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

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Matthew Utesch
10.85K Followers

Summary

  • The Taxable Account generated $1,609.40 of dividends in April of 2022 compared with $1,211.01 of dividends in April of 2021.
  • The Taxable Account had a balance of $522.7K as of April 30, 2022, vs. $496.1K on April 30, 2021. The annualized cost basis yield is 4.94%.
  • Four companies in the Taxable portfolio paid increased dividends or a special dividend during the month of April.
  • The Taxable Account had a cash balance of $27.5K as of April 30, 2022, vs. $32.7K as of April 30, 2021.
  • The Taxable Account had an unrealized gain/loss of $105.7K as of April 30, 2022, vs. $92.2K as of April 30, 2021.

Open-pit copper mine

tifonimages/iStock via Getty Images

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. The details below are updated for 2022.

  • 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 now only collects Social Security income as his regular source of income.
  • Jane officially retired at the beginning of 2021, and she is collecting Social Security as her only regular source of income.
  • John and Jane have decided to start taking draws from the Taxable Account and John's Traditional IRA to the tune of $1,000/month each. These draws are currently covered in full by the dividends generated in each account.
  • John and Jane have other investments outside of what I manage. These investments primarily consist of minimal risk bonds and low-yield certificates.
  • John and Jane have no debt and no monthly payments other than basic recurring bills such as water, power, property taxes, etc.

The reason why I started helping John and Jane with their retirement accounts is that I was infuriated by the fees they were being charged 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. My primary goal was to give John and Jane as much certainty in their retirement as I possibly can because this has been a constant point of stress over the last decade.

Dividend Decreases

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

Dividend And Distribution Increases

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

  • EPR Properties (EPR)
  • Realty Income (O)
  • Rio Tinto (RIO)
  • W. P. Carey (WPC)

EPR Properties - EPR has made quite the comeback during its most recent earnings announcement on February 22. FFO guidance has been adjusted to $4.30-$4.50/share for FY-2022 in comparison to $3.09/share in FY-2021. Movie theaters have done surprisingly well post-COVID and other entertainment-based tenants who fell behind in the contractual rents have been able to start paying their full contractual rent (97% of contractual cash revenue was collected in Q4-2021 compared to only 90% in Q3-2021). Using the low and high-end of EPR's guidance, the FFO payout ratio is between 73.3%-76.7% after the most recent increase. EPR is looking like a strong buy based on how quickly its tenants have turned around their financial situation. I estimate that based on the current price there is a roughly 20% upside for capital gains in the near term (one year) and that doesn't include the now 6.45% dividend yield based on $3.30/year of dividends being paid out.

EPR Properties - FastGraphs

EPR Properties - FAST Graphs (FAST Graphs)

The dividend was increased from $.25/share per quarter to $.275/share per quarter. This represents an increase of 10% and a new full-year payout of $3.30/share compared with the previous $3.00/share. This results in a current yield of 6.45% based on the current share price of $51.17.

Realty Income - Over the last three years, we have seen Realty Income push above $70/share a number of times and on two occasions reach $80/share only to drop off considerably (one of these times was largely due to the start of COVID). Realty income has been one of the most consistent dividend-paying stocks with its 25-year history of growth that includes consecutive quarterly dividend increases. For this reason, the purchase price entry point is the most significant factor in the long-term benefit of an investment in Realty Income. The current yield of 4.40% (the image below from Seeking Alpha of 4.23% is not accurate) is on the low-end of the range and I personally won't consider adding additional shares until the yield is closer to 4.75% (An entry point over 5% would be even better but is extremely uncommon) which is roughly $62.32/share based on the current payout of $2.964/share annually. Even when Realty Income is overvalued I am still reluctant to sell shares (as long as I buy at an attractive enough entry point) but I would say a share price over $74/share would be a great exit point which carries a yield of 4%.

Realty Income - Dividend Yield

Realty Income - Dividend Yield (Seeking Alpha)

The dividend was increased from $.246/share per quarter to $.247/share per quarter. This represents an increase of .2% and a new full-year payout of $2.964/share compared with the previous $2.952/share. This results in a current yield of 6.45% based on the current share price of $51.17.

