A few months back I had talked about how I was changing a piece of the puzzle with my dividend portfolio.
At the time I was playing the waiting game on the final step of the process to sell my holding in the Vanguard Total Stock Market Index and redistribute those funds to the Vanguard High Dividend Yield ETF, primarily due to tax implications.
With the end of the year approaching, I have been evaluating my portfolio for potential tax loss harvesting opportunities and through that process determined that now was the time to invoke the last step of the plan. Based on recent market movements, my holding in VTSAX was at small capital loss and I opted to initiate the sale of my shares.
Shuffle Up and Deal
While VTSAX does pay a dividend, the current yield pales in comparison to VYM as well as the other holdings in my dividend portfolio. That wouldn’t be so bad if there was solid dividend growth, but unlike the lower yielding positions in my portfolio, VTSAX tends to grow in the low to mid single digits on an annual basis.
In addition, when I sit down and honestly evaluate why I was holding VTSAX in my brokerage account that is the basis of my dividend growth investing strategy, I had to admit that it was due to my historical tendency of investing in index funds.
Don’t get me wrong–I am still a huge fan of index funds and VTSAX in particular, and will continue to hold it in my retirement accounts.
But at the end of the day it really is not aligned with my DGI strategy.
Therefore, yesterday I entered my sell order to liquidate the ~182 shares that I have been holding.
Tweaking the Portfolio
Initially, I had intended to exchange all of my position in VTSAX for more shares of VYM; however, I have adjusted that plan and will share my current thinking with you along with some forecasting that I have done.
Rather than invest all of that money into VYM, I am planning to invest approximately half of the funds into VYM and the remaining half will be spread across a few of my other holdings. While I would love to say that I created some type of scientific model to determine that split, it is actually based on something far more rudimentary.
The additional investment into VYM will be enough to take my current position up to a total of 200 shares.
When recapping my latest purchase of VYM shares, which I have been doing on a routine monthly basis with an automated deposit, I had set a target of 200 shares as when I would look to redirect that deposit into my Fidelity account and leave VYM on auto-pilot.
Therefore I will be purchasing approximately 68 shares of VYM to round out that position.
What about the rest of the funds?
I decided to review my current holdings as well as my current watch list, and plan to direct the remaining funds across a handful of positions that are looking attractive to me right now.
As of writing this post, I am leaning towards purchasing more shares of Target, Williams-Sonoma, Franklin Resources (it finally looks like they will have a slight uptick in assets under management), and General Mills (certainly not without risk, but I believe they may have an earnings surprise next week).
What could that look like?
Well, before we take a look at that, here is a snapshot of what my current taxable brokerage DGI account looked like:
Here you can see that my current DGI portfolio in my taxable brokerage account has an annual income of $3,622 (with the remaining portion on my portfolio page coming from my IRA) with an average dividend yield of 2.99% and 10.3% dividend growth over the last 5 years.
The numbers above were with my current holding of VTSAX prior the sale.
Using Simply Safe Dividends, I modeled a mock portfolio to demonstrate the impact of making the changes I mentioned above, and here is what that would look like based on current prices:
The model shows that by swapping my holding of VTSAX and distributing those funds across VYM and a handful of other positions, I will increase my projected annual dividend income by $167.00 and the average dividend yield will increase to 3.13%.
The average dividend growth will have a slight uptick to 10.4% over the last 5 years.
By making this change to my portfolio, I feel as though this segment of my overall investment portfolio will truly be aligned to the dividend growth investing strategy.
With my holding in VTSAX having a very minor capital loss, there will not be a tax drag to making these changes and the forward-looking view will result in an increase in projected annual dividend income and average dividend yield of my portfolio.
These changes have not been finalized as of yet, as I entered the sell order of VTSAX yesterday and therefore need to wait for that to be processed before I can reinvest the funds. However, the only portion of the above plan that might change slightly is the number of shares that are purchased based on fluctuations in the market.
Overall I think this is the right change to make and the timing works out well.
Please share your perspective on how I plan to shuffle up the portfolio, as maybe I have overlooked something.