Morning All.
I wanted to write a post about why I started buying $DGRO and why I will buy more if this market weakness persists.
The yield on 10 year US Treasuries just went below 1% recently and has been hitting new record lows over the last couple of days, yesterday going under 0.85%. The flight to safety has been driving bond demand but as a lover of equities and dividends, I just find it crazy that investors are willing to support government debt with these kinds of yields.
$DGRO on the other had has a current dividend yield of 2.48% and is an ETF full of companies who have a minimum 5-year record of growing dividends, along with some other screening criteria to target companies who will be sustainable and likely to boost dividends in future.
In terms of current market dynamics, equities are falling and ignoring the potential for dividend cuts, a cheaper price on the ETF means buying that future stream of incomes at a discount, whereas with bonds moving higher, it means buying a reducing income stream and increasing the risk of capital losses should inflation accelerate.
DGRO has a lower beta than the overall market although it is not designed as a low-vol fund. So it will drawdown with the market but with some stability while also being able to benefit from any recovery rallies and paying us while we wait for that.
The Top 10 holding in DGRO are as follows, along with their weighting.
- $MSFT – 3.51%
- $AAPL – 3.44%
- $JNJ – 3.03%
- $VZ – 2.91%
- $JPM – 2.79%
- $CVX – 2.31%
- $PFE – 2.25%
- $PG – 2.22%
- $HD – 2.01%
- $KO – 2.01%
One of the nice characteristics of this ETF is that the Top 10 holdings only account for 26.48% of the total portfolio. This cuts down on single stock risk and avoids the potential situation of one mega-cap needing to cut their dividend and ruining the overall yield.
Looking at this Top 10 it’s a nice coverage of sectors, JP Morgan and Chevron suffering most at the moment with the falling interest rates and Oil demand fears respectively, caused by the market reaction to the COVID-19 situation.
This ETF is currently my preferred choice for buying into further market weakness without trying to pick the bottom. I am adding quality assets to the portfolio with this and if the recovery takes longer than hoped for we can at least receive some yield.
I’m still looking at potential stock picks for when the market fall does get exhausted and I’ve recently written about the Airlines, Carnival Cruises, Boeing and Copper related equities as areas of interest. I’ve also been looking at the Semiconductor and Cloud Computing sectors and further posts will follow to talk about what I’m seeing with those.
It’s a tricky time but I’m quite comfortable with the current volatility and looking to learn a lot from this pandemic threat so I can build us a more robust portfolio in future.
Thanks for your time.