Rio Tinto - RIO was purchased to replace our previous investment in Mesabi Trust (MSB). MSB has experienced issues with Cleveland-Cliffs (CLF) and that makes up a considerable amount of value for the trust since its dividend payments are based on volume. We wanted to maintain exposure to mining and resources so RIO offered a solution along with a very generous dividend policy that matched the company's strong cash flow. RIO pays its dividend on a semi-annual basis and the amount on each payment date varies. For example, the total normal dividend paid in 2022 is $10.40, of which, $2.47 is classified as a special dividend. This means that the annual regular dividend is $7.93/share, of which, $4.17/share was paid in April and leaves $3.76 regular dividend to be paid in the second half of the year. As for the special dividend, $.62 was received in April which leaves $1.85/share to be paid. Although investors may find the dividend policy somewhat erratic, the logic behind this is that RIO is focused on paying out close to 80% of earnings. RIO has proven to be very shareholder friendly and I like that the dividend model is set up in a way that benefits shareholders when the company is performing well.

There are concerns about COVID lockdowns in China and other aspects of a slowing world economy and the potential for a recession that are cause for concern but I am much more confident in RIO's business model than MSB's over the long term.

Rio Tinto - FastGraphs

Rio Tinto - FAST Graphs (FAST Graphs)

RIO's previous interim dividend was $5.61/share in FY-2021 and FY-2022 was $7.93 (this represented the highest payout in the company's history).

RIO declared a special dividend of $2.47/share which is up from the $1.85 share issued in 2021.

W. P. Carey - WPC reported a strong Q1-2022 with FFO coming in at $1.35/share which easily beat FFO estimates of $1.24 per share. Rent collection rates are running very high at 99.7% during the quarter. Even with all the good news, WPC stock to the dive along with the rest of the market dropping from its 52 week high of around $86/share to its current value of $78.34/share. I am pretty particular about entry points for WPC stock and have always attempted to get shares under $70/share which would put the yield just above 6%. The reason for sticking with such a stubborn cost per share is that WPC's dividend growth has been lackluster which means that I demand a better entry point to make up for the lack of dividend growth.

Chart
Data by YCharts

The dividend was increased from $1.055/share per quarter to $1.057/share per quarter. This represents an increase of .2% and a new full-year payout of $4.228/share compared with the previous $4.22/share. This results in a current yield of 5.30% based on the current share price of $78.34.

Positions

The Taxable Account currently consists of 45 unique positions at market close on May 5th, 2022. There were several purchases that took place during the month of April.

2022 - April Taxable Transaction History

2022 - April Taxable Transaction History (Charles Schwab)

We increased exposure to stocks that we feel are either underrepresented and/or undervalued in the portfolio. Increasing the position in ET is the most notable in my opinion because the outlook for this stock is looking strong even though the stock price has lagged the returns of other oil commodity stocks.

The chart below does not represent the normal characteristics most readers see me look for. This is a rare occurrence when I am saying that the stock is a buy even as its dividend yield continues to press lower. I expect we will be able to see some distribution increases because I do not expect high commodity prices to go away any time soon.

Chart
Data by YCharts

April Income Tracker - 2021 Vs. 2022

The Taxable Account is still running in the red for the year and this is the direct result of some massive special dividends paid by Old Republic International (ORI) in 2021. The Taxable Account is currently estimated to generate an average of $1,588.47/month of dividend income in 2022. This is substantially lower than the average monthly income of $1,704.23 generated in 2021 (running at about -6.8% behind 2021 performance).

A new item for readers to consider is the impact of draws on the Taxable Account which started in January in the amount of $1,000/month. The good news is that the portfolio generates more monthly income from dividends and distributions than John and Jane are looking to withdraw. The challenge for me is that I am used to running an account that is typically flush with cash. Therefore, I will need to be more considerate of cash balances available at a given time. This also underscores the importance of the Cash Balance table in the images below that tracks the amount of cash on hand.

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. (also referred to as CDI as the source below).

