Dividend Growth Portfolio

Annual Report 2020 – European Dividend Growth Investor

Let me present today to you my annual report for the year 2020. I have taken the time to create my own annual report including all the metrics and statistics that matter to me as a dividend growth investor.

Shareholder Letter to Myself

It was a crazy year and I think that it’s fair to say that most of us didn’t see the Coronavirus coming. At least not regarding the impact that it had on the whole world. I remember thinking about the coronavirus like if it were the ebola virus in Africa. Somewhere far away and contained within that region.

Well, it couldn’t have been further from the truth!

Therefore this was also the first time in my investing history as a dividend growth investor that I could really test the resilience of my portfolio. As you will read further on in this report, it was clear that my portfolio was not well setup when we headed into the stock market crash.

The main reason for this was the lack of proper diversification, because I am still largely in the accumulation phase. As you will also read, I have taken the stock market crash as a great opportunity to add quality names to the portfolio. This, I believe, has resulted in a more defensive portfolio at the end of 2020.

I also believe that the portfolio is better protected right now for another future stock market crash, at least from a dividend income point of view. But off course, time will tell.

Overall I am satisfied with the performance. First of all I am very glad that I kept my head cool during the major sell-offs and used it as an opportunity purchase some high quality stocks (i.e. JNJ). I have often been reading about this from the greatest investors of our times, but I was never able to put it in practice yet.

Secondly I am very satisfied with the knowledge I gained because of this experience. I have a much better approach to diversification and a much better view on which companies I would like to own.

One of the reasons is also all the company analysis which I have performed over the year and many of them I have shared with the readers of this blog. Blogging and engaging with the readers has really been an enriching experience which shouldn’t be discounted in the value it created to my personal portfolio.

For this, I firstly want to thank my wife for allowing me to write these many evenings in 2020. Secondly I would like to thank my readers for their appreciation, suggestions and constructive feedback πŸ™

Enjoy the read,

European Dividend Growth Investor


PS: This is an Annual Report. I will share a goal setting post somewhere next week.

2020 Goals Review

Let’s do a quick performance recap on the goals which I set at the beginning of 2020:

Health Related

Goal DescriptionAchieved?
Get a long desired surgery done to fix a part of my visionYes
Have my blood levels in a healthy state by using a right diet (vegan or vegetarian, but low-fat)Yes
Run 500 km in totalNo
Run 10k under 50 minutes in an official raceNo
Finish the Cooper Test with at least 2700 meters (classification Very Good) No
Bike 500 km in totalNo
Reach an average of 10.000 steps a dayNo

Reflection: I am actually very happy with the result of this goal, because the 2 first ones were the most important for me. I still want to improve my condition, but I’m not sure whether I would like to set these goals again for 2021. The lockdowns and COVID-19 have prevented me to get in the rhythm of it and this has demotivated me to still continue pursuing it. Let’s see about the 2021 goals. I’ll have to think about it a bit more.

Family Related

Goal DescriptionAchieved?
Have a long distance holiday, thus another continent than EuropeNo
Support kids in their activities and be visible and availableYes
Two weekends away with the missus and without the kidsNo
Listen to understand, not to be understoodYes

Reflection: Covid-19 was a blessing to be able to spend more time with the kids and to be more present. Off course, there are times where I would like to open the window and kick them out, but I believe that every parent understands that. We had no long-distance vacations or weekends away this year. I think that it needs no further justification.

Wealth Related

Goal DescriptionAchieved?
Invest 40% of my salary in my dividend growth portfolioYes
Reinvest all my received dividendsYes
Grow my dividend income so that it covers at least 25%  of our monthly expensesYes
Use any leftover income to pay down the principal of our mortgage on a quarterly basis. Preferably paying down enough to reduce the mortgage by 1 year.No

Reflection: I had a great year financially. We were just simply able to save much more by not going on vacation and using the car that much due to Covid-19. In the end I didn’t pay down on the mortgage, because this year the stock market has provided ample opportunities to invest with a better potential return compared to my mortgage interest rate. I might however get back to considering this in 2021. I will elaborate more on the actual savings rate further on in this post.


Overall I am satisfied with my achievements. I still want to sport a little bit more, but I need to find something else than the current goals. Some food for thought!

Giving Back

Goal DescriptionAchieved?
Share my journey and knowledge via this newly created blog to inspire othersYes
Inspire one person in my environment to also start investing for the future and coach that personYes
Contribute two days of my time to a local charityNo

Reflection: I leave the first goal up to you to decide πŸ˜‰ But just to let you know: I have written 101 posts in 2020. This is a number that I am very proud of and never would’ve imagined if you asked me this at the start of 2020.

