Road To Financial Independence: Rising Dividends And Endless Opportunities

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Includes: AAOI, AAPL, ABBV, AINV, AMD, ARCC, ARI, ATVI, AVGO, AYX, AZSEY, BABA, BAC, BASFY, BAYZF, BEP, BGS, BIP, BMWYY, BNS, BP, BX, BZUN, C, CBAUF, CL, CM, COR, CSCO, CTL, CVS, D, DATA, DDAIF, DHT, DIS, DRHKF, ED, EPD, EQT, FB, FDX, FMS, FSNUF, GE, GILD, GIS, GM, HCLP, HD, HON, HUYA, INCY, INTC, IQ, JD, JNJ, JPM, KMI, KO, LNXSF, MAIN, MCD, MDGEF, MIC, MMM, MO, MS, MSFT, MU, NEP, NVDA, OHI, OSAGF, PEB, PEP, PFE, PG, PM, QCOM, QTS, RDS.B, RY, SHE, SHLX, SNH, SO, STAG, STWD, SXTSY, T, TD, TEAM, TGT, TNK, TTWO, TXN, UN, UNIT, V, VONOY, VZ, WB, WBA, WCAGY, WFC, WRCDF, XOM
by: Stefan Redlich
Summary

Dividend income hit $279 in February, up 55% Y/Y and 17.2% sequentially.

The big increase is heavily boosted by the first annual dividend from Siemens Healthineers which easily compensated for the exit of Omega Healthcare Investors.

Breaking down dividend growth reveals some heavy dividend growth in relative terms but in absolute terms most of the increase stems from new purchases.

I outline the portfolio composition by sector and portfolio weight for every holding.

February was a very turbulent month for me. Although the markets rallied strongly the earnings season, as always, has been a wild one and a painful one as well for a few stocks. On top of that, high-flying German fintech Wirecard (OTCPK:WCAGY) (OTCPK:WRCDF) completely collapsed following allegations about fraudulent behavior.

Contrary to January, where I missed fire power to benefit from these and other opportunities, I was able to significantly increase my net capital contribution in February thanks to strong dividends and my writing here on this platform. I have also been investing countless hours into designing a new way to look at the monthly dividend development and will integrate that into every update.

Portfolio Changes | 5 new stocks, 12 repurchases, 0 sales

I deployed net capital of around $2,100 in February, almost 4 times as high as in January where I had to limit my contributions due to high expenses, and thus significantly exceeded my minimum target of $1,500. I did not exit or trim any holding and instead focused on opening new positions in beaten-down stocks, despite them being very small.

However, as transaction fees are no real issue, I only paid around $20 for all this, i.e. less than 1%. It can still make sense to only invest $100 or even less in one stock. In terms of new purchases, it looks as follows:

  • Home Depot (HD): 1 share following solid results and a massive 32% dividend hike announced which translated into a YOC of around 2.9% at the time of purchase. On top of that HD is currently trading 14% below its 52-week high and will go ex-dividend already on March 13. It is a great business and very committed to its shareholders. The market was disappointed by the earnings miss and softer guidance for FY2019 which only sees EPS growth of around 3.1%.
  • Brookfield Renewable Partners (BEP): 3 shares following terrific Q4 results with the company posting 20% Y/Y revenue growth and raising the dividend by 5% to a 7% yield overall. It is a very small holding at this stage but one I plan to significantly increase in 2019 and beyond in order to benefit from global green energy and also have some kind of hedge in place for the oil majors.
  • Take-Two (TTWO): I got back into Take-Two, albeit with only 1 share, as the stock has become so cheap and hit a new 52-week low. I bought a little earlier in February following the Q3 results that have led to a 10% sell-off in the stock. I couldn't really figure out what precisely caused this steep sell-off as the company beat expectations and raised its FY2019 guidance. The gaming industry has certainly become more competitive but Take-Two remains a great name and once a new GTA with in-game purchases is announced any poor performance in the stock will quickly turn around.
  • CVS (CVS): Earnings were great in my opinion with the company recording 12.5% Y/Y revenue growth but EPS guidance missed expectations and the stock quickly dropped in the low $60s and later entered the high $50s at which time I bought a very small position, capturing a 3.3% dividend. The Aetna deal worth $69B, which has caused CVS to halt dividend growth, is weighing on the stock and the company's balance sheet but once approved and synergies kicking in, I am confident that CVS won't trade with a below 10 P/E ratio.
  • Qualcomm (QCOM): Purely speculative buy just below $50 as I feel the stock has been punished immensely following the company's extended patent "war" with Apple (NASDAQ:AAPL). I can wait for things to settle and in the meantime will capture an almost 5% dividend yield.

