October marks the eighth month that I have been tracking John's retirement accounts in an article. Since the beginning of January 2018, his portfolio has produced $11,048.30/Dividend Income through September 30, 2018.
For those new to this series, John is a recently retired investor whose retirement is entirely self-funded in the form of Taxable, Roth, and Traditional IRA Savings (for the record, he does receive social security). The allocation of this portfolio is focused on creating a consistent income stream that produces a steadily growing income regardless of chaotic market conditions.
This article will specifically focus on a review of John's account and the changes we have made to it during the month of October. There were a number of stocks that increased paid dividends even as we continue to see difficult market conditions impact the overall value of the portfolio. It is also important to document this because we are trying to show that a dividend growth portfolio is based on the growth and consistency of the yield as a way to reduce overall risk and dependency on capital fluctuations. By doing this, we believe John will live a more comfortable and well-funded retirement since his withdrawals will be less influenced by erratic market fluctuations.
Although this may sound repetitive, I would like to include a disclaimer that this article is based on an actual portfolio for a client 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
There were a number of companies that provided an increased dividend payout during the month of October, including:
- Altria (MO)
- Federal Realty Investment Trust (FRT)
- Healthcare Trust of America (HTA)
- Main Street Capital (MAIN)
- Realty Income (O)
- Regions Financial (RF)
- Umpqua Bank (UMPQ)
- W.P. Carey (WPC)
I have already covered MO, O, and WPC in my previous articles found at the links below. I will not give my background/view of the stocks but will still reiterate their dividend increase and yield information.
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 5.82% based on a share price of $55.94.
Federal Realty Investment Trust - This stock is known for being the gold standard of REITs due to its 50+ year of increasing dividend payouts. Although its yield is on the low side, its dividend growth/consistency helps compensate for its mediocre yield. John has had a small position in FRT for quite some time and although I believe its worthy of a long-term hold, we recently sold all 40 shares and redeployed funds into a very beaten down Boeing (BA) which has already provided solid returns. Don't get me wrong, I am not trying to compare the two in any way, but I am suggesting that this is why you never fall in love with a stock that you refuse to sell even when a major opportunity becomes available.
FRT's dividend was increased from $1.00/share per quarter to $1.02/share per quarter. This represents an increase of 2% and a new full-year payout of $4.08/share compared with the previous $4.00/share. This results in a current yield of 3.11% based on a share price of $130.89.
Healthcare Trust of America - I wrote a piece on HTA almost two years ago, fell in love with its business model and even more so after it became the largest owner of medical office buildings in the United States. HTA's dividend growth has been anything less than explosive but now that it has reached critical mass I believe that there is a significant opportunity for capital growth and higher than normal dividend increases. HTA represents a medical REIT with a compelling yield and its business model is much more steady/safer than Skilled Nursing REITs like Omega Healthcare (OHI). I believe with recent stock market turmoil, we should see HTA begin to recover and enter positive returns territory.
HTA's dividend was increased from $.30/share per quarter to $.31/share per quarter. This represents an increase of 1.6% and a new full-year payout of $1.24/share compared with the previous $1.20/share. This results in a current yield of 4.44% based on a share price of $27.91.
Main Street Capital - Unfortunately, I forgot to cover MAIN in Jane's portfolio so I get to update everyone in John's article. MAIN continues to be a favorite for income investors as their monthly and special dividends continue to enrich its investors. One thing that I can't emphasize enough is that management is top-notch and has earned my respect when it comes making decisions that benefit the company and the investor. One recent decision to begin phasing out the semi-annual dividend and will instead begin paying it out as part of the monthly payment. This should benefit investors by delivering their cash sooner and improving the consistent yield (and hopefully stock price).
MAIN's dividend was increased from $.19/share per month to $.195/share per month. This represents an increase of 2.6% and a new full-year payout of $2.34/share compared with the previous $2.28/share. This results in a current yield of 6.09% based on a share price of $38.44.
Realty Income - 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.
Regions Financial - RF was recently upgraded by Raymond James and J.P. Morgan based on its potential industrial and commercial growth and net interest margin gains. Add on top of this a dividend that was recently increased by 55.6% while maintaining a conservative payout ratio of 38.6% based on FY-2018 estimates of $1.45/share annually. RF is a classic example of being paid to wait while the rest of the market figures out how much it is really worth. Over a three-year term, RF has outperformed two other banks held in John's portfolio.
RF's dividend was increased from $.09/share per quarter to $.14/share per quarter. This represents an increase of 55.6% and a new full-year payout of $.56/share compared with the previous $.36/share. This results in a current yield of 3.45% based on a share price of $16.21.
Umpqua Bank - Due to my employment with Umpqua Bank, I will not be providing my thoughts on this stock.
UMPQ's dividend was increased from $.20/share per quarter to $.21/share per quarter. This represents an increase of 5% and a new full-year payout of $.84/share compared with the previous $.80/share. This results in a current yield of 4.38% based on a share price of $19.19.
W.P. 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 6.05% based on a share price of $67.79.
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:
- 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.
- 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).
- 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.
Due to the length of this article, I won't discuss any specific trades but will mention that I sold out of positions in LTC Properties (LTC) and Kimberly-Clark (KMB) to lock in gains. The remaining positions were sold to help reduce a high cost basis and to redeploy funds to other equities that were currently undervalued.
Since we began executing this strategy on February 1, 2018, to October 31, 2018, John's Traditional and Roth IRAs have benefited from realized capital gains totaling $9,676.10 or an average of $967.61/month (over the course of a ten-month period).