2022 - April - Taxable Dividend Breakdown

2022 - April - Taxable Dividend Breakdown (CDI)

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.

2022 - April - Taxable Monthly Dividend Graph

2022 - April - Taxable Monthly Dividend Graph (CDI)

2022 - April - Taxable Monthly Dividend Line Graph

2022 - April - Taxable Monthly Dividend Line Graph (CDI)

The table below represents all income generated in 2021 and collected/expected dividends in 2022.

2022 - April - Taxable Annual Estimate

2022 - April - Taxable Annual Estimate (CDI)

Below gives an extended look back at the dividend income generated when I first began writing these articles.

2022 - April - Taxable Dividend History

2022 - April - Taxable Dividend History (CDI)

The Taxable Account balances below are from April 30, 2022, and all previous months are taken from the end-of-month statement provided by Charles Schwab.

2022 - April - Taxable Month End Balance

2022 - April - Taxable Month End Balance (CDI)

The next image is the only new table being added to the report for 2022. As mentioned previously, this is the first year that John and Jane will begin taking withdrawals from their Taxable Account (and also from John's Traditional IRA). For this reason, I want to keep a record of these withdrawals because they will also have an impact on the account balance in the cash balance table (after this image).

2022 - April - Taxable Withdrawals

2022 - April - Taxable Withdrawals (CDI)

The next image 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.

2022 - April - Taxable Cash Balance

2022 - April - Taxable Cash Balance (CDI)

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) which explains why the balance fluctuated so much during this time. A lot of cash was deployed in March and April of 2020 as the pandemic caused share prices to plummet. John and Jane no longer qualify to make contributions to their Traditional or Roth IRAs, so there will also not be any funds taken from the Taxable Account to cover these contributions (which is what they typically did in the past).

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.

2022 - April - Taxable Unrealized Gain-Loss

2022 - April - Taxable Unrealized Gain-Loss (CDI)

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 okay 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 May 5th, 2022.

2022 - April - Taxable Gain-Loss Update

2022 - April - Taxable Gain-Loss Update (CDI)

When reading the yield column, it is important to understand that the dividend yield is dependent on whether or not we have received a full year of income (this is the only way to keep it mostly accurate without requiring a lot of manual input or calculation on my part). I have updated these for the start of the year, so all yields reflected in the last column are accurate. I actually prefer this method because it will show the reduced yield of a position added partway through the year (thus reflecting an accurate benefit vs. inflated benefit).

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

2022 - April - Taxable Monthly Year-Over-Year Comparison

2022 - April - Taxable Monthly Year-Over-Year Comparison (CDI)

Conclusion

April was a chaotic month for the market as a whole and I think investors can expect quite a bit of volatility in the near future. This doesn't necessarily mean that there will be major losses but I would expect some wild swings. The full month of April had the Dow Jones Industrial Average and Nasdaq Composite down considerably and the first few days of May haven't been much better.

Chart
Data by YCharts

Months like these are great reminders why we choose to invest in dividend paying stocks because it allows us to overlook the volatility since we care more about the quality of the investment rather than the share price.

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

This article was written by

Matthew Utesch profile picture
10.85K Followers
Graduated in 2011 with degrees in Pre-Law and Business Administration from Eastern Washington University. Completed my MBA at Whitworth University in May of 2017. Over the last decade, I have worked exclusively in the finance industry. I have acquired specialized knowledge in multiple areas, most notably, Secondary Marketing, Underwriting (specializing in subprime credit), and am currently building an Indirect Lending Program for Canopy Federal Credit Union.Started my first Roth IRA at the age of 16, but began seriously investing closer to 2011 at the age of 22. My investment strategy is largely focused on generating retirement income from dividend-paying stocks. I do not hold any professional investment licenses, but I spend a significant amount of time educating children, teenagers, and young adults on basic finance. I also specialize in cash-flow analysis for those nearing retirement or who are in retirement.
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Disclosure: I/we have a beneficial long position in the shares of AAPL, ADM, APD, EMR, EPR, EQIX, HON, MCD, O, RPM, T, TXN, VFC, WBD either through stock ownership, options, or other derivatives. 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.

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