This is the January update for the GrayBeard Retirement dividend holdings and income.
A short review
We plan to retire at age 54 in July 2020 and roam the country in our motorhome for a few years before settling into one location. Our plan consists of different time periods, each with a different investment purpose. They are:
- From age 54 to 59.5 we will not yet be able to withdraw from IRA’s and will not have social security income. During this critical time period, income will be limited to cash savings and income from a small portfolio. We will spend all or part of this time traveling the country in our motorhome. I call this the Motorhome Period.
- From age 59.5 to 62 we can withdraw from IRAs but will not have social security income.
- From age 62 and older, we can withdraw from IRAs and will have social security income. During this potentially long time period, the plan must be more dynamic as we respond to market conditions.
First, I will update the totality of the holdings then the progress on the Motorhome Period plan will be updated.
It was a busy month with 9 companies paying dividends, 9 dividend increases and 2 new purchases. There were no sales.
First the dividends
- Genuine Parts Company (GPC) – $242.64
- Kimberly-Clark Corporation (KMB) – $501.40
- Altria (MO) – 136.00
- Illinois Tool Works (ITW) – 200.00
- Cardinal Health (CAH) – 355.73
- Cisco Systems (CSCO) – 263.52
- Walmart (WMT) – 83.12
- ProShares S&P 500 Dividend Aristocrats ETF (NOBL) – 143.86
- Realty Income (O) – 23.21
- Philip Morris International (PM) – 42.18
Total dividend income for January was $1991.66. This was a 9.6% increase over the January 2018 dividend income.
Amounts shown are the annual dividend rates.
Without looking it up, the increases seem smaller so far this year than last. This is not surprising as 2018 had the tax cut step change baked into a lot of earnings and dividends. This year’s increases will rely more on actual growth of the company.
There were two purchases made in January. On January 7th, shares of Enbridge, Inc. (ENB) were purchased for $33.45. Enbridge is a Canada-based, oil and gas pipeline company. It has three core business, Liquids Pipelines, Gas Pipelines and Gas Utilities. Our purchase was made due to the company’s:
- Strategic posture to capture the growing natural gas market going forward
- Low-risk business model
- Projected distributable cash flow and dividend growth of 10% through 2020 and 5-7% thereafter
- Progress deleveraging the balance sheet and plans to continue debt reduction
- Investment grade credit rating
- A shift to a self-funding model
- Current undervaluation.
You can read about it in more detail here.
On January 31st, shares of Royal Bank of Canada (RY) were purchased for $76.10. Royal Bank of Canada is Canada’s largest bank by market capitalization and one of the leading financial services companies in North America. Royal Bank of Canada operates in five business segments - Personal & Commercial Banking, Wealth Management, Capital Markets, Insurance, and Investor & Treasury Services. This is the first purchase for my “Grade ‘A’ Retirement Portfolio” concept. RY is admitted to the portfolio because
- Its credit rating is AA-.
- Its yield is greater than 2.9%.
- Its market capitalization is greater than $5 billion.
- Its dividends have a track record of growth and are well-covered.
- Its volatility is lower than the S&P 500.
- It is not overvalued.
Additionally, the company is conservatively financed, has a strategy for growth and capital to execute it without compromising credit quality, and operates in a favorable business environment. You can read more about the purchase of RY and learn more about the “Grade ‘A’ Retirement Portfolio” here.
I like to track the annualized dividend income from our holdings. The following figure shows the sources and amounts of the increases in January.
The increase for the month was 3.77%. The increase on a YOY basis from January 31, 2018, was 6.3%. We lost a significant amount of income when TransMontaigne Partners LP (TLP) was acquired by ArcLight Energy. The deal has not closed yet but I sold TLP for a little better than the acquisition price shortly after the announcement. You can read about that here in the income section near the end of the article. One of my investment goals is to increase investment income by 10% per year. The month-over-month jump was buoyed by the redeployment of some of the funds from the TLP sale while the YOY increase was subdued by the sale of TLP. It had a pretty high yield so it may take a bit to catch back up, but hopefully I can do it by midyear.
The Motorhome Period
From age 54 to 59.5 we will not yet be able to withdraw from IRAs and will not have social security income. During this critical time period, income will be limited to cash savings and income from a small portfolio. We will spend all or part of this time traveling the country in our Motorhome. I call this the Motorhome Period. This time frame has its own plan. You can read about it here. The discussion of the Motorhome plan starts about one third the way through the article.
All dividend activity in this portfolio is included in the review of the total portfolio above. The composition and income from the high yield portfolio are summarized in the figure below.
The annualized income in this account increased from $6,276 last month to $6,440. This income will be used with cash savings to fund the Motorhome Period. The plan calls for the annual income from this account to be about $7,700 by the time we retire, but I would like for it to be closer to $10,000. I created the following table to track the progress of the plan. Included in the cash savings are the 401-k accounts as we will withdraw our 401-k accounts penalty-free in the year we turn 55. You can read about our plan for avoiding the penalty here. The description starts a few paragraphs into the article.
The table shows that income is slightly ahead of plan as the total months of retirement funded is one month ahead of plan. This is due to some additional savings and an unexpected employer match in my 401-k.
For those of you who have been following along previously, I plan to do updates of the permanent portfolio only quarterly going forward.
If you enjoyed this article and wish to receive updates on our latest research, click "Follow" next to GrayBeard Retirement at the top of this article.
Disclosure: I am/we are long INTC, KMB, ABBV, CVX, ENB, EPD, O, GEL, NOBL, GPC, ITW, MO, CAH, CSCO, WMT, PM, RY. 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.