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

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

This is the eighth month I have officially tracked dividend income (in an article) for Jane's Traditional and Roth IRA Accounts. Her dividend income totaled $1,674.69.

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 October, we engaged in a total of 10 trades (sales) as we locked in gains during this volatile market.

There were a total of five stocks that paid increased dividends during the month of October.

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

October marks the eighth month that Jane's retirement (Traditional and Roth IRAs) have been established and received a steady flow of dividend income. Up to this point, Jane's retirement accounts from January 1st to September 30th of 2018 have demonstrated the following income characteristics:

  • Traditional IRA - $6,585.32 in dividends.
  • Roth IRA - $2,651.11 in dividends.
  • Realized capital gains of $18,392.68.
  • This works out to be an average of $2,043.63 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 month of October lived up to its expectations as the market continued to demonstrate extreme volatility (also known as "the jinx month" due to the number of major selloffs that have occurred). For those who have followed my work, you can expect that I tend to ignore these types of sensationalized stories but that doesn't mean I don't position a portfolio to take advantage of it. The goal for the last few months has been to trim select positions in an effort to build a cash reserve that allows me to take advantage of any major dips. October definitely provided some of those opportunities which is why a total of 10 trades (sale of existing positions) while adding to positions that were too good to pass up.

Chart ^DJI data by YCharts

Up to October, we have seen the Dow, S&P 500, and the NASDAQ maintaining similar levels of valuation, however, it is clear that the S&P 500 and the NASDAQ are now significantly underperforming the Dow up to this point in the month of November.

Chart ^DJI data by YCharts

This has brought the high-flying NASDAQ down to earth from it's near 20% year-to-date gains that were still intact at the beginning of October.

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

The following companies paid increased dividends during the month of October:

  • Bank of Nova Scotia (BNS)
  • Illinois Tool Works (ITW)
  • Altria (MO)
  • Realty Income (O)
  • WP Carey (WPC)

I have already covered MO and WPC in the taxable account and a writeup of those stocks can be found here. I will still include a summary of the dividend increase below.

Bank of Nova Scotia - BNS can't seem to catch a break, at least not from Mr. Market. The most recent Q3-2018 earnings looked poor from a revenue standpoint, but the rest of the company (especially international expansion) appeared to look healthy and full of potential). The stock is down almost 17% year-to-date, has a P/E ratio of 10.5, and now provides a yield of 4.92%. BNS is a perfect example of a stock that I like to accumulate at these levels largely because the market hasn't realized/appreciated its real value. BNS has been hit harder than many of the other major Canadian banks.

Chart BNS data by YCharts

The dividend was increased from C$.82/share per quarter to C$.85/share per quarter. This represents an increase of 3.7% and a new full-year payout of C$3.40/share compared with the previous C$3.28/share. This results in a current yield of 4.93% based on a share price of $53.70 USD. **Annual Payout in USD is approximately $2.65/share based on current exchange rates.

Illinois Tool Works - This is a classic case of a stock that kept dropping so we kept buying. After reaching a high of $179.07/share in February 2018, it continued to drop to its 52-week-low of $119.38/share. Although the Ycharts graph hasn't updated to the most current yield of 2.98%, we can see that ITW hasn't been available at a 3% yield since back in 2011 after the financial crisis. ITW is an industrial powerhouse that is highly diversified and has paid increasing dividends for 54 years straight. I believe that the dividend is sound but that future increases will likely be smaller as I expect management to begin deleveraging the $7.4 billion it holds in debt.

Chart ITW data by YCharts

The dividend was increased from $.78/share per quarter to $1.00/share per quarter. This represents an increase of 28.2% and a new full-year payout of $1.00/share compared with the previous $3.12/share. This results in a current yield of 2.98% based on a share price of $133.99.

Altria - MO's dividend was increased from $.70/share per quarter to $.80/share per quarter. This represents an increase of 14.3% and a new full-year payout of $3.20/share compared with the previous $2.80/share. This results in a current yield of 5.64% based on a share price of $55.68.

Realty Income - I just realized that I did not include a summary of Realty Income in the Taxable Account regarding its increased dividend payment for the month of October. After months of negative analysis (especially on SeekingAlpha) long-term investors have begun to reap the benefits of their patience as the share price has increased from a 52-week-low of $47.25/share to its current price of $63.97/share. Those who decided to invest in this beloved dividend stalwart and its low were able to lock in a yield of 5.1% along with the continued potential for regular quarterly increases. I currently rate Realty Income as a "Hold" largely because the flight to quality has pushed its share price above fair value (around $60/share). I would be a buyer of additional shares if prices were to drop below $56/share.

Chart O data by YCharts

O's dividend was increased from $.22/share per month to $.2205/share per month or an increase of .2%. This results in a current yield of 4.14% based on a current share price of $63.97. Since the beginning of the year, O has grown its dividend from $.2125/month to $.2205/month, and if the dividend were frozen at these levels, it would represent a starting payout of $2.55/share and a current annual payout of $2.646/share, respectively.

