Road To Financial Independence: Growing Dividends, Endless Opportunities But Limited Capital

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Includes: AAPL, ABBV, AINV, AMD, AMZN, ARCC, ARI, AZSEY, BABA, BAC, BASFY, BAYZF, BGS, BIP, BMWYY, BNS, BP, BX, BZUN, C, CBAUF, CL, CM, COR, CSCO, CTL, D, DATA, DDAIF, DHT, DIS, DM, DRHKF, ED, EPD, EQT, FB, FMS, FSNUF, GE, GILD, GIS, GM, HCLP, HON, HUYA, IBM, INCY, INTC, IQ, JD, JNJ, JPM, KMI, KO, LNXSF, MAIN, MCD, MDGEF, MEET, MIC, MMM, MO, MS, MSFT, MU, NEP, NKE, NVDA, O, OHI, OSAGF, PEB, PEP, PFE, PG, PM, QTS, RDS.B, RY, SBUX, SEP, SHE, SHLX, SNH, SO, STAG, STWD, SXTSY, T, TD, TEAM, TGT, TNK, TXN, UNIT, V, VONOY, VZ, WBA, WFC, WRCDF, XOM
by: Stefan Redlich
Summary

Dividend income hit $205 in dividends, up 39% Y/Y and up 4% sequentially.

Endless opportunities in October led to some active buying and selling as some of the most solid dividend-paying stocks went on unexpected sale.

I outline the portfolio composition by sector and portfolio weight for every holding.

October was another really intense month as ongoing trade woes, a hawkish interest rate environment and purely black-and-white earnings season mixed a toxic cocktail for most of the stocks. At times with the markets slipping into 10% correction mode the selling into the close was extreme and signaled potentially panic reactions the next day. However, what happened was that mostly every dip was bought on the way down and once markets bottomed out an almost 3% rally followed. (Source: Hedgeye - Cartoon of the Day)

Such a topsy-turvy earnings season where also heavyweights like Apple (AAPL) and Amazon (AMZN) got punished created lots of attractive buying opportunities.

I was not as calm as I hoped to be resulting in some potentially hurried selling in an effort to raise more capital, limit losses and take profits to invest into beaten down stocks.

Although I am a long-term investor, these sudden price drops in individual stocks are really tempting to partially reshuffle the portfolio. It won't hurt in terms of transaction cost but it may hurt in terms of individual performance but with limited capital I still feel that I can take that risk to reduce positions in small and more speculative holdings in favor of long-established dividend stars like Texas Instruments (TXN) or AbbVie (ABBV).

Portfolio Changes | 0 new stocks, 2 sales, 3 trims and 19 repurchases

I deployed around $1,350 in fresh capital in October, which means it was a quiet month and even below my minimum target of $1,500. However, that was only possible as I trimmed/exited positions worth $950.

On the sale side, I closed my holdings in super speculative Meet Group (NASDAQ:MEET) and Activision Blizzard (NASDAQ:ATVI) as the valuation of the latter appeared too high for my liking. I already bought those shares back in November but unfortunately before the massive 13% post earnings drops.

I took profits with AMD (NASDAQ:AMD), although much too late compared to the $30+ price level the stock has been at in recent weeks. I still hold some shares in AMD I won't touch but felt that I could use some of these profits for other investments even though the profits were substantially lower compared to three weeks ago. However, I guess that taking profits which are not as high as they could have been is really a "first-world problem" and nothing I am concerned with even if in the weeks following that event the stock reaches new heights.

And yes, you are reading it right from the chart below, I also trimmed a marginal share of my Altria (MO) and Royal Dutch Shell holdings (RDS.B). This was a tough decision I could only take because other core stocks in my portfolio like Texas Instruments, AbbVie and 3M (MMM) have been sold off massively and reached prices where I just had to level up. That said I hope to be able to quickly recover those trimmed stocks.

On the buying side, I invested into stocks which either reached new 52-week lows an attractive valuation at all.

