My Dividend Stock Portfolio is Outperforming the Market

The
6
New
Stocks
in
My
Dividend
Portfolio

•
Chevron
•
Sanofi
•
British
American
Tobacco
•
Eastman
Chemical
•
Ericsson
•
Volkswagen

Here
are
the
portfolio
changes
sector
by
sector:

Energy
Stocks:
Exxon
Mobil
Out,
Chevron
In

Chevron

(CVX)
is
the
only
company
in
the
sector
present
in
three
of
the
four
indices
(Exxon
Mobil
is
only
present
in
two)
and
has
a
higher
expected
dividend
than
Exxon
(4.03%
vs.
3.15).
Its
Price/fair
value
is
currently
(as
of
April
22,
2024)
9.02
versus
0.91
for
Exxon
Mobil,
i.e.
a
very
similar
valuation.
But
Chevron
has
increased
its
quarterly
dividend
in
February
by
7.9%
(from
$1.51
to
$1.63)
while
the
last
time
Exxon
Mobil
increased
its
quarterly
dividend
(in
November
2023)
it
did
so
by
4.4%.

Utilities
Stocks:
Enel
Stays

Italian
utility
Enel

(ENEL)
currently
trades
with
a
price/fair
value
of
0.81
and
is
present
in
three
of
the
Morningstar
indices
(the
Morningstar
Dividend
Leaders,
the
Morningstar
Dividend
Growth
and
the
Morningstar
Dividend
Yield).
In
January
2024
it
increased
its
semi-annual
dividend
from
€0.20
to
€0.22
(the
company
usually
pays
one
dividend
in
January
and
another
one
in
July)
and
has
a
forward
dividend
yield
of
7.01%.

Communications
Stocks:
Verizon
Stays

There
is
no
reason
to
change
Verizon
Communications

(VZ)
in
the
dividend
portfolio.
It
is
one
of
the
few
companies
in
the
sector
present
in
3
Morningstar
indices
and
its
forward
dividend
yield
is
attractive
(7.11%).
It
trades
at
a
price/fair
value
of
0.75
and
pays
a
quarterly
dividend
that
increased
from
$0.65
to
$0.67
last
October.

Healthcare
Stocks:
Roche
in,
Sanofi
out

There
are
quite
a
few
candidates
for
the
healthcare
sector’s
spot
in
the
dividend
portfolio,
with
Sanofi
and
Roche
Holding

(ROG)
standing
out.
Both
have
very
comparable
forward
dividend
yields
(4.26%
and
4.25%,
respectively),
but
Roche
is
significantly
more
undervalued
than
Sanofi
(P/FV
of
0.60
vs.
0.78).
Moreover,
Roche
is
one
of
the
European
stocks
that
has
consistently
increased
its
dividend
over
the
past
10
years.

Financial
Stocks:
Citigroup
Stays

There
is
no
reason
to
make
a
change
in
the
financial
sector
within
our
portfolio.
Citigroup

(C)
continues
to
trade
at
a
13%
discount,
has
a
forward
dividend
yield
of
3.5%.
The
company
posted
first-quarter
earnings
of
$1.58
per
share,
better
than
expected,
versus
the
FactSet
consensus
of
$1.18,
and
we
have
raised
(earlier
this
April)
our
estimate
of
Citigroup’s
fair
value
slightly,
from
$66
per
share
to
$68.

Defensive
Consumer
Stocks:
British
American
Tobacco
In,
Unilever
Out

Unilever
example
is
a
case
of
a
portfolio
shift
triggered
by
a
dividend
cut.
Last
February
the
dividend
went
to
£0.36
from
£0.38
in
February
last
year.
Not
a
good
sign.

The
substitute
for
Unilever
within
the
defensive
consumer
sector
is
British
American
Tobacco

(BATS).
It
has
several
advantages
over
Unilever:
the
forward
dividend
yield
is
very
high,
close
to
10%,
its
price/fair
value
is
0.61
(compared
to
Unilever’s
0.89)
and
this
March
the
dividend
was
increased
to
£0.59
from
£0.58
in
last
December
and
September.