The main purchase in February was undeniably Wirecard, the poster child of the European fintech sector that is facing an unprecedented crisis following numerous reports from the Financial Times claiming criminal activities at its Singapore office and numerous denials by the company's management. I firmly consider this to be the rarest and most unexpected long-term buying opportunity in a rapidly-growing company. Wirecard's latest earnings from Q4/2018 show 36% revenue growth and 37% EBITDA growth, topping expectations. For the full-year 2018, revenue grew by 41% to €2.1B and EBITDA climbed 38% to €568M. For 2019, Wirecard is guiding for EBITDA of €740-800M, representing between 30% and 40% growth. Its current valuation stands at around 40 times earnings (it's difficult to say right now with the stock price fluctuating 20% a day), but extrapolating its high growth shows that it can quickly grow into that valuation given its 2020 P/E multiple is around 23.

Repurchases

My repurchases break down as follows:

1) Continue ongoing monthly stock savings plans: These are routine investments between $50 and $115 each into Wells Fargo (NYSE:WFC), Visa (NYSE:V), McDonald's (NYSE:MCD), Johnson & Johnson (NYSE:JNJ), Apple and the lesser-known Commonwealth Bank of Australia (OTCPK:CBAUF).

2) Add to existing holdings: I added two more shares to Shell (RDS.B), a couple more shares to JD.com (JD), before the Chinese e-commerce giant released earnings, surprising the markets with a profit, 4 shares into Baozun (BZUN), another Chinese stock that has been massively beaten down amid the tariff war (despite recovering a decent share of that decline) and NextEra Energy Partners (NEP), which briefly dipped below $40 which was a good enough price for me to add to my still very small number of existing shares.

All net purchases and sales in February can be seen below:

Dividend Income: What happened on the dividend side?

My income from 24 corporations amounted to $279 in dividends, up 55% Y/Y and up 17% sequentially.

The top five companies led by AT&T (NYSE:T) accounted for 62% of monthly dividend income. As always, in February, the overwhelming majority of dividend income (26%) originated from AT&T. This high share is attributable due to T being my largest position despite all the problems and challenges surrounding the company. However, I would like to lessen the importance of T for income by continuing to invest in other dividend stocks.

All dividends break down as follows:

55% Y/Y dividend growth sounds massive but in isolation that number really does not mean anything. That's why I have invested a lot of time to break down the Y/Y dividend delta into its components. This is a bottom-up approach by which I am calculating the gross and net dividends in original currency rather than converting back the amount I have received in euro into U.S. dollar.

By doing this I get the following:

Most of the Y/Y dividend delta stems from new purchases with $78 representing dividends from new purchases of new stock, i.e. new stocks I hadn't owned the previous year, most notably the massive $40 from Siemens Healthineers. The other large contributor is dividends from new purchases of existing stock. For instance, over the year I bought an additional 17 shares in AbbVie (ABBV) which alone represents around $15.

Dividends from dividend growth of existing stock, i.e. organic dividend growth, totaled $11 with another $11 stemming from a positive FX impact. Dividend growth for existing holdings by stock reveals some very heavy organic dividend growth. While the 150% dividend growth for DHT Holdings (DHT) clearly tops the list, it is very insignificant due to the low number of shares I own and the ultra-low level from which these dividends have grown. Much more impressive though is the 50% dividend growth from ABBV, 24% from Texas Instruments (TXN), 20% from Morgan Stanley (MS) and almost 16% from Apple, as most of them are among the Top 20 of my holdings.

