Steve's Dividend Portfolio And Strategy For Replacing My Salary With Dividend Income

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Includes: AGNC, AMLP, BP, CSCO, D, ENB, EPD, ET, F, GE, M, MGM, NLY, NRZ, OHI, SBUX, SCHB, SCHD, SKT, STWD, T
by: Steven Fiorillo

Summary

Dividend income strategy to provide a monthly income stream.

How I make decisions on which dividend stocks to add to my dividend income portfolio.

Which dividend stocks are currently on my watch-list and what looks attractive for a new position.

How I structure my spreadsheets to keep track of my portfolio and track dividend income on a monthly basis.

Welcome to the first article in what will be an ongoing series with monthly updates. As an avid investor, I want to share my perspective on the Dividend Portfolio and overall strategy I am personally using to hopefully replace my salary with dividend income when I retire. In the following articles I write for this series I will provide the following updates:

  • which dividends were paid in the current month
  • which companies will be paying dividends in the upcoming month
  • any positions which have been added or removed
  • show which dividend stocks are on my radar
  • what entry prices are attractive to me.

Objective: To have enough Dividend Income distributed to me to cover at least 1 salary when my wife and I retire.

It is never to early to start saving for retirement. Currently, my wife and I put away as much as we can in our retirement accounts through our employers. I am 36 years old and plan on working for another 29 – 31 years. Currently, I have all my contributions allocated to (MUTF:VFIAX) Vanguard’s index fund which tracks the S&P 500.

In addition to our retirement accounts, I would like to be able to replace at least one of our salaries with pure dividend income when we are ready to retire. When we retire I am looking for three consistent streams of steady income in addition to profits made from trading.

  1. Dividend Income
  2. Social Security
  3. Minimum distributions from our retirement accounts

Portfolio Strategy – Individual Securities

My strategy is simple. I want monthly income generated so it will compound and grow. The table below is structured so I know which months my dividends will be distributed in and how much monthly income they will generate. I have each quarter broken out into months 1-3 so I can easily see how much income will be distributed to me.

Quarter 1

Month 1

Month 2

Month 3

Ticker

Shares

Dividend

Dividend / Mo.

Dividend / Quarter

18-Jan

18-Feb

18-Mar

AGNC

$2.16

$0.18

$0.00

$0.00

$0.00

GE

$0.48

$0.12

$0.00

M

$1.51

$0.38

$0.00

NLY

$1.20

$0.30

$0.00

NRZ

$2.00

$0.50

$0.00

STWD

$1.92

$0.48

$0.00

CSCO

$1.32

$0.33

$0.00

EPD

$1.71

$0.43

$0.00

ETP

$2.26

$0.57

$0.00

OHI

$2.60

$0.65

$0.00

SBUX

$1.20

$0.30

$0.00

SKT

$1.37

$0.34

$0.00

T

$1.96

$0.49

$0.00

BP

$2.38

$0.60

$0.00

D

$3.34

$0.84

$0.00

ENB

$2.10

$0.53

$0.00

F

$0.60

$0.15

$0.00

MGM

$0.48

$0.12

$0.00

Total

$0.00

$0.00

$0.00

(Source: Steven Fiorillo) (Data Source: TD Ameritrade)

Portfolio Strategy – ETF’s

I also have an ETF (Exchange Traded Fund) portfolio within my dividend portfolio. Stocks are wonderful, but I also like diversity within the broad market. Over time my dividend portfolio of individual securities will be diversified but this is for retirement, so I like to air on the side of caution.

Quarter 1

Month 1

Month 2

Month 3

Company

Shares

Dividend

Dividend / Mo.

Dividend / Quarter

18-Jan

18-Feb

18-Mar

AMLP

$0.83

$0.21

$0.00

SCHB

$1.33

$0.33

$0.00

SCHD

$1.61

$0.40

$0.00

SPDW

$0.59

$0.15

$0.00

SPEM

$0.43

$0.11

$0.00

SPLG

$0.69

$0.17

$0.00

SPTM

$0.68

$0.17

$0.00

SPYD

$1.40

$0.35

$0.00

SPYG

$0.47

$0.12

$0.00

SPYV

$0.85

$0.21

$0.00

VEA

$1.25

$0.31

$0.00

VOO

$4.45

$1.11

$0.00

VYM

$2.45

$0.61

$0.00

(Source: Steven Fiorillo) (Data Source: TD Ameritrade)

What do I base my decisions on?

I look for different things depending on what I want in my portfolio and what I feel the economic trends are in the future. In my opinion when you are looking at stocks excluding REITS (Real Estate Investment Trusts) and MLP’s (Master Limited Partnerships) you want to focus on the organization's yield, annualized payout, how many consecutive years a company has raised their dividend and the payout ratio.

