OXLCZ - The Retiree's Dividend Portfolio Jane's April Update: Risk-Free Rates Are Looking Very Attractive

2023-05-13 09:00:00 ET

Summary

• Jane's retirement accounts generated a total of $2,575.73 of dividend income for April 2023 vs. $2,205.33 of dividend income for April 2022.
• Jane's Traditional IRA had a balance of $422.7K as of April 30, 2023, vs. $431.8K on April 30, 2022. The estimated annualized dividend yield is 5.52%.
• Jane's Roth IRA had a balance of $201.5K as of April 30, 2023, vs. $206.1K on April 30, 2022. The estimated annualized dividend yield is 5.37%.
• A total of four companies paid an increased dividend or issued a special dividend during the month of April.
• We make a shift of cash to Schwab Value Advantage Money Fund SWVXX for a better yield on excess cash.

For those interested in a more recent look at the market and potential investment ideas you can find that update at the end of the article.

One thing that, I believe is worth noting before jumping into Jane's April performance is that we continue to trim back position in favor of cash to be placed in certificates. We also have another option after one of my regular's commented about the Schwab Value Advantage Money Fund ( SWVXX ). The benefit of this fund is that it allows me to maintain liquidity and to also earn additional yield for our retirees. We previously used this fund prior to COVID when interest rates were finally starting to climb but it fell off my radar since then.

As I mentioned already, the Watchlist article link at the end of this also mentions that I am looking to shift some holdings into TLT and TFLO.

TLT is the long-term play that would benefit most from rates stabilizing or decreasing since the fund is based on the 20+ Year Treasury Bond while TFLO will benefit from rates continuing to increase and limit the potential downside if rates decrease since it's a floating rate fund and boasts a convexity of 0.00 so the principal protection of the bond is something that isn't a major concern.

Until we see a true indication of recession, which includes flattening interest rates we plan to use TFLO. We haven't initiated any positions yet, but I will be working on an article for TLT and TFLO because I want to make sure I do my due diligence since bond funds are not my primary area of expertise. Even without a lot of expertise in this area, it's not difficult to see that Risk-Free Rates are looking very attractive.

Background

For those interested in John and Jane's full background, you can find at least three articles a month published for the last five years detailing the performance of their portfolio. I have continued to evolve the report over time by adding and removing information/images to make the updates more useful to the average investor. Here are the key details that should be understood when reading these updates.

• This is a real portfolio with actual shares being traded. This is not a practice portfolio which is why I include screenshots from Charles Schwab to document every change that is made.
• I am not a financial advisor and merely provide guidance based on a relationship that goes back several years.
• John retired in January 2018 and has collected Social Security income as his regular source of income. John also currently withdraws $1,000/month from his Traditional IRA.
• Jane retired at the beginning of 2021 and decided to begin collecting Social Security early and has not made any withdrawals from her retirement accounts yet.
• John and Jane began drawing funds from the Taxable Account in 2022 at $1,000/month. After speaking with them this amount has been increased to $1,700/month. This withdrawal is still covered entirely by dividend and interest income.
• John and Jane have other investments outside of what I manage. These investments primarily consist of minimal-risk bonds and low-yield certificates.
• John and Jane have no debt or monthly payments other than basic recurring bills such as water, power, property taxes, etc.

The reason why I started helping John and Jane with their retirement accounts is that I was infuriated by the fees they were being charged by their previous financial advisor. I do not charge John and Jane for anything that I do .

The only request I have made of John and Jane is that they allow me to publish their portfolio anonymously because I want to help as many people as I can while holding myself accountable and improving my thought process.

I started this series to address issues I have had when reading other authors with similar types of updates (I am not saying they are wrong but I found myself questioning their actual performance because they never provided enough information to cover loose ends).

Here is my promise to readers:

• I aim to give as much information as needed so readers can feel confident that what I do is real.
• Even if you agree the results are real this does not mean I expect you to agree with me and I will always answer constructive criticism whenever possible. I will respond with the same genuine intent that the question was asked with.
• I am very transparent about the portfolio and consistency is a significant goal of mine. All of my data points (unless noted otherwise) are derived from month-end statements from Charles Schwab. Even when things aren't looking great (Spring 2020 for example) you will know because I provide enough information that it would be impossible for me to manipulate.
• This article is not intended to be advice or a call to action and is for informational purposes only (I am not a financial advisor and I don't claim to be one). My goal is to challenge conventional thinking and empower you to take control of your investments (if that's something you want to do).

While many authors require paid subscriptions to see their portfolio, I do not want to go that route and will continue to publish this series for free as long as there is enough interest to make it worth my time (and I spend A LOT of time on these articles).

Generating a stable and growing dividend income with an emphasis on capital preservation has become the primary focus of this portfolio. I am least concerned about capital appreciation which is why the decisions made will seem pretty conservative most of the time. I may measure the performance of the portfolio relative to indexes and ETFs but the key metric I am focused on is delivering a more stable source of cash flow to John and Jane over time that allows them to live a comfortable retirement that includes minimal stress related to finances.