The biggest purchase flowed into the Blackstone Group (BX). The company recently described its long-term growth plan demonstrating the tremendous amount of earnings and cash flow growth the firm has still in its pockets. Blackstone's dividend yield of 6.2% is certainly misleading as it is actually a distribution and thus subject to quarterly returns. However, Blackstone's CFO Michael Chae said that "the potential for outsized shareholder returns is significant". I am totally with him here as its impeccable fundraising pipeline and soaring assets under management are second to none.

I also bought three more shares in one of my all-time favorite dividend growth stocks, Texas Instruments. Amazingly, the stock dropped below $90 and reached a maximum yield of more than 3.5% briefly and is currently trading at a 3.2% yield, both metrics far above its 4-year average dividend yield of just 2.3%.

Fundamentally, the growth engine has slowed down driven by a 5% operating profit decline in its Embedded Processing segment which in turn was driven by weakness in processors revenue. Texas Instruments is operating in a very cyclical industry and as such any short-term softness or weakness in demand, oversupply or falling prices immediately affects its top-and-bottom lines but long-term I have full confidence in that business.

I was also able to snatch a share of 3M at a ridiculously low price of $185 and the only regret I have is not having bought more but with so many windows of opportunities opening up it is tough to make the right call and balance your inner turmoil between investing in one stocks vs. multiple stocks. Similarly surprising it was to witness the monstrous fall in AbbVie stock ever since it hit its peak at $126 and its 52-week low of $77.5.

This means the stock has shed as much as 38% of its valuation and while the company's Humira cash cow will eventually fade away once biosimilar competition starts in 2023 the company's strong pipeline and the expected growth and sales in Humira until that point will generate plenty of cash flow and profits for years to come.

Patient investors however have been rewarded with supreme dividend growth with this stock with the company raising its dividend for a second time this year by 11% following the monstrous 35% raise in Spring. I only was able to buy one single stock in October but at least was able to follow that up with two more shares at equally low prices in early November just ahead of the stock's recent rally.

Repurchases

My repurchases break down as follows:

1) Continue ongoing monthly stock savings plans: These are routine investments between $50 and $115 each into Wells Fargo (NYSE:WFC), Visa (NYSE:V), McDonald's (NYSE:MCD), Johnson & Johnson (NYSE:JNJ), Apple and the lesser-known Commonwealth Bank of Australia (OTCPK:CBAUF).

2) Invest in dividend and growth stocks:

  • One additional share in Apple to celebrate the company crushing the $1 trillion mark. I was not expecting the strong rally afterwards though.
  • Two shares in Germany's Bayer AG (OTCPK:BAYZF), which got crushed in court, as the company's recent Monsanto acquisition has sent shockwaves among investors, as a jury awarded $289 million in punitive damages in a glyphosate-related cancer case to a man, with many more outstanding cases still expected to go to court. Bayer lost several billions in market cap afterwards, and I simply had to buy the stock after such a massive drop.

All net purchases and sales in October can be seen below:

Dividend Income: What happened on the dividend side?

My income from 22 corporations amounted to $205 in dividends, up 39% Y/Y and up 4% sequentially.

The top five companies led by Altria accounted for 58% of monthly dividend income. 8 out of the top 10 dividend payers are companies with consecutive dividend growth streaks for decades with B&G Foods (BGS) and Uniti (UNIT) being high-yield dividend payers but with a more volatile dividend track record. Given that the sequential number is only up by 4% means that I have not done any meaningful investments in any of these stocks over the last quarter with the growth originating from dividend increases and a more favorable EUR/USD exchange rate.

All dividends break down as follows:

The dashboard above shows how the monthly dividend income breaks down into individual stocks. It also shows the change in income versus the previous quarter and year.

I also created a new dashboard which shows all-time dividends by stocks clustered in a tree map which best shows the relative importance of each holding. Let me know in the comments section if you think this is a useful visualization.

Here is a look at my favorite chart: the net dividend income development by month over time between 2015 and 2018, where you can easily see the development of my dividend income as well as the average annual dividend in a given year:

The yearly average in net dividend income dropped $5 compared to the previous update but still remains on track to hit $3,000 in annual dividend income. Accounting for the fact that October has been by far the weakest month in Q4 I still expect to surpass my annual target by around $100.

