It’s time to talk about my own dividend holdings and strategy! At the end of last year, I started writing articles focused on investment strategies and model portfolios to inspire investors, discuss attractive dividend stocks, and the impact of macroeconomic developments on asset classes. As a result, I got a ton of requests to write an article covering my own holdings. After all, I invested more than 90% of my net worth in that portfolio – and I cannot stop talking about it. In this article, I will walk you through my strategy, my holdings, my past actions, and my plans for the future. In other words, you get an exclusive look into what’s going on in my brain when I assess my portfolio.
Even better, my portfolio delivers exactly what I want from it: strong and consistent outperformance with subdued volatility.
So, without further ado, let’s get to it!
Why & How I Invest In Dividends
First of all, let me quickly elaborate on the title. The reason I put “six-figure” in the title instead of my actual account balance is to somewhat protect my privacy. While I will give you as many details as possible about my portfolio and personal life, I cannot share my actual portfolio value with people. Too many people are watching. Given my position in the industry, that could have a lot of implications. For now, I’m keeping it between myself and the Dutch tax authorities. That may change in the future.
I also put “six-figure” in the title because it’s true. I have a six-figure portfolio, which contains more than 90% of my total net worth. I’m not saying that to brag (it’s hardly something to brag about) but because it emphasizes how seriously I’m taking this. The portfolio you are about to see covers almost my entire net worth. Making dumb mistakes is a total no-go. I only buy my favorite companies that I trust with the task of protecting my money against mayhem and generating satisfying long-term results.
This brings me to the purpose of this portfolio.
Why am I doing this?
I’m fairly sure that it’s the same reason why most people are doing it:
- Investing for financial independence.
- Protecting my money against inflation.
- Because it’s so much fun.
I’m 27 now. I do not have a goal to retire early. And to be completely honest, like Warren Buffet, I’m not planning on ever retiring. However, having a steadily rising cash flow from dividend stocks does come with a lot of freedom that allows us to do whatever we want to do. It’s a true luxury that not a lot of people enjoy.
Moreover, while investing in the stock market comes with risks that bank deposits are not subject to, I feel better investing in stocks than having large sums of money in my savings/checking account. I am fairly sure that the stocks I buy will still be around a few decades from now. I am also sure that they will adapt and continue to stand the test of time. My banking deposits will not. Especially considering the risks of high inflation and uncertainty in non-USD nations like the one I’m living in (the Netherlands). I prefer buying USD stocks over holding cash in currencies that I do not trust. It’s also the reason I currently hold no European exposure. That may change in the future, so stay tuned for that.
Point three is fun. I own zero ETFs and enjoy investing in companies that I’m passionate about. Needless to say, I’m passionate about a lot of companies that I wouldn’t invest in. It’s important to research companies without being biased.
Nonetheless, I would be lying if I said it wasn’t a weakness of mine. Especially when it comes to maintaining a balanced portfolio, it is important to buy defensive (boring) stocks. While I am not necessarily very passionate about an electric utility company, I do enjoy putting money in companies that are almost guaranteed to survive any recession.
This is also the reason why I slimmed down my portfolio from 24 to 22 stocks. For example, I went from two utility companies to one to make it easier to buy defensive exposure. Maintaining one position is easier than taking care of two positions. After all, I try to keep a somewhat balanced portfolio with low maintenance.
But more on that later.
How Am I Investing In Dividend Stocks?
The best way for most investors to build wealth is by eliminating the aspect of timing. Time in the market beats timing the market, at least historically speaking. Moreover, stock picking and trying to time the market based on macroeconomic factors and whatnot is often too much for “uneducated” investors. There’s nothing wrong with that, as a lot of “uneducated” investors who bought index funds in the past regularly beat a lot of hedge funds.
My approach is a bit different. I do try to time the market as I believe that I have an edge, given that my job is to find good investments and buy these at the best prices possible. So, I apply this to my holdings as well.
