John And Jane - February Dividend Income Tracker - Taxable Account

Summary

• This is the 4th month I have officially tracked dividend income and it was the strongest month yet with a total of $1271.50 of dividends received.
• AT&T, EPR Properties, Mesabi Trust, Realty Income, Simon Property Group, Spectra Energy Partners, TransMontaigne Partners, and Westlake Chemical Partners all increased their dividends payments.
• A brief overview and discussion of the current state of the stock market.
• The taxable account has very few changes left to be made but this doesn't mean we set it on auto-pilot and forget it.
• This article includes all payout updates for February as well as a brief overview of what we are expecting in March.

Investment Thesis

February marks the fourth month that John and Jane have had a well-established concentration of stocks in their taxable portfolio. A total of eight stocks in the taxable portfolio delivered increased dividend payments during the month of February.

As I continue to document John and Jane success my long-term goal is to create a database that allows for year-over-year (YoY) comparisons that demonstrate the power and simplicity of dividend investing. In addition to documenting the past, I also like to forecast the upcoming month of dividends because I believe it helps keep expectations in check.

As always, I would like to include a disclaimer that states this article is based on an actual portfolio for clients' of mine. The goal is to build a portfolio of dividend-paying stocks, bonds, etc. that will continue to produce a long-lasting income stream with a minimal emphasis on capital appreciation.

Dividend and Distribution Increases

Similar to in my update from January, John And Jane - January Dividend Income Tracker, another eight stocks in John and Jane's portfolio delivered increased dividends in the month of January. The remainder of the section is used to give a brief overview of the companies and document the total dividend increase:

AT&T (T): AT&T kind of feels like an income investor's best friend. I mean, who doesn't like a company that currently pays a yield of 5.5% and has consistently grown their dividend for 33 years straight? The stock has struggled to find its footing as it waits to meet the Department of Justice in court concerning its $85 billion merger with Time Warner (TWX). Personally, I think it's worth the wait because AT&T operates a company that excels in almost any economic environment. Just think about it: How many people in the United States could actually survive without a cell phone? While I don't expect to see capital appreciation anytime soon, I do believe that AT&T offers the kind of consistent dividend income retirees like John and Jane need. With the exception of the legal controversy behind TWX in November, AT&T has found strong support around the $36/share level.

T data by YCharts

AT&T's dividend was increased from $.49/share per quarter to $.50/share per quarter. This represents a 2% increase YoY and results in a current yield just over 5.5% based on a share price of $36.07.

EPR Properties (EPR): After a major Q4-2017 earnings miss EPR has managed to go on sale even more than it already was. Earnings were particularly impacted by one of their tenants, Children's Learning Adventure (CLA). This resulted in EPR writing off $9 million in straight-line revenue which management notes was the conservative approach to resolve the situation. This reduced 2018 funds from operations outlook from a range of $5.33 to $5.48 (original estimates) to a slightly reduced range of $5.23 to $5.38. If improvements in CLA's financial situation occur, management states that it is very possible they could still hit the high end of their original earnings estimates.

EPR data by YCharts

As noted in the chart above, EPR has experienced a tough run over the last three months. The small setbacks are barely a concern and I like the potential for continued growth in the TopGolf franchise and Resorts World Catskills Casino and Hotel.

EPR's dividend was increased from $.34/share per month to $.36/share per month. This represents a 6% increase YoY and results in a current yield just over 7.5% based on a share price of $53.18.

Mesabi Trust (MSB): Trump's proposal of tariffs lit a fire under MSB's share price as it jumped more than 12% on March 1st. MSB derives its income from Peter Mitchell Mine and provides high-grade iron ore to Northshore Mining Corporation and is a subsidiary of Cliffs Natural Resources (CLF). MSB was already benefiting from a strong economy but tariffs have the potential to really jump MSB's value.

MSB data by YCharts

MSB pays a variable dividend that is based on the volume of iron ore provided from its mines. For this reason, it is more difficult to track MSB's increases on a quarterly basis and so I will likely only continue documenting year-over-year increases of the same quarter.

MSB's dividend was increased from $.64/share per quarter to $1.18/share per quarter. This represents an 84.4% increase quarter-over-quarter and results in a rolling current yield close to 9% based on a share price of $27.85.