Next, I have scattered all the individual dividend payments I have ever received and colored them by year, rearranging the years side by side rather than horizontally as in previous updates:

The readability of the numbers is rather poor, as there is so much data, but the bigger picture becomes apparent regardless of these numbers. I am just looking at the size and quantity of the bubbles as they keep on climbing higher and expanding in size.

It remains fascinating to watch how all these metrics develop over time. Right now, as I am still in the early stages, these metrics are not that impressive but the growth is truly striking, and all these instruments help me measure it and provide meaning to it.

Speaking in terms of meaning, another way to express the monthly dividend income is in terms of Gifted Working Time (GWT). I am assuming an average hourly rate of $25 here. My annual target is to replace 120 hours of active work with passive dividend income. This translates to $3,000 in annual net dividends, or around $250 per month.

What this shows is as follows:

  1. All time (blue area) - Around 212 hours, or 26.5 days, of active work have been replaced with passive income since the start of my dividend journey. Assuming a 5-day work week, that equals more than 5 full weeks, or more than an entire month, of vacation funded via dividends.
  2. YTD (green bars) - Around 100 hours, or 12.5 days, of active work have been replaced with passive income in 2018 already. If the target of 120 hours is achieved by year-end, this represents a total of 15 days, or three full weeks, of active work to have been replaced by passive income. We are at 5/6th of our annual goal, and with 5/6th of the year having just passed, we remain right on track to hit and exceed it by accounting for the stronger months of November and December still left.

My portfolio composition

As of end of October, based on cost basis and previously mentioned clustering, my portfolio is composed as follows:

  • Value - 55% (+1pp)
  • Growth - 40% (unchanged)
  • Speculative - 5% (-1pp)

By holding, it looks like this:

AT&T Inc. (T) 5.72%
Apple Inc. (AAPL) 4.62%
Royal Dutch Shell Plc Class B (RDS.B) 4.26%
Altria Group Inc. (MO) 4.03%
Cisco Systems, Inc. (CSCO) 3.01%
Gilead Sciences, Inc. (GILD) 2.92%
Micron Technology, Inc. (MU) 2.83%
Mcdonald's Corp. (MCD) 2.73%
Visa Inc. (V) 2.69%
AbbVie Inc. (ABBV) 2.55%
Commonwealth Bank of Australia (ASX: CBA) 2.47%
Southern Co. (SO) 2.27%
Johnson & Johnson (JNJ) 1.97%
Wells Fargo & Co. (WFC) 1.96%
Main Street Capital Corporation (MAIN) 1.92%
3M Co. (MMM) 1.77%
Daimler (OTCPK:DDAIF) 1.70%
B&G Foods, Inc. (BGS) 1.65%
Siemens Healthineers (SHE) 1.61%
Philip Morris International Inc. (PM) 1.55%
Texas Instruments Incorporated (TXN) 1.32%
Microsoft Corporation (MSFT) 1.32%
Toronto-Dominion Bank (TD) 1.30%
Bank of Nova Scotia (BNS) 1.29%
PepsiCo, Inc. (PEP) 1.20%
Canadian Imperial Bank of Commerce (CM) 1.20%
Bayerische Motoren Werke AG Preference Shares (OTCPK:BMWYY) 1.17%
Dominion Energy Inc. (D) 1.14%
Baozun Inc. (BZUN) 1.13%
Bank of America Corp. (BAC) 1.11%
Honeywell International Inc. (HON) 1.09%
Verizon Communications Inc. (VZ) 1.07%
NVIDIA Corporation (NVDA) 1.04%
Alibaba Group Holding Ltd. (BABA) 0.99%
Intel Corporation (INTC) 0.95%
Procter & Gamble Co. (PG) 0.93%
The Coca-Cola Co. (KO) 0.90%
BASF (OTCQX:BASFY) 0.88%
Morgan Stanley (MS) 0.88%
Omega Healthcare Investors Inc. (OHI) 0.87%
Senior Housing Properties Trust (SNH) 0.84%
Wirecard AG (OTCPK:WRCDF) 0.76%
Spectra Energy Partners, LP (SEP) 0.74%
Advanced Micro Devices, Inc. (AMD) 0.72%
General Motors Company (GM) 0.71%
Sixt (OTC:SXTSY) 0.69%
Blackstone Group LP (BX) 0.69%
Facebook, Inc. Common Stock (FB) 0.69%
Royal Bank of Canada (RY) 0.68%
Tableau Software Inc Class A (DATA) 0.63%
Ares Capital Corporation (ARCC) 0.60%
JPMorgan Chase & Co. (JPM) 0.60%
General Mills, Inc. (GIS) 0.60%
Bayer AG (BAYZF) 0.59%
Target Corporation (TGT) 0.56%
Allianz SE (OTCPK:AZSEY) 0.55%
Drillisch (OTC:DRHKF) 0.54%
HUYA Inc - ADR (HUYA) 0.52%
Nike Inc. (NKE) 0.52%
BP (BP) 0.49%
Walt Disney Co. (DIS) 0.46%
Exxon Mobil Corporation (XOM) 0.45%
Stag Industrial Inc. (STAG) 0.44%
Pfizer Inc. (PFE) 0.44%
Realty Income Corp. (O) 0.44%
Starbucks Corporation (SBUX) 0.43%
Pebblebrook Hotel Trust (PEB) 0.42%
Fresenius SE (OTCQX:FSNUF) 0.41%
CoreSite Realty Corp. (COR) 0.41%
Citigroup Inc. (C) 0.40%
IQIYI Inc. (IQ) 0.38%
Starwood Property Trust, Inc. (STWD) 0.34%
QTS Realty Trust Inc Class A (QTS) 0.33%
Teekay Tankers Ltd. (TNK) 0.32%
Centurylink Inc. (CTL) 0.32%
Colgate-Palmolive Company (CL) 0.32%
EQT Corporation (EQT) 0.31%
Walgreens Boots Alliance Inc. (WBA) 0.29%
Uniti Group Inc. (UNIT) 0.29%
Lanxess AG (OTCPK:LNXSF) 0.28%
Kinder Morgan Inc. (KMI) 0.26%
Enterprise Products Partners L.P. (EPD) 0.26%
Consolidated Edison, Inc. (ED) 0.26%
Osram (OTCPK:OSAGF) 0.24%
Macquarie Infrastructure Corp. (MIC) 0.24%
Vonovia (OTCPK:VONOY) 0.23%
Nextera Energy Partners LP (NEP) 0.23%
Meet Group Inc. (MEET) 0.21%
Atlassian Corporation PLC (TEAM) 0.17%
Dominion Energy Midstream Partners LP (DM) 0.17%
MediGene AG (OTCPK:MDGEF) 0.17%
Fresenius Medial Care (FMS) 0.17%
IBM Common Stock (IBM) 0.14%
Apollo Commercial Real Est. Finance Inc. (ARI) 0.13%
Apollo Investment Corp. (AINV) 0.12%
JD.Com Inc. (JD) 0.12%
Hi-Crush Partners LP (HCLP) 0.12%
DHT Holdings Inc. (DHT) 0.11%
Shell Midstream Partners LP (SHLX) 0.11%
Brookfield Infrastructure Partners L.P. (BIP) 0.11%
General Electric Company (GE) 0.11%
Incyte Corporation (INCY) 0.08%

As always, I hope that you find this update interesting and relevant. The biggest inspiration for me is reading these updates from other authors and following their progress over the years. Compared to them, I am still really at the beginning of my journey, and I would appreciate if you want to follow/continue to follow my journey as well. I hope to inspire many more readers to also start and share their journey.

Author's note: If you enjoyed this article, the only favor I ask for is to click the "Follow" button next my name at the top of this article. This allows me to develop my readership so I can offer my opinion and experiences to interested readers who may not have received them otherwise. Happy investing :)

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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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.