Q1 25 dividend portfolio review: taking a look at the big picture

The second quarter of 2025 has got off to a volatile and difficult start for investors. Commiserations if your portfolio has been hit badly and congratulations if you've somehow escaped unscathed.

In situations like this, I find it's much easier to remain objective if I own shares that are providing me with a reliable cash income. So far in 2025 that has remained the case.

My model dividend portfolio provided a flat income during Q1. Share price falls and some dividend growth mean that the average yield on my shares has now risen to over 6%, from 5.4% at the end of 2024.

In this review I'll take a closer look at the portfolio's Q1 performance and then step back to consider how the portfolio's financial metrics have evolved since its inception. Have the companies in the portfolio simply got cheaper – or are they not as good as they used to be?

• Q1 25 portfolio performance review
• Portfolio changes in Q1 25
• Position weightings
• Key financial metrics for the portfolio - what's changed?
• Final thoughts

Q1 25 portfolio performance review

Individual stocks within the portfolio saw the usual wide range of share price movements in Q1, albeit with a negative bias.

Here's a snapshot of the changes seen during the first quarter – the average share price in the portfolio fell by 7.5%:

Share price movements can be gratifying and worrying in equal measure. But short-term changes are often not that significant. For long-term investment, I prefer to focus on the total return delivered by the portfolio over time.

My longstanding goal is to outperform the FTSE 100 Total Return index. Sadly, strong performance from some of the largest FTSE stocks (and weaker performance from my own) meant that this goal moved further away during Q1.

Q1 2025 performance:

• RH model portfolio total return: -5.3%
• FTSE 100 Total Return index: +6.8%

Here's a broader view on the model portfolio's performance since its inception in December 2021. It's not a pretty picture:

The volatility seen so far in April has actually narrowed this gap; it remains to be seen whether this trend continues. Competing with a market-cap weighted index is not easy when big caps outperform.

Blaming big cap outperformance sounds like a lame excuse. Perhaps it is.

However, the market cap of the FTSE 100 rose by £104bn in Q1, while the market cap of the FTSE All Share index only rose by £75bn.

This means that companies outside the FTSE 100 lost £29bn of market cap during the quarter. Excluding companies with a market cap over £5bn, ShareScope data suggests that only 28% of UK shares rose during the first quarter of 2025.

As I discussed at in my 2024 review, the model portfolio has beaten the FTSE 250 Total Return index since inception – this remained true in Q1:

The problem with this is that "you can't eat relative outperformance"...

I remain hopeful that my portfolio can outperform the FTSE 100 over time. But I'm not holding my breath at this point.

Portfolio changes in Q1 25

I did not make any portfolio changes during the quarter, except to top up three existing positions.

All three shares were AIM-listed companies offering above-average dividend yields – subscribers can read more about my choices in my March review. I've since added details of each transaction to the portfolio page.

Position weightings

My model portfolio positions are all initiated with a weighting equivalent to about 4.7% of the original portfolio capital. Occasionally I make top ups, as discussed above.

Here's how the model portfolio looked at the end of the quarter, after the top ups were made. Subscribers can see this chart with company names on my portfolio page:

As always, I hope to make some top ups during the remainder of the year, assuming dividend cash accumulates on schedule.

None of the portfolio's positions are currently large (or small) enough for me to consider carrying out any rebalancing.

Model dividend portfolio: key financial metrics

In this section I like to take a look at the portfolio as if it was a single stock.

I recognise that this doesn't provide any protection from stock specific issues. But I think this is still a useful way of ensuring that the companies in the portfolio have most of the characteristics I'm looking for.

This is also a handy way of monitoring any changes in the financial profile of the portfolio over time.

Note: I have made one change to this format for this update – the portfolio's dividend yield is now weighted to reflect position sizes. In this case, the result is that the portfolio's forecast yield of 5.6% is lower than the simple average forecast yield of 6.2%.

Here's how the portfolio looked at the end of March 2025:

Scroll L-R (Data source: SharePad/author analysis. Some adjustments were needed. *Dividend yields were weighted to reflect position size from 2025 onwards. Prior to this they were simply averaged.)

I usually review this table by stepping through the metrics from left to right. But given market conditions and the underperformance of the portfolio since 2022, I thought it might be informative to trace the evolution of these metrics over the portfolio's lifetime to date.

Starting on the left, we can see that the average market cap of the companies in the portfolio has fallen markedly. Some of this is due to share price losses, but the majority of it is due to my stock picks tilting progressively towards smaller companies.

This may partly be due to a tilt to value, which has been particularly abundant among small caps over the last couple of years. Whether this will translate to improved future performance remains to be seen.

So far, my value picks have stayed cheap – and often become cheaper. This is illustrated by the portfolio's average EBIT yield and free cash flow yield, which have risen progressively. The average dividend yield has also risen, although I'm pleased that income has remained comfortably covered by free cash flow, in aggregate.

Another positive is that profitability hasn't changed much. The portfolio's average return on capital employed is almost unchanged from inception, in the low 20s%. That's firmly in quality territory, in my opinion.

Average dividend growth has also remained broadly unchanged, as has the average number of consecutive years my companies have paid dividends (including any cuts).

Final thoughts

Naturally, I'm talking my own book here. My main personal portfolio contains the same stocks as the model portfolio.

Even so, I think these numbers support my view that valuation de-rating rather than fundamental underperformance has been my main problem.

Of course, paying too much for a good stock can be nearly as damaging to portfolio performance as buying a bad stock.

There's clearly a risk I have misjudged the value and growth prospects on offer when I originally purchased some of these shares. If I have, I could be condemned to years of underperformance, despite seemingly acceptable company results.

For now, I remain fairly confident that the portfolio contains a selection of good quality companies with competent management. Time will tell.

I'll be back at the end of what promises to be an eventful quarter with a further update. Until then, I wish you good luck in the markets!

Roland Head

Disclaimer

This is a personal blog/newsletter and I am not a financial adviser. All content is provided for information and educational purposes only. Nothing I say should be interpreted as investing advice or recommendations.

You should carry out your own research and make your own investing decisions. Investors who are not able to do this should seek qualified financial advice. Reasonable efforts are made to ensure that information provided is correct at the time of publication, but no guarantee is implied or provided. Information can change at any time and past articles are not updated.