2023-12-21 09:00:00 ET
Summary
- The Fed was more dovish than expected, discussing future target rates and leaving the door open for an additional rate hike if needed.
- The Dividend Harvesting Portfolio finished up 7.53% on invested capital with a balance of $15,699.41, generating $24.43 in dividend income in week 146.
- The portfolio has experienced a nice rally and is generating weekly income, with a goal of mitigating downside risk and generating continuous dividend income.
Things went really well this week, as the FOMC meeting was more dovish than I expected. I was quite shocked at Jerome Powell's remarks, and while he kept the pause intact and left the door open for an additional rate hike if needed, he discussed in detail what the Fed target rate will look like several years into the future. Jerome Powell discussed how the Fed target rate is 4.6% in 2024, 3.6% in 2025, and 2.9% in 2026 based on individual assessments all Fed members took in September regarding the appropriate path forward. The market took the news the same way a fire would respond if Kerosene was poured on it as it rallied throughout the afternoon. The S&P 500 climbed 1.9% last week, while the Nasdaq appreciated by 2%. Ultimately, I think that the markets are going higher in 2024. As the cost of capital declines, businesses will likely allocate capital toward expansion and make purchases they were reluctant to make when rates were elevated. There is also over $6 trillion of capital sitting in money market accounts. These investors are most likely using money markets as a proxy for liquid capital to generate yield, and when the Fed starts to pivot, my prediction is that a substantial portion will flow back into the capital markets. Things are looking good for the Dividend Harvesting Portfolio, and I think that it's going to have a strong 2024, especially with a lot of the investments I made in areas that tend to do better in lower-rate environments.
After 146 weeks, I have allocated $14,600 to the Dividend Harvesting Portfolio series on Seeking Alpha. On a budget of $100 per week, I am building out an income-producing portfolio brick by brick. At the end of week 146, the Dividend Harvesting Portfolio finished up 7.53% ($1,099.41) on invested capital with a balance of $15,699.41. In week 146, a total of $24.43 in dividend income was produced, bringing the total amount of dividend income generated in 2023 to $936.99. This week I added to my positions in the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ), PIMCO Dynamic Income Fund (PDI), and Pfizer (PFE). SL Green Realty ( SLG ) reduced its dividend from $3.25 to $3, and Vornado ( VNO ) reinstated a lower dividend of $1.20. The combination of updating these two dividend changes, the allocated capital, and reinvested dividends increased my forward dividend income by $6.98 (0.54%) to $1,291.18, which is a forward yield of 8.22%. With 2 weeks left in 2023, I am getting extremely close to finishing the year with over $1,300 in forward dividends and having generated $1,000 of dividend income.
The overall performance of the Dividend Harvesting Portfolio since inception
The Fed meeting helped push the Dividend Harvesting Portfolio further into the black as it has experienced a nice rally from being in the red -$136.31 in week 141 to being up $1,099.41 just 5 weeks later. Since the portfolio's inception, I have grown the forward dividend income each week, and the Dividend Harvesting Portfolio has gotten to the point where it's generating weekly income. My immediate goals are to mitigate downside risk while generating a continuous flow of dividend income. The secondary goal is capital appreciation. I am not trying to beat the market, but if I were, I would be investing the allocated capital much differently. I am very bullish for 2024 and think that this portfolio will perform well as rates start to decline.
The Dividend Harvesting Portfolio dividend section
Here's how much dividend income is generated per investment basket:
- Equities $370.12 (28.67%)
- ETFs $286.06 (22.15%)
- REITs $266.34 (20.16%)
- CEFs $223.92 (17.34%)
- BDCs $150.75 (11.68%)
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 50 of 2023, I collected $24.43 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 $936.99, which is 190.93% of my total 2022 dividend income. I have collected 632 dividends, 118.57% 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. Now that I have exceeded $1,200 of forward dividend income, and November was my 1st month generating over $100 of dividend income, my next goal will be to generate 12 consecutive months of generating at least $100 in dividend income.
We're entering the home stretch of 2023, and with 2 weeks left, I am eager to see if December becomes the second consecutive month of generating at least $100 of dividend income. Things have really progressed, as the blue bars in the chart below represent 2021, the red bars represent 2022, and the gold bars represent 2023. I am excited to see where I end up for the year, and what this chart looks like this time next year. Sooner than later, this portfolio will generate $100 per month in dividend income, and I will be working on getting that number to $200. Eventually, I would like to have $1,000 per month coming in from these investments. Only time will tell, but for now, things are looking good.
The Dividend Tracker is indicating that it will be a light week for dividend income being generated this week, then a big week going into the new year. I am projected to generate roughly $97 of dividend income in December, so we will see how things play out. After this week is over, I am going to look at where I am for December and see if I can predict if I will exceed $100 or not.
