Seeking Alpha

The Retiree's Dividend Portfolio - Jane's October Update: Time To Take Some Gains

Matthew Utesch
Dividend Investing, Dividend Growth Investing, Long Only, REITs
Summary

Jane's retirement accounts generated a total of $2,102.77 of dividend income for October 2020 vs. $1,999.76 of dividend income for October 2019.

Jane's Traditional IRA had a balance of $303,067.69 as of October 31, 2020, vs. $307,524.76 on October 31, 2019. The estimated annualized yield is 4.67%.

Jane's Roth IRA had a balance of $135,585.27 as of October 31, 2020, vs. $144,323.13 on October 31, 2019. The estimated annualized yield is 4.44%.

Five companies paid an increased dividend or issued a special dividend during the month of October.

No companies in Jane's Retirement portfolio suspended or decreased its dividend that was payable during the month of October.

October Summary

I have decided to begin John and Jane's Retirement Account articles with the basic summary of how much income each retiree has generated in their Traditional IRA and Roth IRA for each respective month. Additionally, I have decided that I want to begin tracking the cash balance of each account more closely so that readers can see how each retiree's liquid cash fluctuates on a regular basis.

Traditional IRA - Dividend Income

  • October 2019 - $1,256.10 of dividend income
  • October 2020 - $1,395.28 of dividend income

Roth IRA - Dividend Income

  • October 2019 - $743.66 of dividend income
  • October 2020 - $707.49 of dividend income

In total, Jane's income generated from her Traditional and Roth IRAs for October 2019 totaled $1,999.76 of dividend income compared with October 2020 total dividend income of $2,102.77.

Traditional IRA - Cash Balances

  • October 2019 - cash balance of $17,994.71
  • October 2020 - cash balance of $13,686.14

Roth IRA - Cash Balances

  • October 2019 - cash balance of $2,443.32
  • October 2020 - cash balance of $15,216.48

Notable Changes

  • OGE Energy (OGE) is a new position that was added to the Roth IRA on October 1, 2020.

Background

For those who are interested in John and Jane's full background, please click the following link here for the last time I published their full story. Here are the key details about John and Jane that readers should understand:

  • This is a real portfolio with actual shares being traded.
  • I am not a financial advisor and merely provide guidance based on a relationship that goes back several years.
  • John retired in January 2018 and is only collecting Social Security income at this point in time.
  • Jane is working part-time and will continue to do so for the remainder of 2020. Whether or not she continues to work will depend on whether or not her employer requests that she stays on in 2021.
  • John and Jane have no debt and no monthly payments other than water, power, property taxes, etc.

I started helping John and Jane with this because I was infuriated by the fees and gimmicky trades made by their previous financial advisor. I do not charge John and Jane for anything that I do, and all I have asked of them is that they allow me to write about their portfolio anonymously in order to help spread knowledge and to make me a better investor in the process.

Generating a stable and growing dividend income is the primary focus of this portfolio, and capital appreciation is the least important characteristic.

Dividend And Distribution Increases

The following companies paid an increased dividend or issued a special dividend during the month of October.

  • Altria (MO)
  • Realty Income (O)
  • Philip Morris (PM)
  • STORE Capital (STOR)
  • W. P. Carey (WPC)

I already covered Realty Income and W. P. Carey in the Taxable Account update so I will only include a summary of the dividend increase below.

Altria - The reality is that you either love or hate this stock. Chances are if you have owned it over the long run, your cost-basis is still in a good position but if you bought a few years ago you could be down as much as 50%. The dividend is extremely important to MO and I personally believe that the worst is behind the company now that the company's investment in Juul has been written down. Don't expect dividend increases to match previous increases (8%+ on average over the last several years) as MO's debt load has grown to the point where it needs to be addressed. MO is currently trading at a P/E Ratio that is nearly half the value of its 10-year P/E Ratio average of 17.3x.

Altria - FastGraphs The dividend was increased from $.84/share per quarter to $.86/share per quarter. This represents an increase of 2.4% and a new full-year payout of $3.44/share compared with the previous $3.36/share. This results in a current yield of 8.35% based on a share price of $41.19.

Realty Income - The dividend was increased from $.2335/share per month to $.234/share per month. This represents an increase of .2% and a new full-year payout of $2.81/share compared with the previous $2.80/share. This results in a current yield of 4.47% based on a share price of $62.82.

