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

Summary

• The Taxable account generated $1,470.14 of dividends in February of 2021 compared with $1,641.99 of dividends in February of 2020.
• The Taxable account had a balance of $466,994.14 as of February 28, 2021, vs. $401,835.85 on February 28, 2020. The annualized cost basis yield is 4.71%.
• A total of two companies in the Taxable portfolio paid increased dividends or a special dividend during the month of February.
• The Taxable account had a cash balance of $36,750.67 as of February 28, 2021, vs. $92,320.07 as of February 28, 2020.
• The Taxable account had an unrealized gain/loss of $50,884.55 as of February 28, 2021, vs. -$13,997.90 as of February 28, 2020.

The market has definitely seen its fair share of activity going into the end of February and we are seeing a major downturn for some of REITs that have previously been performing well during the COVID recovery. Below are several REITs that are on my watch list or are currently held in John and Jane's Taxable or Retirement Accounts. Not all REITs have suffered (mREITs and apartment REITs have continued to perform well) and it would appear that companies I am going to discuss are part of an industry-specific downturn.

• Cell Tower REITs
• Data Center REITs

Cell Tower REITs

Cell tower REITs have been trading at pretty strong multiples over the last few years and this is primarily attributed to the limited number of players and the rollout of 5G. The most recent auction for spectrum highlights just how important cell tower placement will be over the upcoming years. There are three main cell tower REIT stocks available.

• SBA Communications Corporation (SBAC)
• American Tower Corporation (AMT)
• Crown Castle International (CCI)

Each company has something to offer, however, I see SBAC as the better opportunity for those who want capital appreciation which AMT has seen its price drop at a faster pace relative to CCI and now offers ample capital appreciation and offers a dividend rate 2.5x that of SBAC. CCI offers potential for some capital appreciation but the real win for an income investor is the 3.5% dividend yield.

Data by YCharts

We are looking to add either AMT or CCI to the Taxable Account and are considering SBAC for one of the retirement accounts. From the images below you will be able to tell that all three companies have seen their P/FFO Ratio drop considerably in the last six months.

Data Center REITs

We are familiar with Data Center REITs and currently have holdings for Digital Realty (DLR) and CyrusOne (CONE) in Jane's Retirement and John's Retirement Accounts, respectively (I am personally long DLR, CONE, and EQIX). Mizuho recently named DLR and EQIX as buying opportunities (back in December) and the spread has continued to increase making these buying opportunities even more attractive.

Data by YCharts

Based on the recent discounts we have added to John and Jane's Retirement Accounts and increased our total positions in DLR and CONE. EQIX is also on the list to be added to the Taxable Account now that we have closed out a few positions (these sales occurred in early March so you won't see them in this article).

**While writing this article we did add 5 shares of EQIX to the Taxable Account which won't be fully reflected until the March update. We also added 10 shares of AMT was added to Jane's Retirement Account.

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 has officially decided that she will be retiring on December 31st, 2020. She will begin collecting social security within the next few months.
• John and Jane have other investments outside of what I manage. These investments primarily consist of minimal risk and minimal yield certificates.
• John and Jane have no debt and no monthly payments other than basic recurring bills such as 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 Decreases

No stocks cut their dividend/distribution that was payable during the month of February.

Dividend And Distribution Increases

Two companies paid increased dividends/distributions or a special dividend during the month of February in the Taxable Account.

• Carrier Global Corp. (CARR)
• Enterprise Products Partners (EPD)

Carrier Global Corp. - CARR has been an excellent spin-off from what was originally United Technologies (UTX) and is now its own stand-alone company. CARR has seen strong growth in HVAC and connected cold chain offerings. One of the most significant updates from the earnings call in February was the improvements made to the balance sheet by paying down net debt to $7 billion from $10 billion and increasing cash reserves to $3 billion. The CEO offered a positive look into 2021 with 6-8% sales growth, 14% increase in EPS (midpoint), and margin improvement of 70 basis points.

Data by YCharts

The dividend was increased from $.08/share per quarter to $.12/share per quarter. This represents an increase of 50% and a new full-year payout of $.48/share compared with the previous $.32/share. This results in a current yield of 1.30% based on a share price of $36.94.

Enterprise Products Partners - The distribution was frozen during the pandemic which was a major departure from the regular quarterly increases. The good news is that this was done as a proactive measure because the company has carried a distribution coverage ratio of 1.6x. The big headline at the beginning of March was the potential to repurpose multiple pipelines to "handle different commodities or flow in different directions, while it reduces investment in the new infrastructure until it sees greater market certainty."

Data by YCharts

The distribution was increased from $.445/share per quarter to $.45/share per quarter. This represents an increase of 1.1% and a new full-year payout of $1.80/share compared with the previous $1.78/share. This results in a current yield of 7.77% based on a share price of $23.07.