I usually wait until I can deploy bigger sums of money to either add a new holding, increase some of my smallest holdings, or add to one of my favorites.
However, I also regularly re-invest dividends without caring too much about timing. I do that to avoid keeping cash for too long and to put my dividends to work. This, more often than not, happens after the last month of each calendar year quarter.
Right now, I hold a rather large cash position. I usually have 94-95% of my net worth invested in dividend stocks. Now, that number is closer to 90%, as I have been preparing to buy larger drawdowns this year, which I expect to occur. If you want more info on my 2023 outlook, feel free to read this article.
Now, onto my strategy and portfolio composition.
My Strategy & Portfolio Composition
Finally, we’re getting close to talking about the companies in my portfolio. But first, let me elaborate a bit on my strategy, besides the timing of my investments, which we just briefly discussed.
Buying High-Quality Dividend Stocks
The other day, someone asked me if it wouldn’t make more sense for young people to buy growth stocks instead of dividend-paying stocks. The theory behind this is to benefit from outperforming gains, which are then sold and put into dividend-paying jobs close to retirement.
This sounds like a very good idea. While a good stock picker might make this work, there are some issues. The first one is that there’s a big benefit that comes with owning dividend-paying companies that a lot of people underestimate.
One of the things I discuss in almost all dividend growth articles is the fact that paying a dividend is a stamp of approval – assuming it’s done with operating cash flow instead of debt.
Operating a company is tough. Doing it while distributing a dividend is even harder, as it means an additional outflow of cash. It means companies need to apply efficient and effective capital allocation strategies.
However, it also means that they are doing something right. Hence, in bear markets, high-quality companies like dividend payers tend to outperform, adding downside protection to one’s portfolio. Moreover, as most of these companies also tend to do well during bull markets, investors get a mix of low volatility and outperformance when buying dividend stocks. It gets even better when dealing with dividend growth stocks that tend to pay a steadily rising, inflation-beating dividend.
The chart below shows that since 1973, dividend payers and growers have had the best returns with subdued risks.
Research from Hartford Funds confirms this as the fund writes that:
Dividends have historically played a significant role in total return, particularly when average annual equity returns were lower than 10% during a decade.
[…] Furthermore, dividend growers and initiators have historically provided greater total return with less volatility relative to companies that either maintained or cut their dividends.
Hence, you don’t have to buy high-growth stocks and switch to dividend stocks once you’re retired.
You can buy some great dividend growth stocks now and keep them without a need to sell. If you pick the right stocks, you’ll benefit from downside protection, outperforming capital gains, and a high yield on cost in the future.
If that isn’t enough, you can always switch to high-yield alternatives if necessary in the future.
With that said, I also apply an ownership mentality to my stocks. While that may be vague to explain, I basically try to imagine owning the whole company. Would I want to own this company if I weren’t allowed to sell it “ever”?
While I do make exceptions (if I have a really good reason), I prefer to buy stocks that:
- Operate in industries with high entry barriers.
- Are dominant in the supply chain they operate in.
- Have healthy balance sheets.
- Generate steadily rising free cash flow.
- Are eager to let shareholders benefit from their success (dividends, buybacks).
- Can withstand the test of time (new technologies, changing demographics).
- Have political influence (i.e., defense, energy, and railroads).
Now, let’s dive into the portfolio.
The Portfolio Composition
On a side note: as we’re discussing more than 20 stocks, I won’t be able to do an in-depth review of each company – it’s also not the goal of this article. I will briefly discuss my holdings and add relevant links to Seeking Alpha articles where appropriate.
When I started my portfolio, I considered trying to copy certain ETFs when it comes to portfolio composition. However, I quickly changed my mind as I decided to buy companies with great qualities like the characteristics I just listed above, regardless of the industry or sector they operate in.
Hence, I now have a portfolio that is quite unique when it comes to asset allocation. As the table below shows, I have 48% industrial exposure, 18% energy exposure, and 10% financial exposure. My smallest sector is consumer defensive goods.
