Dividend Income November 2020

The month of November has come to an end and we are in the last month of the year. The stock market has yet surprised us again this month with a strong rally, the largest monthly increase since 1987. What did not surprise was the dividend income I received. A total of 15 companies paid me and I pocketed $534.34 in dividends.

I started my dividend growth strategy in 2018, made few mistakes early on and I am now on the path of steady and reliable growth to reach financial independence in the future.

This strategy is focused on buying undervalued dividend growth stocks that should provide me with a higher yield, greater long-term total return potential, and reduced risk. The concept of undervaluation introduces a margin of safety.

Dividend Income November

My dividend income has been growing steadily over the last few months as I keep deploying more and more capital. It is a pleasure to see the fruits of your hard work every single month.

Let’s look at the income details of November. I received dividends from 15 different companies which totaled $534.34 last month:

• AbbVie (ABBV) – income of $59.00
• Bristol-Myers Squibb Co (BMY) – income of $9.00
• CVS Health (CVS) – income of $20.00
• Energy Transfer (ET) – income of $30.51
• Gladstone Investment Corp (GAIN) – income of $7.00
• General Dynamics (GD) – income of $55.00
• General Mills (GIS) – income of $15.30
• Gladstone Commercial Corp (GOOD) – income of $12.51
• KinderMorgan (KMI) – income of $13.13
• MSC Industrial (MSM) – income of $37.50
• Realty (O) – income of $14.04
• Omega Health Care (OHI) – income of $20.10
• Starbucks (SBUX) – income of $9.00
• AT&T (T) – income of $104.00
• Unum Group (UNM) – income of $128.25

During the month of November I had two new first time contributors: BMY and CVS. Both I bought in September with good dividend starting yields of 3.0% and 3.5% respectively and a low payout ratio. Additionally, I consider them significantly undervalued. Check out my September report.

T and UNM are my main contributors in the quarter middle months with $104 and $128 respectively. I believe both are solid stocks with a solid track record.

The above chart shows my monthly dividend income over time. In November 2020 I received $534.34 compared to November 2019 with $448.07 of income. This is an increase of $86.27 or 19%. Last year November was my record month for 2019 and still I managed to achieve a nice double digit increase for this year.

On a year-to-date basis, from January to November I increased my dividend income from $2,696.22 in 2019 to $5,033.99 in 2020, an increase of $2,337.77 or 87%. I passed the mark of receiving $5,000 in one year. This significant increase is mostly due to my contributions this year.

Check out my current Dividend Income Table for 2020 and the full overview of all the stocks.

Dividend Changes

For November I was very excited as I expected some significant dividend raises. And I can say that generally expectations were met, not all but most. There have been four dividend increases and no dividend cuts for the stocks in my portfolio. The table below summarizes the total impact of $21.12, with an average increase of 7.6%.

Automatic Data Processing, Inc. (ADP) raised their dividend by only 2.2%. This is very disappointing as a 10% raise was expected from my side.

I expected an increase of 5% by HP Inc. (HPQ) but they doubled that raise to a full 10% increase.

Merck & Co., Inc. (MRK) was fully in line with expectations with a 7% raise, going from $0.61 to $0.65 per share.

Snap-on Incorporated (SNA) already announced a 13.9% raise the last day of October but I did not include them last month.

I am looking to receive an average increase of 7% to be ahead of inflation by a large margin. With a weighted average of 7.6% this month I achieved this goal.

As a result of this change, my PADI increases by $21.12 on the stock I hold. At a yield of 3.0%, to achieve this dividend income I would have to deploy $704, but I don´t. That’s the beauty of dividend growth investing.

Expected Dividend Increases for December

The following companies in my dividend growth portfolio have raised their dividend last year:

Broadcom (AVGO) – a 25% raise and no less is expected – no seriously, think that an increase in the nice double digits will be announced.

Enbridge (ENB) – with fuel prices going up again maybe there is a dividend increase coming up, very unlikely but possible.

Iron Mountain (IRM) – a low raise between 2-3% expected.

AT&T (T) – the classical $0.01 raise is expected.

The Dividend Growth Portfolio

In the Dividend Growth Portfolio I hold 48 different companies. Here is an overview of the status as of Nov. 30th.

Purchases

With the run up of the markets in November and my target to reduce outstanding margin I limited my purchases to only one transaction and that one not even on a dividend paying stock. As such I do not want to go into too much detail as there is no change to my dividend income.

I purchased 100 shares of Meredith (MDP) for $18.43 a share and sold a call option for a strike price of $20 with expiration in March 2021 for $1.95. If the stock price goes beyond $20 by March 2021 these 100 shares will be called away and I will have earned a pre-tax profit of $157 + $195 = $352 which represents an annualized return of 57%. If the share price stays below $20 I will sell another call option. The reason for this trade is the high volatility of MDP resulting in higher option premiums to boost returns.

Check out my current Dividend Growth Portfolio and the full overview of all the stocks I hold in it.

Dividend Safety

One of the key metrics for my future passive income is how safe it is. For this reason I have started to track my Dividend Safety Score. For this score I use the weighted dividend safety punctuation from Simply Save Dividends combined with the dividend income of each of my stocks. The higher the score the safer the dividend income.

