Nicholas Ward’s Dividend Growth Portfolio: September 2023 Fair Value Update

anouchka It’s been a couple of months since I’ve written a portfolio review. I’ve been busy at work. I went on vacation last month (I recommend Ocracoke, North Carolina to anyone looking to take a relaxing break). And there have been a couple of persistent healthcare issues that I’ve had to deal with in my household (damn you, Lyme disease). But, through it all, I can confidently say: these last couple of months have represented a couple of big steps towards financial freedom. During July, my passive income stream increased by 55.58% on a year-over-year basis. This was the best performance that I’d seen in years (only topped by some of the months in 2017 when my monthly income soared higher because of a significant capital infusion after a property sale). But that record didn’t last long. In August, my passive income stream increased by 63.07%. Nicks dividends (Nick’s data ) These two months pushed my year-to-date dividend growth up to 40.26% (compared to the first 8 months of 2022). This year-to-date performance is trending higher than I could have ever expected coming into the year; however, as I’ve said throughout the year, it’s not because of organic growth. Instead, this massive dividend growth is primarily due to asset allocation decisions. Throughout the year I’ve been building my cash position every month, slowly preparing for the next recession/market crash. Now that the broad market indexes have recovered from their 2022 lows (where I was aggressively allocating cash to the markets), I want to rebuild my bear market baskets so that I can take advantage of the next bout of macro weakness. In the past, this wasn’t a pleasant process. It had to be done, but it wasn’t fun. It felt pretty bad stashing cash away in my checking account that was yielding 0.04%. These days saving feels great though. I’ve moved all of my cash to a Fidelity account where their SPAXX money market fund yields nearly 5%. Therefore, when I move savings into SPAXX at the end of each month it’s akin to buying a safe, high yielding stock. SPAXX has become my second largest holding and this allocation is growing every month. This position will continue to grow so long as the markets continue to rally. I know people love to hate Jerome Powell and the Federal Reserve for its hawkish policies over the last 24 months or so…but as a regular saver, I’m not complaining. It feels pretty great to be able to build cash while also building my passive income stream. And while I know these high rates won’t last forever, I’m content to take advantage of them while they last. Theoretically, when the Fed pivots dovish it will be due to bearish signs in the economy (and/or stock market), so when rates start to fall on short-term bonds (which dictate the money market fund’s yield) it should be a prime time to begin allocating these funds back into the equity space. I don’t know when this pivot will occur, but in the meantime, I’m sleeping well at night collecting 4.98% with a cash equivalent position in SPAXX. Nick’s Dividends (Nick’s Data) Speaking of sleeping well at night…that nice upward curve that’s starting to form on the monthly dividend chart above provides me a lot of solace. It shows that the compounding process associated with accumulating dividend growth stocks is working nicely. The stock market goes up and down…but my income stream continues to trend higher. That’s what dividend growth investing is all about and I continue to be a believer in this strategy’s ability to get my family where we want to go financially. Despite 2023’s Rally, There Are Plenty Of Opportunities In The Stock Market Although I’m allocating capital to my cash position every month, I’m still buying stocks as well. I want to get my cash/cash equivalents position up to the ~10% level, but I don’t want to totally sacrifice the upside that equities (risk assets) provide over the long-term. Each month roughly half of my available savings are being allocated towards SPAXX and/or short-term bond funds. The other half is still being allocated to blue chip dividend growth stocks. What’s more, I continue to selectively reinvest 100% of my dividends back into dividend growth stocks each month. With that in mind, I’ve made many trades since my most recent update. But, at this point in time many of those trades are outdated and no longer relevant and/or actionable for readers, so instead of talking about something that I did 60 