This is what the visualization of the breakdown above looks like:
In the industrial sector, I own nine companies.
- Four aerospace & defense companies.
- Three railroads.
- Two machinery companies.
|Healthcare Equipment & Supplies||2.6%|
|Residential & Commercial REIT||6.2%|
|Investment Banking & Investment Services||7.0%|
|Electrical Utilities & IPPs||5.5%|
|Machinery, Equipment & Components||9.0%|
|Freight & Logistics Services||14.6%|
|Oil & Gas||17.7%|
|Aerospace & Defense||24.0%|
I decided to go with high defense exposure well before the war in Ukraine, as I believe that high-tech defense and innovation are the best ways to prevent a war in the first place. Moreover, the importance of companies like Lockheed Martin and Northrop Grumman in the aerospace supply chain (impacting tens of thousands of small suppliers) makes them too big to fail. This also gives them leverage when it comes to defense budget talks.
I went with high railroad exposure as I am a huge believer in the ability of railroads to deliver consistent dividend growth thanks to efficient business models that are the backbone of the North American economy. In this case, I went with Union Pacific, which dominates the West, Norfolk Southern, which dominates the East, and Canadian Pacific, which will soon combine Canada, the United States, and Mexico, making it a terrific supply chain play for my portfolio. Moreover, all three railroads benefit from supply chain re-shoring, which I believe is a long-term tailwind for US manufacturing.
The second-largest sector in my portfolio is energy. In this sector, I own the two largest oil companies in the United States, Exxon Mobil, and Chevron, as well as Valero Energy, a refinery stock with renewable diesel and ethanol exposure. The reason why I own so much energy is the strong performance of these companies. I’m up more than 200% on XOM alone.
While I do own other energy stocks as well in my trading portfolio, I went with the big guys in my dividend portfolio to benefit from a high yield and consistent dividend growth. Moreover, these assets are less volatile than smaller drillers. I prioritized that in my dividend portfolio. My view on the future of big oil was discussed in this article.
Another thing worth mentioning is my financial exposure. My third-largest sector consists of three stocks. Huntington Bancshares was added after I researched it as part of a bigger research project for a hedge fund back in 2020. I bought it because it added a high yield to my portfolio and because I like its dominant position in the US Midwest.
That’s also the reason why I bought CME Group. This company dominates the futures industry as it owns the biggest equity index, agriculture, metals, and interest rate futures in the world. It benefits from transactions and does tend to do well during recessions. Almost all of its free cash flow ends up in investors’ pockets via regular and special dividends.
Nasdaq, I added because it benefits from tech transactions and innovations in the field of financial services, including fraud protection and data analysis. It allows me to own a dividend growth stock with the characteristics of a tech stock. That’s great for diversification purposes.
My lowest-yielding stock is Danaher, which also adds high-growth exposure to my portfolio. Overall, I try to maintain a dividend yield of close to 3% for tax purposes. I do not pay a capital gains tax but a tax on my total net worth. Hence, if I’m not planning on selling anything, I will have to get sufficient cash flow as my salary won’t be enough to keep up with the wealth tax at some point. That’s why I combine higher-yielding stocks with lower-yielding dividend-growth stocks.
With that said, most readers will remember that I used to have 24 holdings. I reduced that to 22 without being a net seller. I sold Xcel Energy (XEL). The proceeds went into Duke Energy. I sold Huntington Ingalls (HII). These proceeds went into L3Harris Technologies. In other words, I sold a utility to boost my stake in another utility. I sold a defense stock to boost my position in another defense stock. This was solely based on making it easier to maintain this portfolio. This way I don’t have to buy 24 stocks regularly. Especially if these companies operate in the same industries. Again, I would buy these stocks back in a heartbeat as the decision was not based on company qualities. I remain bullish on both XEL and HII.