Positions

The Taxable Account currently consists of 44 unique positions as of the market close on March 8, 2021. There were several trades in the Taxable Account during the month of February.

Source: Charles Schwab

There wasn't much activity in the Taxable Account during the month of February. Verizon (VZ) wasn't a screaming buy but it provides modest dividend income at a relatively affordable price.

February Income Tracker - 2020 Vs. 2021

Income for the month of February was down modestly year-over-year and was largely due to Simon Property Group (SPG) paying its dividend in January instead of February. It is also true that Energy Transfer (ET) had cut its distribution in 2020 and now the dividend is about half of what was previously received (income would have been about the same year-over-year if SPG paid its dividend in February). We are happy to say that we expect the income provided by the Taxable Account to increase 8.1% year-over-year (and this is before any potential increases announced for the remainder of 2021).

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.

Here is a graphical illustration of the dividends received on a monthly basis. I have begun updating the chart to also reflect the dividends earned going back to January of 2018.

The table below represents all income generated in 2020 and collected/expected dividends in 2021. Below gives an extended look back at the dividend income generated from when I first began writing these articles. The Taxable Account balances below are from February 28th and all previous months are taken from the end-of-month statement provided by Charles Schwab.

The next image is the new table that indicates how much cash John and Jane had in their Taxable Account at the end of the month as indicated on their Charles Schwab statements.

There were large changes in cash at the end of 2019 and then again in 2020 (this was from the purchase of a physical asset and the sale of another). John and Jane started off 2020 with approximately $40K less than what was in the account before October 2019. (This increase in October 2019 was from a CD rolling over and was pre-planned because we had discussed the purchase that took place in November 2019). A lot of cash was deployed in March and April of 2020 as the pandemic caused share prices to plummet.

The next image provides a history of the unrealized gain/loss at the end of each month going back to the beginning in January of 2018.

The main reason for including this is to help readers understand that the key to this strategy is to accept the risk and I personally find that this table is an excellent representation of the volatility in the account. It is important to remember that tolerance for risk can vary significantly, but John and Jane are ok with additional risk because they are focused on generating income from these stocks.

In an effort to be transparent about John and Jane's Taxable Account, I like to include an unrealized Gain/Loss summary. The numbers used are based on the closing prices from March 8th, 2021. You will notice that there was another major increase in the value of the account which has a current value of $485.3K.

Lastly, I wanted to include the Monthly Year-Over-Year Income Comparison to show how the Taxable Account is trending.

Conclusion

While the market continues to reach new highs, we think it is important that investors take another look at many of the equities that were overvalued less than a month ago but are now available to purchase and offer a significant upside. The graph below demonstrates how EQIX and AMT have diverted from the rest of the market over the last six months.

Data by YCharts

To purchase these shares we took advantage of selling Disney (DIS) and Apple Hospitality (APLE) (both of these will be reflected and discussed further in the March Taxable article which is where the majority of the funds came from to purchase EQIX.

What does your dividend growth portfolio look like? I'd love to hear feedback on your personal strategy and potential stocks you think I should consider.

In John and Jane's Taxable Account, they are currently long the following mentioned in this article: Apple (AAPL), Arbor Realty (ABR), Archer-Daniels-Midland (ADM), BP (BP), Carrier Global Corporation (CARR), Clorox (CLX), Cummins (CMI), Dover Corporation (DOV), Eaton Vance Floating-Rate Advantage Fund A (EAFAX), Emerson Electric (EMR), Enterprise Products Partners (EPD), EPR Properties (EPR), Equinix (EQIX), Energy Transfer (ET), Eaton Vance Tax-Advantaged Dividend Income Fund (EVT), General Mills (GIS), Honeywell (HON), Helmerich & Payne (HP), Hormel (HRL), Iron Mountain (IRM), LTC Properties (LTC), Leggett & Platt (LEG), McDonald's (MCD), Altria (MO), Mesabi Trust (MSB), New Residential (NRZ), Realty Income (O), Old Republic International (ORI), Otis Worldwide Corporation (OTIS), Parker-Hannifin (PH), Phillips 66 Partners (PSXP), Ryder System (R), Raytheon Technologies (RTX), Schlumberger (SLB), Southern Company (SO), Simon Property Group (SPG), AT&T (T), Texas Instruments (TXN), V.F. Corporation (VFC), Verizon (VZ), Washington Trust (WASH), Westlake Chemical (WLKP), W. P. Carey (WPC), and Exxon Mobil (XOM).

Analyst’s Disclosure: I am/we are long AAPL, ADM, EMR, EPR, EQIX, HON, MCD, O, T, TXN, VFC. 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.

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.