Well, SLG continued to appreciate and fell dramatically back into the 60 - 69.99% range for generating new shares from their dividends annually. There are 29 positions that are generating at least 1 new share per year from their dividends on an annual basis, which will add $96.63 of additional forward income. I am not sure if I can get any other positions to cross over into the green sector before 2023 is over, but in 2024 I think there will be many positions that cross over. I can't wait to see what the compounding effects will look like over the next several years as more positions generate at least 1 share from their dividends on an annual basis.
The Dividend Harvesting Portfolio Composition
In week 146, REITs appreciated considerably off of the Fed news and now represent 21.6% of the Dividend Harvesting Portfolio. I am trying not to allocate capital toward REITs as hard as it is for me because I do want to keep a maximum 20% sector weight within the portfolio. I am committed to building the cash reserves further, and there is now $156.60 sitting in cash as I am trying to spend between $85 and $95 of the weekly $100. I may find a bond fund or a money market fund to keep the cash in. I need to look at where it sits and what the interest is since I am planning on not using it for a while.
Individual equities now represent 37.15% of the Dividend Harvesting portfolio while generating 28.67% of the dividend income. REITs, ETFs, CEFs, and BDCs make up 62.85% of the portfolio and generate 71.33% of the forward income. Over the next several months, I am planning on adding to financial and BDCs quite a bit as I think they are both going to have a strong 2024 and would like to establish attractive cost bases on my invested capital.
The percentages in the top-10 continue to decline as Verizon ( VZ ) is down to a 4.11% portfolio weighting. The top-10 are continuing to decline and represent less of the overall portfolio. I still think there are many good long-term investments at these levels, and I may grab another share of Altria Group ( MO ) before the year ends.
Portfolio Statistics
I am diving further into the top-10 holdings, and in this section, I am showing how much capital has been allocated, how many shares were purchased, the dividends generated, and every other statistic that I think is important. Currently, the top-10 holdings represent 33.49% of the portfolio. There has been $4,784.11 allocated across the top-10, which is now valued at $5,257.09 for an increase of $472.97 (9.89%). These positions are generating $426.67 of forward dividend income, which is an 8.92% yield on invested capital. SLG has been a great investment in this portfolio as I have allocated $225.74 toward the position and acquired 10 shares. The investment with dividends is valued at $450.40, and I am up 99.52%. This could be my best position, I will need to look at Exxon Mobil (XOM).
Week 146 additions
In week 146 I added to my positions in:
JPMorgan Nasdaq Equity Premium Income ETF
- Just like in week 145, I added to my position again in JEPQ
- After the Fed meeting, I felt that we're going into a risk-on scenario in 2024 and want more exposure to the Nasdaq. Since many companies in the Nasdaq either pay a small dividend or no dividend at all, JEPQ allows me to increase my exposure while generating monthly income.
- If we get a dip I will probably add to the position again
PIMCO Dynamic Income Fund
- PDI offers a 14.78% yield from an array of debt obligations and other income-producing securities. I think that a lower rate environment will push the net asset value ((NAV)) of PDI's assets higher, and I want to add to my position to lock in the yield on cost.
- I don't invest in bonds directly, and PDI provides me with an outlet to diversify into mortgage-backed securities, investment grade, and high-yield corporates, developed and emerging markets corporate and sovereign bonds, other income-producing securities, and related derivative instruments.
- I see a long-term opportunity over the next several years as PDI's underlying assets should become more attractive as the risk-free rate of return declines.
Pfizer
- PFE has been crushed as its declined by -47.21% YTD
- When I looked into the financials, I felt the balance sheet was strong, and despite lower revenue being generated from Covid vaccines, PFE is still a very profitable company, having generated over $10 billion in net income over the TTM.
- PFE increased its dividend again for the 13 th consecutive year, which backstopped shares around $26 in my opinion.
- I think PFE is a good long-term investment under $30 as it's yielding over 6%.
- I'll probably add to PFE again in the near future
Week 147 Gameplan
Week 146 didn't necessarily go as planned, considering that I wanted to allocate capital toward financials, but after the Fed meeting, they just continued to rally. This week I am leaning toward allocating capital toward the NEOS S&P 500 High Income ETF (SPYI).
Conclusion
The market got exactly what it wanted for the holidays from the Fed as it keeps going higher. I think this rally is going to have legs, and investors are going to be happy with how 2024 unfolds. While there were weeks when the Dividend Harvesting Portfolio was falling deeper into the red, the future looks much different. I think the Dividend Harvesting Portfolio is structured to benefit from declining rates, and it will appreciate throughout 2024. Looking at the charts below, the stream of dividend income continues to grow substantially as the powers of compounding are starting to really take effect. We are approaching week 150, so please leave your suggestions below as I will add a new position that the readers recommended. Stay safe and enjoy the holidays.
For further details see:
Dividend Harvesting Portfolio Week 146: $14,600 Allocated, $1,291.18 In Projected Dividends