InvestingPassive Income

Blue Chip DRiP: October Dividend Income Update

By November 10, 2020 No Comments

The Pain is Real

(Source)

October 2020 marks the first month since the inception of this portfolio that we did not increase our dividend income from the previous quarter. This can be attributed to two factors:

  1. A few of our holdings cut/froze their dividends & distributions during the Covid crisis.
  2. We liquidated $120k of assets in July to buy our home in cash.

It took a few months for these factors to kick in, but now the repercussions to our passive income are coming to roost. We are definitely not out of the woods yet. A few of our Energy and REIT holdings are still in danger of reducing their distributions, and I’m sure a few surprises will pop up from other sectors as well.

It appears the presidential election is finally over. Not without controversy, of course. Regardless of who is in office, which party wins the House majority, or who is “pulling the strings” in government, our investing strategy remains the same. We will continue to place our money into sound companies with solid fundamentals that have a history of taking care of their shareholders. Disciplined saving and prudent investing for long-term gain will overcome the short-term pain this portfolio is experiencing at the moment. Time in the market reigns supreme. With that said, here’s our October rundown:

Dividend Income: 2020 (Blue) vs. 2019 (Red)

In October 2020, we pocketed $443.99 of dividend income. Compared YoY to October 2019, which saw $416.84 in dividends, that’s a 6.51% increase YoY. July 2020 saw $676.39 of income. This is where the effects of my large selloff and dividend cuts from some of my larger holdings become very noticeable. Our dividend income decreased a whopping -34.35% QoQ. We are laser-focused on rebuilding our holdings to get back into plus territory here. Our saving grace is that we paid for our home in cash, and own it outright. Nobody can take that from us.

Dividend Income Received: October 2020

Ticker/Stock NameIncome
Cardinal Health (CAH)$53.46
Cisco (CSCO)$7.20
Eastman Chemical (EMN)$1.32
Ingredion (INGR)$1.28
Iron Mountain (IRM)$125.77
Coca-Cola (KO)$3.72
Gladstone Land (LAND)$1.12
iShares Preferred ETF (PFF)$10.07
PPL Corp. (PPL)$106.85
Simon Property (SPG)$105.31
Urstadt Biddle (UBA)$0.28
VEREIT (VER)$27.61
* = New position

Total: $443.99

Noteworthy Tidbits

Our highest payers for the month: Iron Mountain with $125.77, with PPL and Simon Property not far behind. IRM recently posted favorable 2020 Q3 earnings, and they are maintaining their dividend for the time being. SPG already slashed theirs. PPL is a solid utility company and their dividend seems well-covered at the moment.

September 2020: Dividend Increases Announced

September 2020: Dividend Cuts/Suspensions Announced

Obviously, our five dividend increases announced this month that equate to $59 of annual income are very welcome. But they are heavily overshadowed by Energy Transfer (ET) slashing their distribution. Just like that, ET erased $800 of annual passive income from this account. It’s a pill I knew was coming, but it is still chokingly hard to swallow, nonetheless.

Stock Transactions: October 2020

It’s going to be a long, arduous battle, but we’re intent on replenishing and rebalancing this portfolio. We are actively and eagerly reinvesting all dividends and extra savings we can scrounge up. Sure, our purchases are smaller than in the recent past, but we’re doing our best!

We made only three cash purchases in October:

Ticker/Name# of SharesShare PriceAmt. InvestedEst. Annual Income
AbbVie (ABBV)10$83.58$835.80$52.00
People’s United Financial (PBCT)50$10.75$537.50$35.50
AT&T (T)20$27.92$558.40$41.60
Total: $1,931.70Total: $129.10
* = New Position6.68% avg. yield

We cancelled all our DRiPs (dividends automatically reinvested) a few months ago. While we rebuild this portfolio, I prefer to have control over all dividends for manual reinvestment. In 2021, I plan to open up some of our holdings to DRiPs again.

We made one sale in October, due to a $38 option call getting called in on Pfizer (PFE). We promptly bought back the 100 shares the next day for $37.68/share as we feel they are still a quality long-term business.

