The Retiree's Dividend Portfolio - John's April Update: Focus On The Blended Yield

by: Matthew Utesch

John's retirement accounts generated a total of $1,981.94 in dividend income for April 2019 vs. $1,789.12 of dividends in April of 2018.

A total of five companies in John's retirement accounts paid increased dividends during the month of April.

The first real drop has taken its toll on the value of John's account, however, its more conservative investments have helped to perform better than his wife Jane's account.

Preferred shares have seen a significant improvement in share price compared with several months ago as the potential for higher yields dissipates.

Focus on adding investments to boost your blended yield without adding too much additional risk.

We are doing our best to patiently retain cash as the stock market has reached a point where it is a coin-flip as to whether prices will go up or down. As we watch this process take place I have begun compiling a list of my favorite stocks that have fallen to the point where they offer a tremendous amount of value. Currently, there are two stocks that I find very attractive as they recently dropped close to their 52-week low.

  • Parker-Hannifin (PH) - Currently held in the Taxable account (but considering adding as a holding in John's Retirement Accounts).
  • Valero Energy (VLO) - Increased the position to 150 shares in John's Traditional IRA.

Chart Data by YCharts

What interests me about these two companies, in particular, is that both of approached their 52-week low which was achieved in December 2018. The earnings reports for both of these companies have come with a strong track record over the last four quarters.

Parker-Hannifin Earnings Source: SeekingAlpha - PH Earnings

Valero - Earnings Source: SeekingAlpha - VLO Earnings

First, we must acknowledge that the continued success of these companies to beat expected quarterly earnings is largely dependent on the continued economic growth.

Secondly, I believe that both companies' current dividend payout is secure, but investors need to consider that the dividend history of both companies is vastly different.

Chart Data by YCharts

The chart above doesn't reflect the yield with the most recent dividend increase for both stocks. The current yield for both stocks is:

  • PH - 2.31%
  • VLO - 5.11%

The staggering difference didn't exist at the beginning of 2016 when both stocks provided a yield of roughly 3%. The primary difference in dividend history is the number of years in which each company has continued to pay an increasing dividend every year.

  • PH - 62 Years.
  • VLO - 8 Years.

Part of my reason for considering these two stocks is that I believe in purchasing stocks that fall across the risk spectrum, however, I will only do so as long as I am being well compensated for taking the additional risk. In the case of VLO, a 5%+ yield is from one of the largest energy companies in America represents a risk that I believe is worth taking in the same way that owning PH at less than half the yield (2.3%) is a generally smart investment.

Most importantly, building watch lists with stock combinations like PH and VLO can generate additional income (blended purchase dividend rate) compared to making only an investment in only higher or lower risk stocks. Here's another way to explain it:

PH and VLO Comparison For investors who have been in the game for a while, this exercise likely represents a "no duh" kind of moment I think it is important to remind ourselves that there is always a way to impact the yield you receive on your investments and it doesn't mean that quality must always be sacrificed in the process. For instance, John and Jane's Taxable account is currently generating a yield of roughly 4.65% based on the current stocks held in its portfolio. Some of these stocks come with higher risk, including New Residential (NRZ) which comes with a yield of 13.11% but also represents only 1.25% of the entire portfolio value. At the same time, the portfolio is littered with dividend champions, aristocrats, and kings that make up the bulk of the portfolios market value.

For those interested, I plan on writing an article that will take a deep dive into portfolio composition and risk at some point during the month of June.

April Articles

Included below are the links for those who are interested in reading the rest of John and Jane's story for April.

The Retirees' Dividend Portfolio - John And Jane's April Taxable Account Update: Tariff Wars Create Some Interesting Discounts

The Retiree's Dividend Portfolio - Jane's April Update: Why You Should Consider Canadian Banks

I want to apologize (yet again) for the delay in this article as I continue to balance my full-time job, summer home renovation projects, and writing on SeekingAlpha. For my readers' who enjoy home renovation projects, I will make sure to include a few before and after pictures when I finish!

