Shifting Investment Mix in a Long-Term Portfolio
Over time, when some technology stocks shoot up, I take some of the profits off of the table. For example, Cindie and I used to hold a substantial position in Apple (AAPL) shares. This year I sold 100 shares and booked a profit of 419% and some additional covered call income on those shares. I still hold 100 shares that are worth more than 500% than my purchase price. There is a pending covered call to sell those shares, but the contract expires on Friday, and I may be able to keep my shares. If not, I am more than happy with the 500% profit.
Today our combined investment accounts hold MSFT, STX, AVGO, IBM, and TXN as our top five technology investments. If you were to look at the businesses, you would find that they are more different than similar. The exceptions are AVGO and TXN, as they are both in the semiconductor industry. IBM is a consulting technology company, STX is technology hardware and storage, and MSFT is system software. Notice the diversification within the sector.
Dividends and Growth
The top five information technology investments also vary by dividend profile. However, all five have a dividend payout ratio within my desired range of 20-70%. Four of the five have a current yield above two percent. Four of the five also have ten or more years of consecutive dividend growth. IBM certainly isn’t a growth investment, but it makes up for it by paying a yield of 4.7%. Bear in mind that the dividend from IBM can be used to buy other investments. I do not have automatic dividend reinvestment on for any of our holdings.
Top Five Ranking by Total Gain
It could be argued that I would have done better just investing in AAPL and MSFT. That ignores the benefit of the dividend and selling options. As a long-term investor, I want positions that grow in value, pay a dividend, and that grow the dividend. Based on value growth, MSFT is clearly number one of the five. However, STX and TXN have appreciated nicely since I purchased the shares. AVGO and IBM have far less history. Also bear in mind that I sell covered call options on all of these positions, as they all have heavy options trading. This added gain isn’t apparent by looking at dividends or share appreciation. Options income flies under the radar, but it is very real.
2021 Options Income of $2,246 for the Top Five
STX has provided me with $985.58 in additional YTD income by trading covered calls. MSFT options trades (Calls and Puts) gave me $792.55. TXN added $278.55 in options income. IBM has resulted in $217.64. AVGO has not yet been traded for options. I just recently bought more shares so that I could start trading options. The beauty of this income is that it can be repeated each week. If I am careful, I get the income and don’t have to relinquish my shares.
ETF Investments in Technology
Although the focus of an ETF like VYM (Vanguard High Dividend Yield ETF) is not technology, over 10% of the 400 companies in this ETF are in the information technology sector. ETF SCHD is currently holding 16% in technology, and we own shares of SCHD. Even DGRO is 18.9% information technology.
A recent ETF addition to my investment mix is QYLD (Global X Funds – Global X NASDAQ 100 Covered Call ETF). QYLD is over 45% technology, but it has a covered call options strategy.
Because of these broad ETF’s, our total exposure to technology is about 14% of our total investments. This may seem like a lot, but it is far less than our investments in the financial sector. I like many of the financial subsectors. These include insurance companies, business development companies, banks, and mortgage companies.