days ago, I decided to update all of the fair value estimates across my holdings and provide readers with those. As always, you’re free to take these estimates with a grain of salt, but they’re what I’m basing portfolio management decisions off of at the moment. And I think it’s a pretty good time to provide this update because it makes sense to refresh many of the old estimates given that we’re close enough to the end of 2023 to start to prioritize 2024 expectations. Remember, what’s in the past is in the past. Stocks are generally priced upon the expectation of future cash flows (and they should be). And while I don’t want to speculate too much when it comes to pricing in future growth, I think there’s adequate visibility (barring a significant black swan event) into 2024 right now to start basing FV estimates off of next year’s expectations. Before you take a look at these estimates, remember that these fair values aren’t necessarily price targets for future purchases. Only the highest quality stocks in my portfolio/on my watch list don’t require a margin of safety to be bought. For the most part, I’m only looking to buy stocks at a discount. What I deem to be an appropriate discount will vary from company to company based upon my long-term growth outlook. Also, managing single stock risk is important to sleeping well at night, so generally speaking, once I have built a “full” or even an “overweight” position, the margin of safety requirements to add more shares expand in an effort to reduce overall risk. Everything is a balancing act…between quality, value, and asset allocation…when it comes to managing my portfolio. But, I think establishing fair values across one’s holdings is the first step to being able to make informed decisions in the market and therefore, performing this exercise periodically, no matter how tedious it might seem, is paramount to making sound, rational, intelligent trades. So, with all of that being said, here are my holdings, my cost basis numbers, my current position weightings, current share prices, and my updated fair value estimates. Nicholas Ward’s Dividend Growth Portfolio Core Dividend Growth 53.90% Company name Ticker Cost basis Portfolio Weighting Current Share Price Fair Value Estimate Apple AAPL $22.79 8.76% $179.29 $145.00 Microsoft MSFT $72.84 4.30% $328.80 $264.00 Broadcom AVGO $234.30 3.84% $850.83 $735.00 BlackRock BLK $462.83 2.05% $696.87 $775.00 Starbucks SBUX $48.10 1.64% $96.29 $102.00 Qualcomm QCOM $76.44 1.63% $113.05 $138.00 Comcast CMCSA $38.54 1.58% $45.68 $63.00 Johnson & Johnson JNJ $114.02 1.49% $161.86 $186.00 Lowe’s LOW $148.99 1.48% $218.37 $263.00 Cummins CMI $217.77 1.28% $236.86 $300.00 Merck MRK $73.71 1.24% $107.30 $125.00 PepsiCo PEP $97.58 1.15% $178.93 $170.00 Lockheed Martin LMT $354.14 1.07% $429.43 $480.00 Broadridge Financial Services BR $148.90 1.05% $185.78 $168.00 Deere & Co. DE $347.85 1.00% $413.08 $490.00 Parker-Hannifin PH $255.96 0.99% $397.10 $385.00 Cisco CSCO $23.80 0.98% $56.01 $57.00 Raytheon Technologies RTX $80.22 0.95% $76.11 $96.00 Canadian National Railway CNI $114.55 0.95% $115.70 $122.00 Texas Instruments TXN $110.11 0.90% $163.09 $166.00 Honeywell HON $126.18 0.85% $194.38 $202.00 Amgen AMGN $136.07 0.85% $262.71 $282.00 Brookfield Infrastructure BIPC $31.06 0.81% $37.36 $44.00 Coca-Cola KO $40.25 0.80% $57.77 $62.00 Essex Property Trust ESS $223.54 0.76% $225.01 $255.00 Illinois Tool Works ITW $130.90 0.73% $238.04 $207.00 Air Products and Chemicals APD $234.91 0.73% $300.87 $287.00 Hershey HSY $213.40 0.71% $211.06 $235.00 Brookfield Renewable BEPC $33.49 0.69% $27.84 $39.00 Ecolab Inc. ECL $143.58 0.65% $176.60 $170.00 Bristol Myers Squibb BMY $49.47 0.65% $58.60 $79.00 Brookfield Corporation BN $29.89 0.63% $35.91 $42.00 Camden Property Trust CPT $113.04 0.62% $102.34 $126.00 L3Harris Technologies LHX $192.50 0.58% $175.27 $215.00 AvalonBay Communities AVB $163.23 0.58% $182.69 $203.00 Linde LIN $350.18 0.55% $387.86 $350.00 Diageo DEO $133.15 0.52% $157.66 $175.00 Northrop Grumman NOC $385.78 0.45% $440.06 $423.00 Rexford Industrial Realty REXR $52.11 0.42% $52.00 $63.00 Prologis PLD $118.30 0.41% $123.40 $118.00 Sherwin Williams SHW $219.30 0.38% $259.93 $263.00 Digital Realty DLR $49.87 0.34% $129.11 $122.00 Republic Services RSG $123.71 0.30% $149.58 $142.00 Alexandria Real Estate ARE $130.96 0.27% $112.25 $154.00 Waste Management WM $158.83 0.25% $160.36 $160.00 Hormel HRL $42.99 0.25% $37.90 $38.50 Carlisle Companies CSL $228.31 