October Transactions: Takeaway

  • Cash invested in October = $1,931.70
  • These investments add approximately $129.10 of annual passive dividend income.
  • Including the increase announcements and the cut from ET, our estimated forward annual dividend income dropped to $12,483.23 from $13,021.66 last month. That’s a -4.13% decrease on our projected annual income from last month. It will take a solid chunk of time and capital invested to make up for this income loss.
  • We mainly sat on the sidelines in October, but are happy with adding to positions in ABBV, PBCT, and T. We feel confident about the dividend safety of each of these businesses for the time being.
  • We still feel that the Energy sector will eventually rebound once a COVID-19 vaccine is created and implemented, and this includes Energy Transfer. This could take a good long while, but we’ll continue to nibble here and there. We’ll be looking to add a little to our Royal Dutch Shell (RDS.B) (NYSE:RDS.A) and Valero (VLO) positions this month.
  • Moving forward, we can expect to pocket an average of $34.20 of passive income each and every day without lifting a finger. That’s down from $35.68 in September. That’s still enough to pay insurance, property taxes, and our monthly recurring bills. We’ve got our work cut out for this to completely cover our monthly discretionary/fun budget and achieve 100% financial emancipation. But we’ll keep cracking away at it. Slow and steady!

Diversification Checkup: Sector Allocations

Stock SectorCurrent % of PortfolioGoal % of Portfolio
Basic Materials4.03% (was 3.53%)5%
Communications8.26% (was 8.46%)6%
Consumer Cyclical1.15% (was 1.16%)5%
Consumer Defensive2.48% (was 2.43%)8%
Energy23.63% (was 24.19%)12%
Financial13.04% (was 12.44%)10%
Healthcare10.61% (was 10.35%)10%
Industrials8.79% (was 9.01%)10%
Real Estate/REIT13.37% (was 13.80%)10%
Technology1.96% (was 1.98%)10%
Utilities11.27% (was 11.21%)12%
Misc. (ETFs, Funds)1.32% (was 1.34%)2%
100%100%

As you can see in the chart, our asset allocations, especially the Energy sector, are still out of whack due to our massive sell-off. But it’s getting better every month. Rehabbing the portfolio is a top priority, but it won’t happen overnight. There weren’t any notable changes from last month.

Top 10 Holdings: Ranked by Position Size

Below are our Top 10 holdings ranked by position size within the portfolio. I include last month’s rankings for comparison, as well as their contribution to our passive income stream.

Ticker/NameRankingPercentage of PortfolioAnn. Div. Income
AT&T (T)1 (was 1)7.50% (was 7.67%)$1011.96
Exxon Mobil (XOM)2 (was 2)4.72% (was 4.80%)$881.79
AbbVie (ABBV)3 (was 5)4.37% (was 3.95%)$468.00
PPL Corp. (PPL)4 (was 4)3.99% (was 4.11%)$422.34
LyondellBasell (LYB)5 (was 6)3.94% (was 3.44%)$354.60
Energy Transfer (ET)6 (was 3)3.89% (was 4.12%)$807.55
Antero Midstream (AM)7 (was 7)3.63% (was 3.39%)$1463.70
Brookfield Property (BPYU)8 (was NA)3.31% (was NA)$523.69
Prudential Financial (PRU)9 (was 8)3.21% (was 3.22%)$387.20
People’s United Financial (PBCT)10 (NA)3.17% (was NA)$369.20

As a rule of thumb, we try not to let any single position grow over 5% of the overall portfolio value. This rule is not hard and fast, but keeps me from getting carried away with any individual holdings, no matter how glorious they may seem.

Notable changes in October

Not much has changed since last month, but ET dropped down the list a few spots, while BPYU and PBCT snuck on the list. ET’s stock price dropped heavily once they announced the distribution cut, while BPYU has rebounded a bit lately. PBCT has traded sideways, but we added to our position, which is how it made it up to our Top 10. Hopefully, in the near future, we can buy more of our higher-quality “core” positions at reasonable valuations so they can start inching their way back on the chart.

Top 10 Holdings: Ranked by Income Generated

This is another fun chart. I thought it might be beneficial to track our biggest payers:

Ticker/NameRankingEstimated Annual Income% of Portfolio Income
Antero Midstream1 (was 2)$1,463.7011.72% (was 11.24%)
AT&T2 (was 3)$1,011.968.10% (was 7.45%)
Exxon Mobil3 (was 4)$881.797.06% (was 6.77%)
Energy Transfer4 (was 1)$807.556.47% (was 12.40%)
Brookfield Property REIT5 (was 5)$523.694.20% (was 4.03%)
Enbridge6 (was 6)$516.254.13% (was 3.97%)
Iron Mountain7 (was 8)$502.254.02% (was 3.85%)
Ares Capital8 (was 7)$495.943.97% (was 3.80%)
AbbVie9 (NA)$468.003.75% (was NA)
Valero10 (was 9)$442.963.55% (was 3.40%)

Again, ET was the main disappointment for October. They went from being our top payer down to fourth. AM, XOM, and VLO are still sailing on extremely choppy seas unless oil demand starts to increase. The upcoming months are going to be nail-biters!

