My Pay The House Off Early Dividend Portfolio September 2016 Update

by: DGI Guy

Summary

I have a goal to pay off my house in 10 years through savings and investment.

This portfolio is designed to earn a 6% market return over the next 10 years.

With contributions and dividends earned, I am on target to meet my goal.

Introduction

In May 2015 I purchased a house by putting down 20% and getting a mortgage. In my opinion, this house is not an investment. I see it as a cost avoidance. I plan to live here for 10 or 11 years and it is less expensive than renting for 10 or 11 years.

Part of our family's financial goals are tied to the ability to have freedom later in life. To meet that goal, one of the success factors will be reducing expenses. A big piece of that success will be removing the cost of paying for housing (not housing upkeep - just the mortgage). This portfolio exists to have the option to pay off the house in 10 years. I do not know if I will choose to pay it off, but I would like to have the flexibility to do so.

The goal of the article is to provide an update on the portfolio that will ultimately lead me to make a decision in the future on what is best at that time. I am leaning towards not paying it off directly, but a lot can happen in the next 9 years!

Portfolio Goal

The goal is to have a portfolio value of $350k by May 2025. The goal was to make roughly $250k in contributions over that time period in two monthly installments of $950 each. As I have noted in previous updates, for roughly 3 months so far (and 3 more months) I have had to take this down to 1 payment of $950 for each month due to some unexpected home repair needs. The return goal of this portfolio is based on a 6% market return. To increase my chance of success at reaching my goal, I will design the portfolio to have a 3% yield with 5% dividend growth.

The portfolio currently sits at a value of $53,380. This is ahead of the goal of $49,517. I am on track!

Dividend Increases

I am at an interesting point in the year right now. The stock holds 14 different stocks. Of those 14 stocks, 13 have raised their dividend this year. The average raise has been 11%. The one outstanding company is Johnson Control (NYSE:JCI), which generally raises its dividend in December each year. All in, I have been pretty happy with this result.

For September there were not any dividend raises. That is fine. I will still collect what came rolling in!

Stock Sales / Buys

In my last update I spoke about portfolio simplicity. I had removed a position or two with intent to keep the number down. Well, untrue to my word, I went off and added a new company this quarter due to the recent price meltdown. I added 30 shares of CVS Health (NYSE:CVS) @ 87.00. It is already down to $86.40. Boy did I time that wrong (note the sarcasm). It feels bad to buy something that decreases in value almost instantly. That is ok though. I am invested in the long term and I have time for it to recover over the next 20 years.

I also made a big dividend reinvestment. As with last month, I bought a couple shares of Tiffany (NYSE:TIF). Now I use Scottrade's FRIP plan. Their plan basically lets you pool your dividends and schedule purchases of shares for free. I was not really paying attention and I bought shares around $72. As some of you may remember my initial entry point was $59.99. I believe last month I bought at $62. So, 72 is a little rich and where I feel it is fully valued. This is a reminder to you all to keep an eye on things!

As an interesting note, I guess I should add what I did with my $950 that I invested this month. As noted, I am sitting on a lot of cash right now. So, instead of placing the money in the account, I did what some of you have recommended in past update articles -- I paid down the mortgage. Now let me say, I was as shocked as you are with this decision. I bounce back and forth on if this is a good idea or not. If the market is not presenting good enough options then paying down debt is the next best thing. It is interesting to note that paying down $1000 today offsets over $2000 in interest payments over the life of the loan. Now I do not plan on letting this ride for another 29 years, but it was worth doing the math just to see what happens.

Portfolio Holdings

The resulting portfolio has a current yield of 2.7%. This is below my goal of 3.0% because of the sales that I have made last month. I have a bit more cash than I would like. On my invested dollar, I am right around a 2.95% dividend. That is close enough to 3% for me. The portfolio is still kicking off $1,418 in dividend income over the next 12 months.

Last update, I was holding 15 stocks and I am now up to 16. I still think 20 will be about what I look to have in this portfolio. I am looking to mix some of the positions that I have in my other portfolio to keep the research overhead under control. I also think that this portfolio could use some of the classic dividend investor stocks like the telecoms to help lower the beta.

Company

Ticker

Shares

Price

Market Value

Qrt. Divy

Exp. Income

Yield

Abbvie

ABBV

40

$63.07

$2,523

$0.57

$91.20

3.6%

Ameriprise

AMP

18

$99.77

$1,796

$0.75

$54.00

3.0%

Boeing

BA

9

$131.74

$1,186

$1.09

$39.24

3.3%

Cummins

CMI

26

$128.15

$3,332

$1.02

$106.08

3.2%

CVS Health

CVS

30

$86.40

$2,592

$0.43

$51.00

2.0%

Gilead

GILD

92

$79.12

$7,279

$0.47

$172.96

2.4%

Intl Business Machine

IBM

12

$158.85

$1,906

$1.40

$67.20

3.5%

Johnson Control

JCI

74

$46.53

$3,443

$0.29

$85.84

2.5%

Johnson & Johnson

JNJ

22

$118.13

$2,599

$0.80

$70.40

2.7%

Morgan Stanley

MS

185

$32.06

$5,931

$0.15

$111.00

1.9%

Omega HC

OHI

80

$35.45

$2,836

$0.58

$185.60

6.5%

Target

TGT

50

$68.68

$3,434

$0.60

$120.00

3.5%

Tiffany

TIF

41

$72.63

$2,978

$0.45

$73.80

2.5%

T Rowe

TROW

30

$66.50

$1,995

$0.54

$64.80

3.2%

United Tech

UTX

20

$101.60

$2,032

$0.66

$52.80

2.6%

Wells Fargo

WFC

48

$44.28

$2,125

$0.38

$72.96

3.4%

Cash

$5,276

Total Portfolio Value

$53,263

$1,419

2.7%

Click to enlarge

Conclusion

The portfolio is a work in progress and hopefully folks can see that as I provide these updates. I am below my income goal, but beating my dividend growth goal. The portfolio value is performing above my expectations, but I do have a couple of light contribution months. It will be interesting to see how it plays out through the end of the year.

I will continue to provide updates to this real time portfolio here on Seeking Alpha as an example of a real person making real transactions in real time. I appreciate all the feedback so please keep it up!

Disclosure: I am/we are long ALL STOCKS MENTIONED.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.