Saturday, August 6, 2016

Monthly Review: July 2016

One of my goals this year is to find opportunities to boost dividend income with options. Writing or selling covered calls is a safe way to earn extra income on top of the dividend income you already receive just for owning dividend paying stocks. You can sell one contract for every 100 shares you own and collect an option premium in return.

I closed nine positions this month and reduced my position in one stock trading well above fair value. The main reason for selling so many stocks is to collect cash for round out buys. With the markets trading near all-time highs, it is a good time for selling, but not for buying!

With more sells than buys this month, DivGro's projected annual dividend income (PADI) took a little nosedive. Fortunately, I'm still ahead of schedule goal-wise. In fact, I'm quite sure that I'll reach my $12,000 target before year's end.

In August, I'm planning a few more sells and several additional round out buys. Of course, I'm also looking for opportunities to sell some covered calls. Volatility is quite low now, so patience will be the name of the game!

July Highlights

Generating a growing dividend income stream is the main goal of DivGro. I review my dividend income regularly and consider factors that could affect future dividend payments.

I received dividend income of $862 from 18 DivGro stocks in July, for a year to date total of $10,458. Dividend income increased 119% over the total received in July 2015.

Projected annual dividend income (PADI) is the total dividend income I expect to receive in the next 12 months. I recorded 5 buys and 10 sells. Also, 5 stocks announced dividend increases and 1 stock announced a dividend decrease. These activities removed $513 from DivGro's PADI, which now stands at $11,063.

Following is a chart showing DivGro's projected monthly dividend income (red line) against monthly dividends received:


Another way to see progress is to compare dividend income by month:


Transactions

In July, I added shares to 5 existing positions:

• AbbVie Inc (ABBV)
• Eaton Vance Tax-Managed Global Diversified Equity Income Fund (EXG)
• Gilead Sciences, Inc (GILD)
• PennantPark Investment (PNNT)
• Reynolds American, Inc (RAI)

This month, I sold shares and reduced my position in the following stock:

• Realty Income Corporation (O)

Lastly, I closed the following positions:

• Avista Corporation (AVA)
• Chevron Corporation (CVX)
• Meredith Corporation (MDP)
• Nippon Telegraph and Telephone Corporation (NTT)
• Philip Morris International, Inc (PM)
• Reliance Steel & Aluminum Co (RS)
• Starwood Property Trust, Inc (STWD)
• Toronto-Dominion Bank (TD)
• W.P. Carey, Inc (WPC)

As a result of these transactions, DivGro's PADI decreased by $547.

Dividend Changes

The following stocks announced dividend increases:

• Cummins Inc (CMI)
• Walgreens Boots Alliance, Inc (WBA)
• Realty Income Corporation (O)
• Omega Healthcare Investors, Inc (OHI)
• Reynolds American, Inc (RAI)

The following stock announced a dividend decrease:

• Nuveen Premium Income Municipal Fund 2 (NPM)

DivGro's PADI increased by $34 due to these dividend changes.

Dividends Received

I received dividends from 18 different stocks this month, for a total of $862 in dividend income:

• Chubb Limited (CB) – $16.56
• The Walt Disney Company (DIS) – $71.00
• The Walt Disney Company (DIS) – $19.17
• Dr Pepper Snapple Group, Inc (DPS) – $37.10
• Eaton Vance Tax-Managed Global Diversified Equity Income Fund (EXG) – $49.76
• The Gap, Inc (GPS) – $37.95
• Kimberly-Clark Corporation (KMB) – $25.76
• The Coca-Cola Company (KO) – $22.75
• Main Street Capital (MAIN) – $41.40
• Altria Group, Inc (MO) – $42.38
• Nuveen Premium Income Municipal Fund 2 (NPM) – $23.28
• Nippon Telegraph and Telephone Corporation (NTT) – $64.01
• Realty Income Corporation (O) – $19.90
• Philip Morris International, Inc (PM) – $66.30
• PennantPark Investment (PNNT) – $60.20
• Reynolds American, Inc (RAI) – $42.00
• Reynolds American, Inc (RAI) – $35.70
• STAG Industrial Inc (STAG) – $27.80
• Starwood Property Trust, Inc (STWD) – $120.00
• W.P. Carey, Inc (WPC) – $39.20

Duplicate entries are for dividends received from different accounts.