As with position size, we try not to let any single position generate over 5% of the portfolio’s total dividend income. So, you know we’ll be doing our best to shore up the account and not be so reliant on the Energy sector.

Covered Call Premiums Received in October and YTD

To help counteract the depletion of passive dividend income, we’ve been strategically employing covered call options.

In the month of October, we initiated nine new covered call options and collected $508.00 in premiums:

Name / TickerPremium Received
Pfizer$38
AT&T$20
KeyCorp (KEY)$22
Ares Capital (ARCC)$90
PPL Corp. (PPL)$49
Exxon Mobil$44
Brookfield Property (BPYU)$74
Tanger (SKT)$10
Antero Midstream (AM)$161
Total Received: $508

Year to date, I’ve initiated 59 covered call options. 41 have expired, 11 have been called in, and 8 are still active. Of the stocks called in, I’ve repurchased some of them at lower prices, reinvested some money in other businesses, and continue to hold plenty of cash.

YTD, I’ve received $2,543.00 in premiums. When you factor this into my passive income, it’s definitely helped offset the dividend cuts and freezes announced so far in this recession.

The Whole Enchilada: The Blue Chip DRiP Portfolio As Of 10/31/20

Last but not least is a spreadsheet of the entire Blue Chip DRiP Portfolio as it currently stands. The current balance of this account stands at $175K. With approximately $229k invested, that’s an unrealized capital loss of around $54,000 or -23.58%, not including dividend income received. If you factor in the $20,771.68 of dividend income this portfolio has accrued, then we’re down about -14.5% over the 18 months since its inception. Further, if you factor in $2,543 of covered call premiums we’ve earned, then the account is down about -13.4% overall.

Then, if you factor in the $5,900 of realized gains I recently received when I sold a bunch of stuff to buy my house with cash, the account is actually down -10.8% overall. I’m ok with that. Time in the market will get us back to even and into the green sooner or later.

  • Est. forward annual dividend income 12/31/19: $15,570.66
  • Est. forward annual dividend income 1/31/20: $16,047.24
  • Est. forward annual dividend income 2/29/20: $17,657.65
  • Est. forward annual dividend income 3/31/20: $17,973.09
  • Est. forward annual dividend income 4/30/20: $17,439.54
  • Est. forward annual dividend income 6/30/20: $16,958.17
  • Est. forward annual dividend income 7/31/20: $12,050.56
  • Est. forward annual dividend income 8/31/20: $12,540.18
  • Est. forward annual dividend income 9/30/20: $13,021.66
  • Est. forward annual dividend income 10/31/20: $12,483.23 = down -4.31% since 9/30/20 and down -24.72% YTD

Again, there’s a great chance these income projections will be even more adversely affected by continued dividend freezes and/or cuts in the upcoming months. But we’re focusing on what we can control. Real money is being deposited to this account almost daily. Now that we own our home outright, our concentration is 100% on increasing our savings rate and replenishing this account as fast as possible. We’re committed and will continue growing our passive income stream on the way to financial emancipation. A bear market, recession, or depression will not veer us off course.

Looking Forward to the Next Chapter

Well, that’s that for October. We are super curious what the rest of 2020 has in store for the market full of stocks. It’s hard to drown out the noise and stay focused, but we will. There will always be setbacks, in investing and in life. It’s how we respond that matters. We are still on a course charted for financial emancipation. We still get more joy out of saving, investing, and growing passive income than eating lavish meals or sporting designer labels.

Whatever your investing goals or strategy, I wish you the best in these strangest of days. Stay determined. Stay engaged. Stick to your guns. Remember:

“Do not save what is left after spending, but spend what is left after saving.”- Warren Buffett

PS: Thanks for clicking the “Follow” button, and feel free to read my other articles. Best of luck as we journey towards financial emancipation!

Disclosure: I am/we are long ALL STOCKS MENTIONED IN THIS ARTICLE. 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 is not stock advice. These are purely my opinions. I’m not a professional. Do your own research. Best of luck in your investing journey!

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