Realty Income (O): One of the most touted dividend-paying stocks among income investors has recently found its share price on the decline in part due to the threat of rising interest rates and a short thesis by Spruce Point Capital. Personally, I think that the short arguments lack substance, and no one creates a better argument than SeekingAlpha's Brad Thomas in his article titled An Investigative Analysis Suggests Realty Income Is A Predictable 'Sleep Well At Night' REIT. Brad's article addresses the short-sighted (and in some cases inaccurate accusations) made by Realty Income's shorts.

O data by YCharts

Over the last three months, we have seen Realty Income's price drop creating a great time to buy. Realty Income is an absolute must for the dividend income investor who is looking for consistency.

O's dividend was increased from $.2125/share per month to $.219/share per month. This represents a 3.1% increase over the previous month and results in a current yield of 5.3% based on a share price of $49.61.

Simon Property Group (SPG): This increase represents the third quarter in a row that management has increased the dividend and represents an annualized increase of 11.4% when compared to the dividend of $1.75 from February 2017. As an investor looking to continue establishing a larger position in SPG, I am thankful that shares have been negatively impacted by the market sentiment associated with other mall/strip mall REITs such as CBL & Associates (CBL) or DDR (DDR).

SPG data by YCharts

Interestingly enough, National Retail Properties (NNN) has managed to avoid the same drop in price as SPG even though I believe SPG has a portfolio that is of much higher quality than NNN. SPG's 2017 FFO results came in at $11.21/share with 2018 estimates between $11.90-$12.02/share.

SPG's dividend was increased from $1.85/share per quarter to $1.95/share per quarter. This represents a 5.4% increase quarter-over-quarter (11.4% total increase in 2017) and results in a current yield just over 5% based on a share price of $154.94.

Spectra Energy Partners (SEP): With the energy sector still struggling due to oversupply and cheap oil, I believe that there is an opportunity in companies that engage in transmission and storage (natural gas and oil). SEP just delivered its 41st consecutive quarter of dividend increases and has consistently increased distributions by roughly 7% year-over-year. As noted in a previous article I authored titled The Best DGI Stocks For Young Investors: Part 5, there appears to be strong support at $40/share over the last five years. (I have included the 5-year chart from my article below).

Source: Charles Schwab

SEP's dividend was increased from $.7263/share per quarter to $.7388/share per quarter. This represents a 1.7% increase quarter-over-quarter and results in a current yield just under 7.5% based on a share price of $39.55.

TransMontaigne Partners (TLP): TLP looks like a great buy at current levels as TheStreet noted that heavy selling has pushed the stock into oversold territory. TLP has a highly recession resistant business model as roughly 93% of their revenues coming from fee-based contracts, and 69% of those revenues have a contract period of three years or longer. Add in a distribution coverage of 1.4x and its 9th consecutive quarter of dividend increases and we have a company built for the income investors' portfolio.

TLP data by YCharts

The chart above demonstrates that TLP has maintained strong revenues even as the energy industry has been plagued by a prolonged period of low prices.

TLP's dividend was increased from $.755/share per quarter to $.77/share per quarter. This represents a 2% increase quarter-over-quarter and results in a current yield just under 8.75% based on a share price of $35.91.

Westlake Chemical Partners (WLKP): WLKP owns facilities that are involved in the development/production of ethylene and is used in everything from plastics to an agent that increases the rate at which fruit ripens. WLKP continues to grow their distribution quarterly (13 consecutive quarters) as their revenues and earnings continue to improve. (Q4-2017 vs Q4-2016 were $.46/share vs. $.39/share).

WLKP data by YCharts

WLKP's dividend was increased from $.3756/share per quarter to $.3864/share per quarter. This represents a 2.9% increase quarter-over-quarter and results in a current yield just over 6.75% based on a share price of $22.85.

February Income Chart and March Estimates

I have created the following chart to assist with keeping track of John and Jane's taxable portfolio, with the intention of maintaining a database that can be compared on a month-to-month and YoY basis. Green is used to show when dividends were actually received while yellow represents dividend estimates that haven't occurred yet.

