John's FY-2018 Dividend Income Totals - Positioning The Portfolio For Success In 2019

by: Matthew Utesch

I have officially tracked dividend income for my client John's Traditional and Roth IRA Accounts for the last 10 months. His dividend income totaled $1,424.65 for December.

This article looks at dividends received in December and also reviews the portfolio from a FY-2018 perspective.

John's portfolio is pretty well established and we did not sell any stocks during the month of December.

The stock market has rallied in the first four weeks of 2019 which has minimized what were once large paper losses associated with John's retirement accounts.

Investment Thesis

As 2018 came to a close there was a sinking feeling associated with the market and it appeared to be the first time that investors began to approach the market cautiously because of the increased potential of a prolonged downturn. On the other hand, this created a wonderful opportunity to add some of the highest-quality dividend stocks available at a price that hasn't been seen for quite some time.

When I talk about positioning the portfolio for success I am talking about these types of moments when it becomes possible to add shares at prices that aren't typically available. As an investor who is focused on the long-term I still feel hesitation to buy in when it feels like the rug is being pulled out from underneath your feet but we have to remember that if we always succumb to waiting-to-pull-the-trigger that we will never reap the benefit of gains when times are good.

To illustrate what I am talking about, here is a list of purchases we made across John and Jane's Retirement and Taxable Portfolios:

  • Valero (VLO) - 50 Shares @ Blended Cost of $78.69/share.
  • Boeing (BA) - 35 Shares @ Blended Cost of $333.13/share.
  • Old Republic (ORI) - 100 Shares @ Blended Cost of $20.03/share.
  • United Technologies (UTX) - 50 Shares @ Blended Cost of $114.87/share.
  • Enbridge (ENB) - 50 Shares @ Blended Cost of $29.49/share.
  • Honeywell (HON) - 35 Shares @ Blended Cost of $133.44/share.
  • Bank of America (BAC) - 50 Shares @ Blended Cost of $25.30/share.

Chart Data by YCharts

The addition of these positions at a time when the market was struggling offers the best yield and provides the greatest margin of safety.

With the market rallying in January, we are looking at cutting certain positions entirely because it allows us to reduce dependency on stocks that I won't be following any longer. Cutting positions is also part of positioning the portfolio for success because not every investment can be held forever (especially when the investment thesis/reason for holding the stock has changed dramatically).

I have sold the following positions from John and Jane's Taxable and Retirement portfolios.

Chart Data by YCharts

Using the market upswing allowed me to sell these stocks for a small gain and put the money back in the coffers where it is waiting to be deployed.

The last two months of trades have reminded me why I appreciate my system of assigning a price point where I am willing to sell. Assigning an intrinsic value to your stocks allows capital to be recycled regularly and removes as much human emotion as possible by simplifying the situation down to a buy/hold/sell scenario. While some people prefer to reset or make major changes to their portfolios on a specific timeline, I find that it is more efficient to make these changes when the market creates the opportunity.


John is an investor who retired at the beginning of 2018 and he will begin depending on these retirement accounts to provide the lifestyle that she wants during retirement. Because John's employer did not offer a 401(k) or other company-sponsored option he has been saving money on his own in Traditional and Roth IRAs over the last 35+ years.

John's portfolio is more focused on generating income and is less aggressive than his wife Jane's retirement accounts (for more on his wife's account see Jane's FY-2018 Dividend Income Totals - Why Being Patient Pays.

In this article, I will specifically focus on a review of what happened with John's Retirement Portfolio over the course of 2018. All dividends are collected as cash and will only be used for purchasing additional shares, adding certificates of deposit, or being distributed to John as a monthly income.

November YTD Synopsis

In order to provide additional insight, I like to inform the readers of the most recent figures from the previous month. The figures below represent dividend and trade gains from the beginning of January 2018 through the end of November 2018.

  • Total dividends YTD (November) 2018 (Traditional & Roth) - $14,399.99 (This includes all dividends collected including non-recurring).
  • Total earnings YTD 2018 (dividends and capital gains) - $25,732.35
  • Average monthly income (January through November) - $2,339.30/month (previous monthly average last update - $2,294.87/month).

December Dividend And Distribution Increases

Only one stock paid an increased dividend in the form of a special dividend during the month of December.

Main Street Capital (MAIN) - I provided my thoughts on MAIN in Jane's review and will only covered the impact of the special dividend.

MAIN's special distribution was $.275/share in December. Including the special dividend from June, MAIN paid a total of $.55/share of additional income or a total of $110 (on 200 shares Jane owns) in 2019. MAIN's current regular dividends amount to $2.34/share or a yield of 6.37%. When we add in the additional $.55 special dividend, this increases the yield to 7.87%.

