End Of The Year Early Retirement Fund Income Update

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Includes: ABR, AYR, BNS, CMI, CVX, EMCF, ESCA, GME, HNNA, HP, IBM, KMI, LAZ, LOGN, LYB, M, MDP, MHLD, NRZ, ORI, PDCO, PFE, PLOW, SCS, SIG, SSI, UFS, VLO, VZ, WM, WPP
by: Lino Patti
Summary

I will discuss the income I received from my portfolio from April 2018 to December 2018.

I will show the changes I made within my portfolio during this time period.

I will compare 2018 income with 2017 income and share my goals moving forward.

2018 is now in the books. The best time to measure your portfolio success is after a year ends. As a dividend growth investor, I am most interested in seeing how much my income grew year-over-year. Seeing total portfolio value increase is great, but it won't help me calculate where I stand on my early retirement journey when I plan on replacing my work income with dividend income.

Not only is tracking portfolio performance important but also tracking one's living expenses and budget. How will one know when it is time to start living off passive income? The easy answer is when your passive income covers all your living expenses. The problem with that answer is, most people don't know how much they spend each year. Thankfully, I keep track of both, so let's get into the numbers and see how I am doing.

April 2018 to December 2018 Portfolio Income

The last time I provided an Early Retirement Fund (ERF) income update was back in April. That article can be read here.

Now, I will provide a table of the rest of my portfolio income received in 2018 from 30 different companies I proudly own shares in:

HOLDING/MONTH/YEAR

INCOME TYPE

AMOUNT

April 2018

Douglas Dynamics (PLOW)

Dividend

26.50

Macy's (M)

Dividend

15.10

Logansport Financial (OTCPK:LOGN)

Dividend

17.50

Steelcase (SCS)

Dividend

10.13

Domtar (UFS)

Dividend

30.02

Maiden Holdings (MHLD)

Dividend

22.65

Signet Jewelers (SIG)

Option Premium

24.32

Bank of Nova Scotia (BNS)

Dividend

21.11

New Residential (NRZ)

Dividend

50.00

April Subtotal

217.33

May 2018

Verizon Communications (VZ)

Dividend

2.28

SIG

Option Premium

22.32

Kinder Morgan (KMI)

Dividend

14.76

Lazard (LAZ)

Dividend

44.00

Arbor Realty Trust (ABR)

Dividend

31.25

May Subtotal

114.61

June 2018

Cummins (CMI)

Dividend

118.80

Helmerich & Payne (HP)

Dividend

16.80

Pfizer (PFE)

Dividend

9.18

SIG

Dividend

8.88

Valero Energy (VLO)

Dividend

80.00

Chevron (CVX)

Dividend

16.97

International Business Machines (IBM)

Dividend

51.81

Aircastle (AYR)

Dividend

16.80

Meredith (MDP)

Dividend

1.44

Old Republic (ORI)

Dividend

19.50

LyondellBasell Industries (LYB)

Dividend

100.00

Stage Stores (SSI)

Dividend

4.85

Emclaire Financial (EMCF)

Dividend

28.00

Waste Management (WM)

Dividend

1.76

Gamestop (GME)

Dividend

38.00

PLOW

Dividend

26.50

June Subtotal

539.29

July 2018

M

Dividend

15.10

WPP (WPP)

Dividend

128.54

MHLD

Dividend

22.65

LOGN

Dividend

17.50

UFS

Dividend

30.02

SCS

Dividend

10.13

Account Interest

Interest

0.01

BNS

Dividend

20.80

NRZ

Dividend

50.00

Patterson Companies (PDCO)

Dividend

32.24

July Subtotal

326.99

August 2018

VZ

Dividend

2.28

KMI

Dividend

14.76

LAZ

Dividend

44.00

Account Interest

Interest

0.01

ABR

Dividend

31.25

HP

Dividend

17.04

SIG

Dividend

37.00

August Subtotal

146.34

September 2018

CMI

Dividend

125.40

PFE

Dividend

9.18

VLO

Dividend

80.00

CVX

Dividend

16.97

IBM

Dividend

51.81

LYB

Dividend

100.00

AYR

Dividend

16.80

MDP

Dividend

1.44

ORI

Dividend

19.50

SSI

Dividend

4.85

EMCF

Dividend

28.00

WM

Dividend

1.76

Account Interest

Interest

0.02

PLOW

Dividend

26.50

September Subtotal

482.23

October 2018

M

Dividend

15.10

GME

Dividend

38.00

MHLD

Dividend

7.55

UFS

Dividend

30.02

SCS

Dividend

10.13

LOGN

Dividend

17.50

NRZ

Dividend

50.00

PDCO

Dividend

32.24

Account Interest

Interest

0.02

BNS

Dividend

21.45

October Subtotal

222.01

November 2018

VZ

Dividend

2.33

WPP

Dividend

108.00

KMI

Dividend

14.76

LAZ

Dividend

44.00

Account Interest

Interest

0.01

ABR

Dividend

33.75

SIG

Dividend

37.00

November Subtotal

239.85

December 2018

CMI

Dividend

125.40

HP

Dividend

17.04

PFE

Dividend

9.18

CVX

Dividend

16.97

IBM

Dividend

51.81

VLO

Dividend

80.00

AYR

Dividend

18.00

MDP

Dividend

1.44

ORI

Dividend

19.50

WM

Dividend

1.76

Escalade (ESCA)