Philip Morris - JPMorgan (JPM) has noted that they believe FY20 and FY21 EPS estimates can be hiked because of PM's success with its iQOS products and their increased profitability. Even with improved EPS and sales, JPM is still cautious because of exposure to emerging markets. One important factor that wasn't included in JPM's update was the fact that the FDA has given approval for PM to advertise and sell its smokeless iQOS product in the United States. My personal view is that PM looks attractively valued whereas MO looks even more attractively valued but that is assuming they can execute going forward.

Philip Morris - FastGraphs The dividend was increased from $1.17/share per quarter to $1.20/share per quarter. This represents an increase of 2.6% and a new full-year payout of $4.80/share compared with the previous $4.68/share. This results in a current yield of 6.12% based on a share price of $78.38.

STORE Capital - Not only did STOR manage to maintain its dividend during COVID-19 but they managed to recently raise it. STOR is one of the best performing investments in Jane's portfolio as we established the position at the heart of COVID-19 when the share price plummeted. I agree with fellow SA Author FIG Ideas article STORE Capital: Why I Bought More when he says the "Low-risk nature will help the REIT trade at a richer valuation as the recovery continues." STOR is quickly becoming one of the gold-standard REITs that is comparable to SWANs like Realty Income. Based on recent numbers readers can expect that we will be adding to this position in the next few days.

STORE Capital - FastGraphs The dividend was increased from $.35/share per quarter to $.36/share per quarter. This represents an increase of 2.9% and a new full-year payout of $1.44/share compared with the previous $1.40/share. This results in a current yield of 4.47% based on a share price of $32.23.

W. P. Carey - The dividend was increased from $1.042/share per quarter to $1.044/share per quarter. This represents an increase of .2% and a new full-year payout of $4.176/share compared with the previous $4.168/share. This results in a current yield of 5.93% based on a share price of $70.48.

Retirement Account Positions

There are currently 22 different positions in Jane's Roth IRA and 34 different positions in Jane's Traditional IRA. While this may seem like a lot, it is important to remember that some of these stocks cross over in both accounts and are also held in the Taxable Portfolio.

Traditional IRA - There were no stocks added to the Traditional IRA during the month of October.

There were no sales in the Traditional IRA during the month of October.

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

  • OGE - Purchased 100 Shares @ $30.14/share.
  • Bank of America (BAC) - Purchased 50 Shares @ $24.06/share.
  • Bank of Nova Scotia (BNS) - Purchased 10 Shares @ $42.57/share.

There were no sales in the Roth IRA during the month of October.

October Income Tracker - 2019 Vs. 2020

Income for the month of October was up slightly in the Traditional IRA year-over-year and down slightly in the Roth IRA. Overall, we are happy to see the resiliency of the dividend income in the wake of COVID-19-related suspensions and cuts. The only disappointment for the month was missing dividend increases from the Canadian Banks in the portfolio that are typically raised during the month of October. The two banks that normally increase dividends during October are Bank of Nova Scotia (BNS) and Canadian Imperial Bank of Commerce (CM).

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 that comes from stocks no longer held in the portfolio even though it is non-recurring. All images below come from Consistent Dividend Investor, LLC.

Jane - Traditional - 10 - 2019 V 2020Jane - Roth - 10 - 2019 V 2020 Here is a graphical illustration of the dividends received on a monthly basis for the Traditional and Roth IRAs.

Jane - Traditional IRA - 10-2020 Monthly Bar GraphJane - Roth IRA - 10-2020 Monthly Bar Graph 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-2020 compared with the actual results from 2019.

Retirement Projections - 10-2020 Below is an expanded table that shows the full dividend history since inception for both the Traditional IRA and Roth IRA.

Retirement Projections - 10-2020 - 3 YR Projections I have included line graphs that better represent the trends associated with Jane's monthly dividend income generated by her retirement accounts. As year three begins, we should continue to see a more stable pattern that comes from the deposit of regular dividend income. The images below represent the Traditional IRA and Roth IRA respectively. There may be additional volatility in monthly dividends received due to dividend suspensions/cuts as a result of COVID-19.

Jane - Traditional IRA - 10-2020 Monthly Line GraphJane - Roth IRA - 10-2020 Monthly Line Graph Here is a table to show how the account balances stack up year over year. (I previously used a graph but believe the table is more informative.)