Consumer
Cyclical
Stocks:
German
Carmakers 

There
are
three
German
automakers
that
meet
the
conditions
for
the
Consumer
Cyclicals
sector.
Mercedes-Benz,
Volkswagen
and
BMW.
All
three
have
a
very
high
forward
dividend
yield:
7.1%,
7.5%
and
5.7%
respectively.
All
three
have
increased
their
dividends
in
recent
years
and
all
three
have
a
presence
in
two
of
the
four
Morningstar
indices,
but
there
is
one
company
that
stands
out
in
terms
of
valuation,
Volkswagen

(VOW3),
which
trades
with
an
undervaluation
of
65%.
This
last
point
justifies
the
switch
between
Mercedes-Benz
and
Volkswagen.

Basic
Materials
Stocks:
Eastman
Chemical
In

The
basic
materials
sector
appears
for
the
first
time
in
the
portfolio.
There
is
little
exposure
to
this
sector
in
the
Morningstar
dividend
indexes.
However,
there
is
one
company,
which
has
good
dividend
history,
a
decent
forward
dividend
yield
(3.4%)
and
a
price/fair
value
in
the
undervaluation
territory
(0.77):
Eastman
Chemical

(EMN).

Technology
Stocks:
Ericsson
In

Finally,
I
am
also
including
the
technology
sector
in
the
portfolio.
I
have
chosen
Swedish
telecoms
company
Ericsson

(ERIC
B)
for
three
reasons:
1)
it
is
present,
albeit
with
a
very
low
weight,
in
both
the
Morningstar
Dividend
Leaders
and
the
Morningstar
Dividend
Yield
indexes;
2)
its
forward
dividend
yield
is
4.7%
and
3)
it
is
one
of
the
cheapest
technology
companies,
with
a
price/fair
value
of
0.61
and
a
Morningstar
Rating
of
5
stars.
It
is
true
that,
in
2018,
the
company
cut
its
dividend
sharply
after
the
arrival
of
the
new
CEO,
but
since
then
it
has
been
able
to
gradually
increase
it
to
the
2.70
Swedish
krona
that
will
be
distributed
this
year.

Dividend
Methodology
–
Why
the
Portfolio
Changes

Changes
to
the
dividend
portfolio
can
occur
for
four
reasons:

1)
The
stock
included
in
the
portfolio
has
cut
its
dividend
over
the
quarter.

2)
The
stock
is
no
longer
present
in
at
least
two
of
the
four
Morningstar
indexes
used
to
construct
the
portfolio.

3)
The
price/fair
value
of
a
security
has
moved
from
undervalued
to
overvalued.

4)
Within
the
sector,
there
are
more
attractive
stocks.

The
rules
I
used
to
include
a
security
in
the
portfolio
are
simple.
I
analyse
the
positions
of
these
four
indices
and
select
stocks
based
on
their
presence
in
these
indices,
their
weight
in
each
of
these
indices,
their
valuation
(Morningstar
Price/fair
value)
and
their
forward
dividend
yield.

Key
Morningstar
Dividend
Indices

• Morningstar
Developed
Markets
Dividend
Yield
>3%:
This
index
tracks
the
performance
of
securities
in
developed
markets
with
trailing
12-month
dividend
yield
greater
than
3%

• Morningstar
Developed
Markets
Dividend
Growth:
This
index
is
designed
to
provide
exposure
to
securities
in
the
Morningstar
Developed
Markets
Index
with
a
history
of
uninterrupted
dividend
growth
and
the
capacity
to
sustain
that
growth.

• Morningstar
Developed
Markets
High
Dividend
Low
Volatility:
This
index
offers
exposure
to
developed
markets
stocks
with
high
dividend
yields
and
strong
financial
quality,
while
favoring
those
with
lower
volatility

• Morningstar
Developed
Markets
Large
Cap
Dividend
Leaders
Screened
Select: This
index
targets
securities
that
pay
dividends
consistently
and
have
the
capacity
to
sustain
those
payments.
Securities
are
selected
from
the
Morningstar
Developed
Markets
Large
Cap
Index.
The
dividend-leaders
index
consists
of
the
100
top-yielding
securities
that
satisfy
the
screening
criteria,
including
Environmental,
Social,
or
Governance
(ESG)
screens
based
on
data
from
Morningstar
Sustainalytics.

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