John And Jane - November Dividend Income Tracker

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Includes: AAPL, ABR, ADM, APLE, BP, CAH, CINF, CLX, CMI, EAFAX, EMR, EPR, GIS, HRL, IDCC, IRM, JCI, LTC, MO, MSB, NRZ, O, ORI, PIGFX, SCL, SEP, SJM, SKT, SPG, T, VZ, WASH, WLKP, WPC
by: Matthew Utesch

Summary

This is the first month I have tracked dividend income in an article and a phenomenal month it was.

Simon Property Group, Arbor Realty, Mesabi Royalty Trust, and Westlake Chemical Partners dished out another round of increases.

I have been waiting to sell PIGFX after they pay out their annual dividend (with the last portion of dividend income set to come at the end of December).

Included in my total dividend income for John and Jane's taxable account for the month of November is my estimates for dividend payouts in December.

Investment Thesis

November couldn't have gone any better for John and Jane's Portfolio as they received their normal dividends (along with a few increases) and an exceptional year-end distribution from the Pioneer Fundamental Growth Fund (PIGFX) (with the final dividend distribution to come in December).

The goal of this article is to track monthly dividend income changes and to establish a long-term database that will allow for year-over-year (YoY) comparisons.

Dividend and Distribution Increases

Four stocks in John and Jane's portfolio announced and delivered increased dividends over the previous quarter. The following is a summary of the increases:

  1. Simon Property Group (SPG) - SPG has been hammered over the last year with fears of the "Amazon Effect" on brick-and-mortar retailers. Although the market continues to discount SPG's portfolio, they have now raised the dividend 4-out-of-5 quarters in a row. The dividend was increased from $1.80/share to $1.85/share which represents a quart-over-quarter increase of 2.8%. If we look at this on a YoY basis the dividend has increased from $1.65/share to $1.85/share which represents a YoY increase of 12.1%.
  2. Arbor Realty Trust (ABR) - This is one of John and Jane's more volatile stocks in their portfolio but as long as the Fannie Mae and Freddie Mac continue to do well then I comfortable with this being a component of their portfolio. The dividend was increased after strong Q3 FFO of $.25/share which beat estimates by $.07/share. The dividend was increased from $.18/share to $.19/share per quarter which represents an increase of 5.6%.
  3. Mesabi Trust (MSB) - I was turned onto this stock from contributor Nat Stewart's article Mesabi Trust - 66% Upside To Fair Value where he laid out one of the most thorough cases for investing in a company that I have ever read. After doing my due diligence I decided to jump in on 100 shares. While MSB pays a variable dividend based on iron ore volumes, its dividend potential was too good to ignore. After purchasing shares MSB announced the most recently paid dividend of $.64/share, which represented an increase of 300% over its previous dividend of $.16/share. In the upcoming quarter, Nat Stewart's newest article Mesabi Trust - Why I See 80% Upside To Conservative Fair Value has indicated a forward dividend yield of approximately 17% based on current prices.
  4. Westlake Chemical Partners LP (WLKP) - This is another stock brought to my attention by Nat Stewart in his article Westlake Chemical Partners - Equity Issuance Dip And Asset Drop-Down Create 65% Upside where he lays out the case for a significant upside in value on the back of strong growth in distributable cash-flow (NYSE:DCF). The distribution was increased from $.365/share to $.3756/share per quarter for a total increase of 2.9%. On a YoY basis, WLKP increased the distribution from $.3353/share to $.3756/share which represents a total increase of approximately 12%.

Waiting On PIGFX

For those who have followed my series on John and Jane they know that the purpose of changing to a largely dividend-based portfolio is to ensure consistency over the coming years of their retirement. Protecting capital is important but the most important aspect of my investing philosophy is the maintenance of cash-flow as a way to create a more pension-like element for retirement.

My dislike of most mutual funds is that the fees they charge are the only thing that seems consistent over the long run. The average investor accepts these fees usually because they are scared of what they don't understand and so it is a small price to pay for peace-of-mind.

In the case of (PIGFX), their distributions come at the end of the year (November and December) and there is little visibility on what that payout will be. This ultimately creates a situation where there is no consistency for John and Jane. Given that PIGFX currently makes up 23% of their taxable portfolio (from their previous advisor) I believe that they will need to eliminate this position.

Source: Charles Schwab - PIGFX Distribution History

I have two hesitations in eliminating this position:

  1. Year-end distributions - If I sell these shares too soon then John and Jane will miss out on what I believed would be a massive distribution (I believed this because of the market's performance in 2017).
  2. Taxable consequences - Currently, PIGFX accounts for roughly $11k of capital gains and with John and Jane both working in 2017 (John is retiring at the end of 2017) I do not want to create any unnecessary taxable burden.

As you can see from the image above, I am glad I waited because PIGFX delivered the strongest distribution since prior to the Great Recession. John and Jane's 2016 PIGFX distribution for the month of November amounted to $853.12 compared with their 2017 November distribution of $2,356.96. With the dividend portion of the distribution still to come in December, I plan to hold these shares until after the first of the year at a minimum.

November Income Chart

As an easy way to keep track of received and estimated dividends/distributions for John and Jane's portfolio, I have created the following chart to track received and estimated numbers (estimates are simply based on historical figures).

Source: Consistent Dividend Investor, LLC.

For those wondering why the dividends are always the same, it is because I am choosing to collect all dividends as cash so that they can be distributed to John and Jane as income or collected to purchase other undervalued securities as I see fit. While I believe in the power of reinvesting dividends I believe that this method produces stronger results for John and Jane's situation.

Conclusion

From the chart above it is easy to see that John and Jane's portfolio is still a work in progress. In the month of November, we moved the remainder of their ROTH and Traditional assets from their financial advisor over to Charles Schwab. At present, I have only assisted them in converting about 20% of their total assets (taxable, ROTH, and Traditional IRA) over to a combination of dividend-paying stocks and bonds. For the record, I do not plan to convert their holdings in Eaton Vance Floating Rate Fund (EAFAX) as I consider this to be one of the better bond-funds on available.

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John and Jane are currently long the following mentioned in this article: EAFAX, AT&T (T) Archer Daniel Midland (ADM), Altria (MO), Apple REIT (APLE), ABR, Cardinal Health (CAH), Cincinnati Financial (CINF), Emerson Electric (EMR), EPR Properties (EPR), General Mills (GIS), Iron Mountain (IRM), Johnson Controls (JCI), New Residential (NRZ), Old Republic (ORI), Realty Income (O), SPG, Stepan Co. (SCL), Tanger Factory Outlets (SKT), Verizon (VZ), WP Carey (WPC), Washington Trust (WASH), Cummins (CMI), Apple (AAPL), British Petroleum (BP), Hormel (HRL), Clorox (CLX), LTC Properties (LTC), Interdigital Corp (IDCC), Spectra Energy Partners (SEP), Smuckers (SJM), MSB, WLKP.

Disclosure: I am/we are long VZ, T, ABR, SKT.

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.

Additional disclosure: This article reflects my own personal views and is not meant to be taken as investment advice. It is recommended that you do your own research. This article was written on my own and does not reflect the views or opinions of my employer.