Let’s look at AT&T (NYSE:T) which is in my portfolio and could be a cornerstone of any Dividend Income portfolio. AT&T according to dividend.com has a dividend yield of 6.1%, an annualized payout of $2 per share, a payout ratio of 58.5% and dividend growth of 33 consecutive years. The payout ratio and dividend growth in my opinion are the two most crucial factors in this equation. The payout ratio indicates the percentage of earnings which are paid out to the shareholder. In this case AT&T has a payout ratio of 58.5% which means theoretically if they have a bad year or two their balance sheet should be strong enough to continue the payout of the dividend without skipping a beat.

The dividend growth of a company indicates how many consecutive years an organization has increased the dividend which is paid to shareholders. To me this is critical because you are getting a raise for simply investing and doing nothing. I recently added more AT&T to my portfolio to dollar cost average and because at a 6.1% dividend yield and 33 years of raising their dividend I just couldn’t pass it up. I am planning on holding this throughout retirement and looking at this as an asset which is providing income.

So how did I pick the rest the companies in my Dividend Portfolio? Last winter I got really interested in Energy as it was drastically beaten down. I picked up BP p.l.c (NYSE:BP) because I loved the dividend yield being around 7% at the time and I felt the worst was behind them. I think my average price per share is around $34.50 or so. I liked BP also for their international exposure as one of the major integrated oil plays. Sticking with Energy I felt MLP’s were beaten down, so I picked up Enterprise Product Partners (NYSE:EPD) and Energy Transfer Partners (NYSE:ETP).

I knew I wanted Real Estate to be a portion of this portfolio, so I went in two directions within the REIT space. I looked for Mortgage Real Estate Investment Trusts including (NASDAQ:AGNC) AGNC Investment Corp, (NYSE:NLY) Annaly Capital Management Inc, (NYSE:NRZ) New Residential Investment Corp and (NYSE:STWD) Starwood Property Trust Inc. I also wanted physical real estate space, so I bought shares of (NYSE:OHI) Omega Healthcare Investors Inc because I believe that long-term care facilities are going to play a large role in the healthcare system as the population ages and (NYSE:SKT) Tanger Factory Outlet Centers Inc because in my opinion they are misunderstood and undervalued within the marketplace while providing a healthy dividend at over 6% and raising that dividend for 25 years consecutively.

Current Dividend Stocks with Growth and Dividend Distributions

Company Ticker Price Per Share Dividend Dividend Yield Dividend Growth
AT&T Inc T $32.66 $2.00 6.12% 33 years
Tanger Factory Outlet Centers Inc SKT $20.90 $1.40 6.70% 25 years
Enterprise Products Partners LP EPD $28.14 $1.71 6.08% 19 years
Dominion Energy Inc D $64.00 $3.34 5.22% 9 years
Omega Healthcare Investors Inc OHI $29.70 $2.64 8.89% 8 years
Macy's Inc M $33.99 $1.51 4.44% 7 years
Cisco Systems Inc CSCO $43.56 $1.32 3.03% 7 years
Starbucks Corp SBUX $57.65 $1.20 2.08% 7 years
Enbridge Inc ENB $31.60 $2.10 6.65% 6 years
New Residential Investment Corp NRZ $18.19 $2.00 11.00% 4 years
Agnc Investment Corp AGNC $18.86 $2.16 11.45% No Payout increase last year
General Electric Co GE $14.52 $0.48 3.31% No Payout increase last year
Annaly Capital Management Inc NLY $10.40 $1.20 11.54% No Payout increase last year
Starwood Property Trust Inc STWD $21.81 $1.92 8.80% No Payout increase last year
Energy Transfer Partners LP ETP $18.74 $2.26 12.06% No Payout increase last year
BP PLC BP $46.78 $2.38 5.09% No Payout increase last year
Ford Motor Co F $11.61 $0.60 5.17% No Payout increase last year
MGM Resorts International MGM $31.29 $0.48 1.53% No Payout increase last year

(Source: Steven Fiorillo) (Data Source: Dividend.com)

Newest Editions to my portfolio

My most recent additions were

  • (NYSE:D) Dominion Energy – New Position
  • (T) AT&T – Additional Shares
  • (NYSE:ENB) Enbridge Inc – New Position

After listening to the CEO of Dominion in an interview on Mad Money a few weeks ago I researched the company and liked what I read. The stock has been beaten down and I have been looking into exposure into the utility industry. I especially liked that they finished their Cove Point export facility as I believe (NYSEMKT:LNG) will be an important export of the United States as (NYSEMKT:NG) becomes more important to a changing global energy mix. I liked the valuation with Dominion being about 25% off it’s 52-week highs and the dividend yield being over 5%.

