BMO:CC - My Dividend Stock Portfolio: New August Dividend Record - 99 Holdings With 27 Buys

2023-09-14 08:10:00 ET

Summary

• S&P 500 and Dow Jones Industrial Average both saw slim positive returns in August.
• The Federal Reserve approved a quarter-point interest rate hike to combat rising inflation, with interest rates hitting a range of 5.25% to 5.5%.
• Net investments of around $1,800 in August, primarily targeting the financial sector and high-yielding BDCs.
• Dividend income hit an August record of $491, up 30% annually, with the goal of adding at least $100 in forward dividend income every month hit.
• Gifted Working Time in 2023: Around 207 hours or 25.9 days of active work have been replaced with passive income in 2023, equivalent to more than 5 weeks of work.

The S&P 500 gained 0.2% in August, bringing its YTD return to 19.72%. The Dow Jones Industrial Average increased 0.3% for the month and was up around 7.6% YTD. Both indexes reached record highs during the month.

The Federal Reserve approved a quarter point interest rate hike bringing the Federal Funds Rate to a range of 5.25% to 5.50% to combat rising inflation and signaled further rate hikes in September if inflation remains elevated. Inflation itself slowed down in July with the CPI increasing by 3.8% Y/Y and core inflation rising by 4.3% Y/Y. Given the strong performance of oil prices over the last couple of weeks I expect the next inflation numbers to be higher again and thus forcing the Federal Reserve to execute at least one more rate hike in this cycle.

There is still some doubt regarding a soft landing, but, in my opinion, there won't be any type of recession (at most a technical one) and if it will be as short-lived as the brief 2022 bear market in stocks, which, in my opinion, was also a non-noteworthy event.

Portfolio Changes in August

Investment activity in August remained on a very high level but still notably lower than July as I remained busy deploying dividends, income and capital earned in July as well as additional income from other sources. Unfortunately, the markets are pushing my favorite BDCs higher almost every single day, but there are still some 10%+ dividend yields available and ready to be taken. As a result, buying opportunities continue to fade, but even with lower yields, I still very much favor BDCs and won't stop buying.

Overall, net investments totaled around $1,745 with the majority of those purchases targeted towards the financial sector in general and high-yielding BDCs and other stocks in particular. I also decided to sell one share of NVIDIA ( NVDA ) prior to its earnings release as the run-up in its stock price was just too much for my comfort. And although the stock briefly rallied following its earnings release it has now come back a bit but still remains notably above $400. I may rebuy my share if the stock materially drops below $400.

My biggest purchase in August 2023 were several small transactions to acquire more shares of Ares Capital ( ARCC ) which remains my #1 dividend payer in the entire portfolio and will lead to record dividend income in September. Similarly, I made several investments into Hercules Capital ( HTGC ) and into NextEra Energy Partners ( NEP ), the latter getting hammered by the market and briefly approaching 8% yield territory.

I also continue to like Rithm Capital Corp. ( RITM ) and MidCap Financial Investment Corporation ( MFIC ). Most of the BDCs I am invested in are on fire this year easily outperforming the S&P500 while at the same time providing double-digit or close to double-digit yields.

Overall, I did manage to add $178 in forward annual dividend income this month, which brings YTD added annual dividend income to more than $1,100 already. My goal is to be able to add at least $100 in forward dividend income every month and as things are developing right now, this is a very reasonable and realistic target to achieve and overachieve as long as BDCs remain part of my asset allocation.

All these purchases break down as follows:

All net purchases in August can be found below:

Dividend Income August 2023

Dividend income hit a new all-time record for August of $491, up 30% annually and down 56% sequentially. Sequential performance is heavily impacted by several annual dividend payers in May 2023. Excluding those dividends increased by 4% on a sequential basis.

Given no special dividends this month, dividend income from my monthly dividend remains below $100 and hit $88 for the month. I am regularly buying Main Street Capital ( MAIN ), Realty Income ( O ), Gladstone Capital ( GLAD ) and Gladstone Investment ( GAIN ) and thus this figure will continue to gradually increase. In September the special dividend by MAIN will easily lift monthly income above $100.

Heavy investments into Hercules Capital over the last 12 months have pushed the stock to my #1 dividend payer position in August with dividend income eclipsing $88. On a Y/Y basis dividend income from Hercules increased from around $3 to now around $88 as I only started investing into the stock back in July 2022. As I consider BDCs the place to be right now and the main beneficiary of the current interest rate environment I will continue to add to this position and expect dividend income to exceed $100 in November.

The dividend income from my top 3 regular dividend payers in August continues to grow and has pushed the YTD average to $189 which is up from $147 for 2022.

All this is depicted below:

Here is a chart that shows the development of my net dividend income by month over time between 2015 and 2023. You can see the growth of my dividend income and the average annual dividend for each year:

This chart is my favorite because it illustrates the progression of my dividend income over time and allows me to easily see the average annual dividend for each year.

Next, I have plotted all of the individual dividend payments I have received, coloring them by year and arranging the years side by side instead of horizontally as in previous updates. This visualization allows for a more comprehensive analysis of the distribution of my dividend payments over time.

By plotting the data in this way, we can easily see the distribution of dividend payments across different years and gain insights into the overall growth of my dividend income over time.