Client Background

First of all, I want to emphasize that this is an actual portfolio with actual shares being traded. This article focuses on John who is a recent retiree (retired on January 1st, 2018) who has requested my help in managing his own portfolio instead of paying a financial advisor. It is important to understand that I am not a financial advisor and merely provide guidance for his account based on a friendship that goes back several years. In this article, I will refer to John as "my client," and I do this for simplicity's sake, but I do not charge him for what I do. The only thing John offers in return is allowing me to write anonymously about his financial journey with the hope that I can potentially help others who are wanting to achieve the same thing.

John was able to set himself up for a comfortable retirement by eliminating all of his debt so that the only bills are the absolute basics like property tax, water, etc. John has sources of income that have provided him with a comfortable retirement outside of the investments discussed in this article, and he has not needed to draw funds from his retirement accounts.

John is only a few years away from needing to satisfy his required minimum distributions (RMDs) from his Traditional IRA. It is important to remember that the Roth IRA does not have this requirement, which means John can withdraw funds at will from his Roth. On his Traditional IRA, it is important to be more strategic because we want to make sure that the cash being generated by his investments outpaces his minimum distribution for as long as we possibly can. Based on the current balance of $254.5k John would be required to take approximately $9,900 if he was at the age where he needs to begin satisfying his RMD.

Here are some important characteristics to keep in mind about the Retirement Portfolio:

  1. Capital appreciation is the least important characteristic of this portfolio. This doesn't mean we don't care about it (because all investors do to some degree), but it does mean that we are less concerned about the day-to-day fluctuations of stock prices. Since the goal is to never sell (although I make occasional changes by eliminating or adding positions), a focus on capital appreciation doesn't mean a lot when it comes to the game plan.
  2. I am more inclined to purchase shares that pay an ordinary dividend instead of a qualified dividend because the accounts are sheltered from taxes. With the new tax changes that have taken effect (which I briefly discussed in the Taxable account found at the link at the beginning), the benefit of reduced taxes is diminished vs. the previous tax code from 2017.
  3. I do trade stocks in the retirement portfolio on a more regular basis because the gains are sheltered from taxes. The number of trades that take place on any given month depends on market volatility and whether or not a stock has reached the price target that I have set for it. I adjust these targets regularly and will be incorporating more information as to how I set these price targets over the next few months.

Dividend And Distribution Increases

John had a total of five companies that paid an increased dividend during the month of April. The five companies that increased their dividend include:

  • Main Street Capital (MAIN)
  • Realty Income (O)
  • Bank OZK (OZK)
  • Toronto Dominion Bancorp (TD)
  • WP Carey (WPC)

**I will not provide a market update for MAIN, O, TD, or WPC because I already addressed this in my Taxable Account article The Retirees' Dividend Portfolio - John And Jane's April Taxable Account Update: Tariff Wars Create Some Interesting Discounts or in Jane's Retirement Account article The Retiree's Dividend Portfolio - Jane's April Update: Why You Should Consider Canadian Banks I will still provide a basic synopsis of the dividend increase.

MAIN - The dividend was increased from $.20/share per month to $.205/share per month. This represents an increase of 2.5% and a new full-year payout of $2.46/share compared with the previous $2.40/share. This results in a current yield of 6.21% based on a share price of $39.64.

O - The dividend was increased from $.2255/share per month to $.226/share per month. This represents an increase of .2% and a new full-year payout of $2.712/share compared with the previous $2.71/share. This results in a current yield of 3.87% based on a share price of $70.08.

Bank OZK - OZK falls on my list of banks that don't get a lot of love because many investors see the company engaging in construction lending in cities like New York and Miami. Honestly, I expect that a slow-down of lending represents more risk to OZK than the risk associated with many of its existing projects. Only time will tell if this is true but we (John and myself included) bought into OZK at such a low-cost per share that we are willing to accept this higher level of risk.

OZK - FastGraphs The dividend was increased from $.22/share per quarter to $.23/share per quarter. This represents an increase of 4.5% and a new full-year payout of $.92/share compared with the previous $.88/share. This results in a current yield of 2.98% based on a share price of $28.90. (This is the second increase for 2019 and represents combined dividend growth of 8.7% YTD).