Dividend

20.00

LYB

Dividend

100.00

SSI

Dividend

4.85

EMCF

Dividend

28.00

GME

Dividend

38.00

Account Interest

Interest

0.03

PLOW

Dividend

26.50

December Subtotal

558.48

GRAND TOTAL

2,847.14

Source: Author Calculations

The total income I received during this 9-month period was $2,847.14 which is 4.7% lower than the $2,986.51 total income I received during the same period in 2017. On the surface, this seems like an utter failure; however, a lot of the income received in 2017 was from option premium income. Options do play a role in the ERF but are not consistent and not something I rely on for reaching my goals. I treat option income as I would when receiving an unexpected bonus received from my boss. I would be thankful but know that I can't expect to receive the same bonus at the same time next year. A perfect analogy would be; dividends are to salaries, as option premiums are to bonuses. If you want a sneak peek of how I use options to boost my income, please read my article here.

I haven't written many options lately, especially during the second half of 2018. This was not something I had planned, I just didn't see as many opportunities as I did in 2017. So to give you a better review of how my income grew over this 9-month period, let's only look at dividend income. Dividend income is something I do rely on and plan my goals around.

From April 2017 to the end of December 2017, I received $2,582.98 in dividends. During this same time period in 2018, I received $2,800.37. My dividend income increased by 8.4%; this is a success. Looking at year-over-year numbers, I received $3,773.85 in dividends in 2018 compared to $3,358.47 in 2017. This means I increased my dividend income 12.4% year-over-year. I am very happy with this number. A lot of this dividend income growth came organically from companies raising their payout. Some of this income came from me contributing more of my personal money into the ERF. Let's look at organic dividend income growth from April to the end of December 2018:

Dividend Raises & Cuts April 2018 to December 2018

Holding

2017 Payment

2018 Payment

Payments Received at New Rate

Growth Rate

Change

VZ

2.28

2.33

1

2.19%

0.05

KMI

9.22

14.76

3

60.41%

16.71

UFS

28.64

30.02

3

4.92%

4.14

CMI

118.80

125.40

2

5.56%

13.20

HP

16.80

17.04

2

1.42%

0.48

MHLD

22.65

7.55

1

-66.67%

-15.10

IBM

49.50

51.81

3

4.67%

6.93

PLOW

24.00

26.50

4

10.42%

7.50

AYR

16.80

18.00

1

7.14%

1.20

SCS

9.56

10.13

3

5.96%

1.71

ABR

31.25

33.75

1

8.00%

2.50

LOGN

15.00

17.50

3

16.67%

7.50

PFE

8.64

9.18

3

6.25%

1.62

SIG

31.00

37.00

2

19.35%

14.00

WPP*

236.54

249.69

1*

5.56%

13.15

ESCA

18.40

20.00

1

8.70%

1.60

Totals:

34

6.90%

77.19

*Paid semi-annually at different rates. Both payments are added together to help calculate growth rate. Author Calculations

From this time period, I increased my dividend income by $217.39. About $77.19 of that came from dividend raises, which I consider organic portfolio income growth. The other $140.20 of additional dividend income received came from me contributing new capital to the ERF and buying more stock with that money. I invested $7,144.78 of my personal savings into the ERF from April to December 2018. With that capital, I bought shares in SIG, PDCO, WPP, ESCA, and Hennessy Advisors (HNNA). SIG, PDCO, ESCA, and HNNA were new positions for the ERF. I also reinvested all my dividends in 2018. I saved them in my account until I reached a $1,000 balance, then used that $1,000 to buy additional stock. If you want to learn why I do this, please read this article here that explains my reasoning to not DRIP.

I also made one sale during this period. I completely sold out of my Macy's position due to the company electing to freeze their dividend. Fortunately, I sold my 40 M shares for a total gain of $15.72, not bad for a company that chose not to raise their dividend in 2018.

My Goals Moving Forward and Conclusion

My goal for 2018 was to receive $4,000 worth of dividends. I failed to meet this goal as I only received $3,773.85. This result was disappointing to me but instead of letting it bother me, I am just going to set my 2019 dividend goal to $5,000. I like setting aggressive goals because it motivates me more to work towards completing them. I believe this goal is achievable as long as I keep focused and spend wisely in 2019 to boost my savings rate.

I went through all of my and my wife's credit card and bank statements for the year, so I could calculate and budget for our 2019 living expenses. The 2019 living expense budget I came up with was $71,000. This budget allows for plenty of travel, continuing education, recreation, plenty of money for groceries and some dining. Instead of trying to pinch pennies and give up on lifestyle while we are young, I chose to come up with a realistic number that allows us to live happily and comfortably. This figure also makes me want to build a portfolio that will produce $71,000 of income so we can cover our expenses easily without cutting back much of our "fun" money or lifestyle in the future. $3,773.85 is only 5.3% of the way there, but if we achieve our 2019 goal of $5,000 worth of dividend income, we will be 7% of the way there. I am only 31 years old so I have a lot of prime working years left in my career to make and save a substantial amount of money so I can buy more dividend growth stocks. This is a long journey that requires a lot of discipline and focus, but if I keep my mind on it, I am confident that I will reach my goals one dividend at a time!

Disclosure: I am/we are long ALL STOCKS MENTIONED EXCEPT M. 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.