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: 17,929.99 S&P 500: 2,098.86 NASDAQ: 4,842.67 10-YR BOND: 1.49%
Jul 31, 2016	DOW: 18,432.24 S&P 500: 2,173.60 NASDAQ: 5,162.13 10-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 Value Cash Deposits Simple Return
Jul 31, 2015	$154,727.82 $142,963.00 8.23%
Jun 30, 2016	$319,411.35 $274,379.51 16.41%
Jul 31, 2016	$328,891.03 $276,961.49 18.75%

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!