This is my February 2019 FFJ Portfolio dividend income update. The portfolio was created in January 2017 for the purpose of demonstrating how investing in high quality companies with competitive advantages and with a record of consistently increasing dividends can assist investors in reaching their long-term financial goals without the need to speculate or to chase dividend yield.
By being able to reasonably accurately forecast future cash inflows, it is possible to reduce stress levels related to finances. Furthermore, consistency and predictability on the cash inflow front will provide households with the opportunity to make decisions that might be otherwise impossible if cash inflows are subject to wild variances.
Before I delve into what transpired in the month of February I want to share with you why I am of the opinion my ‘watching paint dry’ investment strategy is suited for so many ‘do it yourself’ investors.
I have just returned from a 1.5 week ski vacation at Whistler/Blackcomb in British Columbia, Canada.
During this timeframe I spent less than 5 minutes/day THINKING about our investments. The only reasons I checked our investments was to see:
- what dividend income had been deposited to our accounts;
- whether the stock price of the companies in which I wish to acquire shares had pulled back to attractive levels.
Secondly, this investment strategy significantly reduces the need to make multiple correct investment decisions. With this strategy, investors should invest in undervalued/fairly valued companies which:
- are profitable;
- have competitive advantages;
- are financial sound;
- are shareholder friendly
and then ‘get out of the way’. An ‘active trader’, on the other hand, must make the ‘right’ decision frequently.
It can certainly be argued that a decision not to sell is an investment decision. I totally agree but my ‘watching paint dry’ investment strategy dramatically reduces the number of investment decisions I must make. I have, therefore, reduced the risk of messing up.
Thirdly, imagine a situation in which one spouse is an ‘active’ trader and the other spouse has little interest/knowledge on the investment front. What do you think would happen if the ‘active’ trader spouse was no longer in a position to make investment decisions and the spouse with little interest/knowledge on the investment front had to pick up the pieces?
Now….moving on to how the FFJ Portfolio performed in February.
February 2019 Dividend Income
Click here to view the FFJ Portfolio’s monthly dividend income on a company by company basis for 2018 and 2019.
February, May, August, and November are the months in which we receive the least dividend income from the FFJ Portfolio holdings AND the holdings in our ‘undisclosed’ accounts.
In February, the holdings within the Core Accounts of the FFJ Portfolio generated CDN $561.35 and USD $1,117.78. The holdings in the Side Accounts generated CDN $1,320.97 and USD $234.40. Total dividend income for the month amounted to CDN $1,882.32 and USD $1,352.18.
On a year-to-date basis, CDN $2,366.68 and USD $1,875.67 has been generated in the Core Accounts and CDN $2,911.31 and USD $1,443.47 has been generated in the Side Accounts.
FFJ Portfolio Holdings
Click here to view the FFJ Portfolio’s holdings as at January 31, 2019 and February 28, 2019.
In my December 2018 report I had set the following FY2019 dividend income targets.
Core Accounts - CDN $15,000 (~$14,000 in 2018) and USD $18,000 (~$17,000 in 2018)
Side Accounts - CDN $19,000 (~$7,400 in 2018) and USD $11,000 (~$3,400 in 2018)
Several of the companies in which we have invested have announced dividend increases subsequent to the beginning of 2019. I am, therefore, reasonably confident the dividend income generated through the FFJ Portfolio’s ‘Core’ and ‘Side’ Accounts will exceed the dividend targets reflected above. I will, however, refrain from revisiting these targets until later in the year.
I don’t pay much attention to the daily fluctuation in the value of our holdings. In fact, since I am continually looking to invest in high quality companies when undervalued/fairly valued, I WANT equity values to fall. Mr. Market, however, has not been cooperative in this regard as the value of our disclosed and undisclosed holdings have appreciated several hundred thousand dollars subsequent to the end of December 2018.
February 2019 Sales/Purchases
Given recent market conditions, my purchases have been few and far between.
Click here to see the companies in which I acquired shares in January 2019.
In my A Great Investment Portfolio Example of Diversification article I mentioned I intended to cull:
- CDK Global (CDK)
- Manulife (MFC)
- SNC-Lavalin (SNC)
- Wells Fargo (WFC)
On February 11th I sold all MFC and SNC shares; I still hold CDK and WFC. Using the sale proceeds I acquired additional Berkshire Hathaway (BRK.b) shares @ $202.2599 in one of our ‘undisclosed’ accounts.
In addition to the acquisition of additional BRK.b shares I acquired additional shares in:
- Church & Dwight (CHD) @ $60.4692 in one of our ‘undisclosed’ accounts.
- Broadridge (BR) 100 shares @ $95.1899 which are held in the FFJ Portfolio.
Given my concern about the valuation of several companies in which I currently hold a position, I wrote covered calls.
- Mastercard (MA): 4 contracts $230 strike price Expiry: April 18, 2019 – generated ~$960
- Automatic Data Processing (ADP): 5 contracts $155 strike price Expiry: May 17, 2019 – generated ~$1060
- Becton Dickinson (BDX): 4 contracts $250 strike price Expiry: March 15, 2019 – generated ~$765
- Nike (NKE): 5 contracts $87.50 strike price Expiry: April 18, 2019 – generated ~$659
These 4 covered call transactions generated USD $3,444 of option premium income.
I purposely wrote calls that were well out of the money since I figured Mr. Market did not necessarily share my cautious sentiment on valuations. My option strategy was merely to ‘skim’ some additional profit and not to risk having my shares being called away. I, therefore, purposely left a nice buffer between the strike price and the current market price at the time I wrote the covered calls.
Subsequent to writing those covered calls, the underlying shares have appreciated in value. In fact, the share price of BDX briefly exceeded my strike price but it has since retraced; with 1 week remaining before expiry the underlying share price has retraced to below the strike price.
Earlier in this article I asked you to think of what would happen if one spouse is an ‘active’ trader and the other spouse has little interest/knowledge on the investment front. You may be thinking to yourself that my covered calls could complicate my wife’s life if I were to suddenly no longer be able to handle our investments. I am, however, not really complicating her life with these covered calls. I have merely capped her upside in exchange for the premium income noted above which was deposited to our accounts shortly after I executed the trades.
That’s my roundup for February.
I wish you much success on your journey to financial freedom!
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Disclaimer: I have no knowledge of your individual circumstances and am not providing individualized advice or recommendations. I encourage you not to make any investment decision without conducting your own research and due diligence. You should also consult your financial advisor about your specific situation.
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