TD - The dividend was increased from $.67 CAD/share per quarter to $.74 CAD/share per quarter. This represents an increase of 10.4% and a new full-year payout of $2.96/ CAD share compared with the previous $2.68/ CAD share. This results in a current yield of 3.82% based on a share price of $54.65.

WPC - The dividend was increased from $1.03/share per quarter to $1.032/share per quarter. This represents an increase of .2% and a new full-year payout of $4.128/share compared with the previous $4.12/share. This results in a current yield of 4.95% based on a share price of $83.01.

Retirement Account Positions

There are currently 22 different positions in John's Roth IRA and 33 different positions in his Traditional IRA. While this may seem like a lot, it is important to remember that many of these stocks are held in both accounts and/or are also held in the Taxable portfolio.

Traditional IRA - The following stocks were added to the Traditional IRA during the month of April.

  • Healthcare Trust of America (HTA) - 50 Shares @ $26.66/share.
  • Chevron Corp (CVX) - 25 Shares @ $119.23/share.
  • Bank of America Preferred Series L (BML.PL) - 50 Shares @ $21.31/share.
  • CVS (CVS) - 25 Shares @ $53.18/share.
  • Artis Real Estate (OTCPK:ARESF) - 50 Shares @ $8.16/share

The following stocks were sold from the Traditional IRA during the month of April.

  • Valero Energy - 15 Shares @ $89.51/share.

Traditional IRA Realized capital gains Source: Charles Schwab

Roth IRA - The following stocks were added to the Roth IRA during the month of April.

  • Westrock (WRK) - 50 Shares @ $36.38/share.
  • Iron Mountain (IRM) - 50 Shares @ $32.81/share.
  • Ventas (VTR) - 50 Shares @ $59.82/share.
  • Walgreens (WBA) - 75 Shares @ $55.71/share.

The following stocks were sold from the Roth IRA during the month of April.

  • Royal Dutch Shell (RDSA) - 60 shares @ $65.27/share.
  • EPR Properties (EPR) - 50 shares @ $76.18/share.
  • J.P. Morgan (JPM) - 25 shares @ $114.04/share
  • Federal Realty Preferred Series C (FRT.PC) - 200 shares @ $24.16/share.

Roth IRA Realized Gains Source: Charles Schwab

As usual, many of the trades executed on the sell side were intended to reduce the cost basis of the shares for each specific company. For example, the sale of 15 VLO shares at $89.51/share couldn't have come at a better time considering that the share price currently sits at $72/share. By building up our cash reserves we were able to purchase additional shares of VL0 at $70.29/share.

April Income Tracker - 2018 Vs. 2019

In 2018, April represented the first month where dividend income nearly exceeded $1,800 in dividend income combined (between the Traditional and Roth IRA). Because it took a while to deploy capital in 2018, April represented the first month where the amount of dividend income was indicative of what John could expect to receive in the future. At the same time, the dividend income in April 2019 represented the smallest year-over-year growth due to the fact that the difference primarily consists of actual dividend increases that occurred.

SNLH = Stocks No Longer Held - Dividends in this row represent the dividends collected on stocks that are no longer held in that portfolio. We still count the dividend income earned during that time period even though it is non-recurring.

On the lists provided below, it is important to know that not all stocks on that list were owned at that point in time (2018 tables represent what holdings were still held at the end of 2018). All of the stocks you see were acquired over the course of a year.

Traditional IRA April 2018 and 2019 Source: Consistent Dividend Investor, LLC

Roth IRA April 2018 and 2019 Source: Consistent Dividend Investor, LLC

Here is a graphical illustration of the dividends received on a monthly basis for the Traditional IRA.

Traditional IRA monthly graph Source: Consistent Dividend Investor, LLC

Here is a graphical illustration of the dividends received on a monthly basis for the Roth IRA.

Roth IRA monthly graph

Source: Consistent Dividend Investor, LLC

Based on the current knowledge I have regarding dividend payments and share count, the following tables are a basic prediction of the income we expect the Traditional IRA and Roth IRA to generate in FY-2019 compared with the actual results from 2018.

