Seeking Alpha

Financial Independence Portfolio - October 2019 Update

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Includes: EADSF, EADSY, IIPR, PGR, RDEIF, RDEIY, REZI
by: Dividends From The Moon
Dividends From The Moon
Long-term horizon, dividend investing, long only
Summary

Overall return was barely positive at +0.03%.

Dividend income up 6.85% YoY, cash flow significantly higher.

Added two completely new names to my portfolio, added to one existing holding, completely sold one small position.

Welcome to all my readers.

It's that time of the month: the time to look back at the previous month and wonder how we got to the current situation. Sometimes, as is the case here, it brings up some positive vibes to see the progress I have made. I am satisfied with my performance for the month and I'm excited to say that I have added two completely new companies to my portfolio! In case you are not familiar with my portfolio, you can view this previous article to get a good picture of my overall strategy (last updated September 2019).

My overall strategy is pretty straightforward. Remember, this is a financial independence portfolio: I am not aiming to necessarily beat the market; I am not interested in the latest hotshot stock that will shoot up 500% in less than 12 months. OK, OK, I wouldn't mind finding one or two of those. The point is: I fully intend to create a portfolio where the cash flow exceeds my regular monthly expenses, and I am so very close to reaching that! So cash flow is king! And here the cash flow is generated by two main parts: the stable and growing dividend payments and options trading. We will get to those in more detail in the performance section.

I admit that this was a difficult month for finding things to buy. I am still dedicated to reinvesting all of my dividends as well as adding a fixed amount of cash to my account each month but I'm finding it harder and harder to find good uses for that cash. The indexes are hitting all time highs and it seems that many stocks I was eager to buy two months ago seem too expensive now. That might also be the reason why I ventured outside of my previous holdings and decided to snatch up a couple of new companies.

October's purchases were really a mix of two different strategies. On one hand, we have Airbus and Red Eléctrica de España which are good dividend stocks. The former is course more oriented towards dividend growth while the latter is more focused on current yield but I find that combining the two really works for me as it allows decent current yield while also making sure that the payments go up year after year. On the other hand, while it was difficult, I believe that I did manage to find companies where there was still some value left. The indexes may be hitting all time highs but the majority of my purchases were quite a bit below any recent highs.

Bought

Airbus (OTCPK:EADSY) (OTCPK:EADSF) – at 122.20 euros per share and at 128.30 euros per share

Airbus is the first new company in my portfolio. This was a larger purchase than what I do on average, mainly because I wanted to enter the position before earnings and also decided to add more after a pretty decent earnings report. The first buy was roughly 70% of my current position and the second buy was 30%. Currently Airbus is gaining market share due to the ongoing issues at Boeing and while their most popular aircraft are already booked for a decade to come, more orders is always a good thing. A word of caution here: potential investors should keep an eye on Brexit as the wings of most Airbus aircraft are still manufactured in the UK.

Progressive (PGR) – at $71.55 and at $69.14 per share

Another new addition to my portfolio. I have been missing an insurance company and after considering a few different options, I decided to give Progressive a try. I like the revenue growth and quite frankly at this time I prefer to stay away from health insurance due to the political risk. This purchase was completed in two tranches of equal size. Overall this is a relatively small position and though I may add a little in the future, this will most likely always remain only a small part of the overall portfolio.

Red Eléctrica de España (OTCPK:RDEIY) (OTC:RDEIF) – At 18.04 euros per share

A regular size addition to what I consider to be one of the core pillars of my European side of the portfolio. It's hard to go wrong with this utility, and if my cash position allows it I like to add to this one regularly if I can get it for around 18 euros. I will probably add some more to this, quite possibly after their next ex-dividend date.

Seeing as this is a very unknown name, if you feel like learning more I have previously written an article detailing this particular company.

Sold

Resideo Technologies. (REZI) At $9.30 per share

This one is a bummer. I got some shares of Resideo from the Honeywell spin-off and I decided to hold onto these. I thought their products were good and that the trend would be on their side. I still see that smart homes and/or efficiency solutions will be a big part of the future of construction but somehow Resideo can't seem to get the ball rolling. One disappointment after another, it was time to take my losses and let go.Hindsight is a bliss and here it certainly would have been smart to do what I usually do with spin-offs: sell as soon as possible. Better late than never?

Performance

Here you can see the past month's performance of my portfolio, in blue, compared to the S&P500 index, in green. As I have mentioned before, this isn't a very important metric to me, but I feel like I should include it to give you a sense of where my portfolio is headed.

Unfortunately this time I was left behind, my portfolio was only slightly positive at +0.03% for the month. The S&P500 really took off on the second half of the month and my portfolio failed to keep up.

Things do get better though. Dividend income grew 6.85% compared to October 2018. While this is a combination of a few different companies raising their dividend, it really is all thanks to significant dividend growth from Innovative Industrial Properties (IIPR).

Then we get to the highlight of the quarter: cash flow from investments. This accounts for dividends, interest payments as well as any profit/loss from options trading, and this is the number I want to see going through the roof, and it did just that. I have to admit that the year-on-year comparison was not a challenge as in October 2018 I booked a pretty rough trading loss so the actual cash flow for that month was in the red. This is also the reason you don't see a percentage calculated for the change in cash flow. October 2019, on the other hand, had several good option trades in it and not a single bad trade. On top of that there was one bond which reached maturity, bringing in some interest payments in the process. October is a quiet month when it comes to dividends, but when looking at total cash flow it was the 3rd highest month of the year for me, so I'm definitely pleased.

Final Thoughts

October saw me return to a more regular month for me, after the significant activity in September. I bought stock in 3 different companies which is fairly average for me, though this month the amounts were a bit higher than usual. I do not often add new companies to my portfolio, so it'll be exciting to see how my two new positions will fare over the long-term.

Even though the overall performance did not match that of the S&P500 and the dividend growth was below my expectations, I still have to be happy as the most important factor, incoming cash flow, was significantly better than expected. This shows the bright side of using options trades to generate cash flow. When it works, it really does wonders to the overall income provided by the portfolio. There are certainly things to improve but overall I have to say that I am more than satisfied with how October turned out.

I fully expect the difficulty of finding decent value to continue in November. On top of that, November 2018 was quite a good month and I need to somehow improve upon it, so the month ahead will definitely be a challenge!

As always, I would love to hear suggestions and comments and I will do my best to answer all of the questions you may have, either in the comments sector or through private messages.

Disclosure: I am/we are long ALL TICKERS MENTIONED EXCEPT REZI. 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.

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