Portfolio Update: Trimming ETF Income Holdings

Once again it is time for a goals/progress update. I am pleased to report that annualized dividend income rose in July, extending the streak to 5 months after February’s decline. Since I began publicly tracking annualized dividend income in November 2007, it has increased in 19 of the last 20 months.

My goals were defined in this December 1, 2007 Investing Goals post and updated in my 2009 Investing Goals post. Below is an updated version of the table found in the original post.

Description	Dividend Income Annualized	Yield on Cost
2027 Goal	110,000	20.00%
2017 Goal	30,000	10.00%
2009 Goal	8,000	5.00%
December/2008	5,636	5.28%
Purchases YTD	2,302	-0.07%
Div. Changes YTD	(402)	-0.35%
Sales YTD	(1,399)	0.07%
July/2009	6,137	4.93%
Purchases	350	-0.02%
Div. Changes	(31)	-0.03%
Sales	(116)	0.10%
June/2008	5,934	4.88%

The above information covers the current month and year-to-date through the current month.

Click here for a Detailed Historical Progress Table.

For the month, annualized dividend income increased $203, and Yield on Cost (YOC) increased 0.05%. I finally crossed the elusive $6,000 mark. Hopefully, more stable markets and fewer dividend cuts will allow me to reach the $7,000 level more quickly. This month’s changes were a net of new purchases, dividend changes and sales. Let’s examine each of the these categories:

Purchases: The $350 increase in annual dividend income and (0.02%) decrease in YOC related to the following purchases (yield at the time of purchase):

• $53 Nucor Corp. (NUE) 3.42%
• $103 Emerson Electric Co. (EMR) 4.16%
• $194 Vanguard Long-Term Bond ETF (BLV) 5.49%

All the purchases, except BLV, lowered my YOC. As noted in earlier updates, I generally expect YOC to drop each month since most new investments will yield less than my current YOC, and dividend increases will not be sufficient to offset it.

Dividend Changes: The $31 decrease in annual dividend income and (0.03%) decrease in YOC related to the following dividend changes (a=dividend stated in annual terms, q=quarterly, m=monthly):

• $3 Canadian National Railway Company (CNI) $0.200q>$0.217q 0.00%
• $2 Vanguard Long-Term Bond ETF (BLV) $4.02a>$4.04a 0.00%
• $1 Realty Income Corp (O) $0.14206m>$0.14237m 0.00%
• ($4) iShares Investment Grade Corp. Bond (LQD) $5.80a>$5.58a 0.00%
• ($12) SPDR S&P Dividend (SDY) $2.15a>$2.00a -0.01%
• ($21) Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO) $1.78m>$1.71m -0.02%

Sales: The ($116) decrease in annual dividend income and 0.10% increase in YOC related to the following sale:

• ($116) Vanguard High Dividend Yield Indx ETF (VYM) 0.10%

In July I continued the process of trimming back my ETFs/CEFs income holdings with the sale of VYM. I will continue to reduce my holdings in this area each month.

Based on year-to-date results, I am going to raise my revised estimate of annualized dividend income on December 31, 2009 to $6,500 from $6,300.

That’s it for this time. The next monthly progress update will be early September.

Comments

[David Van K...:]

D4L,

A couple of questions: (1) You use "annualized" rather than "annual." Does that mean you are calculating a hypothetical number, or are you presenting the actual TTM dividend income for the current period? Or something else? (2) You state that with new purchases, your yield on cost goes down, and I understand that. But your yield on cost goals for 2017 and 2027, 10% and 20%, are much higher than your current yield on cost. Does that mean that at some point you expect to stop making further purchases (either with new money, re-invested dividends, or both)?

Thanks, Dave

Aug 09 03:44 PM

[Dividends4Life:]

Dave: The annualized income is forward looking and based on my current holdings. As for my YOC rising in the future, it is a result of building my investment base so current investments represent a smaller % of total invested capital, thus new capital will have have less an effect on YOC. For example, a $5,000 investment into a $20,000 portfolio will have a dramatic effect on its YOC, where the same $5,000 investment into a million dollar portfolio will produce a much smaller effect.

Best Wishes,
D4L

Aug 10 09:18 AM

[David Van K...:]

D4L, Thanks. I'm accustomed to S&P's phrase, "indicated dividends," to describe the forward-looking dividends on current holdings. I get it now.

I plot the indicated dividends for my public Dividend Portfolio on my own site. Because my account is at E*Trade, I use their "Income Estimator" feature, which does not forecast dividend increases, it just assumes continuation of current dividends until an increase is actually declared. Thus it tends to under-estimate what the actuals will be. That's OK with me, I either get some nice surprises and/or it acts as a cushion against an unanticipated dividend cut or freeze. Dave

Aug 10 01:52 PM