WP Carey - WPC's dividend was increased from $1.02/share per quarter to $1.025/share per quarter. This represents an increase of .50% and a new full-year payout of $4.10/share compared with the previous $4.08/share. This results in a current yield of 5.98% based on a share price of $68.60.

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.

During the month of October, we saw a significant increase in the number of trades when compared to the month of September. I tend to execute more trades during months with high volatility and October provided many of these opportunities to take some gains off the table while subsequently redeploying cash in undervalued positions. The following are examples of some of these trades and the rationale for selling these positions.

Gilead Sciences (GILD) - The sale of GILD shares was largely due to negative sentiment surrounding the stock with the goal of re-entering in at under $70/share. I saw short-term pain for GILD but am also encouraged by the strong support for the stock at the $65/share level.

Chart GILD data by YCharts

Here are the trades I have concerning GILD:

Source: Charles Schwab

This trade allowed Jane to take a small profit of $34.50 but most importantly close out the original position that had a cost basis of $76.76/share. Because of this, we were able to enter in for another 50 shares with an average cost basis of $70.85/share or a total cost basis of $72.25/share for all 75 shares.

Hershey (HSY) - As of right now, Hershey's qualifies as one of those "you win some and you lose some" type of scenarios. We grabbed 75 shares of HSY at an average cost basis of $95.90/share and ultimately sold all 75 shares at a price of $105.85/share locking in $746.29 of total gains. After missing my original opportunity to sell on 9/13 I lowered my target sale price from $110/share down to $105/share.

I currently have an alert set to notify me when HSY's price drops below $100/share but the stock hasn't even come close to this mark as the price rebounded from $102.03/share (only a few days after I sold) to a current price of $107.63/share. Depending on stock market action over the next few days I may choose to raise the alert to 102.50/share as my new buy target price.

Source: Charles Schwab

Archer Daniels Midland (ADM) - We decided to cut some of our position in ADM after a strong run. The 75 shares sold were part of a plan to increase reserves while maintaining another 75 shares in the Traditional IRA. Jane already has a fair amount of exposure to ADM because there are a total of 150 shares in the taxable account along with the 75 shares in the Traditional IRA account. We were able to make a nice profit by selling the 75 shares for $48.07/share compared with a purchase price of $40.51/share or around $7.50/share in profit.

I would be willing to add another 75 shares of ADM if prices drop to the equivalent of a 3.2% (or greater) dividend yield or around $42/share.

Source: Charles Schwab

Retirement Accounts - Final Tally

Source: Charles Schwab

In total, Jane's trades resulted in a total of $1,508.17 of realized gains in her Roth IRA and $1,609.20 of realized gains in her Traditional IRA. This is a total gain of $3,117.37 for the retirement accounts in the month of October.

Since February 1, 2018, to October 31, 2018, Jane's Traditional and Roth IRAs have benefited from realized capital gains totaling $12,273.62 or an average of roughly $1,363.74/month.

October 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 ten months of the year.

In total, Jane's Traditional IRA has produced $7,700.43 of dividend income from January to the end of October.

In total, Jane's Roth IRA has produced $3,210.69 of dividend income from January to the end of October.

In total, Jane has received total earnings (dividends and capital gains) in the amount of $23,184.74 over the course of ten months (January through October), resulting in an average monthly income of $2,318.47. Compared with the last article, this is a nearly $300/month increase in average income which is largely due to gains from the gain on trades (previous article's average monthly income was approximately $2,043.63).

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. October marked a reversal of the downtrend in an average monthly income as we saw a significant benefit from the gain on sale of various positions during the month of October. It is worth noting that the portfolio values used for cost basis and market value are based on today's figures (11/26/2018) and reflect the actual portfolio value after the current market downturn.

As mentioned in my previous article Jane's September Dividend Increases And Income Tracker - Retirement Accounts, I have begun incorporating the use of short-term CD's to help balance out the account and will label these in the tables above with their maturity date since this seems to be the best way to provide clarity for readers. This will be even more apparent in the next Taxable account article as John and Jane have received a large sum of money from the sale of property and they requested the bulk of these funds be held in short-term investments.

We expect Jane will receive a total of $472.03 of dividend income in her Traditional IRA and $293.22 of dividend income in her Roth IRA for a total of $765.25 of retirement account income during the month of November.

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), British American Tobacco (BTI), CBL Properties Pref Series D (CBL.PD), Canadian Imperial Bank of Commerce (CM), Cummins (CMI), CenturyLink (CTL), Digital Realty (DLR), DowDupont (DWDP), Duke Energy (DUK), Eaton Vance Floating-Rate Advantage Fund A (MUTF:EAFAX), Enbridge (NYSE:ENB), Eaton Corporation (NYSE:ETN), Emera Inc. (OTCPK:EMRAF), EastWest Bancorp (EWBC), 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), 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, 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.