M1 Finance Portfolio: Dividend Aristocrats 2019 - Week 2 (October 25th, 2019 - $129.15)

Week 2 - $129.15

The stock market rallied on Friday with a dramatic gain, but Dividend Aristocrats overall lost value this week despite the positive gains.

Total Report (Since October 11th, 2019)

Positive Performing Sectors

1. Industrials (+4.53%)

2. Real Estate (+2.40%)

3. Energy (+1.43%)

4. Utilities (+1.24%)

5. Materials (+1.15%)

Negative Performing Sectors
6. Healthcare (0.00%)

7. Consumer Discretionary (-0.29%)

8. Financials (-0.29%)

9. Consumer Staples (-0.61%)

10. Information Technology (-0.86%)

11. Communication Services (-2.00%)

Weekly Report (October 25th, 2019)

 

Positive Performing Sectors

1. Industrials (+1.76%)

2. Materials (+1.54%)

3. Energy (+1.25%)

4. Utilities (+0.62%)

5. Consumer Staples (+0.08%)

Negative Performing Sectors

6. Information Technology (-0.18%)

7. Financials (-0.27%)

8. Real Estate (-0.44%)

9. Healthcare (-1.17%)

10. Consumer Discretionary (-2.66%)

11. Communication Services (-3.35%)

GICS Sector Performance Ratio - Balanced: From 7:4 (63.63%) to 5:6 (45.45%)

Review

A lot of surprising changes since last week had occurred.

Communication Services and Consumer Discretionary, the top 2 performing sectors last week, dropped entirely to the bottom 2 performing sectors this week. Communication Services went from +2.30% last week to a devastating -3.35%, with Consumer Discretionary going from +2.21% to -2.66%. Both sectors' gains last week were essentially wiped out, and now they must aim to recover those losses.

Healthcare and Real Estate also followed suit, landing at 8th and 9th place respectively, with Information Technology sliding down into the negatives after barely hanging on positive last week.

Healthcare dropped from +2.21% to -1.17% and Real Estate +1.70% to -0.44%. These losses weren't enough to wipe out last week's gains, but it would be wise to keep watch on their continued performance for this week. So far their overall performance has been generally positive, so I would expect slow but steady performance overtime.

Information Technology did in fact dropped to the negatives this week from last week's forecast from +0.30% to -0.18%, again not enough to wipe out last week's gains, but it is something to watch out for in the coming weeks. They could continue to dip, but hopefully this is just a slight setback and not an indication of something more.

Financials are still struggling to climb out of the negatives this week, however the sector has made some gains going from -0.80% last week to only -0.27% this week. I would keep a watch on Financials to see if they continue to make improvements over the course of this month as they continue to patch up losses.

On the positive note, Consumer Staples went up from -0.90% to +0.08%, getting itself out of the negatives. However, it's still too soon to tell whether Consumer Staples will keep it positive until the holiday season hits, where it is expected the sector will gain significantly during that time.

Utilities is a likewise story, climbing from -0.80% to +0.62%, a much larger recovery. They are expected to perform well over the next few months, considering the sector's track record.

Energy came back from a -1.70% in last place to a gain of +1.25% this week, placing itself 3rd in the rankings. It'll be interesting to see if they make further gains, especially as tensions in the Middle East increase and the price of oil is driven higher, but it is expected to see some volatility in this sector, jumping back and forth between gains and losses for the coming weeks.

Finally, Materials and Industrials continue to increase their performance, with Materials gaining from +0.30% in 7th to +1.54% at 2nd and Industrials gaining from +1.61% at 5th to +1.76% at 1st. There are still concerns with these sectors regarding the ongoing global trade disputes, but as alternate means to supply goods to other markets are found, it can be expected that they will become more stable in the future. Materials especially performed above expectations of last week, and it would be wise to watch for that sector for continued performance alongside the top performing sector, Industrials.