Dividend Decreases

No companies in Jane's Traditional and Roth IRA accounts eliminated or reduced their dividend during the month of April.

Dividend Increases

Four companies paid increased dividends/distributions or a special dividend during the month of April.

• EOG Resources ( EOG )
• Essex Property Trust ( ESS )
• Realty Income ( O )
• W. P. Carey ( WPC )

O and WPC were covered in the Taxable Account update. I will only include information about the dividend increases associated with these. Those interested in reading the summary of these two companies can check the links at the end of the article.

EOG Resources - The dividend received is the first payout from EOG since shares were purchased. Unfortunately, the dividend received did not include the additional $1/share special dividend because this was payable in March using a holding date that took place prior to the shares being owned. So, to be clear, the dividend paid in April was not an increase but there was a special dividend paid on March 30th that was not noted in last month's update!

Q1-2023 earnings were very strong even though average crude and natural gas prices were down 20% and 35%, respectively. EOG was able to make up for this by increasing volume by 7%. This resulted in an EPS of $3.45/share compared with $.67/share in Q1-2022.

We originally established a position in EOG at $110/share and would look at doubling the existing size of the position at $100/share.

EOG issued a special dividend of $1.00/share payable on March 30th for those who owned shares prior to March 16th. Jane did not receive this dividend but I wanted to include this for additional information.

Essex Property Trust - The dividend increase marks the 29th consecutive year of dividend increases and the most recent earnings report on April 27th shows no signs of issues with an estimated FFO for FY-2023 of $14.59-$14.97/share. With the annual distribution now at $9.24/share this means that the payout ratio at the high end of guidance could be as low as 61.7%.

The main concern with ESS is that the portfolio it maintains is heavily weighted on the West Coast.

REITs are not known for making significant share buybacks but one thing I like about ESS management is that they seem very thoughtful about when to pull the trigger on buying back shares. Over the last five years, ESS has taken advantage of significant pullbacks in share price in early 2020 and again currently to buy back shares at a significant discount. We continue to maintain open-limit trades to buy small quantities of shares if the stock price pulls back to $200/share.

The dividend was increased from $2.20/share per quarter to $2.31/share per quarter. This represents an increase of 5% and a new full-year payout of $9.24/share compared with the previous $8.80/ share. This results in a current yield of 4.26% based on the current share price of $216.98.

Realty Income - The dividend was increased from $.2545/share per month to $.2550/share per month. This represents an increase of .2% and a new full-year payout of $3.06/share compared with the previous $3.054/ share. This results in a current yield of 4.92% based on the current share price of $62.37.

W. P. Carey - The dividend was increased from $1.065/share per quarter to $1.067/share per quarter. This represents an increase of .2% and a new full-year payout of $4.26/share compared with the previous $4.268/ share. This results in a current yield of 5.90% based on the current share price of $72.60.

Retirement Account Positions

There are currently 37 positions in Jane's Traditional IRA and 21 in Jane's Roth IRA. While this may seem like a lot, it is important to remember that many of these stocks cross over in both accounts and are also held in the Taxable Portfolio.

Below is a list of the trades that took place in the Traditional IRA during the month of April.

Below is a list of the trades that took place in the Roth IRA during the month of April.

For those interested in trades, we currently have open and potential investment ideas you can check out my Watchlist articles that I am trying to publish at least every other week. I will include a link to the most recent article I published at the end of this article.

April Income Tracker - 2022 Vs. 2023

We are starting with a clean slate for 2023 and with all of the expected dividends (based on currently owned shares and announced dividend payments) the account is set for modest growth in the Traditional IRA and a slight decrease in the dividend income generated by the Roth IRA. Similar to the Taxable Account, the number of special dividend payouts in 2022 increased the yield of the portfolio at a faster pace (16.9% and 29.6% growth, respectively). While it's possible we could see more special dividends in 2023 I think it's more likely that executive management will focus on deleveraging or stock buybacks in most cases.

The Traditional IRA is expected to generate an average of $1,692.22/month of dividend income in 2023 compared to the average monthly income of $1,619.80 generated in FY-2022. The Roth IRA is expected to generate an average of $758.92/month of dividend income in 2023 compared to the average monthly income of $768.10 generated in FY-2022.

Once dividend increases are factored in and the additional interest income from CDs or money market holdings, I expect we will see a very light increase in dividend income of around 3-4%.

At this point, Jane has decided she will not be making any withdrawals from these accounts which means that the dividends will be collected as cash and potentially reinvested.

SNLH = Stocks No Longer Held - Dividends in this row represent the dividends collected on stocks that are no longer held in that portfolio. We still count the dividend income from stocks no longer held in the portfolio, even though it is non-recurring. All images below come from Consistent Dividend Investor, LLC. (also referred to as CDI as the source below).