The third goal is a bit disappointing. I wanted to do more charity locally, but I just haven’t had my mind to it. I will reconsider this in 2021 again, but only if the society got back to normal. I’m thinking here about supporting the clean-up of the forest or something else related to nature. At least I contributed more to Kiva this year.


Portfolio Performance

So let’s zoom a bit more in into my portfolio performance. I will do this by looking at the most important metric first: dividend growth.

Dividend Growth is so important, because my Financial Independence Retire Early (FIRE) calculation depends on 3 main assumptions and dividend growth is definitely one of them (see dividend reinvestment calculator):

  • The amount of money I save (savings rate) and invest into DGI stocks on a monthly basis = 50% on a monthly basis
  • Organic dividend growth = 6% on a yearly basis
  • Yield on Cost when purchasing shares = average 3.25%

Dividend Income Growth

In general my dividend received on my bank account after deduction of tax by the broker has grown with 21.43% compared to 2019. This is not organic growth, but total growth.

2020 dividend growth compared to 2019 = 21.43%

Organic Dividend Growth

If we look at the organic growth, then the picture looks not good. This year my dividend income has organically declined with 12.17% if we purely look at the positions I held at the end of 2019.

The main contributor to this was Royal Dutch Shell’s dividend cut earlier this year. It was projecting to amount a total of 19.5% of all dividends to be received during 2020. The dividend got cut with 60% in March and therefore we saw such a large YoY organic dividend growth decline.

As mentioned before, I’m not too concerned with it, because I am still in the accumulation phase. I am using a value investing approach to stock picking and therefore I might go more aggressive into certain stocks as an opportunity presents itself.

Unfortunately this stock-pick failed due to the unexpected arrival of Covid-19. Covid-19 just came at a time when Shell was showing early signs of recovery from the 2016 oil crisis. The impact of the lockdown all over the world were just too much for the company to handle and I believe it was a wise decision for them to cut the dividend and to protect the overall health of the business.

Therefore this dividend cut itself was not such an issue to me. My portfolio was also yielding 3.71% at the end of 2019 which is well above my 3.25% desired threshold. Hence, it rather serves as a great learning and evidence that this was not a good diversified portfolio if I would have been in early retirement already.

My mitigation to this has always been to work towards my desired portfolio which I have outlined in my allocation strategy. This should prevent a company to consume more than 4% of my portfolio and therefore also prevent from double-digit dividend income loss.

So my learning is that my allocation strategy is well designed for once I’m retired, but it does has some flaws while I’m still in the accumulation phase. I’ve been asking myself if I would like to set some rules in place, but so far I found this not needed yet. I already took action in 2020 to be better diversified, so this should already put a natural protection for any further large reductions in dividend income in place.

What do you think about the above? It looks already much better, right?

I’m still working on further strengthening the diversification and for instance the weight of Omega Healthcare Investors and Exxon Mobil will naturally reduce while I’m purchasing more shares in other stocks. So what I mainly need now is time for this to play out, although I am still considering whether to sell Exxon Mobil or not.

Gross Project Annual Dividend Income Growth

My gross Projected Annual Dividend Income (PADI) grew very rapidly this year with 39.72%. This is mainly due to the cash that I have deployed in the market in 2020 to make use of the opportunities throughout the year as a result of Covid-19.

Don’t be confused with the beforementioned 21% of dividend income growth.. That was the growth of net income in dividends received throughout the year. I am now rather referring to the projected dividends going forward.

I bought a lot of European stocks last year for which I didn’t receive any dividends yet. Hence, there was no income from those acquisitions in Q3 and Q4 last year while they are projected to be paid out in Q1 and Q2 of 2021.

Last but not least, the effective tax rate for my PADI is currently estimated at 20.16% as an average for the entire portfolio. The portfolio currently yields 3,69% which is almost entirely the same as at the end of last year.


2020 Reflection: Going forward, I want at least a margin-of-safety of 10% on my dividend income when retired as a protection to a market-down-turn.

Savings Rate

The savings rate is another very important variable when calculating your retirement goals. Generally speaking you can say that a 50% savings rate invested at 3.25% yield and 6% organic growth will allow you to be able to cover your expenses after 15 years.

This year I am very happy to say that my savings rate has been about 57% on average and it got all deployed into the stock market.