Overall, the economy has experienced a dip in performance this week despite the stock market rally on Friday. The SPR went from a 7:4 ratio down to a 5:6 with two sectors dropping to the negatives. Whether the stock market rally is indicative of improving economic performance after the poor performance this week or simply inflated expectations will be determined after observing the Dividend Aristocrats' performance going into next week.

Last Week's Update (October 18th, 2019)
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M1 Finance Portfolio: Dividend Aristocrats 2019 - Week 1 (October 18th, 2019 - $119.18)

Week 1 - $119.18

Despite a slight drop in market value during the first few days, the Dividend Aristocrats climbed back up to a return of 0.57% in value.

Total Report (Since October 11th, 2019)

Positive Performing Sectors

1. Communication Services (+2.30%)

2. Consumer Discretionary (+2.21%)

3. Healthcare (+2.21%)

4. Real Estate (+1.70%)

5. Industrials (+1.61%)

6. Information Technology (+0.30%)

7. Materials (+0.30%)

Negative Performing Sectors

8. Financials (-0.80%)

9. Utilities (-0.80%)

10. Consumer Staples (-0.90%)

11. Energy (-1.70%)

GICS Sector Performance Ratio - Balanced: 7:4 (63.63%)

The Sector Performance Ratio is an arbitrary measurement I will be recording throughout each week to give a rough estimate of the economic performance of the market as a whole. The core principle Ozymandias Economics is that a diversified economy with long-term sustainable growth in tangible goods and services will always outperform specialized markets with short-term stimulated growth with no tangible assets. Thus, a healthy economy will have more sectors with gains than sectors with losses. That is what the GICS Sector Performance Ratio stands to measure. Of course, this measurement does not take into account how diversified a certain country's economy is. One sector may have more economic influence than other sectors, and therefore have a larger impact over the performance of the economy. Therefore, the GICS Sector Performance measure shall be taken by dividing the number of Positive Performing Sectors against the Total Sectors, the sectors of which are defined by the Global Industry Classification Standard (GICS), to be known as the GICS Sector Performance Ratio - Pure. If one were to determine each sector's share of a country's economy, that would be considered the GICS Sector Performance Ratio - Adjusted, which should provide a better measurement, however I will be sticking to the Pure Sector Performance Ratio for simplicity.

These sectors are, in theory, independent enough from one another that adverse effects in one sector should not adversely affect another. Therefore, assuming all sectors are equal, if more sectors are performing poorly than are performing well, it is a signal that economic stability is worsening. I will be using this personally-collected data to compare it against bull market and bear market conditions to determine if this new measurement is a feasible indicator for economic growth and decline.

Review
 
The mixed results from the recent U.S. economic data meant some sectors would lose out. Of them were Financials, Utilities, Consumer Staples, and Energy. While they suffered a slight drop, the majority of sectors have received favorable gains outweighing the losses in others. Communication Services, Consumer Discretionary, and Healthcare received the largest gains, with Real Estate and Industrials following close behind. One should keep an eye out for Information Technology and Materials, however, as their gains are teetering between the line of gains and losses, a cause for concern going into next week. Financials and Utilities still have some room to recover within the next two weeks,  with Consumer Staples following soon after. Energy will need to keep pace if it wishes to perform to the level of its peers, as it has been struggling to make positive performance for the last few weeks, yet it could well be a good time to invest in Energy once the geopolitical issues are settled and the stock market stabilizes after surviving a wave of economic uncertainty. Eventually people will have to move on regardless of the outcome and the markets will have to adjust. Albeit those adjustments will be negative at first, but that will set the economy up to more stable growth in the future.

Last Week's Update (October 11th, 2019)
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M1 Finance Dividend Aristocrats 2019 Pie: https://mbsy.co/BRN6n

M1 Finance Portfolio: Dividend Aristocrats 2019 - Week 0 (October 11th, 2019 - $110.00)

Week 0 - $110.00

Today I begin a new experiment in dividend investing where I invest in fractional shares of all 57 Dividend Aristocrats (as of 2019) directly and gauge the overall performance of a dividend growth investment strategy compared to a pure growth investment strategy.