I also created a new dashboard which shows all-time dividends by stocks clustered in a tree map which best shows the relative importance of each holding.

Here is a look at my favorite chart: the net dividend income development by month over time between 2015 and 2019, where you can easily see the development of my dividend income as well as the average annual dividend in a given year:

Next, I have scattered all the individual dividend payments I have ever received and colored them by year, rearranging the years side by side rather than horizontally as in previous updates:

The readability of the numbers is rather poor, as there is so much data, but the bigger picture becomes apparent regardless of these numbers. I am just looking at the size and quantity of the bubbles as they keep on climbing higher and expanding in size.

It remains fascinating to watch how all these metrics develop over time. Right now, as I am still in the early stages, these metrics are not that impressive but the growth is truly striking, and all these instruments help me measure it and provide meaning to it. Now that I have entered the fourth year of my road to financial independence it is really motivating and encouraging to see how these bubbles are increasing in size and quantity and (slowly) moving up the scale.

Speaking in terms of meaning, another way to express the monthly dividend income is in terms of Gifted Working Time (GWT). I am assuming an average hourly rate of $25 here. In 2018, I generated 121 hours in GWT, equaling slightly more than $3,000 in annual net dividends. For this year, I am targeting a 15% increase. This results in $3,450 in targeted annual net dividends, or 138 hours in GWT. Depending on actual performance, I may revise that target after the first 3-6 months.

What this shows is as follows:

  1. All time (blue area) - Around 252 hours, or 31.5 days, of active work have been replaced with passive income since the start of my dividend journey. Assuming a 5-day work week, that equals more than 6 full weeks, or more than an entire month, of vacation funded via dividends.
  2. YTD (green bars) - Around 19 hours, or 2.4 days, of active work have been replaced with passive income in 2019 already.

Upcoming March Dividends

The snapshot below is taken from my newly released Dividend Calendar & Dashboard Tool (make sure to follow instructions) and shows expected gross dividend payments for March.

My portfolio composition

I have now switched showing portfolio composition from % cost basis to % market value. At end of February, my portfolio is composed as follows:

Company Name Ticker % Market Value
Apple Inc. (AAPL) 5.61%
Cisco Systems, Inc. (CSCO) 4.86%
AT&T Inc. (T) 4.72%
McDonald's Corp. (MCD) 3.78%
Siemens Healthineers (SHE) 3.43%
Royal Dutch Shell Plc Class B (RDS.B) 3.16%
Altria Group Inc (MO) 2.79%
Micron Technology, Inc. (MU) 2.52%
Commonwealth Bank of Australia (OTCPK:CBAUF) 2.50%
AbbVie Inc (ABBV) 2.47%
Johnson & Johnson (JNJ) 2.42%
Gilead Sciences, Inc. (GILD) 2.35%
Southern Co (SO) 2.31%
Main Street Capital Corporation (MAIN) 2.22%
Microsoft Corporation (MSFT) 1.87%
Wells Fargo & Co (WFC) 1.83%
3M Co (MMM) 1.80%
Philip Morris International Inc. (PM) 1.47%
Daimler (OTCPK:DDAIF) 1.46%
Texas Instruments Incorporated (TXN) 1.44%
Baozun Inc (BZUN) 1.32%
Toronto-Dominion Bank (TD) 1.31%
PepsiCo, Inc. (PEP) 1.31%
Bank of America Corp (BAC) 1.27%
Ares Capital Corporation (ARCC) 1.24%
Procter & Gamble Co (PG) 1.23%
Bank of Nova Scotia (BNS) 1.21%
B&G Foods, Inc. (BGS) 1.20%
Honeywell International Inc. (HON) 1.20%
Verizon Communications Inc. (VZ) 1.18%
Dominion Energy Inc (D) 1.15%
Canadian Imperial Bank of Commerce (CM) 1.13%
Bayerische Motoren Werke AG Preference Shares (OTCPK:BMWYY) 1.08%
Alibaba Group Holding Ltd (BABA) 1.06%
Unilever NV ADR (UN) 1.03%
Intel Corporation (INTC) 1.03%
Morgan Stanley (MS) 0.94%
Wirecard AG (WRCDF) 0.93%
The Coca-Cola Co (KO) 0.87%
Target Corporation (TGT) 0.84%
QTS Realty Trust Inc Class A (QTS) 0.81%
Tableau Software Inc Class A (DATA) 0.77%
Allianz SE (OTCPK:AZSEY) 0.76%
General Motors Company (GM) 0.76%
Royal Bank of Canada (RY) 0.75%
BASF (OTCQX:BASFY) 0.75%
Advanced Micro Devices, Inc. (AMD) 0.73%
JPMorgan Chase & Co. (JPM) 0.70%
Blackstone Group LP (BX) 0.65%
NVIDIA Corporation (NVDA) 0.60%
Pfizer Inc. (PFE) 0.58%
NextEra Energy Partners LP (NEP) 0.58%
Sixt (OTC:SXTSY) 0.58%
Walt Disney Co (DIS) 0.55%
Stag Industrial Inc (STAG) 0.53%
Senior Housing Properties Trust (SNH) 0.49%
Drillisch (OTC:DRHKF) 0.48%
Bayer AG (OTCPK:BAYZF) 0.47%
Pebblebrook Hotel Trust (PEB) 0.46%
General Mills, Inc. (GIS) 0.45%
Exxon Mobil Corporation (XOM) 0.45%
BP (BP) 0.42%
Enterprise Products Partners L.P. (EPD) 0.40%
CoreSite Realty Corp (COR) 0.40%
Citigroup Inc (C) 0.37%
HUYA Inc - ADR (HUYA) 0.36%
Starwood Property Trust, Inc. (STWD) 0.34%
Kinder Morgan Inc (KMI) 0.34%
Atlassian Corporation PLC (TEAM) 0.32%
Colgate-Palmolive Company (CL) 0.32%
iQIYI Inc (IQ) 0.31%
Fresenius SE (OTCQX:FSNUF) 0.31%
Shell Midstream Partners LP (SHLX) 0.28%
Visa Inc Class A (V) 0.27%
Omega Healthcare Investors Inc (OHI) 0.27%
Broadcom Inc (AVGO) 0.26%
Osram (OTCPK:OSAGF) 0.25%
JD.Com Inc (JD) 0.25%
Lanxess AG (OTCPK:LNXSF) 0.25%
Activision Blizzard, Inc. (ATVI) 0.25%
Consolidated Edison, Inc. (ED) 0.24%
BP plc (BP) 0.20%
Walgreens Boots Alliance Inc (WBA) 0.19%
Macquarie Infrastructure Corp (MIC) 0.19%
Uniti Group Inc (UNIT) 0.19%
Centurylink Inc (CTL) 0.19%
Home Depot (HD) 0.18%
FedEx Corporation (FDX) 0.18%
Facebook, Inc. Common Stock (FB) 0.16%
Fresenius Medial Care (FMS) 0.15%
Teekay Tankers Ltd. (TNK) 0.14%
Weibo Corp (WB) 0.14%
MediGene AG (OTCPK:MDGEF) 0.13%
Apollo Commercial Real Est. Finance Inc (ARI) 0.12%
Brookfield Infrastructure Partners L.P. (BIP) 0.12%
Brookfield Renewable Partners (BEP) 0.12%
Vonovia (OTCPK:VONOY) 0.11%
EQT Corporation (EQT) 0.11%
CVS Health Corp (CVS) 0.11%
Qualcomm (QCOM) 0.10%
DHT Holdings Inc (DHT) 0.09%
TAKE-TWO INTERACTIVE SOFTWARE, INC Common Stock (TTWO) 0.09%
Incyte Corporation (INCY) 0.08%
General Electric Company (GE) 0.08%
Alteryx (AYX) 0.07%
Applied Optoelectronics Inc (AAOI) 0.06%
Hi-Crush Partners LP (HCLP) 0.04%
Apollo Investment Group (OTC:AINV) 0.00%

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