Active Trading Log

I have utilized an active trading method in tandem with a dividend growth model because it helps recycle capital and reduces exposure to stock prices that have improved too quickly. I cannot emphasize enough that this is not day-trading or some crazy scheme to make a lot of money quickly but a methodical approach that is based on the following criteria.

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.

Due to the market downturn in December, we chose only to add shares instead of sell because most positions were underwater. We added to the following positions in December.

  • JPMorgan Chase (JPM) - 25 Shares @ $103.83
  • Digital Realty Preferred Series J (DLR.PJ) - 50 Shares @ $21.49
  • VLO - 10 Shares @ $72.69

Positions I am looking at trimming or selling entirely include.

  • Lexington Realty (LXP) - Trim @ $10/share.
  • Covanta Holdings (CVA) - Sell entire position @ $17/share.
  • Caterpillar (CAT) - Sell entire position at $145/share
  • BB&T Bancorp (BBT) - Trim @ $52/share
  • CyrusOne (CONE) - Trim @ $60/share

Although this list isn't exhaustive, I hope it provides insight for those reading about some of the potential changes I am contemplating. Again, the main point is that I believe all of these are good enough to be held over the long-term which is why I will continue to hold them until these price points are hit. If the market tanks, I would gladly purchase any of the shares mentioned above again (as long as it was for the right price).

December Income Tracker And FY-2018 Review

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.
  • Red indicates a position that's no longer held.

Additional dividends paid on shares that are no longer held are included in a separate table.

John's Traditional IRA

Annual Dividend Chart

Traditional IRA - December Dividends and FY-2018 Income Tracker

Since there were no non-recurring dividends in December the previous month's non-recurring dividend tracker of $1,019.35 is accurate. This results in total recurring dividends of $8,584.41 plus non-recurring dividends of $1,019.35 for a total collected of $9,603.76 from the Traditional IRA.

John's Roth IRA

Annual Dividend Tracker Roth IRA - December Dividends and FY-2018 Income Tracker

Since there were no non-recurring dividends in December the previous month's non-recurring dividend tracker of $720.30 is accurate. This results in total recurring dividends of $5,414.59 plus non-recurring dividends of $720.30 for a total of $6,134.89 from the Roth IRA.

Total Traditional And Roth Income - December

During the month of December, John received the following from his Traditional and Roth IRAs:

  • Realized capital gains of $0.00.
  • Total dividends of $1,424.65.

This results in a total gain of $1,424.65 for John's Traditional and Roth IRAs during the month of December.

Traditional & Roth - FY-2018 Results

Because John's IRAs weren't fully established until around mid-2018 the dividend income at the beginning of the year was light in comparison to what we expect to see 2019. With this in mind, the FY-2018 results had the following attributes:

  • My active trading approach resulted in realized gains of $14,575.98 FY-2018 or an average gain of approximately $1,214.67/month
  • Total dividends from shares currently held totaled $13,999.00 or an average dividend stream of $1,166.58/month.
  • Total (Extra) dividends from shares not currently held totaled $1,739.65.

When we combine these three groups, it amounts to $30,314.63 FY-2018 or approximately $2,526.22/month.


Going into 2019 I am optimistic that we will continue seeing meaningful increases. Many of these increases have already been announced by some of John's major holdings, including:

  • BA - 20.2% increase - Moved from $1.71/share to $2.06/share per quarter.
  • VLO - 12.5% increase - Moved from $.80/share to $.90/share per quarter.
  • Dominion Energy (D) - 9.9% increase - Moved from $.835/share to $.9175/share per quarter.
  • EPR Properties (EPR) - 4.2% increase - Moved from $.36/share to $.375/share per month.

Based on these initial moves I believe that we will see strong dividend growth from a number of other companies in the portfolio. When we take into consideration that January, February, and even March to some degree didn't receive much in the way of dividends it makes me believe that John's IRAs have the potential to generate over $20k in recurring dividends (stretch goal).

If we assume no company will raise its dividends from here on out we still expect to see a total dividend income in the IRAs of roughly $19,000 for 2019. If we consider an average increase of 5% this would result in $19,950 of dividend income for 2019.

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), Healthcare Trust of America (HTA), Iron Mountain (IRM), JPMorgan Chase (JPM), Kimco Preferred Series L (KIM.PL), 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), AT&T (T), Toronto-Dominion Bank (TD), T. Rowe Price (TROW), Valero (VLO), Valley National Bancorp (VLY), Umpqua Bank (UMPQ), Ventas (VTR), Welltower (WELL), and W.P. Carey (WPC).

John and Jane are also long the following stocks mentioned in this article that are in their other accounts: Old Republic (ORI), United Technologies (UTX), Enbridge (ENB), Honeywell (HON), Bank of America (BAC).

Disclosure: I am/we are long T, OZK, PACW, 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.

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.