It's important to note the difference between the characteristics of a stock's growth versus dividend.

With a growth strategy, the investor is aiming to achieve a much higher value of the stock one owns than the stock's value has currently and then sell it at the higher value. That means that the investment is completely dependent on what other people is willing to pay for the company (or a piece of the company in this case) and leads to volatility and high risk, at least in the short term. The returns aren't truly made until the stock is actually sold, so if the market were to tank 50% at the year you planned on selling said stock, you would only receive 50% of the share price that year. That means potential earnings are lost if you sold it then, but then of course you go on to wondering how long will it take to recover the lost stock price and whether you have time to wait that long. That uncertainty with market volatility makes growth stocks a double-edged sword. You stand to make huge gains but the time you decide to sell those investments is a coin flip. It could be a good year or a very bad year to sell, although if the investments had been made long enough, the losses of that year can be offset by the gain made in the past 20, 30, or more years.

With a dividend strategy, the investor aims to make one's investments through the quarterly (roughly every 3 months) payouts from the company's profits to its shareholders, otherwise known as dividends. With dividends, you are effectively guaranteed returns every year, earning back some of the money you invested in overtime and then some. It's like a loan, but this loan never has an expiration date. However, the company is never obligated to pay said dividends. It can be cut at any time, and the company may even stop paying dividends altogether. Bear in mind, however, that any dividend cut is a sign of troubles within the company, and that any sort of dividend cut will negatively affect the company's stock price. One little thing to notice is that splits are not dividend cuts. They are simply dividing the shares so that more potential investors may obtain stocks at a cheaper price. Consequently your own shares would effectively double, though the investments will relatively remain unaffected. Dividend stocks have slow growth characteristics but high dividend payouts. Enough of those payouts can effectively fund one's entire annual salary without having to work themselves. However because these investments typically have little growth over their lifetimes, the investments will not grow as much as simply investing completely into growth-oriented stocks.

A dividend growth strategy combines aspects of both high-paying dividends with stock growth. What is particular about a dividend growth strategy is that, like a growth stock, the investments are made into the company's growth and expansion, however it is through the buying of more shares (and therefore more ownership of the company) that results in the growth of a larger net worth through the reinvesting of dividends paid out. Instead of pocketing the money for your personal use, you use the dividends to buy more shares of the company. Some companies even allow you to reinvest those dividends automatically through what is called a DRIP (Dividend Reinvestment Plan). Overtime, you own more of their company, which entitles you to more of the dividends, which grows your net worth with stock appreciation. The now-bigger dividends get reinvested into the company, buying more shares, which gets more dividends, which grows your net worth, so on and so forth. You get a little of both worlds with a dividend growth strategy. Shares that have appreciated overtime which you could sell for a lump sum, or shares that you can keep to hand you a nice little paycheck every few months.

Using M1 Finance, I will be tracking the progress of all 57 Dividend Aristocrats (according to S&P 500 Dividend Aristocrats), allocating an equal amount of funds to each GICS (Global Industry Classification Standard) economic sector. Every week, I will be reporting the returns of the Dividend Aristocrats and adjusting the investment plan every year to reflect the new S&P 500 Dividend Aristocrats list.

As of October 11, the M1 Finance Research Tab reported a 13.34% gain in the stocks' values over 5 years, with a dividend yield of 2.96%. I anticipate that employing the dividend reinvestment strategy would outpace the S&P 500 Index by a slight margin of 1-2% as well as delivering a slightly larger dividend yield overtime.

With the current market trends, I suspect the Consumer Staples and Consumer Discretionary to be negatively affected over the next few weeks, amplified by the trade war between the US and China, but will recover once November and December begins to roll around. Real Estate will grow for now, but with rising housing costs, it will be taking a much deeper plunge than other sectors in the far future, regardless of the market now, so it is something to keep in mind. Industrials and Materials will be a coin toss depending on the outcome of the US-China trade war, Energy is expected to rise for now thanks to the intensifying conflict surrounding the Middle East and the resulting higher price of oil, while all other sectors (Communication Services, Financials, Healthcare, Information Technology, and Utilities) will recover within a month or two.