Dividend Safety Score

For November, the Dividend Safety Score is 61.4 for my dividend growth portfolio, up by 0.1 points over October, purely on the dividend increases of my stocks with a high score.

I consider the score of below 60 somewhat at the lower acceptable end and my target is a score of 70. I want to have achieved this by the end of 2021. My plan is not to sell low rated stocks but instead re-balancing to high scoring ones when deploying more money.

I strive to continuously add to my portfolio and here really the focus is on high quality stocks. The re-balancing happens over time as new money deployed lowers the proportion of the low scoring stocks. I have seen that this works just fine for other dividend growth investor portfolios.

Let’s look at the actual distribution. I use the same classification as Simply Safe Dividends as it makes it easy to spot the categories.

The different categories and their respective score ranges from very unsafe to very safe are:

In my portfolio 50% is in the Safe and Very Safe category which has very little risk of being cut. Another 31% is Borderline Safe. The remaining 19% are Unsafe or Very Unsafe. I need to monitor especially the unsafe positions closely.

Nothing has changed from last month because I only invested in a stock which does not pay a dividend. Hence, there is no impact on the dividend safety.

For each individual stock in my portfolio the current score is as follows:

I hold now 15 companies in the highest category and another 16 companies is the second highest category. Overall, my portfolio contains many high quality dividend stocks with a safe dividend score.

On the other end we see the red alarming light with LUMN (formerly CTL). Luckily this is only a small position and I have also a sold option which boosts the return. I am not concerned about this one.

I am, however, very closely monitoring LADR as it is my largest position for dividend income, and this after their 50% dividend cut. A further cut may hurt my performance significantly. GOOD and ET are also smaller positions and not require any further attention, especially after the 50% cut by ET. The score for IRM surprises me as I consider the business model valid. I will have to monitor closely if there are any negative signs.

When combining the dividend safety score with the income the picture looks as follows:

You can see that the largest group is the Safe category, closely followed by the Borderline Safe one. In third position is the Very Safe category. I am very happy with this as it only moved up from fourth place in October. It eventually should be at least my second largest category.

Another way of looking at the dividend safety is by yield and score. For each of my holdings I compare these values to visualize the figures which clearly lets you draw some general conclusions.

The dots represent my yield-on-cost with the color of the dividend safety score. The blue lines indicate the current yield of these stocks. The grey dots represent companies that either do not pay a dividend or are not covered by SSD.

There is a clear correlation between yield and safety score. On the left hand side (apart from the grey dots) we have the low yield, high safety score companies. The further we go to the right, the lower the dividend safety score becomes but it typically comes with a higher yield.

In the midst of the market crash in March I decided to focus more on high quality dividend stocks and this is shown nicely in this chart. There are quite a lot of darker green dots and the blue line (current yield) is below the dot (yield on cost). Companies recovered quite nicely after the low.

At the same time, there a quite a few companies, especially of the mid to low safety score, which have not recovered and the blue line is above the dot, typically for oil and gas companies and the finance sector.

On the right hand side you can also see the extreme values that stocks can take on. ET has still a yield on cost of above 10%, even after the dividend cut. However, one of my goals going forward is not to chase the yield as we can so clearly see that it comes with a lot of risk.

Projected Annual Dividend Income (PADI)

With more money deployed in October my PADI increased accordingly, too. It stands now at $6,940 compared to $6,892 at the end of September. This is a rise of $48 or 0.7%.

The difference between the PADI increase and my dividend raises is due to the ABBV increase which took place on the last months of October but was not reflected in the summary from Simply Safe Dividends. Additionally, there is a small change for ET due to currency fluctuations. They are now added and make up the difference between $21 of increase received this month and the reported PADI increase of $48.

My journey continues to try to just pour in money to pay off the margin. I still have a few put options on stocks which I would be willing to buy if the share price falls below the strike price at maturity. However, there are very few candidates and it is very unlikely. Hence, for the rest of the year there should be no (or very few) additions.

Dividend Yield

The current yield of the shares in my portfolio is 4.5%, a decrease of -0.7 compared to last month. The investment yield for my dividend growth portfolio is 4.9%, no change compared to September. For this yield I compare the current dividend income with the purchase price of the underlying shares. My yield on cost (YoC) is lower at 4.7%, up 0.1%, because of losses taken from options which also required additional funding without adding new dividend income.

Conclusion

The dividend income for November was $534.34 from 15 different companies, a 19% increase over November last year. My PADI stands at $6,940 which marks again a new record. My original target for this year of $5,000 was already reached in June.

The dividend safety score of my portfolio is 61.4, an increase by 0.1 points but still significantly below my recently set target of 70. My analysis has shown that 50% of my dividend income is categorized as safe but there are still a few stocks with a high risk of being cut.

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Disclosure: At time of writing long on all above mentioned

Disclaimer: I am not a professional investment or financial advisor. The information presented on this site represents my personal dividend growth journey and it is for informational purposes only. Opinions expressed are my own and should NOT be relied on or taken as investing advice. I have no knowledge about your personal situation and before you make any investment decision you should exercise due diligence and must do your own research. Always consider seeking advice from a professional financial and tax advisor.