Markets

Even though I'm no longer comparing DivGro's performance to market indices, its useful to understand the environment we're investing in:

Jun 30, 2016
DOW: 17,929.99S&P 500: 2,098.86NASDAQ: 4,842.6710-YR BOND: 1.49%
Jul 31, 2016
DOW: 18,432.24S&P 500: 2,173.60NASDAQ: 5,162.1310-YR BOND: 1.46%

In July, the DOW gained 2.80%, the S&P 500 gained 3.56%, and the NASDAQ gained 6.60%. Yield on the benchmark 10-year Treasury note fell to 1.46%.

Below are charts showing the market activity of these indices in July, courtesy of Google Finance. (Click on the charts to see detail). Each chart shows a 20-period exponential moving average (in red). I've also included a 20-period relative strength index below the main chart.


Market Value

This month, DivGro's market value increased by 2.97% to $328,891. Compared with July 2015's market value of $154,728, the year over year increase is 113%.

Market ValueCash DepositsSimple Return
Jul 31, 2015
$154,727.82$142,963.008.23%
Jun 30, 2016
$319,411.35$274,379.5116.41%
Jul 31, 2016
$328,891.03$276,961.4918.75%

Here's a chart showing DivGro's market value breakdown. Dividends are plotted at the base of the chart so we can see them grow over time.


Given the current market value of $328,891, my portfolio has delivered a simple return of 18.75% since inception. In comparison, DivGro's IRR (internal rate of return) is 11.95%. (IRR takes into account the timing and size of deposits since inception, so it is a better measure of portfolio performance).

Portfolio


Here is a snapshot of DivGro's state on the last day of July 2016:

I track yield on cost (YoC) for individual stocks, as well as an average YoC for my portfolio. DivGro's average YoC increased from 4.34% last month to 4.48% this month.

Another interesting statistic is percentage payback, which relates dividend income to the amount of capital invested. DivGro's average percentage payback is 9.60%, up from last month's 8.54%.

Finally, DivGro's projected annual yield is at 3.99%, down from last month's value of 4.22%. I calculate projected annual yield by dividing PADI ($11,063) by the total amount invested ($276,961).

Goals Review

I've set some challenging goals this year:
  1. PADI: Increase projected annual dividend income to $12,000
  2. Dividends: Earn $10,800 in dividend income
  3. Dividends: Write 120 articles for DivGro
  4. Seeking: Write 52 premium articles for Seeking Alpha
  5. DivNet: Write 8 articles for The DIVNet
Here is a set of gauges representing the progress I've made towards achieving these goals. The last gauge is a reference – it indicates where the other gauges should be after 213 out of 366 days:


I'm ahead of schedule with all my 2016 goals except for DivNet. In July, I published my first article for The DivNet this year, but I still have a lot of catching up to do!

Looking Ahead

I have lots of cash available to round out some of my positions for options trading. Still, I'm targeting a few more sells in August, which would boost my cash position even more. The markets are trading near all time highs and volatility is quite low (see the CBOE market volatility index VIX). Buying shares and selling covered calls will be challenging! Let's see what happens!

Please see my Performance page for various visuals summarizing DivGro's performance.

Thanks for reading and take care everybody!

18 comments :

  1. Wow, DivGro I'm impressed! Thank you for sharing. That's a very thorough review, packed with nothing but quality info. And 119% increase is also....pretty good. ;) No doubt you'll meet all goals once you redeploy your cash.

    ANd I'm hoping to (re)join DivNet here myself in a few months. Thanks for the continued excellence,

    ReplyDelete
    Replies
    1. Thanks for the kind words, Passive Income Dude! Its been a busy period for me, and I can't wait to redeploy the cash and also jump into options trading to boost my dividend income!