Getting to 57% is not something that happened to me overnight. This is the result of paying myself first every month for many years. I probably started somewhere around a 25% savings rate and over time I have been able to increase this saving rate to were it is now.

What\s the secret?

Over the last 6 years our average monthly expenses have stayed flat and this includes budget reservations for future bigger items like maintenance to the house. At the same time our family income has been increasing in the high single digit rates.

development of my savings rate due to growing income

All this additional income went straight to the amount of money which we pay ourselves first and it all got invested into the stock market.

This is also the reason why I always focus on doing my best at work. Growing your salary every year with 5% beats inflation and also creates exponential growth. For most of us this is way more lucrative than building a side-hustle and spending our “sweat” on additional income streams.

This is off course very much dependent on your own risk tolerance. If you’re owning a restaurant then it is probably best to consider additional income streams. I’m working in the IT-sector, hence I’m pretty confident about my future earnings power in this industry.

Read more about ideas to increase your savings-rate

Reflections: this year it was much easier to save money due to the low expenses related to the covid-19 restrictions. We are more likely to spend a bit more again once the country gets back to normal. However, I still expect a savings rate above 50% next year.

Stock Purchases and Sales

This year was the biggest year ever for me regarding investments in the stock market. The covid-19 related stock market crash in March provided ample opportunities for months to come. Hereby my full list of stock purchases and sales during 2020:

DateOrderCompanyShare Price
13-Jan-2020BuyExxon Mobil Corporation69.200
31-Jan-2020BuyRoyal Dutch Shell Plc24.000
24-Feb-2020Buy3M Co153.000
25-Feb-2020BuyExxon Mobil Corporation55.000
28-Feb-2020Buy3M Co147.500
28-Feb-2020BuyNovartis Second Line Ord Shs80.000
9-Mar-2020BuyRoyal Dutch Shell Plc14.560
9-Mar-2020BuySiemens AG81.800
10-Mar-2020BuyDanone SA57.000
10-Mar-2020BuyUnilever NV47.500
12-Mar-2020BuyNovartis Second Line Ord Shs70.000
12-Mar-2020BuyUnilever NV42.500
23-Mar-2020BuyRoyal Dutch Shell Plc (reinvested dividends)12.160
24-Mar-2020BuyJohnson & Johnson115.750
3-Apr-2020BuyMuenchener Rueckvrschrng Gslchft AG Mnch171.000
8-Apr-2020BuyDanone SA57.080
29-Apr-2020BuyUnilever NV44.880
4-May-2020BuyBASF SE45.000
6-May-2020SellWalt Disney Co100.847
6-May-2020BuyPepsiCo, Inc.131.450
6-May-2020Buy3M Co147.000
6-May-2020BuyChubb Ltd100.000
15-May-2020BuyRealty Income Corp48.990
26-May-2020BuyRed Electrica Corporacion SA15.650
22-Jun-2020BuyRoyal Dutch Shell Plc (reinvested dividends)15.512
29-Jun-2020BuyAT&T Inc.29.790
9-Jul-2020BuyAT&T Inc.29.470
9-Jul-2020BuyDanone SA60.000
30-Jul-2020BuyDanone SA57.500
6-Aug-2020SellUnited Technologies Corporation (Raytheon spin-off)110.676
2-Sept-2020BuyDanone SA54.500
21-Sept-2020BuyRoyal Dutch Shell Plc (reinvested dividends)11.556
15-Oct-2020BuyRealty Income Corp60.620
20-Oct-2020BuyDanone SA52.840
26-Oct-2020BuySAP SE102.980
28-Oct-2020BuyDanone SA46.670
30-Oct-2020BuyJohnson & Johnson135.000
3-Dec-2020BuyUnilever NV47.435
10-Dec-2020BuyRealty Income Corp59.990
16-Dec-2020BuyRoyal Dutch Shell Plc (reinvested dividends)15.243
24-Dec-2020BuyEnagas SA18.270
25-Dec-2020BuyAlibaba Group Holding Ltd – ADR230.000
31-Dec-2020SellGeneral Electric Company (Tax harvesting)10.750
Portfolio additions and reductions in 2020

These were a lot of purchases for a lot of money. Hence, let me explain a bit how I have funded this:

  • 38.13% was funded from our monthly savings rate
  • 7.92% was funded by reinvesting dividends
  • 9.69% was funded by redeploying the money back in the stock market based on the few positions that I sold
  • 11.52% was funded by available balance on my stock brokerage accounts. (I invested less than I saved back in 2019)
  • 30.10% was funded by pulling cash from my available war chest
  • 3.24% was funded by reinvesting the gains I made on option trading

I don’t expect to invest the same amount of money again into the stock market in 2021 unless a large stock market correction will present itself again.