With all of this in mind, the table below shows my portfolio. I ranked the list from largest holding to smallest holding. I included the current dividend yield, 5Y dividend growth rate, and payout ratio. In the case of REITs, I used the adjusted funds from operations payout ratio.
|Name||Industry||Yield||5Y Div. CAGR||Payout Ratio|
|Lockheed Martin (LMT)||
Aerospace & Defense
|Exxon Mobil (XOM)||Oil & Gas||3.4%||3.0%||28%|
|Chevron (CVX)||Oil & Gas||3.2%||5.6%||32%|
Union Pacific (UNP)
|Duke Energy (DUK)||Utilities||3.8%||2.7%||77%|
|Raytheon Technologies (RTX)*||Aerospace & Defense||2.2%||4.8%||46%|
|L3Harris Technologies (LHX)||Aerospace & Defense||2.2%||15.3%||34%|
|Northrop Grumman (NOC)||Aerospace & Defense||1.4%||11.6%||27%|
|Deere & Company (DE)||Machinery||1.1%||13.5%||19%|
|Canadian Pacific (CP)||Railroads||0.7%||11.2%||20%|
|Valero Energy (VLO)||Refineries||3.1%||7.0%||17%|
|Norfolk Southern (NSC)||Railroads||2.0%||15.2%||36%|
|Home Depot (HD)||Home Improvement Retail||2.4%||16.4%||46%|
|CME Group (CME)**||Stock Exchanges||2.3%||8.7%||50%|
|AbbVie (ABBV)||Drug Manufacturers||3.7%||17.3%||42%|
|Extra Space Storage (EXR)||Self Storage||4.1%||14.0%||78%|
|Huntington Bancshares (HBAN)||Regional Banking||4.3%||12.1%||43%|
|Nasdaq (NDAQ)||Stock Exchanges||1.3%||9.9%||29%|
|Public Storage (PSA)||Self Storage||2.8%||0%||64%|
|PepsiCo (PEP)||Non-Alcoholic Beverages||2.6%||7.4%||67%|
|Danaher (DHR)||Diagnostics & Research||0.4%||12.3%||9%|
- *RTX is the result of a merger between United Technologies and Raytheon in 2020. The historic RTX stock price is the UTX stock price, which had much lower aerospace exposure. If I had to guess (educated guess), I believe the portfolio results I’m about to show you would have been much better if the current RTX company had existed well-before 2020.
- ** I used the regular CME dividend yield. Including the special dividend, we get a total yield of more than 4.5%. Please note that in that situation, the dividend growth rate becomes the free cash flow growth rate.
- Average dividend yield: 2.6%
- Average 5Y dividend growth rate: 9.6%
As the numbers above show, I have an average yield of 2.6% and a dividend growth rate that comes close to double-digits. In this case, it needs to be said that I have two holdings that have not hiked once since I bought them in 2020. These holdings are Public Storage, which prioritized investments in new assets, and Valero Energy, which did not cut its dividend in 2020 (it suffered from the pandemic) and has been rebuilding its balance sheet since then.
Now, let’s dive into the performance.
This year, so far, I’m breakeven. The portfolio performance is 0.0% versus an S&P 500 return of slightly more than 2.0%. In this case, it is mainly caused by tech doing rather well (which supports the S&P 500) and poor returns of defense stocks after political comments hint at more pressure on budget growth.
The only reason I’m bringing up the performance of six trading days is to highlight the drawdowns of having a portfolio with high exposure in certain areas. While I’m not at all worried about these developments, it is key to understand the risks that come with being overweight in any sector or industry. If you decide to do that, be aware of the risks and know the sector or industry you’re buying.
With that said, the long-term performance has been nothing short of phenomenal, and the confirmation of the theoretical background I cannot stop talking about.
But before we look at that, let me mention a few things first:
- The portfolio performance backtests my current portfolio. In other words, it is assumed that I owned all investments I own now back in 2013. As I started my dividend portfolio in 2020, it wouldn’t be fun to backtest for just two years.
- The chart goes back to 2013 only, as AbbVie spun off back then. However, I will show you data adjusted for AbbVie later in this article to allow for more backtesting history.
