Dividends

This is my October 2018 FFJ Portfolio dividend income update. The portfolio was created in January 2017 for the purpose of demonstrating how investing in well managed companies with competitive advantages can assist investors in reaching their long-term financial goals without the need to speculate or to chase dividend yield.

 

Stock values rise. Stock values drop.

I don’t have any control over how Mr. Market values a company so the monthly fluctuation in the value of our holdings is of minimal interest to me. When I invest in a company I buy with the intent of holding an investment long-term. My primary focus is the extent to which a portfolio will spit out dividend income.

Given this primary focus I actually look forward to a drop in the price of a stock that is of interest to me. As a result the pullback in October has been a blessing.

In addition to automatically reinvesting the dividends distributed in October I also had the opportunity to acquire the following for the FFJ Portfolio ‘Side Accounts’;

  • United Technologies (UTX) – 300 shares
  • Moody’s (MCO) – 250 shares
  • S&P Global (SPGI) – 200 shares
  • Mastercard (MA) – 150 shares
  • W.W. Grainger (GWW) – 200 shares
  • Brookfield Renewable Partners (BEP) – 400 units
  • Brookfield Infrastructure Partners (BIP) – 400 units

Other than the Brookfield entities, the dividend yields for the other 5 companies are relatively low.

I don’t chase dividend yield because that is fraught with risk as I pointed out in my recent Owens & Minor article. I would much rather invest in a high quality company where the risk of a dividend cut is minimal, the dividend growth outpaces the rate of inflation, and there is also a likelihood that the value of the shares acquired will be far greater well into the future.

During the month the CDN holdings within the Core portion of the FFJ Portfolio generated CDN ~$2,100 and USD ~$514 bringing YTD dividend income to a little over CDN $12,500 and USD ~$13,760. February, May, August, and November are low months from a dividend income standpoint re: Core holdings. December is a bit better from an income perspective. With 2 months to go in 2018 I anticipate CDN ~$14,000 and USD ~$17,500 in dividend income for the year.

The ‘Side Accounts’ generated CDN ~$900 and USD ~$255 in October bringing YTD dividend income to CDN ~$5,000 and USD ~$2,100. Forecasting the dividend income for the full year for the ‘Side Accounts’ is a bit more difficult process since I only started the ‘Side Accounts’ in March. April was the first month in which the ‘Side Accounts’ realized any dividend income and I have also been periodically adding investments to these ‘Side Accounts’.

A very quick back of the envelope calculation suggests that dividend income for 2018 in the 'Side Accounts' will likely end up at CDN ~$7,000 and USD ~$4,000.

In my September FFJ Portfolio update I indicated that with 3 months to go in 2018 I was cautiously optimistic I would reach my CDN $19,000 and USD $20,000 dividend targets for the year; it appears I will surpass those targets.

I mentioned earlier that I don’t get concerned about fluctuations in the value of our equity investments. As a result, I am really not lying awake at night concerned that the value of the Core holdings as at the end of October was CDN ~$23,000 and USD ~$46,000 less than as at the end of September.

The ‘Side Accounts’ reflect a rise in value of CDN ~$25,000 and USD ~$188,000 but this is because I made additional investments during the recent pullback. Without these additional investments I am certain the value would be lower than that reported in September. By how much? Don’t know. Don’t care.

I anticipate further volatility in the foreseeable future and have no intention of adding to the portfolio (other than via the automatic reinvestment of dividends) unless the value of high quality companies of interest to me experience a pullback.

Options

On the 'Options' front, the 4 $115 October 2018 covered call contracts I wrote on The J.M. Smucker Company (SJM) expired worthless. This means I get to keep my shares and the option premiums I received at the time I wrote the contracts.

I have 2 $115 November 2018 covered call contracts on Microsoft (MSFT) outstanding. If  MSFT remains below $115 for a few more weeks I will retain the option premiums and the MSFT shares.

The options premiums for the covered calls are relatively insignificant in the grand scheme of things.

That’s my roundup for October. Here’s hoping you made progress on your journey to financial freedom!

Note: Thanks for reading this article. Please send any feedback, corrections, or questions to [email protected].

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