The tables below represent which companies paid dividends in April and how that income source has changed compared to the same month of the previous year.

The table below represents all income generated in 2022 and collected/expected dividends in 2023.

Below gives an extended look back at the dividend income generated when I first began writing these articles. I find this table to be most useful when comparing how dividend income has improved for a specific month over the course of six years.

The balances below are from April 30, 2023, and all previous month's balances are taken from the end-of-month statement provided by Charles Schwab.

The next image is also pulled from the end-of-month statement provided by Charles Schwab which shows the cash balance of the account.

**Please note that cash balances may fluctuate based on CD renewal dates and the use of SWVXX because I only count the cash that is 100% liquid. There were larger fluctuations in 2019 and 2020 that we the result of deposits and withdrawals being made. There will be no contributions made into either account in 2023 now that Jane is no longer working.

The next image provides a history of the unrealized gain/loss at the end of each month going back to the beginning of January 2018.

I think the table above is one of the most important for readers to understand because it paints a story of volatile markets and why we employ the strategy of generating consistent cash flows to overcome the uncertainty of the market. If we were dependent on selling shares to generate income for John and Jane's retirement, they would have to be much more considerate of when they withdraw and how much they choose to withdraw.

For example, a withdrawal in 2020 where shares must be sold would destroy more value by locking in losses or poor performance by stocks being sold compared to making the same withdrawal in 2021.

In an effort to be transparent about John and Jane's Taxable Account, I like to include an unrealized Gain/Loss summary. The numbers used are based on the closing prices from May 10, 2023.

It is worth noting in the table above that the yield column is most accurate at the start of the year but if I reduce the size of positions, it may inflate the yield because it is based on how much dividend income is collected. At the same time, it may report excessively low dividends for positions added or significantly increased at the end of the year.

Conclusion

We have been talking about non-equity investments for a while and the part that makes investments look so interesting is that the Risk-Free Rate has reached levels where it can provide a level of return for investors that exceeds the dividend yield of many equities but does it without risk to the principal of the investment.

This doesn't mean we are abandoning equities, it just means that, unlike the last decade, it actually makes sense to pull chips off the table because equity investments no longer offer an advantage now that the opportunity for capital appreciation is limited at best. We will continue to reallocate the portfolio like we normally have over the last six years but readers can expect to see an increase in cash and cash equivalent balances (CDs & SWVXX) over the next several months.

April Articles

I have provided the link to the most recent Watchlist article referenced at the beginning of the article as well as the article for the April 2023 Taxable Account.

Undervalued Dividend Stocks Watchlist - May 8th Update

The Retirees' Dividend Portfolio : John And Jane's April 2023 Taxable Account Update

In Jane's Traditional and Roth IRAs, she is currently long the following mentioned in this article: AbbVie ( ABBV ), Agree Realty ( ADC ), Agree Realty Preferred Series A ( ADC.PA ), Archer-Daniels-Midland ( ADM ), Broadcom ( AVGO ), Avient ( AVNT ), Bank of America ( BAC ), BlackRock Health Sciences Trust ( BME ), Bank of Nova Scotia ( BNS ), BP ( BP ), British American Tobacco ( BTI ), Canadian Imperial Bank of Commerce ( CM ), Cummins ( CMI ), Concentrix ( CNXC ), Digital Realty ( DLR ), Eaton Vance Floating-Rate Advantage Fund A ( EAFAX ), Enbridge ( ENB ), EOG Resources, EPR Properties Preferred Series E ( EPR.PE ), Eaton Corporation ( ETN ), East West Bancorp ( EWBC ), Essex, General Mills ( GIS ), GasLog Partners Preferred C ( GLOP.PC ), Honeywell ( HON ), Iron Mountain ( IRM ), Lexington Realty Preferred Series C ( LXP.PC ), Lumen Technologies ( LUMN ), LyondellBasell ( LYB ), Main Street Capital ( MAIN ), 3M ( MMM ), Altria ( MO ), NextEra Energy ( NEE ), New York Community Bank ( NYCB ), Realty Income ( O ), OGE Energy Corp. ( OGE ), Oxford Lane Capital Corp. 6.75% Cum Red Pdf Shares Series 2024 ( OXLCM ), Philip Morris ( PM ), PPG Industries ( PPG ), PIMCO Corporate & Income Opportunity Fund ( PTY ), Cohen & Steers REIT & Preferred Income Fund ( RNP ), Royal Bank of Canada ( RY ), Schwab Value Advantage Money Fund, TD SYNNEX ( SNX ), Toronto-Dominion Bank ( TD ), T Rowe Price ( TROW ), Unilever ( UL ), UMH Properties ( UMH ), Verizon ( VZ ), Williams Companies ( WMB ), W. P. Carey.

For further details see: