Jane's August Dividend Increases And Income Tracker - Retirement Accounts

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Includes: ABBV, ADM, AFL, BAC, BNS, BP, CBL.PD, CLX, CM, CMI, CS, CTL, DLR, DUK, EAFAX, EMRAF, ENB, ETN, GD, GILD, GIS, HSY, IBM, INTC, IRET, IRM, ITW, JCI, JNJ, LYB, MAIN, MMM, MO, MSB, MSFT, O, ORI, OXLCM, PFBC, PFE, PM, POL, PPL, RY, SCHF, SNX, TD, TRV, USB.PH, VZ, WBA, WMB, WPC
by: Matthew Utesch

Summary

This is the sixth month I have officially tracked dividend income (in an article) for Jane's Traditional and Roth IRA Accounts. Her dividend income totaled $689.45.

Jane's IRAs have a slightly different focus because she still has several years before retirement, which gives us time to maximize her dividend income.

During the month of August, we engaged in only one trade to reduce the overall cost basis.

I created this series to serve as a helpful guide for the aspiring DIY investor. The details of this article represent a real portfolio.

Investment Thesis

August marks the six months that Jane's retirement (Traditional and Roth IRAs) have been established and received a steady flow of dividend income. Jane's retirement account from February 1st to July 31st of 2018 have demonstrated the following income characteristics:

  • Traditional IRA - $4,906.65 in dividends.
  • Roth IRA - $2,119.92 in dividends.
  • Realized capital gains of $8,789.91.
  • This works out to be an average of $2,259.50 of monthly income.

Instead of taking these gains as income (Jane is still working full-time and has no need to supplement her paycheck), she has given me permission to retain some as cash within the IRAs and to reinvest the rest. The benefit of this is that we are able to capitalize when the market overreacts to news (such as the Fed Rate Hike).

The pace of realized gains has slowed down largely because the market hit its stride over the last two months which meant that I felt it was appropriate to leave her holdings to run as they racked up the capital appreciation. In the last few days, we have seen the market tumble as short-term reactions have caused investors to sell core holdings as if they are going out of style. For those new to my writing, I consider myself an opportunistic investor who enjoys maintaining strong cash reserves so that we can add core holdings when they go on sale.

Although this may sound repetitive, I would like to include a disclaimer that 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 growing and long-lasting income stream and simultaneously preserve capital. Capital appreciation is the least important characteristic of this portfolio. It is important that you do your own research when creating a portfolio that meets your needs!

Dividend And Distribution Increases

Although it was bound to happen at some point, it feels weird that this is the first month since I started this series where there were no dividend increases for the month being written about. To be fair, August is a very light month when it comes to dividend payments in general, so this is to be expected.

Active Trading Log

As noted at the beginning of my article, I have utilized an active trading method in tandem with a dividend growth model. This is not day-trading, nor is it some crazy scheme to make a lot of money quickly.

My trading philosophy is based on a couple of key rules:

  1. Worthy of being held on a long-term basis - Some of the trades that I make can play out over a very short period of time, while others can take months, depending on various events. Because of the risk associated with trading, I will only purchase companies that I deem worthy of being held on a long-term basis (in the event that they do not reach my sellable price target). By purchasing only high-quality stocks, we are able to mitigate much of the risk associated with the process.
  2. Pays a dividend - Stocks that make my list almost always pay a dividend (at least that seems to be the case so far), which is important because this means that even while they are being temporarily held, they are fitting in perfectly with my dividend strategy - which, at its core, is focused on consistent dividend income. The primary reason for holding strong dividend-paying stocks is that it is the only reasonable way to be compensated for risk while waiting for the share price to recover (in the event of a downturn).
  3. Set price targets - This rule tends to be the most difficult one for people to implement and is in many ways the most important aspect of my strategy. The biggest problem that we all face with an active trading strategy (yes, myself included) is that most people do not initiate a price target at which they are willing to sell all or part of a position. Too many investors will "hold-on" hoping for an extra dollar per share even only to find that the market turns the other way and that their opportunity to sell at a reasonable price has slipped away. Every stock in Jane's portfolio has a specified price target that I regularly update based on changes in fundamentals and cost basis. On occasion, I will ignore this rule when I see a short-term opportunity.

As mentioned in the introduction, active trading has been extremely light due to the continued appreciation of shares in Jane's portfolio. In fact, the majority of trades we have engaged in are primarily being used to reduce the cost basis of select positions.

PolyOne Corp. (POL) was the only position sold on 8/7/2018 at $44.26/share. These shares were at a fairly high cost-basis of $44.18/share and constitute the original position entered into from back in December of 2017. Jane still holds another 150 shares with a much more healthy cost basis of $41.78/share. I will consider adding to POL again if the share price hits the $42/share range. I will consider selling some or all of the position in POL around $46/share.

Chart POL data by YCharts

Here is the history of POL in Jane's Traditional IRA:

This resulted in $3.14 of capital gains for the month of August.

Source: Charles Schwab

For those new to this series, I want to emphasize that my promise to the reader has always been to be as honest and transparent as I can possibly be. Although Jane has enjoyed a significant amount of success (in the previous five months), it is important to understand that there will be times when you are not winning.

With everyone benefiting from the continued run of the bull market, I think it is worth taking a moment to stop and reflect on how we feel about investing in a bull market and whether or not this has distorted our ability to accept what investing will look like when the bull market has run its course. It may sound cliché, but the market can't run forever and frankly, it would be unhealthy for all investors if the market didn't begin to correct over the course of the next few years.

August Income Chart And September Income Estimates

I have created the following chart to assist with keeping track of Jane's Traditional and Roth IRAs. As mentioned in the intro, I've built these tables so that we can easily compare month-to-month and YoY changes.

  • Green represents when dividends were actually received.
  • Yellow represents dividend estimates.

Jane's Traditional IRA

Source: Consistent Dividend Investor, LLC.

Jane's Roth IRA

Source: Consistent Dividend Investor, LLC.

Below are four tables that show the total dividends received in the Traditional and Roth IRA accounts (smaller secondary charts are dividends received for stocks no longer held), respectively, for the first seven months of the year.

In total, Jane's Traditional IRA has produced $5,410.46 of dividend income from January to the end of August.

In total, Jane's Roth IRA has produced $2,305.56 of dividend income from January to the end of August.

In total, Jane has received total earnings (dividends and capital gains) in the amount of $16,509.07 over the course of eight months (January through August), resulting in an average monthly income of $2,063.63.

Conclusion

By focusing on a DGI model and by utilizing active trading, we have been able to generate a fairly consistent income stream in Jane's retirement accounts. August marks the first month that Jane's average monthly income decreased and this was largely due to a lack of trades because of the market environment.

Due to the recent market turmoil from rising interest rates, I have begun exploring more investments in the short-term certificates of deposit via Charles Schwab (CS) trading platform. I will include more about this on my September portfolio update as CD rates continue to look more attractive as banks continue to search for brokered short/long-term deposits.

We expect Jane will receive a total of $1,221.35 of dividend income in her Traditional IRA and $328.05 of dividend income in her Roth IRA for a total of $1,549.40 of retirement account income during the month of September.

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.

In Jane's Traditional and Roth IRAs, she is currently long the following mentioned in this article: AbbVie (ABBV), Aflac (AFL), Archer Daniels Midland (NYSE:ADM), Bank of America (BAC), Bank of Nova Scotia (BNS), British Petroleum (BP), CBL Properties Pref Series D (CBL.PD), Clorox (CLX), Canadian Imperial Bank of Commerce (CM), Cummins (CMI), CenturyLink (CTL), Digital Realty (DLR), Duke Energy (DUK), Eaton Vance Floating-Rate Advantage Fund A (MUTF:EAFAX), Enbridge (NYSE:ENB), Eaton Corporation (NYSE:ETN), Emera Inc. (OTCPK:EMRAF), General Dynamics (NYSE:GD), General Mills (NYSE:GIS), Gilead Sciences (GILD), Hershey (NYSE:HSY), International Business Machines (NYSE:IBM), Illinois Tool Works (ITW), Intel (NASDAQ:INTC), Investors Real Estate Trust (NASDAQ:IRET), Iron Mountain (NYSE:IRM), Johnson Controls (NYSE:JCI), Johnson & Johnson (NYSE:JNJ), LyondellBasell (NYSE:LYB), Main Street Capital (NYSE:MAIN), 3M (NYSE:MMM), Mesabi Trust (NYSE:MSB), Microsoft (NASDAQ:MSFT), Altria (NYSE:MO), Realty Income (NYSE:O), Old Republic International (NYSE:ORI), Oxford Lane Capital Corp 6.75% Cum Red Pdf Shs Series 2024 (NASDAQ:OXLCM), Preferred Bank (NASDAQ:PFBC), Pfizer (NYSE:PFE), Philip Morris (NYSE:PM), PolyOne Corp. (NYSE:POL), PPL Corporation (NYSE:PPL), Royal Bank of Canada (NYSE:RY), Schwab International Equity ETF (SCHF), Synnex Corp. (NYSE:SNX), Toronto-Dominion Bank (NYSE:TD), Travelers Co. (NYSE:TRV), US Bank Preferred H-Series (USB.PH), Verizon (NYSE:VZ), Walgreens (NASDAQ:WBA), Williams Companies (WMB), W.P. Carey (NYSE:WPC).

Disclosure: I am/we are long CTL, GD, GIS, SCHF, SNX.

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.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.