Since 2013, dividend stocks have outperformed the stock market. The Schwab U.S. Dividend Equity ETF (SCHD) returned 13.7% per year, outperforming the market by roughly 130 basis points per year. The standard deviation was also lower, which confirms the theoretical background discussed in this article.
My portfolio has returned 17.1% per year, turning $10,000 hypothetical dollars into almost $50,000. Again, I’m backtesting here as I started my portfolio in 2020. This portfolio has a standard deviation of 14.4% during this period, which is roughly in line with the SCHD ETF and below the market’s standard deviation. This is remarkable as I am massively overweight in industrial stocks and energy. However, as defense stocks (part of the industrial sector) are anti-cyclical and low-volatility, I maintain a well-balanced portfolio. The worst-year performance and max drawdown of my portfolio also beat the market.
The best thing is that these numbers are consistent. According to the table below, my dividend portfolio has consistently outperformed the market with subdued volatility. The same goes for the SCHD ETF.
Over the past three years, my portfolio has returned 14.1% per year. That’s almost twice as much as the S&P 500.
Especially last year, my portfolio returned 8%, while the market lost 19%. The chart above shows that the entire downtrend that started in early 2022 was ignored. This was the result of high energy and defense exposure. Both did very well – fueled by the war in Ukraine.
The only issue is that in a scenario of outperforming growth stocks, I’m likely to underperform by a rather wide margin. The chart below shows that my portfolio massively underperformed in 2020. Back then, high-growth and tech stocks were flying. “Nobody” was interested in value and dividend stocks. Luckily, I was able to buy a lot of great stocks at attractive prices back then.
With that in mind, the next chart EXCLUDES ABBV. After all, that way we get to backtest the portfolio going back much further. It’s not entirely scientific, but for the sake of going back to 2007 (instead of 2013), I think it’s something that does make sense.
Going back to 2007, this portfolio has returned 13.1% per year. This beats dividend growers, high-yield stocks, and the S&P 500 by a substantial margin. The standard deviation is barely higher. The max drawdown is a bit better. The same goes for the worst year, which was -34%.
Moreover, this performance was consistent. My portfolio (ex ABBV) has outperformed the market on a three, five, and ten-year basis. While the standard deviation is higher compared to the dividend growth and high-yield ETFs, it continues to have less volatility than the market.
I am not surprised by these results. Both dividend growth and high-yield ETFs benefit from the qualities of dividend stocks and diversification. I have less diversification but still a lot of high-quality dividend stocks.
Game Plan For 2023
My strategy isn’t changing, except that I hold way more cash than usual. I expect to use bigger corrections to aggressively add to some cyclical holdings of mine. I’m also going to invest in my smallest positions to keep the portfolio a bit more balanced. This includes Danaher, PepsiCo, and Public Storage.
I’m also looking to add new holdings. However, I cannot tell you which ones I will be adding, as it will be dependent on the market. I’m closely looking for new opportunities. Some stocks will offer buying opportunities. Some won’t.
Needless to say, I discuss all stocks I’m interested in on Seeking Alpha.
In this article, I discussed my personal portfolio, which I started in 2020. I explained my philosophy and my strategy, and I gave you the breakdown of my portfolio, recent portfolio changes, and plans for the future.
My portfolio has done much better than I expected, as it has provided steady outperforming returns with subdued volatility, beating the market by a wide margin. I expect that to continue. Moreover, with an average yield of 2.6% and close to 10% dividend growth, I expect that I will quickly achieve a satisfying yield on cost.
I hope that this portfolio provided some inspiration when it comes to portfolio strategies, the theoretical background behind owning dividend stocks, and investment ideas.
As this article would have gotten way too long if I had discussed each investment in great detail, I will dedicate more time to individual stocks in the months ahead.
Also, I have an article on my agenda to discuss investment for retired investors. So, feel free to share any ideas you may have.
Needless to say, I’m eager to hear what you think of my portfolio. What would you do differently? What did you like? Let me know in the comment section down below!