BBDC - Dividend Harvesting Portfolio Week 138: $13900 Allocated $1219.60 In Projected Dividends

2023-11-02 08:45:00 ET

Summary

• The markets experienced a difficult week with declines in major indices.
• The Fed interest rate decision is awaited, with expectations of a steady rate.
• The Dividend Harvesting Portfolio saw declines but remains focused on generating consistent cash flow through dividends.

This was another difficult week for the markets as the S&P 500 fell -1.91% and the Nasdaq declined by -1.82%. Core PCE increased 0.3% MoM, which was the largest jump in 4 months, and all eyes are now fixed on the Fed. On Wednesday 11/1 we will get the Fed interest rate decision at 2 pm followed by the Fed press conference at 2:30 pm, where I expect Jerome Powell to be overly hawkish once again. CME Group is projecting that there is a 99.9% chance that the Fed holds rates where they are, and their projection for December changed since I last checked, as there is now an 80.1% chance rates remain steady at the December meeting. We're facing a critical point, and the Fed doesn't have much room to thread the needle between their dual mandate of maximum employment and price stability. As geopolitical tensions add an additional dynamic to the macroeconomic environment, the Fed is being backed into a corner. We're going to have to wait and see what occurs, but I am not expecting a Santa Clause rally at this point and feel that the more likely scenario is that the markets will need to navigate choppy waters throughout the rest of 2023.

The Dividend Harvesting Portfolio took another hit this week as it slipped further into the red. This was the 5 ^th consecutive week where the balance remained under the amount of capital invested. After 139 weeks, I have allocated $13,900 to the Dividend Harvesting Portfolio, which finished the week down -5.8% on invested capital with a balance of $13,094.46. October is finishing strong as $8.77 of dividend income was generated from dividends this week, bringing the amount of income produced by the Dividend Harvesting Portfolio to $774.49 YTD. In week 139, I added 1 share to SL Green Realty (SLG), 2 shares to Ares Capital (ARCC), and 2 shares to Barings BDC (BBDC). The combination of these additions and reinvesting the produced dividend income increased my forward annual projected dividend income by $9.97 (0.82%) to $1,219.60. As the weeks progress I will continue adding capital as there are many long-term opportunities, in my opinion. We're headed into week 140, so please leave all of your suggestions in the comment section, as I will be adding a new position recommended by the readers of the Dividend Harvesting Series.

The overall performance of the Dividend Harvesting Portfolio since inception

This was another difficult week, and like many investors, I watched great companies sell off after beating the consensus estimates on their earnings. The Dividend Harvesting Portfolio experienced another week of declines, but I remain unfazed. I am not worried about the week-to-week movement, and fully expect the markets to remain choppy for the remainder of the year. The markets may even experience a difficult beginning to 2024 if we have a weak holiday season. I plan on continuing to add to my positions weekly, and whether it takes 6 months or 1 year for the Fed to become less restrictive and pivot, I believe the Dividend Harvesting Portfolio will continue to generate weekly income and be positioned to benefit when the market turns.

The Dividend Harvesting Portfolio dividend section

Here's how much dividend income is generated per investment basket:

• Equities $356.53 (29.23%)
• ETFs $263.22 (21.58%)
• REITs $249.82 (20.48%)
• CEFs $204.55 (16.77%)
• BDCs $145.48 (11.93%)

Collecting dividends can serve many functions in a portfolio. Some investors utilize dividends to supplement their income and live off of them. I'm building a dividend portfolio for myself 30 years into the future. In 2022, I collected $507.80 in dividend income from 533 dividends. In week 43 of 2023, I collected $8.77 in dividends, and in 2023, I exceeded the amount of income generated from dividends compared to 2022. In 2022, I generated $490.76 from dividend income, and in 2023, I generated $774.49, which is 157.81% of my total 2022 dividend income. I have collected 533 dividends, 97.75% of the total dividends generated in 2022.

These dividends allow me to gain additional equity in my investments while increasing my future cash flow in down markets. This style of investing isn't for everyone, but if you're looking to generate consistent cash flow while mitigating downside risk, this method has worked for me. I'm hoping to collect around $1,000 in dividends in 2023, which will be reinvested. I'm getting closer and closer to the $1,200 of projected dividend income on an annualized basis and will soon exceed a monthly average of generating $100 in dividends.