October Income Tracker And November Estimates
I have created the following charts to assist with keeping track of John's retirement portfolios, 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.
- Yellow represents dividend estimates that haven't occurred yet (estimates).
- Red indicates a position that's no longer held.
In order to de-clutter these charts going forward, I am going to start including the dividend earned from sold positions in a separate chart. If shares are repurchased, I will move the position from the "sold" chart back to the current holdings chart.
Traditional IRA Dividends - October (Actual) and November (Estimate)
In total, John's Traditional IRA produced $1,188.67 of recurring dividend income during the month of October. It is projected to generate $515.14 of dividend income in the month of November.
Roth IRA Dividends - October (Actual) and November (Estimate)
In total, John's Roth IRA produced $841.32 of recurring dividend income during the month of October. The Roth IRA is projected to generate $409.57 of dividend income in the month of November.
January - October - YTD Results - Traditional IRA
Traditional IRA - January - October Dividend History
Traditional IRA - January - October Non-Recurring Dividends
In total, John's Traditional IRA has produced $6,987.22 of recurring dividend income from January through October and $956.85 of non-recurring dividend income for a total dividend income of $7,944.07.
January - October - YTD Results - Roth IRA
Roth IRA - January - October Dividend History
Roth IRA - January - October Non-Recurring Dividends
In total, John's Roth IRA has produced $4,608.25 of recurring dividend income from January through October and $720.30 of non-recurring dividend income for a total dividend income of $5,328.55.
Based on this new information, John's total earnings have the following characteristics over this time frame:
- Total earnings in 2018 (dividends and capital gains) - $22,948.72
- Average monthly income (January through October) - $2,294.87/month (previous monthly average last update - $2,170.89/month).
My original conclusion was going to include a YCharts graph (but the program appears to have some issues at this point in time) of the S&P 500, the DJIA, and the Nasdaq over the last week. All three of these indexes have made serious strides in recovering from the major downturn that has plagued the markets.
John's portfolio hasn't excelled as much as I'd hoped and it's largely due to a few underperforming stocks, specifically BML Preferred Series L. This stock is tied to a floating index which is 3-month LIBOR + .50% with a base rate of 4% (which is what it is currently at). The issue is that when the Fed made its last announcement, the market interpreted the comments to imply a slowdown in the increase of interest rates. BML+L derives its value from the potential of interest rates rising and eventually exceeding the base 4% dividend yield (the true yield is closer to 5.2% because each $25/share base price is available for less than $20/share). While I see this as a short-term setback on the market value of John's accounts, I see it as a long-term opportunity to add to this position because a 5.2% yield to wait while interest rates recover seems like a pretty reasonable bet. Also, if 3-month LIBOR exceeds 3.5%, then it will also begin to push the yield on shares up in addition to any discount on its $25/share issue price.
Outside of these items, we have entered into some stocks like BA and MSFT as pretty attractive entry points and the portfolio has continued to rise as a result.
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In John's Traditional and Roth IRAs, he is currently long the following mentioned in this article: Apple REIT (APLE), Boeing (BA), BB&T (BBT), Bank of America Preferred Series L (BML.PL), British Petroleum (BP), Brown Forman Class B (BF.B), Caterpillar (CAT), Canadian Utilities (OTCPK:CDUAF), Chatham Lodging Trust (CLDT), Chevron (CVX), Covanta (CVA), CyrusOne (CONE), Dominion Energy (D), Digital Realty Preferred Series J (DLR.PJ), Duke Energy (DUK), Eaton Vance Floating-Rate Advantage Fund A (EAFAX), EPR Properties (EPR), EPR Properties Preferred Series G (EPR.PG), Federal Realty Trust (FRT), Federal Realty Trust Preferred Series C (FRT.PC), General Dynamics (GD), Hydro One (OTC:HRNNF), Healthcare Trust of America (HTA), Iron Mountain (IRM), JPMorgan Chase (JPM), Kimco Preferred Series L (KIM.PL), Kimberly-Clark (KMB), Kinder Morgan (KMI), Coca-Cola (KO), Kite Realty Group (KRG), LTC Properties (LTC), Lexington Realty Trust (LXP), Main Street Capital (MAIN), Altria (MO), Realty Income (O), Owens & Minor (OMI), Occidental Petroleum Corp. (OXY), Bank OZK (OZK), PacWest Bancorp (PACW), Pacific Gas & Electric Preferred Series D (PCG.PD), Pattern Energy (PEGI), PepsiCo (PEP), Park Hotels & Resorts (PK), PIMCO Income Fund Class A (PONAX), Portland General Electric (POR), Regions Financial (RF), Royal Dutch Shell Class A (RDS.A), South California Edison Preferred Series D (SCE.PD), Scana Corporation (SCG), AT&T (T), Toronto-Dominion Bank (TD), T. Rowe Price (TROW), Valley National Bancorp (VLY), Umpqua Bank (UMPQ), Ventas (VTR), Welltower (WELL), Walmart (WMT), and W.P. Carey (WPC).
Disclosure: I am/we are long GD, GIS, PEP, PACW, T, UMPQ.
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. I would like to emphasize that I am employed by Umpqua Bank which is a company held in John's Retirement Portfolio. The inclusion of this stock is for informational purposes only and is not an attempt to promote this stock. Please understand that I will not answer any questions that are specifically related to Umpqua Bank.