Capital Appreciation

This is probably the least interesting topic for me, because I generally get sad when I see a quality company like Microsoft increasing in share price. Especially when P/E multiple expands faster than the earnings growth, because this means that it becomes less attractive to add shares to my existing position.

I guess that this is the typical Dividend Growth Investors syndrome that most of us suffer from:

We get sad when stock prices go up πŸ™„

I still need some share price increases, because typically this is the sign of a growing business and at the same time it could verify my hypothesis of having bought an undervalued stock. So let’s get into this.

Due to all the new additions my portfolio grew with an approximate 40% in value between 31-Dec-2019 and 31-Dec-2020.

Organically it looks much different though. My portfolio declined with -3.53% if we purely look at how my portfolio looked like at the end of 2019, thus not accounting for all the new stock purchases in the last paragraph.

The above number is taking the currency fluctuations into account. If we would take the EUR <> USD currency out of it, then the portfolio grew organically with 3.03%. Hence, the currency impact has been 6.56% on the portfolio.

I’m personally OK with this. Some years you benefit from currency swings and other years you don’t. This is why a company like Unilever is always reporting this, because it matters to their bottom-line as well and I expect a lot of companies blaming the weaker USD in the upcoming annual reports. So don’t be fooled by that πŸ˜‰


There’s another funny thing that I would like to share with you, because my real benchmark is my savings account. My bank account currently pays me 0.2% in interest rate. If I compare the -3.53% capital appreciation performance + my 3.69% dividend yield then my savings account has outperformed my portfolio with 0.04% πŸ˜‚. Off course, not taking the 2020 purchases into consideration.

This is the first time in history, because other years the portfolio easily outperformed my savings account. Having said that, I’m not worried about that, because after all this has been the most crazy year in the last decade!


Last but not least, I also wanted to share with you my Annualized Internal Rate of Return (XIRR) on the investments done in 2020.

The XIRR based on those investments has been 20.98% so far. Off course, we are looking here at investments that sometimes are less than 4 months ago, but using an average on so many stock purchases smooths out the outliers in this list.

FOMO is real and at times tough to deal with

This is also just another evidence that anyone who invested back in March would probably have made a handsome profit by now. So don’t be misled by all the tweets on Twitter from people that started investing in the high-flying tech stocks.

Not everything is legit there but some are though! Some of them just started investing and have never experienced a downturn themselves yet. However, they did step in at the start of one of the fastest recoveries in the entire stock market history.

Don’t let yourself be fooled by the fear of missing out (FOMO), because FOMO might just be one of the biggest wealth-destructors for your portfolio. It is widely acknowledged that the minimum amount of changes to a portfolio is one of the best actions for your personal wealth.

And to be honest, I also struggle with FOMO at times, it’s normal. It’s our psychology of feeling jealous and getting the “what if I would” question in our head. Maybe I’ll just be the Fool who Missed Out (FWMO) if we look back at it in a decade from now.

But in my opinion real wealth is generated over decades, not in a year. I am generally bad at knowing when to sell stocks when investing in growth stocks. I have the mind of a value investor so I would probably forget to sell at the top of the stock market πŸ˜…

Having said that, personally I really believe that we are somewhere between Thrill and Euphoria right now πŸ‘‡

The psychology of stock market cycles
Stock market psychology

Reflections: I used the stock market crash to vastly increase the quality of my portfolio and to increase my portfolio diversification. I am very satisfied with that and I wouldn’t have been able to do that without my allocation strategy and sticking to the plan.

The odds were also not in the favor of dividend growth investors when compared to growth investors. Hence, I need to keep protecting myself and reminding myself that FOMO is never a good thing. I think that I have succeeded so far and the 10% allocation to growth stocks in my portfolio generally satisfies my urge.

2020 Portfolio Statistics

Stay with me, we are almost at the end of this year update. I will now share with you some of my favorite portfolio statistics and let’s assume that I’m Berkshire Hathaway:

My personal Shareholders Equity (net worth) grew with 10.5% (it could have been larger if currency impact was kept out of the equations (PLN and USD)). This number is based on the following assets:

  • My Dividend Growth portfolio
  • My Cash reserves
  • The Net Worth of our house (value – mortgage)

Most of the growth can be attributed due to increasing housing prices in our area. You’ve seen the performance of the portfolio before, so I will not repeat that.