0.23% $273.12 $302.00 Medtronic MDT $76.02 0.22% $82.95 $91.00 McCormick MKC $35.71 0.20% $79.57 $70.00 Mid-America Apartment MAA $163.02 0.14% $137.03 $163.00 Automatic Data Processing ADP $223.34 <0.10% $247.20 $250.00 McDonald's MCD $232.10 <0.10% $277.44 $273.00 High Yield 9.90% Realty Income O $62.34 1.62% $54.11 $67.00 British American Tobacco BTI $37.50 1.08% $33.55 $45.00 AbbVie ABBV $79.08 1.07% $153.32 $141.00 W.P. Carey WPC $65.23 0.97% $63.71 $77.00 Enbridge ENB $39.33 0.89% $34.98 $43.00 Agree Realty ADC $65.85 0.88% $59.41 $70.00 Toronto Dominion Bank TD $65.06 0.61% $61.80 $69.00 Altria MO $44.30 0.56% $43.42 $52.00 National Retail Properties NNN $38.40 0.56% $38.16 $53.00 Federal Realty Investment Trust FRT $114.86 0.50% $97.51 $114.00 Pfizer PFE $38.25 0.46% $33.66 $41.00 Crown Castle CCI $140.53 0.42% $98.94 $124.00 Royal Bank of Canada RY $100.18 0.28% $91.32 $103.00 High Dividend Growth 13.17% Visa V $102.40 2.56% $243.86 $256.00 Nike NKE $62.68 1.09% $96.00 $93.00 UnitedHealth Group UNH $484.60 1.07% $485.75 $504.00 MasterCard MA $90.44 1.00% $416.88 $407.00 Accenture ACN $270.99 0.95% $315.30 $287.00 S&P Global SPGI $338.61 0.90% $390.01 $365.00 Home Depot HD $250.58 0.88% $319.20 $309.00 Danaher DHR $240.13 0.86% $254.26 $225.00 Thermo Fisher TMO $541.81 0.81% $510.67 $540.00 Intercontinental Exchange ICE $97.23 0.61% $115.95 $135.00 Zoetis ZTS 176.61 0.47% $181.25 $175.00 ASML Holding ASML $643.47 0.44% $595.93 $690.00 Booz Allen Hamilton BAH $75.49 0.39% $112.22 $102.00 MSCI MSCI 469.41 0.39% $533.43 $450.00 Moody's MCO $329.85 0.29% $344.48 $285.00 Carrier CARR $32.67 0.25% $54.88 $51.00 Agilent Technologies A $117.41 0.21% $113.17 $125.00 Non-Dividend 7.04% Alphabet GOOGL $44.34 4.77% $138.58 $147.00 Amazon AMZN $88.17 2.09% $139.96 $213.00 Salesforce CRM $233.58 0.18% $215.09 $281.00 Palantir PLTR $10.79 <0.10% $15.43 n/a Special Circumstance 7.74% NVIDIA NVDA $54.97 3.04% $437.64 $525.00 Walt Disney DIS $91.92 1.26% $85.59 $107.00 Blackstone BX $95.86 1.19% $113.98 $120.00 Owl Rock Capital OBDC $13.64 0.84% $13.86 $15.26 CME Group CME $183.73 0.46% $206.89 $202.00 Main Street Capital MAIN $39.25 0.39% $41.16 $41.00 Ares Capital Corp. ARCC $17.26 0.29% $19.28 $22.00 Brookfield Asset Management BAM $23.67 0.16% $36.10 $39.00 Otis OTIS $58.65 0.11% $81.85 $69.00 Cash Equivalents 8.20% Fidelity Treasury Money Market Fund SPAXX $1.00 6.00% $1.00 n/a WisdomTree Floating Rate Treasury Fund ETF USFR $50.40 1.47% $50.45 n/a SPDR Bloomberg 1-3 Months T-Bill ETF BIL $91.63 0.73% $91.65 n/a Cash 0.05% Most Recent Update: 09/18 Click to enlarge Bonus Material Since this update was a month late, I decided to provide readers who made it to the end with an added bonus. I don't often discuss my watch list. These days, I'm actually looking to get a bit more concentrated into my highest conviction ideas, so it's going to take a lot for me to start building up a position into a company that I don't already own. But, there are still many wonderful, wide moat companies that are great at compounding their fundamentals, as well as their dividend payments that I don't own…and therefore, I think it's fair to say, "never say never" when it comes to establishing new positions. With that in mind, here are the 3 stocks currently sitting atop my watch list with updated fair value estimates as well. Bonus Watch List Company name Ticker Cost basis Portfolio Weighting Current Share Price Fair Value Estimate General Dynamics GD no position no position $225.49 $225.00 Canadian Pacific Kansas City CP no position no position $79.40 $79.00 FactSet Research FDS no position no position $428.55 $416.00 Click to enlarge Conclusion Overall, fundamental growth is expected to be solid over the coming year for the vast majority of my holdings. With that in mind, fair value estimates are rising (I base these figures off of the most recent company guidance, consensus analyst estimates, specific, trusted analysts with proven track records, and my own, sort of under-the-hood work on these companies). As time moves on, these estimates ebb and flow as fundamentals change. But right now, at least, it appears as though there are plenty of good bargains out there for investors to continue to accumulate. These are bargains that compound their earnings, their dividends, and ultimately, their shareholders' wealth. It's a great time to be a dividend growth investor! Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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