Quarterly Rebalance Note
Q3 2026 Rebalance — Dividend Income Strategy
Worked in the open: the exit screen, the drift band, six sells, three replacements, and one honest policy amendment. Marked to market from the live position file, July 1 2026. Whole-share trades only.
$110,631
Portfolio value
+10.6%
Since Jan 1 · SCHD +16.5%
3.5%
Fwd yield · target 4.0%
6
Sell orders
$19,862
Replacement budget
The trades
July 1 trade list — 3 trims, 3 rule-driven exits, 1 top-up
Trims come from the ±20% drift band. The exits are not discretionary: T and DLR tripped the Dividend Freeze Exit (four consecutive quarters without a raise — the manual says liquidate, no exceptions), and AVGO is rotated out for violating the 2.5% minimum-yield mandate.
| Action | Ticker | Shares | Est. $ | Result |
|---|---|---|---|---|
| TRIM | JNJ | 9 | −$2,286 | → 5.05% |
| TRIM | CVX | 10 | −$1,658 | → 4.94% |
| TRIM | JPM | 4 | −$1,309 | → 5.03% |
| SELL ALL | AVGO | 20 | −$7,555 | closed |
| SELL ALL | T | 201 | −$4,161 | closed |
| SELL ALL | DLR | 25 | −$4,490 | closed |
| BUY | CMCSA | 65 | +$1,596 | → 4.17% |
+$21,458
Proceeds from sells
−$1,596
CMCSA top-up
$19,862
Left for replacements
Execution rule — enter everything the same day
Sells without matching buys read as withdrawals and distort the NAV series. All six sells, the CMCSA top-up, and the three replacement buys go in as one session.
New positions
Deploying $19,862 — three new ~5% positions
~5.4% yield · ~$5,532
Gaming/experiential net lease. Raised every year since its 2018 IPO, CPI-linked rent escalators, no overlap with O's retail book.
~4.7% yield · ~$5,532
T. Rowe Price — 38 consecutive years of increases, debt-free balance sheet. Takes the reweighted Financials slot (see policy amendment).
Yield elevated post-drawdown · ~$5,532
Accenture — ~20y raise streak, low-40s% payout, net-cash balance sheet. The AI-fear drawdown that raised its yield is a price risk, not an income-safety risk. Entry conditional on clearing the 2.5% yield floor at execution.
Policy amendment — Comm. Services 15% → 10%, Financials 5% → 10%
An honest disclosure, not a silent change. The 15% Communication Services target was built around three names; with T liquidated by rule, the sector's remaining income universe is structurally thin — post-2018 GICS it is dominated by near-zero-yield growth names, and the two investable ad-agency payers are merging into one company. Rather than force a lower-quality third holding, the slot moves to Financials, where the quality-income universe is deep. TROW takes it. All other limits unchanged.
Projected post-trade forward yield: ~3.8–3.9% (from 3.5%).
Diagnosis
Position drift — all 20 holdings + 3 new positions
The drift band is ±20% of the 5% target: trim above 6% ($6,638), add below 4% ($4,425). Streak is consecutive years of dividend increases; 24 is the data-history cap. O's short streak is a monthly-raise cadence artifact, not a cut.