I added more AT&T for several reasons. I believe they will ultimately win the lawsuit with the government and will acquire Time Warner. My original cost was around $36 per share so I felt this was an appropriate time to dollar cost average since we are approaching a decision and the shares are about 17.6% off its 52-week highs. The last reason was a 6.1% yield with 33 consecutive years of growth.

Even though I was a bit energy heavy I really liked Enbridge at these levels. I have followed them for a while and being off their highs by just over 25% it was time to give them the deep dive. Enbridge has a tremendous amount of growth projects coming online over the next several years. When I researched their project map I never realized that they truly connect most of North America with their pipelines. They also have a gigantic footprint in the gulf coast / Texas region. Enbridge increased their dividend by 10% in 2018 and is committed to increasing the dividend by 10% in 2019 and again in 2020. In addition to the dividend, they have placed 12 billion of new assets into service in 2017 and delivering on a 22 billion capital growth program by 2020.

June dividend income list

I am always excited for the third month of each quarter to roll around because I have the most dividends being distributed. The second month actually provides more income because of the MLP’s and REITS’s but having 17 dividends being distributed is definitely exciting to a stock junkie. Every single one of my dividends is enrolled in DRIP (Dividend Reinvestment Program). I believe in compounding especially since I make investments in this portfolio for the long term. Below is my schedule of dividends for the month of June.

Ticker Next Pay Date Dividend Yield Dividend per Share Dividend Frequency
ENB 6/1/2018 6.67% $0.52 Quarterly
F 6/1/2018 5.21% $0.15 Quarterly
AGNC 6/8/2018 11.31% $0.18 Monthly
MGM 6/15/2018 1.53% $0.12 Quarterly
D 6/20/2018 5.20% $0.84 Quarterly
BP 6/22/2018 5.41% $0.60 Quarterly
SCHB 6/25/2018 1.66% $0.27 Quarterly
SPLG 6/26/2018 1.78% $0.14 Quarterly
SPYG 6/26/2018 1.33% $0.11 Quarterly
SPYV 6/26/2018 2.37% $0.17 Quarterly
SPTM 6/26/2018 1.64% $0.14 Quarterly
SPYD 6/26/2018 3.82% $0.35 Quarterly
VEA 6/27/2018 2.81% $0.48 Quarterly
SPEM 6/28/2018 1.14% $0.15 Semi-Annually
SPDW 6/28/2018 1.86% $0.36 Semi-Annually
VYM 6/29/2018 2.91% $0.60 Quarterly
VOO 6/29/2018 1.78% $1.01 Quarterly

(Source: Steven Fiorillo) (Data Source: TD Ameritrade)

Dividend Watch List

Currently, I have fourteen stocks on my Dividend Watchlist below. I don’t have exposure to Household Products, Pharmaceuticals or Beverages so I am focused on Procter & Gamble, Pfizer % Coke-Cola. These stocks are just about at prices I feel comfortable taking a position in. I am hoping that there is a bit of a sell-off in these names to push the yield to 4% before I make an investment. Coca-Cola (NYSE:KO) & Procter and Gamble (NYSE:PG) are my two favorites for the simple reason I love their products. I try to invest in companies whose products or services I personally use.

Century Link CTL $18.60 $2.16 11.61% No Payout increase last year
Southern Company SO $44.12 $2.40 5.44% 16 years
GlaxoSmithKline GSK $39.93 $2.10 5.26% No Payout increase last year
Altria Group MO $55.89 $2.80 5.01% 9 years
The Kraft Heinz Company KHC $56.99 $2.50 4.39% 4 years
International Business Machines IBM $144.15 $6.28 4.36% 18 years
Exxon Mobil XOM $80.21 $3.28 4.09% 35 years
Procter & Gamble PG $73.73 $2.87 3.89% 61 years
Kimberly-Clark KMB $104.26 $4.00 3.84% 45 years
Pfizer PFE $35.89 $1.36 3.79% 8 years
Coca-Cola Co KO $42.32 $1.56 3.69% 55 years
Microsoft MSFT $98.31 $1.68 1.71% 14 years
Oracle ORCL $46.46 $0.76 1.64% 6 years
Bank of America BAC $30.19 $0.48 1.59% 4 years

(Source: Steven Fiorillo) (Data Source: TD Ameritrade)

Conclusion

I hope you enjoyed this article and it generated some ideas for you. I will post an update to this series at the end of every month with updates, so you can follow along. If you have any stock ideas which would fit well into my thesis, please send me a message and I would be happy to look at them. Also, if you have any questions please message me. Thanks again

Disclosure: I am/we are long T, BP, SKT, NLY, NRZ, OHI, CSCO, STWD, M, GE, ETP, EPD, D, ENB, F, MGM, AGNC, SBUX, AMLP, SCHB, SCHD, SPDW, SPEM, SPLG, SPTM, SPYD, SPYG, SPYV, VEA, VOO, VYM.

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.