This visualization is initially quite cluttered, but it contains a wealth of information. It shows every individual dividend payment I have received since I began my investment journey in 2015, represented as a circle that is colored and sized according to its contribution. The view is organized by month and year, allowing for a more comprehensive analysis of the development of my dividend income over time. For each year and month, a white rectangle indicates the average monthly dividend. The area where dividends fall below the average is filled in dark red, while the area above the average is colored dark green. I greatly prefer this redesigned version of my old "bubbles chart" because it makes it much easier to identify trends and developments in my dividend income. This type of data visualization allows for a detailed examination of the distribution of my dividend payments over time and enables me to more easily identify trends and patterns in my income growth.

Now zooming in on August , we can immediately see a number of big green circles in a sea of black. The bigger the circle and the bigger the distance to the previous circle for the same stock, the bigger is the change in dividend income compared to the prior years.

We can clearly see the dominance and significance of my top 3 payers, Hercules Capital, AbbVie and AT&T as they have a strong presence in the visual representation. We can also easily spot how dividend income from AT&T has plunged from the records set in 2019-2021 which was before AT&T massively cut its dividend.

Apart from that when it comes to the dividends for 2023, I notice mostly orange circles at the top of the scale, which is exactly what I want to see. These big orange circles represent a rising dividend income, and my goal is to have as many of them as possible at the top of the chart.

Overall, my aim is to observe numerous large orange circles positioned at the highest point on the scale. This signifies a positive trend of increasing dividend income, which is precisely what I'm striving for.

Another way to express the monthly dividend income is in terms of Gifted Working Time (GWT). Assuming an average hourly rate of $32.34 for 2023, my GWT and annual net dividends have been as follows:

• 2018: 121 hours GWT, $3,000 in annual net dividends
• 2019: 142 hours GWT, $3,600 in annual net dividends
• 2020: 152 hours GWT, $3,800 in annual net dividends
• 2021: 180 hours GWT, $5,050 in annual net dividends
• 2022: 229 hours GWT, $6,400 in annual net dividends
• 2023: Targeting at least 216 hours GWT, $7,000 in annual net dividends

I expect overall GWT to decrease in 2023 due to higher calculated hourly rates, as I project a 10% increase in the hourly rate due to inflation.

The overall target for the year with $7,000 in annual net dividends is very conservative, but I expect that I will have to take out some risk from my portfolio as mentioned above. Also, the stronger euro (I am receiving dividends in EUR and then converting those to USD at current exchange rates for these updates) will have adverse impact. Still, as the year unfolds, I expect to be able to pass that target and potentially even reach my next milestone of $8,000 as well. By the end of August 2023, my realized dividend income has been blowing away my expectations by several dimensions with YTD net dividend growth coming in at a sizzling and unsustainable 42% Y/Y (unchanged from July). That growth will certainly come down substantially as the year unfolds, but given I am only targeting a low single-digit growth rate, it is already clear that barring a major disaster I will easily achieve a double-digit growth rate in dividend income, which is fantastic and should thus easily smash my original target of $7,000 in annual net dividends.

Across the years, my YTD Dividend Race has been as follows:

• 2018: Disappointing
• 2019: Phenomenal, benefiting from a low baseline in the prior year
• 2020: Fairly disappointing
• 2021: Phenomenal
• 2022: Much better than expected fueled by the very weak euro
• 2023: Targeting a conservative low single-digit growth rate (the more likely scenario is now a 10-15% increase in dividend income, possibly even 20%+)

I have updated the YTD Dividend Race chart to show the development of YTD dividend income on a daily basis, allowing us to see that most of my dividend income is generated mid-month and towards the end of the month. The chart also breaks down the development by month for the current year, making it easy to identify significant jumps in income.

Expressed in GWT, it presents itself as follows:

What this shows is as follows:

1. All time (blue area) - Around 1,143 hours, or 143 days, of active work have been replaced with passive income since the start of my dividend journey. Assuming a five-day workweek, this translates into more than 28 weeks of vacation funded via dividends, which itself is equal to more than half a year in total.
2. Full-year 2023 (green bars) - Around 207 hours, or 25.9 days, of active work have been replaced with passive income in 2023 already, which is basically equivalent to five full-time working weeks funded with dividends, or to put differently, the YTD dividends have so far provided me with more than one extra monthly salary and if this trend continues, it will accumulate to over two monthly salaries by year-end even though the second part of the year is expected to be weaker than the first half due to the volume of annual dividend payers in Q2.
3. Highlighted in pink is the accumulated YTD total at the end of the current reporting month ( August ).

This visualization allows us to see the overall impact of my dividend income on the amount of active work I am able to replace with passive income. It also enables us to see the progress made year-to-date, as well as the accumulated total at the end of the current reporting month.

Upcoming September Dividends

With September marking the end of the quarter, this will traditionally be a strong month in terms of dividend income. Among others, further big dividend payers from my portfolio in March are Royal Dutch Shell ( SHEL ), BP ( BP ), McDonald's (NYSE: MCD ), Johnson & Johnson (NYSE: JNJ ), Southern Company (NYSE: SO ) and Ares Capital of which 4 companies are part of my regular monthly savings plans.

The snapshot below is taken from my free-for-all released Dividend Calendar (make sure to follow instructions in the video) and shows my expected dividend payments in September.

At the end of August, my dividend portfolio is composed as follows:

For further details see: