Dividend Income December 2020

The year has come to an end and December is in the books. What a year it’s been. The stock market has shown no real weakness since it hit bottom in March. This has resulted in a revaluations of my portfolio to an extend that I passed the $150,000 mark of portfolio value invested in stocks.

Even better, in December I hit a new record high dividend income, surpassing $800 of pure passive income. To be exact my dividend income for December was $810.69. A total of 23 companies paid me and I am especially happy about the bonus dividend from MSM accounting for $175.

I also set a new record for my Projected Annual Dividend Income (PADI). I managed to go past the $7,000 threshold and have raised the bar for 2021.

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. I target stocks that demonstrate a significant level of undervaluation which increases the margin of safety.

Dividend Income December

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 December. I received dividends from 23 different companies which totaled $810.69 last month:

• Anthem (ANTM) – income of $9.50
• Broadcom (AVGO) – income of $14.40
• Lumen (LUMN), formerly CenturyLink (CTL) – income of $25.00
• Discovery Financial Services (DFS) – income of $26.40
• Ebix (EBIX) – income of $3.00
• Enbridge (ENB) – income of $31.25
• Gladstone Investment Corp (GAIN) – income of $7.00
• Gladstone Commercial Corp (GOOD) – income of $12.52
• Home Depot (HD) – income of $24.00
• International Business Machines (IBM) – income of $48.90
• Intel (INTC) – income of $33.00
• Invesco (IVZ) – income of $46.50
• Johnson & Johnson (JNJ) – income of $30.30
• Lockheed Martin (LMT) – income of $10.40
• 3M (MMM) – income of $29.40
• MSC Industrial Direct Co. (MSM) – income of $175.00 (bonus dividend payment)
• Realty (O) – income of $14.04
• Principal Financial Group (PFG) – income of $28.00
• Prudential (PRU) – income of $110.00
• Snap-on (SNA) – income of $24.60
• Visa (V) – income of $3.20
• Walgreens Boots Alliance (WBA) – income of $60.78
• Exxon (XOM) – income of $43.50

During the month of December I had no further new first time contributors. MSM paid me a bonus dividend which was not expected and already the second bonus dividend this year after a $5 per share payout in February. In total they have paid me $575.00 in dividend for my 50 shares, a 15.3% yield on my investment. Unfortunately, this yield is not guaranteed into the future and my yield on cost is 4.0%. These bonus dividends really make a difference.

The only other stock that brings in a triple digit dividend is PRU with $110.00 for which my yield on cost is 7.4%.

The above chart shows my monthly dividend income over time. In December 2020 I received $810.69 compared to December 2019 with $349.86 of income. This is an increase of $460.83 or 132%. Getting paid more than $800 in a month is a new dividend income record and a nice touch to finish this volatile investing year.

I think what is quite nicely visible on this chart is the progression over time month by month. There is a clear uptrend. On a year-to-date basis, from January to December I increased my dividend income from $3,046.08 in 2019 to $5,844.68 in 2020, an increase of $2,798.60 or 92%.

I am more than pleased with this result. I was able to really put my heart in adding all the available cash to my dividend growth portfolio and the increase in dividend income just followed. I passed my original target of receiving $5,000 in one year already in June. After September I took it a bit slow and paid down my outstanding margin amount.

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

Dividend Changes

For December I received an increase from four companies. However, one of the reliable sources of dividend increases left me hanging: AT&T (T). There have been no dividend cuts for the stocks in my portfolio. The table below summarizes the total impact of $12.81, with an average increase of 4.7%.

Broadcom (AVGO) raised their dividend by 10.8%. This is still significantly lower than expected.

Bristol-Myers Squibb Company (BMY) raised their dividend from $0.45 to $0.49, a solid 8.9% increase.

For Enbridge I did not really expect any increase, hence, the 3.1% increase I take very happily. I converted the CAN$ to US$ for comparative reasons.

Realty Income (O) raised the dividend for the fifth time this year making it a total 3.1% increase year over year.

AT&T (T) did not raise their dividend as it was expected. Should this raise concerns? Maybe they actually giving priority to paying off the debt.

Iron Mountain (IRM) has also passed on raising its dividend. As per SSD score of only 40 this is becoming a highly risky position. Is a cut coming next?

I am looking to receive an average increase of 7% to be ahead of inflation by a large margin. With a weighted average of 4.7% this month I did not achieve this goal. Furthermore, 2 larger positions did not raise their dividends. Let’s wait for the year-end review to see the overall picture.

As a result of this change, my PADI increases by $12.81 on the stock I hold. At a yield of 3.0%, to achieve this dividend income I would have to deploy $427, but I don´t. That’s the beauty of dividend growth investing.

Expected Dividend Increases for January

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

Anthem (ANTM) – a 15% raise is expected – this would be more or less in line with the last increase and the payout ratio is still very low, think that at least an increase in the nice double digits will be announced

Gladstone Investment (GAIN) – I would not bet on a dividend increase this January

Gladstone Commercial Corp. (GOOD) – I would not bet on a dividend increase this January

Intel Corp. (INTC) – a raise of $0.01 would mean 3.0%

Principal Financial Group (PFG) – the $0.01 raise is expected

The Dividend Growth Portfolio

In the Dividend Growth Portfolio I hold 49 different companies. Here is an overview of the status as of Dec. 31^st.

Purchases

In December I purchased more stocks of Merck (MRK) and opened a new position in PPL Corp. (PPL). This new position takes my number of stocks in my portfolio to 49 companies.

Merck & Co Inc (MRK)

Merck is a leading pharmaceutical company that makes products to treat several conditions in a number of therapeutic areas, including cardio-metabolic disease, cancer, and infections. Within cancer, the firm’s immuno-oncology platform is growing as a major contributor to overall sales. The company also has a substantial vaccine business, with treatments to prevent hepatitis B and pediatric diseases as well as HPV and shingles. Additionally, Merck sells animal health-related drugs. From a geographical perspective, close to 40% of the firm’s sales are generated in the United States.

PPL Corp (PPL)

PPL is a regulated utility with three key subsidiaries. The international regulated delivery segment operates distribution networks providing electricity service to customers in the United Kingdom. The Pennsylvania regulated delivery and transmission segment provides distribution to customers in central and eastern Pennsylvania. LG&E and KU are involved in regulated electricity generation, transmission, and distribution in Kentucky.

There you have it. These are the companies I invested in this month. As a result, I have added $135.00 of dividend income to my PADI. On an investment amount of $2,880.78 including fees it comes to an average dividend yield of 4.69% and a weighted Dividend Safety Score of 75.0 points. Typically, the higher the Dividend Safety Score the lower the dividend yield.

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 December, the Dividend Safety Score is 61.6 for my dividend growth portfolio, up by 0.2 points over November, a combination of the new purchases and 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 51% is in the Very Safe and Safe category which has very little risk of being cut. Another 32% is Borderline Safe. The remaining 17% are Unsafe or Very Unsafe. I need to monitor especially the unsafe positions closely.

The Very Safe category increased by 1% due to the purchase of more shares of MRK. For the Borderline Safe category it went also up by 1% due to the new position in PPL. The good thing is that as a counterpart only the Unsafe category dropped by 2% points. This is what I want to see.

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.

In the Unsafe category I am still very closely monitoring LADR as it is my largest position for dividend income, and this after their 50% dividend cut this year. 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. What starts to concern me is my position in IRM. As you know its low score of 40 surprises me as I consider the business model valid. However, with the missed dividend increase, there may be a real risk of a cut further down the line. I will have to monitor it closely.

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. 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. The light grey bars represent the percentage of the stock value in my portfolio.

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. I hold 3 stocks for which my cost is above 10%. 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.

Typically, the Unsafe and Very Unsafe category make up only a small proportion of my portfolio, except for LADR which I picked up first at rock bottom between $3.00 and $3.60 at a starting yield of 37%, then they cut the dividend by 50% and I bought more stocks linked to an expected call assignment of in-the-money at ex-div date shortly before expiration. This did not happen and I still hold all shares I bought but my yield on cost dropped also significantly.

Projected Annual Dividend Income (PADI)

With more money deployed in December my PADI increased accordingly, too. It stands now at $7,092 compared to $6,940 at the end of November. This is a rise of $152 or 2.2%.

My journey continues and I also managed to pay off all my margin exposure as planned by the end of 2020. 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. On the other hand, I also hold some naked call options on DFS which seem to find no limit and hit high after high after high. I will have to close them before expiration and look to replace them with better suited ones.

Dividend Yield

The current yield of the shares in my portfolio is 4.4%, a decrease of 0.1 percentage points compared to last month. The investment yield for my dividend growth portfolio is 4.9%, no change compared to November. 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 4.8%, up 0.1%, because of losses taken from options which also required additional funding without adding new dividend income. It also take into consideration if I use my margin as I do not want to artificially boost my yield.

Conclusion for December

The dividend income for December was $810.69 from 23 different companies, a 132% increase over December last year. My PADI stands at $7,092 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 61.6, an increase by 0.2 points but still significantly below my recently set target of 70. My analysis has shown that 51% 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.