Monday, November 21, 2016

Monthly Review: October 2016

I'm rather late with my monthly review post. Some heavy options trading activity last month resulted in two fairly lengthy options update posts, which spilled over into the first week of the month when I usually prepare my monthly reviews.

This month, I closed one of my DivGro positions, Caterpillar, Inc (CAT). I'm concerned about CAT's near-term future and the sustainability of its dividend. I also trimmed my Cisco Systems, Inc (CSCO) after a covered call option was exercised. I used the cash to add shares to an existing DivGro holding, Pfizer Inc (PFE).

The net result of my October trades is that DivGro's projected annual dividend income (PADI) decreased by about $49. I'm still on schedule to achieve my goal of increasing PADI to $12,000 before year's end.

As mentioned, I had a busy month trading options. In October, I added another $907 in options premiums, which increased my year-to-date options income to $4,130. Of course, these options are potential obligations until they expire or get exercised. I mark option income as secured income only when I no longer have an obligation. Please see my October 2016 options updates, Part 1 and Part 2, for details.

October 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.

In October, I collected dividend income from 15 stocks totaling $824. This amount is 126% higher than the dividend income I received in October last year. So far in 2016, I've collected a total of $13,320 in dividend income.

Projected annual dividend income (PADI) is the total dividend income I expect to receive in the next 12 months. DivGro's PADI decreased by 0.01% to $11,289 due to stock trades and dividend changes. I recorded 1 buy and 2 sells, while 3 stocks announced dividend increases.

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


Lining up dividend income by month is informative and shows year over year progress nicely:


Transactions

In October, I added shares to an existing position:

• Pfizer Inc (PFE)

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

• Cisco Systems, Inc (CSCO)

Lastly, I closed the following position:

• Caterpillar Inc (CAT)

As a result of these transactions, DivGro's PADI decreased by $49.

Dividend Changes

The following stocks announced dividend increases:

• AFLAC Inc. (AFL)
• AbbVie Inc. (ABBV)
• Omega Healthcare Investors (OHI)

DivGro's PADI increased by $48 due to these dividend changes.

Dividends Received

I received dividends from 15 different stocks this month, for a total of $824 in dividend income:

• Chubb Limited (CB) – $16.56
• Cisco Systems, Inc (CSCO) – $52.00
• Eaton Vance Tax-Managed Global Diversified Equity Income Fund (EXG) – $58.86
• The Gap, Inc (GPS) – $37.95
• Kimberly-Clark Corporation (KMB) – $92.00
• The Coca-Cola Company (KO) – $35.00
• Main Street Capital Corp. (MAIN) – $42.55
• Altria Group Inc. (MO) – $45.75
• Nuveen AMT-Free Quality Municipal Income Fund (NEA) – $16.51
• Nike Inc (NKE) – $7.52
• Nuveen Premium Income Muni Fund 2 Inc (NPM) – $9.45
• Realty Income Corp. (O) – $10.10
• PennantPark Investment (PNNT) – $219.80
• PennantPark Investment (PNNT) – $60.20
• Reynolds American, Inc (RAI) – $46.00
• Reynolds American, Inc (RAI) – $46.00
• STAG Industrial Inc (STAG) – $27.80

Duplicate entries are for dividends received from different accounts.

Markets

It is worth looking at the markets to understand the environment we're investing in, even though I no longer compare DivGro's performance to those of the markets:

Sep 30, 2016
DOW: 18,308.15S&P 500: 2,168.27NASDAQ: 5,312.0010-YR BOND: 1.61%
Oct 31, 2016
DOW: 18,142.42S&P 500: 2,126.15NASDAQ: 5,189.1310-YR BOND: 1.83%

In October, the DOW dropped 0.91%, the S&P 500 dropped 1.94%, and the NASDAQ dropped 2.31%. Yield on the benchmark 10-year Treasury note rose to 1.83%.

Market Value

In October 2016, DivGro's market value decreased by 0.86% to $331,960. Year over year, market value increased by 108%.

Market ValueCash DepositsSimple Return
Oct 31, 2015
$159,954.81$151,028.015.91%
Sep 30, 2016
$334,849.23$280,764.3019.26%
Oct 31, 2016
$331,960.02$283,119.6017.25%

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 $331,960, my portfolio has delivered a simple return of 17.25% since inception. In comparison, DivGro's IRR (internal rate of return) is 9.65%. (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 October 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 4.35% last month to 4.37% this month.

Another interesting statistic is percentage payback, which relates dividend income to the amount of capital invested. DivGro's average percentage payback is 10.26%, up from last month's 9.89%.

Finally, DivGro's projected annual yield is at 3.99%, down from last month's value of 4.02%. I calculate projected annual yield by dividing PADI ($11,289) by the total amount invested ($283,120).

Goals Review

I've set some challenging goals for 2016:

  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 305 out of 366 days:


I now have achieved three of my goals for 2016 and I'm on track to achieve my goal of increasing PADI to $12,000. My DivNet goal looks increasingly unlikely to achieve.

Looking Ahead

I now have nearly 16% of my portfolio in cash and I continue to focus on preparing DivGro for options trading. As mentioned last month, I need to transfer several of my DivGro positions to a trading account at Interactive Brokers, which offers low commission rates for options trades. Volatility remains very low (see the CBOE market volatility index VIX), so option premiums are not so high at the moment.

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

On A Personal Note

In the beginning of November, our family spent a lovely weekend at Sea Ranch in Sonoma County, California. We try to get together with our three sons and their financée/girlfriends about once a year for a short vacation. It's a chance to spend some quality time together. We usually play games and hike, and each couple gets to cook one meal so the workload is spread around. This time we also visited a couple of wineries, which was a lot of fun!

Upon returning from the family weekend, unfortunately, I got some bad news from my parents in South Africa. My father had to undergo quintuple bypass surgery, which was quite a shock because he was in great shape for an 81-year old. He often jogged on the beach when my mother wanted to go for a walk. So I had to take some emergency family leave and travel to South Africa to support my parents during this difficult time.

My father has undergone the surgery and remains in the ICU. The operation went well but he is still quite weak and recovering slowly. I'll be staying in South Africa through 12 December.

Thanks for reading and take care everybody!

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