| Ticker | Value | Weight | Status |
|---|---|---|---|
| JNJ | $7,873 | 7.12% | TRIM >6% |
| AVGO | $7,555 | 6.83% | EXIT · mandate |
| CVX | $7,128 | 6.44% | TRIM >6% |
| JPM | $6,874 | 6.21% | TRIM >6% |
| MO | $6,404 | 5.79% | hold |
| ABBV | $6,286 | 5.68% | hold |
| KO | $6,095 | 5.51% | hold |
| XOM | $6,016 | 5.44% | hold |
| MRK | $5,911 | 5.34% | hold |
| DUK | $5,443 | 4.92% | hold |
| NEE | $5,442 | 4.92% | hold |
| O | $5,267 | 4.76% | hold |
| SO | $5,168 | 4.67% | hold |
| VZ | $4,911 | 4.44% | hold |
| DLR | $4,490 | 4.06% | EXIT · freeze |
| PFE | $4,286 | 3.87% | band edge · hold |
| PEP | $4,197 | 3.79% | band edge · hold |
| T | $4,161 | 3.76% | EXIT · freeze |
| PG | $4,106 | 3.71% | band edge · hold |
| CMCSA | $3,020 | 2.73% | TOP-UP <4% |
| VICI | ~$5,532 | ~5% | NEW POSITION |
| TROW | ~$5,532 | ~5% | NEW POSITION |
| ACN | ~$5,532 | ~5% | NEW POSITION |
Allocation
Sector weight vs. amended target
Accountability
Performance vs. SCHD — the honest ledger
+10.6%
This book · price only
+16.5%
SCHD · price only
~+12.4%
This book · incl. cash income
+18.6%
SCHD · dividends reinvested
The book trailed its benchmark by roughly six percentage points this half — and that gap is architecture, not stock selection. The strategy runs ~28% in rate-sensitive assets (utilities, REITs, telecom) that SCHD holds at near-zero weight, and 0% in Industrials where the benchmark carries ~12%. In a risk-on half-year that composition lags; it is also the sleeve that holds the floor when the tape turns, and it is what buys a cash yield the benchmark does not pay. Income leaves this portfolio as cash by design (DRIP off), which is why the price-only figures are the apples-to-apples comparison.
What the disclosure obligates
A defensive income book trailing a bull-market benchmark is a philosophy; hiding the comparison would be a problem. But the defense only holds if the income side delivers — at 3.5% forward yield the book currently pays roughly what SCHD pays, and “same yield, half the price return” is not a product. This quarter's mandate-fit exits and yield-accretive replacements exist to push the yield to the 4.0% target. The sector composition itself — including the missing Industrials sleeve — is logged for the Q4 policy review rather than amended mid-quarter.
Policy amendment — SPYD becomes the mandate benchmark
The comparison above also exposed a structural problem with the benchmark itself. SCHD is a dividend-growth fund — ROE and cash-flow screens, ~12% Industrials, zero REITs. A 4%-income mandate trails it in every risk-on year and leads it in every risk-off year by construction: the gap measures the market regime, not the manager. Effective this quarter, SPYD (S&P 500 High Dividend — equal-weight, ~4% yield, holds the REITs and utilities this book owns) becomes the mandate benchmark on the strategy page and performance chart. SCHD remains a permanent reference comparison in every report — this change is published in the same document that discloses the SCHD gap, not after hiding it.
The blind spot
Income concentration — the risk capital rules can't see
The book yields 3.5% — level with its SCHD benchmark and under the 4.0% target — because equal-capital slots let AVGO (0.7%) and JPM (1.8%) dilute the income while the top 5 payers carry 41% of the paycheck. Exiting T (the #6 income name) and adding ~4%+ replacements raises the yield and spreads the income at the same time.
| Ticker | Fwd income | % of income | Capital weight |
|---|---|---|---|
| MO | $377 | 9.6% | 5.8% |
| VZ | $328 | 8.4% | 4.4% |
| PFE | $306 | 7.8% | 3.9% |
| CVX | $306 | 7.8% | 6.4% |
| O | $276 | 7.0% | 4.8% |
| T | $223 | 5.7% | 3.8% |
| PEP | $184 | 4.7% | 3.8% |
| DUK | $183 | 4.7% | 4.9% |
Durability
Dividend increase streaks
Consecutive years of dividend increases per holding (struck-through = exited this quarter). T and DLR showed no raise in four consecutive quarters — the freeze rule fired, and in an income strategy a frozen payout is a position that has stopped doing its job. O's short streak reflects monthly-raise cadence, not a cut.
Recommendations
Three fixes for the operating manual
All current limits are capital-based. Add: no holding may contribute >8% of total income; top-5 income contributors capped at 35%. MO alone is 9.6% of income today.
Reinvesting into the issuing security buys more of the highest-yield names every quarter — the exact concentration the drift band unwinds. DRIP-to-cash or DRIP-into-most-underweight instead.
The 2.5% yield floor is checked at entry only. AVGO decayed to 0.7% and kept a full slot. New rule: below the floor for two consecutive quarters → flag for rotation.