perform with reference to my goals set at begin of 2009? The table below shows the summary of parameters at end of year 2009. The portfolio now has:
(1) Dividend Cash flow is $2221 (2008: $1358, Target: $3000);
While I continued to increase year-over-year dividends, I missed my goal by large margin. The primary reason I missed my goal is desire to maintain asset allocation and valuations. Many of the stocks that I would like to buy have had significant run ups and hence the valuations did not justify buying them. In the beginning of 2009, when I had identified my goals, I had not anticipated this level of change in the market pricing. For year 2010, I have set my dividend cash flow goals at $3200.
(2) Yield on my original investments, YOC, is 4.18% (2008: 5.17%, Target: more than 4.5%);
The yield of my original investments dropped almost by 1%. Here also the observations remain the same, my YOC dropped far greater than my goal to remain above 4.5%. This is again the reflection of continued increase in market price of the stocks I had been buying. However, the positive aspect is my dividend portfolio gives me 4.18% cash which is far greater than any high yield MMA account. For year 2010, I am not setting any target, only because it will remain fluid.
(3) Year-to-date portfolio gained 34.72% in value (Target: more than S&P500, +20.25% for S&P500);
Along with the market increase, my portfolio also had a significant increase in value. My life-to-date is aged 3.5 years. The life-to-date portfolio went back to the positive side and is now at +15.72% in value compared to original cost. One of the draw back of this calculation is that it does include the time factor. It is simply based on original value.
(4) Personal rate of return, XIRR, stands at +38% (2008: -9.0%).
I compute XIRR to keep track of my personalized rate of return. The beauty of this is the inclusion of time factor. The overall life-to-date portfolio XIRR was +38%. In addition, I also keep track of XIRR for individual securities so that I know which one gives me better rate of return.
In addition to these tangible targets, I had few other intangible areas of portfolio management that I needed to continue to work on. How did I do in these?
- Manage asset allocation and diversification from risk-to-dividend viewpoint: I now have desired level of asset allocation and diversification. There are few bad ones like IGR and IGD that I need to weed out of my portfolio
- Invest in international dividend paying companies: Here also, I now have started investing in international companies. As of today, my targets have been for emerging market equity (5%, uses ETF) and developed market equity (10%, uses individual stocks). I plan on slowly increasing my allocation in year 2010. I do not know what should the increased target but will continue to evaluate. I will update during my quarterly risk analysis.
Last year, I had anticipated that the challenges I would face would be (1) provide sufficient funding; and (2) Balancing dividend risk versus initial yield. In turned out, funding was not a problem. However, the continued increase in market price affected the initial yield.
This year I do not anticipate funding as an issue. I will have enough cash available to reach my 2010 dividend goals. The challenge would be the valuation, initial yields, and number of stocks in my portfolio. I believe I am already at the high end of my comfort level. As an individual, I think holding 32 securities is quite a bit of work. So if none of my existing stocks are in attractive valuations, I would have additional challenge to figure out how to keep less number of stocks. That leaves room to think, what the number of stocks an individual should hold in their portfolios? Let me know what do you think?