Debt to Equity currently stands at a very healthy 16.7%. My return on equity (ROE) has been 5.24%, which is higher than my cost of capital (mortgage rate) of 3%. I would love to see this margin a bit higher though although this is generally hard if so much equity is allocated to bricks which doesn’t generate any income for me.


Hereby also my one-slider which I always share with you at the end of every quarter.


Hereby also my top 5 portfolio positions based on their capital value:

31-Dec-2020Percentage31-Dec-2019Percentage
Microsoft Corp7.90%Royal Dutch Shell Plc9,99%
Danone SA7,34%Microsoft Corp8,46%
Unilever Plc7,12%Ahold Delhaize7,98%
Royal Dutch Shell Plc6,38%AbbVie Inc.7,92%
AbbVie Inc.6,34%Omega Healthcare Investors7,58%

Honorable mentions go to Apple (6.28%) and Ahold Delhaize (5.93%) who just didn’t make it into to the top 5.


Last but not least, hereby my current portfolio currency distribution and it’s exactly how I like it to be:

European DGI portfolio currency distribution

Wrapping up

As you can see, it was a very dynamic year for me and a very special year for the portfolio! Having said that, it took many hours for me to crunch the data and to get to this overview. I personally consider this to be my own personal annual report for the year 2020.

Now that I know my full 2020 performance it’s time to start planning for 2021. I will do this over the upcoming 2 weeks so that I can give some proper thoughts to what I would like to achieve. Both from a portfolio and a content-creation/blogging point of view.

Regarding the latter: any suggestions are welcome!

By the way, how has your portfolio performed? Do you have a view on organic growth vs growth by acquisition? I’m very curious to hear your numbers, so feel free to share them with me!


I hope you enjoyed reading this post and if you did then feel free to spread the word πŸ‘

Yours Truly,

European Dividend Growth Investor


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Disclaimer

I’m not a certified financial planner/advisor nor a certified financial analyst nor an economist nor a CPA nor an accountant nor a lawyer. I’m not a finance professional through formal education. I’m a person who believes and takes pride in a sense of freedom, satisfaction, fulfillment and empowerment that I get from being financially competent and being conscious managing my personal money. The contents on this blog are for informational and entertainment purposes only and does not constitute financial, accounting, or legal advice. I can’t promise that the information shared on my blog is appropriate for you or anyone else. By reading this blog, you agree to hold me harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information provided on this blog.

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It's my desire to retire early via Dividend Growth Investing as a passive income stream. This is not easy and especially when living in Europe. That's why I started this blog and share my journey: to give you a European perspective.

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P2035
1 month ago

Nice report ☺ same hard fealing about the RDSA cut. I had some more – BP, Baltic horizon (local REIT) and Well fargo, that one I could not stand and divested. Im out of financial sector now as it looks like too low on a risk/reward. It nice to see EU investors. Eying Danone, UN myself. Also Volkswagen looks like a buy

Karbofos
Karbofos
1 month ago

Hey. What are your sports plans for 2021? Running, bike?
Personally, I switched from sports to a good sofa long ago. I lost here … Good luck!

King Mino
King Mino
1 month ago

Hi! Thanks for the update. Your savingsrate is amazing, well done! I own multiple of your stock picks also. I’m on my way to 800 euro dividend income this year, started 4 years ego.

Juan
Juan
1 month ago

Amazing post DGI!! I was actually going through my portfolio numbers today, and you just gave me some good KPIs to include/track, thanks. I started investing in stocks, in January, just before the whole batsoupvirus situation started, so tried to take advantage of the crash by cost averaging over 2020. Now my portfolio is 10.74% up, in euros (so this includes usd depreciation) an yielding roughly 3%. Funnily enough my top5 (rather top6) looks very similar to yours! MSFT PEP UNA.AS DAL KO ABBV My biggest winner, ironically, are CCL 39% up and DAL 23% up, but they cancelled dividends,… Read more »

KIt
KIt
1 month ago

Hello,

above you mention that you have a dividend tax rate around 20%. Can you explain how you manage? My understanding is that dividends are taxed twice: the first time in the country where the company is based (minimum 15%), ad the second time in the country where one lives. How do you manage to have such a low tax rate?
Thanks.
Kit

Mr. Robot
1 month ago

That is one amazing report. Congrats on the quality content, I really enjoyed reading it.

It looks like you learned valuable lessons in the past year which you can now use in this new investing year. Go go go! πŸ™‚

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