So far in October, I have generated $80.95 of dividend income, which is significantly larger than the $36.10 of dividend income generated last October. The Dividend Harvesting Portfolio is within $20 of having its first month of producing over $100 of monthly dividend income. The last days of each month are always heavy as many of the monthly ETFs and CEFs that are held within the portfolio distribute their income. I am excited to see where October finishes and how much dividend income is generated in 2023.

The Dividend Tracker is projecting that 19 positions will generate $19.32 in income for the remainder of October. This will put me right on the bubble for generating $100 of dividend income in October. November and December are also looking strong, as November has roughly $88.77 in dividend income being produced, with another $88.66 coming in December. As I add to some positions, these figures should increase.

I specifically added to SLG this week because I felt it was a good buy, and I needed another share to boost its dividend income into the green quadrant. As stocks declined, Kinder Morgan ( KMI ) and Arbor Realty ( ABR ) also found their way into the green quadrant but for the wrong reasons. All of the positions in the green quadrant in the table below produce at least 1 share annually through their reinvested dividend income. Eventually, every position in the portfolio will end up here, even if it takes 5 years. There are now 30 positions that are generating at least 1 new share annually, which adds $101.63 of new future annualized income from the reinvested shares.

The Dividend Harvesting Portfolio Composition

REITs are now 19.98% of the Dividend Harvesting Portfolio, and the main reason is that the sector continues to sell off. I plan on keeping an eye on my percentages as there are many REITs I want to add to, but I am going to do what I can to maintain its percentage of the Dividend Harvesting Portfolio to under 20% of the holdings. Individual equities comprise 38.99% of the Dividend Harvesting portfolio while generating 29.23% of the dividend income. REITs, ETFs, CEFs, and BDCs make up 61.01% of the portfolio and generate 70.77% of the forward income. As the remainder of 2023 progresses, I believe that I will be able to even out some of these sectors as I plan on adding more capital to individual equities, BDCs, and CEFs than REITs and ETFs.

The top 10 holdings continue to level off, and part of the reason is the market continues to sell off in many of the areas the Dividend Harvesting Portfolio is invested. While I have tried not allocating capital to the positions in the top 10, there are many opportunities, and over the next several weeks, I may be adding to a number of these positions. On the one hand, I am happy that none of the positions are approaching 5%; I just wish it was for reasons other than the markets declining.

Week 139 additions

In week 139, I added to the following position:

• SL Green Realty ( SLG ) 1 share
• Ares Capital ( ARCC ) 2 shares
• Barings BDC ( BBDC ) 2 shares

SL Green Realty

• The first reason I added to SLG was that I needed 1 more share to bump its dividend income up to the point where it was producing an additional share annually through its dividend income.
• SLG has a book value of $59.28 while shares are trading for $29.25, which means you're able to buy their portfolio of assets for a discount of -50.66% to book value.
• I read through their quarterly report and didn't feel that the results warranted a sell-off. I think that SLG is tremendously undervalued and that while shares may remain under pressure for an extended period, the tide will eventually turn as NYC is busy, and SLG has arguably the best commercial real estate portfolio in The Big Apple.

Ares Capital

• I recently wrote an article on ARCC going into earnings ( can be read here )
• ARCC is the largest BDC by net assets and market cap. ARCC had traditionally traded at a premium to its net asset value ((NAV)). I was able to add at basically a 1:1 ratio.
• I believe that ARCC still presents a strong opportunity to get a large yield on cost, and as the rate environment eventually tapers off and starts to decline, I think that BDCs will become more attractive.

Barings BDC

• I wrote a dedicated article about my thesis on BBDC last week ( can be read here ).
• BBDC is a much smaller BDC that is not popular among the BDC community. What I found interesting is that BBDC has significantly grown its investment income and the amount of income paid from its quarterly dividend for quite some time.
• I was able to add shares when BBDC traded at more than a -20% discount to its NAV and had a yield that exceeded 11%.

Week 140 Gameplan

In week 140, I will be adding a new position from the readers of this series, so please keep the suggestions flowing.

Conclusion

As 2023 winds down, the amount of forward dividend income rapidly approaches $1,250. While the portfolio has taken a hit the past month, it has done a good job of mitigating downside risk through its overly diversified positioning. I fully anticipate that the upcoming months will be choppy and will depend much on factors that are outside of our control, including Fed policy and geopolitical tensions. I will continue allocating capital toward positions that I feel are undervalued and present long-term opportunities. I am excited for the future, and while things are a bit rocky, ultimately, I think everything will work out well. Please leave your comments and suggestions below, and maybe your recommendation will end up in the Dividend Harvesting Portfolio next week.

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