Sand In My Shoes: February Update

Includes: AIG
by: Brian Soule

The rally in the markets continued for the month of February, and that signals good things for the markets in 2019.

Good things are also signaled in the Sand In Shoes portfolio, adding another $100 plus to my future annual dividend income.

I added shares to two of my existing positions as I felt they presented good value.

The S&P 500 was up nearly 2.8% for the month of February, which added to the 7.9% jump that took place in January. When both January and February have been positive months in years past, the market is nearly always up for the year. In fact, the market has been up 29 out of the 30 times that has happened, and it has been up an average of 20% per year.

My portfolio was up a more modest 2.2% since the fixed income portion of my portfolio was up only 1.0%. Still, I'll take that. For the year I am up 8.4%, which is a great start to the year.

More exciting is the number of dividend increases that were announced in February. Those increases combined with the additions I made to two of my existing positions added well over $100 in annual income to my portfolio.

Image Credit

If you've been following along, you may remember I had a call option on my 100 shares of American International Group Inc (AIG). I thought it would probably be assigned and it was at $42 per share. If I wanted to (I don't) I could buy the 100 shares back for less than that now, so that makes me feel good. As I type this the stock is trading at $41.81.

But let's get into the tables and charts you are all used to seeing now.

February Dividends

All graphs and charts created by author unless otherwise specified

February marks the first month my dividend income was over $300, just edging out my November total of $293. The middle month of each quarter is my highest due to a couple of large dividend payers, namely Magellan Midstream Partners LP (MMP), Omega Healthcare Investors Inc (OHI), and AT&T Inc (T). Below you can see this in the historical chart:

February Performance

Above you can see the good news in numbers. My portfolio has gained over $20,000 since the horrifying December we had. Let's hope it continues going forward for the rest of the year.

Individual Stocks

Below are the positions in my portfolio as of close of business on February 28th. This portfolio has an overall yield of 3.7%. I am still holding a fair amount of cash from my sale of AIG. I do still have the limit order in to purchase Eastman Chemical Co (EMN), so I will hold some of that cash for at least a little while longer.

Projected Dividends

Total expected dividends for 2019 with my new additions is $3,125.57. Due in part to the quirky payout schedule for Walmart Stores Inc (WMT) next quarter will be the first one over $800. You will notice that the fourth quarter looks a little light because neither WMT nor PepsiCo Inc (PEP) pay a dividend in the fourth quarter. Probably by then though I will have added more than enough shares of something to bring the total over $800 for the fourth quarter as well.

Sector Diversification

Consumer Discretionary 8.1%
Consumer Staples 8.4%
Energy 7.9%
Financials 10.7%
Health Care 10.2%
Industrials 9.3%
Materials 10.1%
REIT 11.2%
Technology 8.3%
Telecom 7.0%
Utilities 8.7%

Now that those pesky AIG shares are out of my portfolio the sectors are all fairly balanced. The only sector over 11% is the REITs, and partly because Realty Income Corp (O) just won't stop going up (good problem to have). I purchased my shares with an average cost basis of around $51 and the stock is worth close to $70 per share now. I'd love to add more at some point, but not at $70 per share!

Despite my recent addition of Verizon Communications Inc (VZ) I am still light in the telecom space. I'll be keeping a close eye on VZ and may add on any signs of weakness. Energy is another possibility, and MMP is actually pretty attractive to me at these levels.

Asset Allocation of the Portfolio

My fixed income allocation slipped once again despite my addition of some cash to the asset in February. This is mainly because the equities were up so much relatively speaking. Small and mid caps were up over 4% each. The large cap stocks were up over 3%, and as we've already discussed the fixed income funds were up only 1%. So naturally the allocation got more out of whack from my desired 30%. I will continue to invest the cash the fixed income funds throw off back into one of the fixed income investments I own.

Sales and Purchases in February

February was quite a busy month. In early February I wrote a bullish article on EMN and entered a limit order on February 8th but it has not been filled yet. However, I needed the cash in order to enter the limit order so I sold off $1,350 of my S&P 500 Index fund which put my cash balance just over $2,000.

Of course a week later I was called out of my AIG shares and had $4,200 more to play with (less a small transaction cost).

I had three stocks that were down more than 10% from their January 31st close, and I bought more shares of two of them. The companies were International Flavors & Fragrances Inc (IFF) and CVS Health Corp (CVS). Both had pretty brutal months. IFF was down to the point to where the stock was yielding more (2.6%) than when I bought it (2.2%).

So I purchased 14 shares of IFF at $129.50 per share and 21 shares of CVS for $61.50 per share. I did not think my limit order for CVS would be filled, but it got filled and then (of course) kept going down. I think in the future this will turn out to be a very good decision and in the meantime I'll collect the dividend which stood at a 3.5% yield at the end of the month.

At some point during the month I did purchase close to $400 of a fixed income ETF. I do not disclose which mutual funds or ETFs I hold because I generally buy the fund or ETF that mimics an index (S&P 500, Russell 2000, or the investment grade bond aggregate, etc.). But when I add cash to anything other than a new or existing stock I will let you know, and I will let you know which asset class.

Autopsy on AIG

So here are the final numbers on my AIG trade. I have been pretending that I purchased 100 shares and selling covered calls on the stock rather than purchasing 99 shares to add to the one pitiful little share that the 2008 financial crisis left me with. I will present the table both ways here. So if I had made this a pure covered call play, I would have netted $71.11 since November 27th. That's a 1.6% return, or 7.7% annualized. Not a great return, but it was fun. And let's face it, you could do a lot worse than 7.7% annualized (and I have).

I was going to simply sell the one share and would have done so if it was commission free. Had I done that I would have lost about $1,400 instead of $1,321. So it was a slight improvement, even though I did take more risk.

C'est la vie, the stock is gone now and the lesson was learned the hard way.

Forward Looking Dividends

I had seven - seven! - dividend increases announced this month. That and the addition of shares to two of my positions increased our future annual retirement income by $137.28.

Forward looking dividends for March 2019-February 2020 come to $3,159.23. This marks the fifth straight month that more than $100 has been added to my dividend income annually. I am very, very much enjoying watching this progress.

The impact of the two additions to IFF and CVS and the seven dividend increases are listed below:

Below you can see the monthly additions in graphical form. It is highly likely that next month the y-axis will need to be adjusted again, because I expect I'll be projecting well over $3,200 in dividend income annually.

Final Thoughts

February continued a very nice year, but we do know the market will take a breather sometime this year and I'll be ready for it. Being up over 8% year to date is a nice place to be but could change drastically if the market turns sour.

Having my future dividend income be well over $3,000 annually and rising is an even better place to be and will not likely be affected by even a severe correction.

As far as future purchases, I had over $3,300 cash in the account at the end of February. I have an active limit order in place (good until canceled) for EMN that will cost me about $2,000 if filled. I expect I will have close to $1,000 between my dividends, fixed income distributions and equity fund distributions. That gives me well over $2,000 to add some more shares of a new or existing stock and to purchase several hundred dollars of a fixed income fund as I mentioned I would do each month in my last update.

So we'll see what March brings. I expect to add at least another $100 in future dividend income and to add $400-500 to my fixed income funds, which will increase my future fixed income distributions.

Exciting times. I hope you all enjoyed the update, and I hope you are making progress towards your retirement goals as well.

Disclosure: I am/we are long AAPL, AIG, AMGN, APD, BAC, BLK, C, CSCO, CVS, ED, GPC, HD, HRL, IFF, ITW, JNJ, LEG, MMM, MMP, O, OHI, PEP, PPL, SO, T, VZ, WMT, XOM. 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.