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.
14 thoughts on “Shuffle Up and Deal :: Tweaking the Dividend Portfolio”
Makes sense to me. I have the same philosophy about equity funds. They should be dividend focused. I shuffled my portfolio recently selling a loser for tax loss purposes and redistributing the remainder across other holdings. Like you, I wasn’t overly scientific about it. Just wanted to maintain my dividend yield and improve dividend growth with the changes which I think I did while beefing up my tax losses. Tom
Thanks Tom, appreciate the feedback. Sounds like we each took very similar courses of action, and here is to the shuffling we have each done working out for the best!
Sounds like a good plan, DivvyDad. If you sold VTSAX yesterday, your timing may work out well considering the market downtrend today. You’ll be able to snatch up those individual names at lower prices. I look forward to hearing about how you deployed your capital.
Thanks ED, I was able to buy 70 shares of VYM today but the rest is pending because I need to transfer the cash from Vanguard over to Fidelity–and unfortunately that has to go through the middleman of my bank as my only other option seemed to be to wire funds at a cost of $10 from Vanguard (may have been worth it if prices go up before the funds get to Fidelity).
My company uses Vanguard for our 401k. They dont offer VTSAX but I have configured large, medium and small cap funds to replicate it. It just keeps going down it seems. I do have VTSAX in both a my brokerage and IRA accounts at Vanguard and likewise they just keep going down. I compared VTSAX and VYM on their website and its very confusing. from what I can tell the expense ratio is double for VYM vs VTSAX and all the figures they have show higher returns for VTSAX?
You’re correct that the expense ratio for VYM is higher than that of VTSAX, but they are not really comparable investments. Interestingly enough, if you compare VYM to the corresponding mutual fund (VHDYX) you will see the ETF has a lower expense ratio.
For me, the reason I am choosing VYM in this portfolio is for the higher yield that will produce more income in my retirement years. I will be using my dividend income to offset what I need to withdraw from principal. I do hold VTSAX in my retirement accounts and really like that fund, but for the dividend focused portion of my portfolio I have found VYM to be a better option for me.
It seems like a sensible move that whenever you can add both yield and growth to your portfolio, you should probably do it. I would have done the same thing in your situation.
Thanks Kody; I am just finishing up my write-up on the transactions and I am happy with the results. I came pretty darn close to hitting my forecast right on the nose.
This is a very interesting topic and one can fill books about this subject. I believe there is no simple answer and it rather depends on your personal preferences and goals. Like yourself, my investing journey has begun with index funds. However I am considering to optimize my overall index approach, too. Threfore it’s quite helpful to hear how other people are handling this. Thanks for sharing.
You’re welcome, and I am happy to hear that this may have been helpful as at least one additional perspective. You’re right that it really does boil down to personal preferences and goals. For me, I have found my mix of index funds and DGI stocks to be my “sleep well at night” mixture.
Seems to make sense to me. Selling a lower yielding index fund for a higher yielding and higher growth one. It aligns with our goals of dgi’s.
Love the portfolio snapshots what program is that, seems really handy. Hope you bought some gis before earnings, its one of my green stocks these days!
Thanks PCI, unfortunately my GIS purchase was on the day of earnings and therefore I wasn’t able to get it quite as low as I would have liked (but still was able to grab it below my target price).
The program that created those snapshots is Simply Safe Dividends; I am absolutely loving their service.
I’ve been adding SCHD (the Schwab version of VYM) over the last week. I think the yield topped out at 3.4%. With large drops like these, it’s easy to spread the money around into lots of deals using ETFs instead of having to pay trading fees. But as normal, I’ve been adding plenty of individual names as well 😉
I like the div growth chart. Is that a simply safe div report?
That’s great TDP, it sounds like we are both taking very similar approaches. I’m still hoping to find at least one or two more buying opportunities before the year is out.
And yes, the chart is from Simply Safe Dividends!