Here is a chart that shows the total dividends received in the taxable account for January and February.

Here are a few things to remember about this portfolio:

• Dividends are not reinvested. John and Jane are at the point where they don't need the money, but we also want to build a cushion that allows us to purchase additional stocks in case the market drops and equities become more attractive.
• Since dividends are not reinvested the only time payments increase is when the dividend is raised or when additional shares are purchased with excess cash.

Tariffs and Volatility

In the last month, we have seen the extreme increase in volatility begin to settle but I don't think we are out of the woods yet (or will be anytime soon for that matter). Based on Trump's comments at the end of last week, it appears likely that there will be tariffs placed on aluminum and steel imports which is likely to accelerate the rate of inflation as this will have the greatest impact on the cost of basic consumer goods and less impact on specialty items that are already manufactured in the US. Even then, many specialty companies like Kaiser Aluminum (KALU) are forced to meet demand by finding sources outside the U.S. to supplement the sources they have in the U.S.

^VIX data by YCharts

Stocks like MSB (one of John and Jane's holdings) would theoretically benefit the most as increased demand from within the United States would be sourced from a mine like theirs.

Whether or not you agree with the policy is irrelevant because the main point is that volatility isn't going away anytime soon. For those looking to insulate themselves from volatility, it is important to build a portfolio based on dividend-paying stocks that provide consistent income that is unaffected by intense market fluctuations. Regardless of your age, building a dividend-based portfolio offers a simple approach to what is often a complicated problem.

Conclusion

John and Jane's portfolio has been fluctuating by thousands of dollars on a daily basis but this hasn't bothered them as they received increase dividends from eight companies during the month of February. My initial February estimates were quite low as I'd failed to fully update the list with all of the companies held in the taxable portfolio. (To help improve this I have alphabetized the stocks by ticker symbol.)

Based on current estimates, I expect the month of March to produce a dividend income in excess of $900.

What do you think about John and Jane's Portfolio? I am continuing to build their Roth and Traditional IRA accounts and am always looking for suggestions because there are always more choices than I can possibly keep track of. I'd love to hear about any suggestions my readers' have.

Final Note: If you enjoy my articles, please take the time to follow me. While I enjoy performing analysis, following me is the best method for showing me that SA subscribers are finding my work useful. I welcome all meaningful feedback and I enjoy using the Seeking Alpha platform to enhance and improve my own knowledge as well. My promise to readers is to be as open and transparent as I can be. The numbers presented are accurate as of the time I wrote this article.

John and Jane are currently long the following mentioned in this article:, (AAPL) Apple, (ABR) Arbor Realty, (ADM) Archer Daniel Midland, (APLE) Apple REIT, (BP) British Petroleum, (BPL) Buckeye Partners, (CAH) Cardinal Health, (CINF) Cincinnati Financial, (CLX) Clorox, (CMI) Cummins, (COP) Conoco Philips, (EAFAX) Eaton Vance Floating-Rate Advantage Fund A, (EMR) Emerson Electric, (EPR) EPR Properties, (ETP) Energy Transfer Partners, (GIS) General Mills, (HP) Helmerich Payne, (HRL) Hormel, (IDCC) Interdigital Corp, (IRM) Iron Mountain, (JCI) Johnson Controls, (LTC) LTC Properties, (MIC) Macquarie Infrastructure, (MO) Altria, (MSB) Mesabi Trust, (NRZ) New Residential, (O) Income Realty, (ORI) Old Republic International, (SCL) Stepan Co., (SEP) Spectra Energy Partners, (SJM) Smuckers, (SKT) Tanger Factory Outlets, (SO) Southern Corp, (SPG) Simon Property Group, (T) AT&T, (TLP) TransMontaigne Partners, (VZ) Verizon, (WASH) Washington Trust, (WLKP) Westlake Chemical, (WPC) WP Carey, and (XOM) Exxon Mobil.

Analyst’s Disclosure: I am/we are long 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.

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. I recently sold a number of stocks I was previously long on in order to pay off a significant amount of debt and increase my cash-flow available for investing going forward.

Comments

[User 1005329]

What is total investment, target return, and annualized return projected using today’s data?