      Hope to see an article or two from you at The DIVNet soon! Take care!

      Delete
  2. You have a great way of tracking your portfolio! Much detailed information.

    And the growth compared to July 2015. How did you manage to grow more than 100k in 1 year? Really nice!

    ReplyDelete
    Replies
    1. Thanks, Pursuit to Freedom! The details are really to help me make sure I stay on track!

      The reason I could grow so much in a year is that I've consolidated a number of my portfolios into DivGro... so now all of them are managed in the same way.

      Delete
  3. Nice update Ferdi! Keep up the good work. Curious to see how your option plays work out. Good luck!

    ReplyDelete
    Replies
    1. Thanks, Robin -- I'm looking forward to increasing my options trading activity. The first one (on F) will expire soon and I should be able to do another one on my F shares shortly after that. Take care!

      Delete
  4. Awesome stuff Ferdi. $850 in a slow dividend paying month is fantastic. I think you'll really like moving to a more options focused strategy. I've contemplated closing positions to try and get more of them up to 100 share positions to implement a covered call strategy. It'll make dividend income more variable in the meantime but at this point in the game it's still about total return to grow my capital.

    One question though why is your PADI only $11k if you've already received $10.5k in dividends in just 7 months. Do you own a lot of semi annual payers that have already paid their two dividends for 2016?

    ReplyDelete
    Replies
    1. Thanks, PIP! I agree, getting $850 in a slower month is great!

      I think boosting dividend income with options will be a fun way to get even more out of dividend growth investing. I've been working towards that for a while now... with a lot of sells this month to lay the groundwork for option trades. We'll see how it goes!

      Good question about how PADI relates to total dividends received so far. The reason for the "discrepancy" is that I've transferred (recorded) past dividends from my other accounts as part of my portfolio consolidation process. So the total dividend amount is a somewhat inflated. To be clear, though, I took the consolidation process into account when I set my 2016 goals, so things are working out as planned (so far!)

      Delete
  5. Hey Ferdi, looks like a really nice update to me, solid amount of dividend income and a huge jump from 2015! Nice job.

    Tristan

    ReplyDelete
    Replies
    1. Hi there, Tristan -- thanks for your kind words. Its great to have such a jump from 2015! I wish I could repeat that for a few years, but, alas, that won't be possible!

      Delete
  6. It was a busy month for you Ferdi. A lot of stock sells. It looks like someone is going to be selling more options ;-)

    ReplyDelete
    Replies
    1. Yes, a busy month indeed -- and I have a few more sells to come as soon as I collected the next dividends! Certainly, I'm hoping to be selling a few more options in the foreseeable future!

      Thanks for visiting and commenting, IH!

      Delete
  7. Have you tried selling short put options? I just started last month and it is a very cool way to increase cash flow

    ReplyDelete
    Replies
    1. Yes -- I executed such a trade on TGT. See:
      http://divgro.blogspot.com/2016/06/would-you-buy-target-for-less-than-62.html

      Of course, you have to be willing to buy the stock for the strike price if the share price drops!

      Delete
  8. Wow! Love the look of that market value chart!! Congrats on building up your assets and keeping that income growing.

    R2R

    ReplyDelete
    Replies
    1. Thanks, R2R -- I like that the market value chart shows dividends (below) and capital gains (above) from month to month. Its a nice way to visualize progress...

      Delete
  9. GPS is a good covered call candidate. If memory serves you should be getting back closer to your cost basis and I think you have a big enough position.

    There's loads of volatility no matter what's happening with the broader market. They announce their same store sales results every month and the robots freak out over the headlines.

    ReplyDelete
    Replies
    1. Unfortunately, my GPS shares sit in my FolioInvesting account and therefore, not eligible for options trades. At some point in the future I'm planning to transfer my shares to either Scottrade or Interactive Brokers where I can trade more options!

      Delete

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