Pay The House Off Early - Dividend Portfolio August 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. I have a tough couple months coming up though.

Introduction

Last May 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. I will be making roughly $250k in contributions over that time period in two monthly installments of $950 each. 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 $52,326. This is ahead of the goal of $45,217. I am back on track, but we all know that sometimes life gets in the way. I have had to reduce my contributions to this portfolio from 2 monthly payments to 1 monthly payment. I cut my own dividend! I should be fired!

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 in December each year. All in, I have been pretty happy with this result.

In August I have had two announced dividend increases as expected. Cummins (NYSE:CMI) did a 5% raise, which was great relative to the transition the company has seen this year. Also, Target (NYSE:TGT) raised their dividend by 7%. Target is throwing out a 3.2% yield now. That is pretty respectable for the level of quality of the company.

Stock Sales / Buys

As with my last update, I continue to move towards portfolio simplicity. I sold off my tiny position of General Motors (NYSE:GM). I was rocking 3 shares from a dividend reinvestment program buy. I had thought I was going to build a bigger position in GM, but I never got the timing right on buys. I decided to scrap my tiny position. Second, and less popular will be my sale of Digital Realty Trust (NYSE:DLR). My opinion was that the stock had run up too much too fast. I sold out at $109 and things are back down around $100 now which makes my decision look correct. I purchased shares in April 2015 for around $66. The run up means that I earned a 65% return in a little over a year plus the dividend. Earnings did not justify the price run up so I decided to cut and run while the money was good. Both of those sales went to move money into cash.

So what will the cash be used for? I don't know just yet. I am still keeping an eye on a few things. If GILD keeps crashing I may put some more money there. I like GILD over the next 15-20 years. They have the setup for a good potential return if management keeps making good decisions. Outside of that, I am keeping my eye on a few other things.

I have made 1 buy since last update and that was through a dividend reinvestment in Tiffany (NYSE:TIF). I bought a giant position of 2 shares (note the sarcasm!) at $62. While I have ridden the roller coaster on this position recently, I like the potential in the long term. The company has a fantastic history and the demand internationally is decent considering the strong dollar.

Portfolio Holdings

The resulting portfolio has a current yield of 2.6%. This is below my goal of 3.0%due to the sales that I have made recently. The portfolio is still kicking off $1,378 in dividend income over the next 12 months, which is below by last update. It is a good reminder to provide this update as I need to get that invested and working for me soon.

Last update, I was holding 17 stocks and I am now down to 15. 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

$66.54

$2,662

$0.57

$91.20

3.4%

Ameriprise

AMP

18

$96.52

$1,737

$0.75

$54.00

3.1%

Boeing

BA

9

$131.73

$1,186

$1.09

$39.24

3.3%

Cummins

CMI

26

$125.34

$3,259

$1.02

$106.08

3.3%

Gilead

GILD

92

$80.41

$7,398

$0.47

$172.96

2.3%

Intl Business Machine

IBM

12

$163.50

$1,962

$1.40

$67.20

3.4%

Johnson Control

JCI

89

$45.52

$4,051

$0.29

$103.24

2.5%

Johnson & Johnson

JNJ

22

$124.24

$2,733

$0.80

$70.40

2.6%

Morgan Stanley

MS

185

$29.01

$5,367

$0.15

$111.00

2.1%

Omega HC

OHI

80

$35.55

$2,844

$0.58

$185.60

6.5%

Target

TGT

50

$74.94

$3,747

$0.60

$120.00

3.2%

Tiffany

TIF

37

$62.75

$2,322

$0.45

$66.60

2.9%

T Rowe

TROW

30

$69.84

$2,095

$0.54

$64.80

3.1%

United Tech

UTX

20

$107.74

$2,155

$0.66

$52.80

2.5%

Wells Fargo

WFC

48

$48.68

$2,337

$0.38

$72.96

3.1%

Cash

$6,472

Total Portfolio Value

$52,326

$1,378

2.6%

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.

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