[Matthew Utesch]

Frivolity,

Please see my response above for part of the answer to your question. The focus with the taxable account is strictly cash-flow created by the dividend with very little attention given to capital gains (with the exception that stocks with an increased risk profile are the first to be sold because the whole idea is consistency of cash-flow). For all of my estimates in 2018 I have used a 3%, 4%, and 5% as my worst-case, mid-case, and optimistic scenario for dividend increases. As noted above, the value of shares is approximately $225k with a dividend payout of $12k annually giving us a 5.3% yield. I hope this answers your question.

Thanks,
Matt

[charmainerouse82]

Hey my name is charmaine I’m interested in building a better portfolio for my stocks would you help sincerely troubled investor.

[Matthew Utesch]

Charmaine,

I shot you a message.

Matt

[oxch28992]

What is the total investment of this couple?

[Matthew Utesch]

Oxch,

Total investment of this account is approximately $225k. The annualized current dividend yield of this account is approximately 5.3% (cost basis yield is approximately the same due to the fact that most of these investments were recently established after we sold a significant number of mutual funds to establish this portfolio). Please see my previous articles to give you a better idea of the changes that were made.

Thanks,
Matt

[oxch28992]

Thanks.

[Matthew Utesch]

Oxch,

You bet. I'll be writing about the IRA portfolios soon so that will give a much more well-rounded picture of their portfolio.

Matt

[littlecubbie2019]

Why no technology? I’d say add some msft and csco

[Matthew Utesch]

LC,

They actually have a decent amount of tech in their IRA's (which I will be writing articles about around the middle of this month because they are newer/less established portfolios). Their IRA's are more focused on tech because many of those companies tend to be included in my buy/sell strategy whereas their taxable portfolio has little to no selling in order to avoid taxable consequences.

There are definitely some good names out there. I am pretty fond of MSFT, ORCL, and a few others.

Thanks for reading and commenting,
Matt

[janedoeseeker]

Matthew Utesch, most of these strike me as ordinary, rather than qualified, dividends. Would love to hear further discussion as to how the dividends are actually treated tax-wise, whether that was a consideration for you when making your decisions and, if not, why not.

Thank you for your contributions because it seems as though few people write about investing for taxable accounts. In such situations, it is essential for the after-tax benefits to grow more than the combination of inflation and rising income taxes.

[Matthew Utesch]

Jane,

Some of the dividends are ordinary (the portfolio as a whole has more qualified-payers than it may seem) along with a number of partnerships. Based on the passing of the new tax bills the difference between tax rates for ordinary and qualified dividends is significantly lower than it was previously and I estimate the true tax rate on those to be closer to 22-25% versus what used to be in the 30-33% range before.

Because non-qualified stocks tend to come with a higher yield this can also help offset the expense associated with tax consequences (although I still believe it is important to limit this). You are definitely correct in that it is important to focus on the big picture because if you do not control your taxes you are missing the 2nd half of a two-part equation. I included many of the ordinary dividends to add consistency on a month-to-month basis and also did this know that their tax rate would fall as they got closer to retirement.

Hopefully this provides the detail you were looking for. Let me know if you have any other questions or comments. I'd eventually love to write an article in the future that focuses on this topic because you are correct that taxable accounts tend to get ignored as a topic.

Thanks for reading and adding to the conversation,

Matt

[R.Fitz]

I would fund only the ROTH if conditions/earning's allow.
Thanks

[Srmonroe00]

Do you get a commission every time they buy? For the monthly income your on overload. I hope for their sake your fee based only.

[Matthew Utesch]

SG,

John and Jane get a special deal from me. Let's just say my reduced fees save them around $10k a year over what they were paying their advisor before. As for monthly income being on overload are you referring to the monthly dividend stocks or the income for the month in general?

Thanks for reading and commenting,
Matt

[Srmonroe00]

Stocks of course, wow i could do this for free. I'll bet their getting the special deal, where do i sign up.lol

[Matthew Utesch]

Let's just say that these individuals have been wonderful to work with and I have benefitted from them working with me more than compensation could do.

Personally, I don't think the monthly income stocks are on overload. It represents around $150/monthly income currently. I think its pretty reasonable.

Matt