OXLCL - The Retiree's Dividend Portfolio Jane's February Update: SVB's Failure Presents Opportunity

2023-03-18 09:00:00 ET

Summary

• Jane's retirement accounts generated a total of $1,846.54 of dividend income for February 2023 vs. $1,331.63 of dividend income for February 2022.
• Jane's Traditional IRA had a balance of $427.1K as of February 28, 2023, vs. $430.5K on February 28, 2022. The estimated annualized dividend yield is 5.32%.
• Jane's Roth IRA had a balance of $204.4K as of February 28, 2023, vs. $215.3K on February 28, 2022. The estimated annualized dividend yield is 5.22%.
• Three companies paid an increased dividend or issued a special dividend during the month of February.

Watchlist

We are off to the start of an interesting week and it might come as a shock to my readers but I have added a few financials to the list, one of which, is currently held in Jane's Retirement Account. Fear has clearly set in and is now impacting the financial sector, including financial institutions that don't have the kind of exposure to Silicon Valley Tech Companies and the Cryptocurrency market.

I think the most actionable thing that the average investor needs to keep in mind is that a major driver of fear comes from the FDIC insurance cap of $250,000. For commercial clients who have large sums of money (we are talking millions of dollars) there has been a major awakening to the kind of risk created by keeping all of their eggs in one basket (or at least too many eggs). With this said, the FDIC has essentially guaranteed that depositors will be able to access all of their funds which will set an interesting precedent if more banks happen to fail.

For those who have a higher risk tolerance, there are major risk/high-reward scenarios that have developed since the end of last week. I acknowledge that these articles are focused on retirees and so I expect very few people in my readership audience will want to consider investing in the three banks that were added to the watchlist.

• East West Bancorp ( EWBC )
• First Republic Bank ( FRC )
• PacWest Bancorp ( PACW )

Jane maintains a position in EWBC but I reduced the size of this position from 100 shares to 25 shares on Friday because of the overwhelming downside risk that existed. EWBC is a solid financial institution but it does have a significant amount of commercial deposits on hand. With that said, the CEO reiterated that EWBC has no direct exposure to cryptocurrency and venture-capital deposits make up $1 billion of the $55.3 billion of deposits on hand as of March 10. EWBC also maintains a common equity ratio of 8.7% and a total capital ratio of 14% - both of which far exceed regulatory requirements. Lastly, EWBC currently has an unused borrowing capacity of $28 billion (approximately half of the total deposits on hand).

March has been a very busy month for Transactions with a number of buys and sells. On Monday we took advantage of the fear-pricing that drove EWBC below $40/share and increased the position from 25 to 50 shares. The screenshots below indicate the other trades that have been made so far this month. The first image represents the Traditional IRA and the second image represents the Roth IRA.

Of the three financials added to the list I rank EWBC as the least risky and most stable, so even if fear is bringing it down I see it as a compelling investment that will weather the storm.

Valuation

Dividends

Debt Profile

Watchlist Conclusion

It is likely that I will spin the Watchlist section into its own article along with the trades made for that week. I want the watchlist section and the trades shown above to be delivered relatively quickly for readers since this contains actionable information. My John and Jane series still contains invaluable information but these articles are recaps and often the actionable moment has passed by the time I publish an article 30-60 days later.

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 February.

Dividend Increases

Three companies paid increased dividends/distributions or a special dividend during the month of February.

• AbbVie ( ABBV )
• American Tower ( AMT )
• East West Bancorp ( EWBC )

At the beginning of the article, I discuss some of the details concerning EWBC and how the risk of liquidity is something that I am not concerned about in the same way that other banks have major risk factors. Because this was discussed above I am only including a summary of the dividend increase.

AbbVie - I have previously written that I typically defer to closed-end funds or ETFs when it comes to pharmaceutical exposure. The challenge with pharma is that there are a lot of risks when it comes to breakthrough drugs, the FDA, and all of the hypotheticals in between. One reason that Jane holds a large position in ABBV is that the company has been consistent about its shareholder-friendly practices and that it has been able to grow revenue and net income at a healthy pace through acquisitions and product development.

