One of my goals this year is to find opportunities to boost dividend income with options. Writing or selling covered calls is a safe way to earn extra income on top of the dividend income you already receive just for owning dividend paying stocks. You can sell one contract for every 100 shares you own and collect an option premium in return.
I closed nine positions this month and reduced my position in one stock trading well above fair value. The main reason for selling so many stocks is to collect cash for round out buys. With the markets trading near all-time highs, it is a good time for selling, but not for buying!
With more sells than buys this month, DivGro's projected annual dividend income (PADI) took a little nosedive. Fortunately, I'm still ahead of schedule goal-wise. In fact, I'm quite sure that I'll reach my $12,000 target before year's end.
In August, I'm planning a few more sells and several additional round out buys. Of course, I'm also looking for opportunities to sell some covered calls. Volatility is quite low now, so patience will be the name of the game!
The main goal of DivGro is to generate a growing dividend income stream. That's why I like to review my dividend income and any changes that would affect future payments.
In the month of July, I recorded dividend income totaling $862. 18 different DivGro stocks paid dividends. The year over year increase for July is 119%. Including this month's total, I've collected dividend income of $10,458 this year.
Projected annual dividend income (PADI) is the total dividend income I expect to receive in the next 12 months. DivGro's PADI decreased by 4.44% to $11,063 due to stock trades and dividend changes. I recorded 5 buys and 10 sells, while 5 stocks announced dividend increases and 1 stock announced a dividend decrease.
The following chart plots DivGro's projected monthly dividend income (red line) against monthly dividends:
Comparing dividend income by month is another way to see progress:
In July, I added shares to 5 existing positions:
• AbbVie Inc (NYSE:ABBV)
• Eaton Vance Tax-Managed Global Diversified Equity Income Fund (NYSE:EXG)
• Gilead Sciences, Inc (NASDAQ:GILD)
• PennantPark Investment (NASDAQ:PNNT)
• Reynolds American, Inc (NYSE:RAI)
This month, I sold shares and reduced my position in the following stock:
• Realty Income Corporation (NYSE:O)
Lastly, I closed the following positions:
• Avista Corporation (NYSE:AVA)
• Chevron Corporation (NYSE:CVX)
• Meredith Corporation (NYSE:MDP)
• Nippon Telegraph and Telephone Corporation (NYSE:NTT)
• Philip Morris International, Inc (NYSE:PM)
• Reliance Steel & Aluminum Co (NYSE:RS)
• Starwood Property Trust, Inc (NYSE:STWD)
• Toronto-Dominion Bank (NYSE:TD)
• W.P. Carey, Inc (NYSE:WPC)
As a result of these transactions, DivGro's PADI decreased by $547.
The following stocks announced dividend increases:
The following stock announced a dividend decrease:
• Nuveen Premium Income Municipal Fund 2 (NYSE:NPM)
DivGro's PADI increased by $34 due to these dividend changes.
I received dividends from 18 different stocks this month, for a total of $862 in dividend income:
• Chubb Limited (NYSE:CB) - $16.56
• The Walt Disney Company (NYSE:DIS) - $71.00
• The Walt Disney Company (NYSE:DIS) - $19.17
• Dr Pepper Snapple Group, Inc (NYSE:DPS) - $37.10
• Eaton Vance Tax-Managed Global Diversified Equity Income Fund (NYSE:EXG) - $49.76
• The Gap, Inc (NYSE:GPS) - $37.95
• Kimberly-Clark Corporation (NYSE:KMB) - $25.76
• The Coca-Cola Company (NYSE:KO) - $22.75
• Main Street Capital Corp. (NYSE:MAIN) - $41.40
• Altria Group, Inc (NYSE:MO) - $42.38
• Nuveen Premium Income Municipal Fund 2 (NPM) - $23.28
• Nippon Telegraph and Telephone Corporation (NYSE:NTT) - $64.01
• Realty Income Corporation - $19.90
• Philip Morris International, Inc (NYSE:PM) - $66.30
• PennantPark Investment (NASDAQ:PNNT) - $60.20
• Reynolds American, Inc - $42.00
• Reynolds American, Inc - $35.70
• STAG Industrial Inc (NYSE:STAG) - $27.80
• Starwood Property Trust, Inc (NYSE:STWD) - $120.00
• W.P. Carey, Inc (NYSE:WPC) - $39.20
Duplicate entries are for dividends received from different accounts.
Even though I'm no longer comparing DivGro's performance to market indices, its useful to understand the environment we're investing in:
In July, the DOW gained 2.80%, the S&P 500 gained 3.56%, and the NASDAQ gained 6.60%. Yield on the benchmark 10-year Treasury note fell to 1.46%.
Below are charts showing the market activity of these indices in July, courtesy of Google Finance. (Click on the charts to see detail). Each chart shows a 20-period exponential moving average (in red). I've also included a 20-period relative strength index below the main chart.
Based on the total capital invested and the portfolio's current market value, DivGro has delivered a simple return of 18.75% since inception. In comparison, DivGro's IRR (internal rate of return) is 11.95%. (IRR takes into account the timing and size of deposits since inception, so it is a better measure of portfolio performance).
I track yield on cost (YoC) for individual stocks, as well as an average YoC for my portfolio. DivGro's average YoC increased from 4.34% last month to 4.48% this month.
Another interesting statistic is percentage payback, which relates dividend income to the amount of capital invested. DivGro's average percentage payback is 9.60%, up from last month's 8.54%.
Finally, DivGro's projected annual yield is at 3.99%, down from last month's value of 4.22%. I calculate projected annual yield by dividing PADI ($11,063) by the total amount invested.
I have lots of cash available to round out some of my positions for options trading. Still, I'm targeting a few more sells in August, which would boost my cash position even more. The markets are trading near all time highs and volatility is quite low (see the CBOE market volatility index VIX). Buying shares and selling covered calls will be challenging! Let's see what happens!
Please see my Performance page for various visuals summarizing DivGro's performance.
This article is a summary of my July 2016 monthly review of DivGro, which first appeared on my blog on August 6. Interested readers can click on the link for more details, including a spreadsheet of my entire portfolio.
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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. I have no business relationship with any company whose stock is mentioned in this article.