Retirement Account Income Projections

Source: Consistent Dividend Investor, LLC

When it comes to the topic of transparency, I like to show readers the actual gain/loss associated with each position in the portfolio because it is important to consider that in order to become a proper dividend investor, it is necessary to learn how to live with volatility. All numbers below are accurate as of market close on June 3rd, 2019.

Here is the Gain/Loss associated with John's Traditional IRA:

Traditional IRA gain loss

Source: Consistent Dividend Investor, LLC

Here is the Gain/Loss associated with John's Roth IRA:

Roth IRA gain loss Source: Consistent Dividend Investor, LLC

It should be noted that the dividend total in the far right column of both the Traditional and Roth IRA isn't always accurate because these accounts are more regularly traded and I have been guilty of forgetting to update the dividend when additional shares are added/sold.

Cash reserves dropped in the Traditional IRA and increased by nearly the same amount in the Roth IRA. We expect to begin deploying capital at some point in the near future now that many of the stocks are sitting at similar lows seen at the end of December in 2018.

Lastly, I recently created a table to demonstrate how the account balances have changed on each of the retirement accounts. The balances used are representative of the month-end account balance that shows up on the monthly statement.

Retirement Account - Month End Balances Source: Consistent Dividend Investor, LLC

The month of April continues to produce phenomenal results for John's account, however, practically all of these gains have been wiped out by the slaughter that occurred in the month of May. The current balances in John's retirement accounts are approximately the same as the balance we saw at the end of March.


John's portfolio looks like business, as usual, going forward and we do not plan on changing course at this point in time. When the time comes it is possible there will be a shift of some of his current stock base into short-term CDs or money markets. For the record, I believe that there is real potential that we will see an additional downside in the market during the month of June before we begin to see the market improve.

Since I cannot accurately identify when the market will tank or soar I have chosen to implement a risk-based investment strategy that focuses on income through dividends and distributions instead of through capital growth. As a result, we don't need to accurately know if the market is going up or down because we have created an income stream that is highly diversified and is expected to continue churning out consistently growing dividends every year.

Based on the current forecast/model, I believe that John will be averaging just under $1,620/month from these two retirement accounts for an annual dividend income of around $19,440. Because I do not always have the time (or the patience) to update expected dividends, I would suggest that the annual income from these two accounts will exceed $20,000/year.

In John's Traditional and Roth IRAs, he is currently long the following mentioned in this article: Apple REIT (APLE), Artis Real Estate Trust (OTCPK:ARESF), Boeing (BA), BB&T (BBT), Bank of America Preferred Series L (BML.PL), British Petroleum (BP), Brixmor Property Group (BRX), Canadian Utilities (OTCPK:CDUAF), Chatham Lodging Trust (CLDT), CVS Health Corporation (CVS), Chevron (CVX), 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), General Dynamics (GD), Healthcare Trust of America (HTA), Intel (INTC), Iron Mountain (IRM), JPMorgan Chase (JPM), Kimco Preferred Series L (KIM.PL), Kinder Morgan (KMI), Kite Realty Group (KRG), LTC Properties (LTC), Main Street Capital (MAIN), Altria (MO), Realty Income (O), Owens & Minor (OMI), Occidental Petroleum Corp. (OXY), Bank OZK (OZK), PacWest Bancorp (PACW), PepsiCo (PEP), Park Hotels & Resorts (PK), PIMCO Income Fund Class A (PONAX), Regions Financial (RF), South California Edison Preferred Series D (SCE.PD), STAG Realty (STAG), AT&T (T), Toronto-Dominion Bank (TD), T. Rowe Price (TROW), Valero (VLO), Valley National Bancorp (VLY), Umpqua Bank (UMPQ), Ventas (VTR), Walgreens (WBA), Welltower (WELL), Westrock (WRK), and W.P. Carey (WPC).

Disclosure: I am/we are long T, MAIN, OZK, PACW, UMPQ, VLO, WRK. 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.