ABBV is fully valued in my opinion because there is uncertainty regarding the expiration of its patents on the drug Humira which has been a major source of revenue. In the short term, I expect there to be some headwinds but ABBV does have a strong pipeline which will help offset the lost revenue.

The dividend was increased from $1.41/share per quarter to $1.48/share per quarter. This represents an increase of 5% and a new full-year payout of $5.92/share compared with the previous $5.72/ share. This results in a current yield of 3.90% based on the current share price of $151.95.

American Tower - We have been steadily building the position in AMT and using the price volatility as a way to add shares when the price is low and then sell off some of the high-cost purchases to reduce the risk of being too far underwater. AMT's competitor Crown Castle ( CCI ) is also on the watchlist but right now I like AMT better when the when shares are under $200. AMT currently carries a 60% payout ratio compared to 81% for CCI which means that their ability to continue growing the dividend looks better moving forward.

The dividend was increased from $1.47/share per quarter to $1.61/share per quarter. This represents an increase of 6.1% and a new full-year payout of $6.44/share compared with the previous $5.88/ share. This results in a current yield of 3.18% based on the current share price of $199.83.

East West Bancorp - EWBC is one of the new companies added to the watchlist. I'll keep my write-up short because the introduction in the watchlist discusses recent trades pretty in depth. Excluding recent events, the most recent earnings report carried a strong earnings beat and revenue growth. With a payout ratio of 20%, it's very understandable why EWBC can issue such a large increase in quarterly dividends. Even with the impact of COVID, EWBC has more than doubled its dividend since 2018. I still rank EWBC as a buy under the $60/share range and think that it was unfairly characterized as a higher risk even though it maintains significant levels of liquidity.

The dividend was increased from $.40/share per quarter to $.48/share per quarter. This represents an increase of 20% and a new full-year payout of $1.96/share compared with the previous $1.60/ share. This results in a current yield of 3.71% based on the current share price of $57.38.

Retirement Account Positions

There are currently 38 different positions in Jane's Traditional IRA and 22 different positions 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 February.

I highlighted additional trades for EWBC back in early February because I previously set limit sales to reduce the size of the position if the share price reached $80/share. This was a lucky sale in the context of recent events because I viewed the stock as fully valued at $80/share which was the main reason why we added this trade.

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

February 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 slight 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 $1,677.07/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 $741.36/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 I expect we will see a very light increase in dividend income of 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 February 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 February 28, 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 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 March 14, 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 will continue evolving the Watchlist section and making changes that add more value. I have mentioned in previous articles that my goal is to provide a watchlist article during the middle of the week thus separating them from the John and Jane account updates. The goal is to make the Watchlist something that is actionable and includes potentially recent trades (if applicable) while the John and Jane series remain a review of the previous month and overall strategy.

Jane's portfolio has very little exposure to the chaos created by SIVB controversy and even though we do not focus on day trades we did decide to reduce our position in EWBC on March 10th because we were concerned about the impact fear would have on the stock and then repurchased some shares on March 13th when they reached a low point. We got lucky that we set a limit trade that was executed in early February at $80/share because this locked in significant gains.

February Articles

I have provided the links to the 2022 Year-End Review Article and February 2023 Taxable Account below.

The Retirees' Dividend Portfolio : John And Jane's February 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 ), EPR Properties Preferred Series E ( EPR.PE ), Eaton Corporation ( ETN ), East West Bancorp ( EWBC ), General Mills ( GIS ), GasLog Partners Preferred C ( GLOP.PC ), Honeywell ( HON ), International Business Machines ( IBM ), 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 ), NetApp ( NTAP ), 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 ), TD SYNNEX Corp. ( SNX ), STORE Capital ( STOR ), Toronto-Dominion Bank ( TD ), T Rowe Price ( TROW ), Unilever ( UL ), UMH Properties ( UMH ), Verizon ( VZ ), Williams Companies ( WMB ), W. P. Carey ( WPC ).

For further details see: