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Welcome to the tenth annual review of DivGro, my portfolio of dividend growth stocks. I created this portfolio in January 2013 to create the proverbial dividend-generating machine. It has grown beyond my wildest dreams and now generates dividend income averaging $3,824 per month. With less than ten years to go before I retire, I plan to continue reinvesting all dividends and allow my portfolio to grow even more. 

In annual reviews, I look at the portfolio's performance as measured by dividend income, dividend increases, annualized returns, and rate of return. I also share some highlights of the past year.

Introduction

The stock market had a brutal year in 2022. All three major indexes suffered their worst year since 2008. The Dow performed best, down "only" about 8.8%. The S&P 500 dropped 19.4% to more than 20% below its record high, and the Nasdaq tumbled 33.1%.

As Jesse Pound and Samantha Subin write: "Sticky inflation and aggressive rate hikes from the Federal Reserve battered growth and technology stocks and weighed on investor sentiment throughout the year. Geopolitical concerns and volatile economic data also kept markets on edge."

Last year, I increased my portfolio's projected annual dividend income (PADI) from $39,327 to $45,885, an increase of 16.68%. If I continue to increase PADI at the same rate every year for five years, the portfolio's PADI should approach $100,000 at the end of 2027. I'm very happy I switched to dividend growth investing in January 2013.

Buying shares of companies with a track record of paying regular and increasing dividends is a wonderful strategy. Much like rolling a snowball down a hill, the longer you're invested in dividend growth stocks, the larger your portfolio will grow, and the more dividend income it will produce every year. Reinvesting dividends will speed up the process for a double compounding effect.

Now, let's take a look at my dividend portfolio's performance in 2022.

Performance - Dividend Income

The main goal of this portfolio is to generate a reliable and growing dividend income stream. In 2022, it generated dividends totaling $47,646, an increase of about 26.33% over the 2021 total of $37,716.

Here are the dividend increases for the last five years:

That's a five-year compound annual growth rate of 26.30%.

Dividend Increases

In dividend growth investing, regular dividend increases are just as important as dividend income. I use selection criteria that favor high-quality dividend growth stocks with safe dividends. In 2022, the following stocks in my portfolio paid or announced higher dividends:

Note: This ✧ symbol implies multiple increases.

The table includes the new yield on cost (YoC) for positions still in my portfolio. I like seeing dividend increases of 7% or higher, and I'm happy to note that 50 positions had dividend increases of at least 7% in 2022. The arithmetic average of the 87 increases above is 9.71%, up from last year's 8.66% from 82 increases. Note that I've closed one of these positions.

Annualized Returns

As mentioned earlier, the S&P 500 dropped 19.4% in 2022, while the Dow and Nasdaq dropped 8.8% and 33.1%, respectively. My portfolio easily outperformed all three indexes, with returns of -5.61% (excluding dividends). I'm thrilled that it outperformed the broader market in 2022, but a negative return is never a pleasing result.

As a dividend growth investor, I aim to generate a reliable and growing dividend stream. On that front, my portfolio's position-weighted average dividend yield of 3.27% in 2022 easily beats the 1.64% dividend yield of the S&P 500.

Source: S&P 500 Dividend Yield

Not many of my existing positions show positive gains for 2022.

Topping the list are Chevron (CVX), Merck (MRK), Northrop Grumman (NOC), Archer-Daniels-Midland (ADM), and Lockheed Martin (LMT), all with returns exceeding 30%. At the bottom of the list, we can find Intel (INTC), T. Rowe Price (TROW), Digital Realty Trust (DLR), QUALCOMM (QCOM), and Virtus Equity & Convertible Income Fund (NIE), all with negative returns of at least 40%.  

Here is a chart showing the lifetime returns of all positions in my portfolio (including dividends, where applicable).

By far, Microsoft and Apple are my portfolio's most profitable positions, with total returns exceeding 600% and 500%, respectively, as of Feb. 17, 2023.

In 2022, the portfolio added only 2 home runs, which are stocks in my portfolio that achieve total returns topping 100%. Here are those home runs with returns as of Dec. 31, 2022:

• Home run #42: CVS Health Corporation (CVS) — up 92% (25% annualized).
• Home run #43: Archer-Daniels-Midland (ADM) — up 131% (37% annualized).

Once a stock achieves home run status, it retains that status even if the stock price drops and the total returns dip below the 100% mark. Also, if I buy additional shares of a home run stock at a higher cost basis, the calculated total returns could drop below 100%.

Here are DivGro's top performers sorted by annualized returns as of Dec. 31 2022:

1. Apple Inc (AAPL) — up 487% (73% annualized).
2. Microsoft (MSFT) — up 447% (63% annualized).
3. Chevron (CVX) — up 102% (61% annualized).
4. UnitedHealth (UNH) — up 221% (40% annualized).
5. Northrop Grumman (NOC) — up 71% (40% annualized).
6. Archer-Daniels-Midland (ADM) — up 131% (37% annualized).
7. Raytheon Technologies (RTX) — up 68% (36% annualized).
8. Broadcom Inc (AVGO) — up 125 (35% annualized).
9. AbbVie (ABBV) — up 210 (35% annualized).
10. Aflac (AFL) — up 95% (31% annualized).

Rate of Return

This portfolio's IRR (internal rate of return) provides the best measure of overall portfolio performance, as IRR considers the timing and size of deposits since inception. On Dec. 31, 2022, the portfolio's IRR was 13.7%, down from the 17.5% reported in 2021. 

Other Statistics

At the end of 2022, the portfolio's average YoC was 41.7%, up from the 3.97% reported last year. Over time, as stocks I own pay higher dividends, the portfolio's average YoC should increase.

The portfolio's payback increased from 26.4% at the end of 2021 to 31.1% at the end of 2022. Payback is the proportion of capital returned as dividends. I consider it to be a reasonable measure of portfolio maturity.

Main Street Capital (MAIN) tops the chart, mainly because the company pays a generous dividend, and it is the stock I've owned the longest in my portfolio. 

2022 Highlights - Page Views

Here are some highlights of 2022. My page views climbed to 3.45 million on Dec. 17, 2022, an increase of 630,000 over the 2.33 million page views I had on Dec. 31, 2020. That's an average of 1,731 page views per day in 2021. 

Popular Posts

In 2022, I posted 100 articles on my website.

2023 Outlook

After ten years of blogging about and sharing my portfolio publicly, I've decided to make a few changes. While the content of my work will remain intact, my portfolio page will no longer be updated automatically. In fact, it will be a snapshot of the portfolio as of Dec. 31, 2022. 

I plan to move my portfolio to another platform where registered readers can continue to follow my journey of dividend growth investing and options trading. I'm continuing to work with Portfolio Insight, and we have some exciting features in development, including the creation of model portfolios. 

Thanks for reading, and all the best with your investments in 2023.

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