Account Balances - 10-2020

Lastly, on the topic of transparency, I like to show readers the actual unrealized 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. The market value and cost basis below are accurate as of the market close on November 16th.

Here is the unrealized gain/loss associated with Jane's Traditional and Roth IRAs.

Traditional IRA - 10-2020 - Gain-Loss

Roth IRA - 10-2020 - Gain-Loss

The following graph was suggested by one of my readers (see, I do listen to and respond to constructive feedback) and incorporated back in April 2020. The graph shows how dividend income has increased, stayed the same, or decreased in each respective month on an annualized basis. I believe that the graph will continue to become more valuable as we enter into years four and five.

Traditional IRA - 10-2020 - Monthly Year-Over-Year ComparisonRoth IRA - 10-2020 - Monthly Year-Over-Year Comparison

Conclusion

With the release of information surrounding a COVID-19 vaccine by Pfizer (PFE) and Moderna (MRNA) the market has seen a tremendous recovery and I am personally skeptical about the sustainability of the current market run-up which is why we have used this opportunity to begin trimming certain positions (especially eliminating the high-cost portion of certain positions).

ChartData by

YCharts

The Traditional IRA currently has a balance of $332.5K as of market close on 11/18/2020 which is substantially higher than the $303K balance as of October 31st, 2020 (and is also in-line with the gains seen in the Dow Jones Industrial Average and S&P 500 gains during this time).

The Roth IRA currently has a balance of $150.4K as of market close on 11/18/2020 which is substantially higher than the $135.6K balance as of October 31st, 2020 (and is also in-line with the gains seen in the Dow Jones Industrial Average and S&P 500 gains during this time).

October Articles

I have provided the link to the October 2020 Taxable Account below.

The Retirees' Dividend Portfolio: John And Jane's October Taxable Account Update

New Article Format: Let me know what you think about the new format (what you like or dislike) by commenting, liking, following, etc. I appreciate all forms of criticism and would love to hear what I can do to make the articles more useful for you!

In Jane's Traditional and Roth IRAs, she is currently long the following mentioned in this article: AbbVie (NYSE:ABBV), Archer-Daniels-Midland (NYSE:ADM), Broadcom (AVGO), Avient (AVNT), Broadcom Preferred Series A (AVGOP), Boeing (BA), Bank of America (BAC), BlackRock Health Sciences Trust (BME), Bank of Montreal (NYSE:BMO), Bank of Nova Scotia (BNS), BP (BP), British American Tobacco (NYSE:BTI), Canadian Imperial Bank of Commerce (CM), Cummins (CMI), Digital Realty (DLR.PK), Eaton Vance Floating-Rate Advantage Fund A (MUTF:EAFAX), Enbridge (ENB), EPR Properties Preferred Series E (EPR.PE), Eaton Corporation (NYSE:ETN), Emera Inc. (OTCPK:EMRAF), East West Bancorp (EWBC), General Mills (NYSE:GIS), GasLog Partners Preferred C (GLOP.PC), Honeywell (HON), International Business Machines (NYSE:IBM), Iron Mountain (IRM), Laurentian Bank of Canada (OTCPK:LRCDF), Lexington Realty Preferred Series C (LXP.PC), Lumen Technologies (LUMN), LyondellBasell (LYB), Main Street Capital (MAIN), McGrath RentCorp (MGRC), 3M (MMM), Mesabi Trust (NYSE:MSB), Altria (NYSE:MO), Annaly Capital Preferred Series D (NLY.PD), Annaly Capital Preferred Series G (NLY.PG), NetApp (NTAP), Realty Income (O), Oxford Lane Capital Corp. 6.75% Cum Red Pdf Shs Series 2024 (NASDAQ:OXLCM), Preferred Bank (NASDAQ:PFBC), Philip Morris (NYSE:PM), PPL Corporation (NYSE:PPL), Royal Bank of Canada (NYSE:RY), Schwab International Equity ETF (SCHF), SYNNEX Corp. (SNX), STORE Capital (STOR), Sysco (SYY), Toronto-Dominion Bank (NYSE:TD), Vermilion Energy (VET), Verizon (VZ), Williams Companies (WMB), W. P. Carey (WPC).

Disclosure: I am/we are long ABBV, ADM, DLR, ETN, HON, IBM, LUMN, MAIN, MMM, SCHF, VET. 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 I am not giving any specific or general advice. All advice that is given is done so without prejudice and it is highly 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.