Stock Allocations

Below are the stock allocations used for the Dividend Aristocrats 2019 investment portfolio. 

Communication Services (10% Allocation)

AT&T (T) - Diversified Telecommunication Services

Consumer Discretionary (9% Allocation)
Genuine Parts Company (GPC) - Distributors
Leggett & Platt (LEG) - Household Durables
Lowe's Companies, Inc. (LOW) - Specialty Retail
McDonald's (MCD) -  Hotels, Restaurants & Leisure
Target Corporation (TGT) - Multiline Retail
VF Corporation (VFC) - Textiles, Apparel & Luxury Goods

Consumer Staples (9% Allocation)
Archer-Daniels-Midland Co (ADM) - Food Products
Brown-Forman (Class B shares) (BF.B) - Beverages
The Clorox Company (CLX) - Household Products
Coca-Cola Co (KO) - Beverages
Colgate-Palmolive (CL) - Household Products
Hormel Foods Corp (HRL) - Food Products
Kimberly-Clark (KMB) - Household Products
McCormick & Company (MKC) - Food Products
PepsiCo (PEP) - Beverages
Procter & Gamble (PG) - Household Products
Sysco (SYY) - Food & Staples Retailing
Walmart (WMT) - Food & Staples Retailing
Walgreens Boots Alliance (WBA) - Food & Staples Retailing

Energy (9% Allocation)
Chevron Corp. (CVX) - Oil, Gas & Consumable Fuels
Exxon Mobil Corp (XOM) - Oil, Gas & Consumable Fuels

Financials (9% Allocation)
AFLAC Inc. (AFL) - Insurance
Chubb Limited (CB) - Insurance
Cincinnati Financial Corp (CINF) - Insurance
Franklin Resources (BEN) - Capital Markets
People's United Financial (PBCT) - Banks
S&P Global (SPGI) - Capital Markets
T. Rowe Price (TROW) - Capital Markets

Healthcare (9% Allocation)
AbbVie Inc. (ABBV) - Biotechnology
Abbott Laboratories (ABT) - Health Care Equipment & Supplies
Becton Dickinson (BDX)  - Health Care Equipment & Supplies
Cardinal Health Inc. (CAH) - Health Care Providers & Services
Johnson & Johnson (JNJ) - Pharmaceuticals
Medtronic (MDT) - Health Care Equipment & Supplies

Industrials (9% Allocation)
3M Company (MMM) - Industrial Conglomerates
A.O. Smith (AOS) - Building Products
Caterpillar Inc. (CAT) - Machinery
Cintas Corp (CTAS) - Commercial Services & Supplies
Dover Corp (DOV) - Machinery
Emerson Electric (EMR) - Electrical Equipment
General Dynamics (GD) - Aerospace & Defense
Illinois Tool Works (ITW) - Machinery
Pentair (PNR) - Machinery
Roper Technologies (ROP) - Industrial Conglomerates
Stanley Black & Decker Inc. (SWK) - Machinery
United Technologies Corporation (UTX) - Aerospace & Defense
W. W. Grainger (GWW) - Trading Companies & Distributors

Information Technology (9% Allocation)
Automatic Data Processing (ADP) - IT Services

Materials (9% Allocation)
Air Products & Chemicals Inc (APD) - Chemicals
Ecolab Inc (ECL) - Chemicals
Linde plc (LIN) - Chemicals
Nucor (NUE) - Metals & Mining
PPG Industries (PPG) - Chemicals
Sherwin-Williams (SHW) - Chemicals

Real Estate (9% Allocation)
Federal Realty Investment Trust (FRT) - Equity REITs

Utilities (9% Allocation)
Consolidated Edison Inc (ED) - Multi-Utilities
 
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