Dividend Portfolio Update

This is my dividend portfolio update article series.  I like to highlight a few facts and figures from the month.  I’ll share my income, any portfolio changes, any dividend increases (or cuts) and anything interesting that I feel to talk about.

Highlights

  • I received $199 in dividend income during April
  • I purchased shares of Public Storage as my only portfolio change in April
  • Four holdings increased their dividend during the month
  • Enjoyed a lovely week at Disney World

 Dividend Income

Derek's dividend income for 2017

This is a snapshot of my dividend income thus far this year.  You can always check my live portfolio here.

April was a small step back in terms of my progress, which is OK and in fact it’s not a sky is falling moment.  JP Morgan ended up paying their dividend on May 1st and not in April so it will fall into the May bucket.  I also no longer own Wal-Mart shares.

Income Snapshot

dividend growth year over year

I keep track of three different cuts of dividend growth data.  The first is a year over year quarterly view.  The second tracks year over year monthly dividend growth.  The last tracks my year over year forward looking income.

In Q1 of this year, I experienced a 61% year over year dividend growth.  It’s coming off a much smaller amount, I am curious to see how next year’s number look.  2016 was still the year I was rapidly growing my portfolio so that comp was easy to beat.

Thus far this year, my monthly dividend growth year over year has been astounding as well.  That should be no surprise as my quarterly growth was fantastic.  In April I gained nearly 88% more dividends in 2017 than 2016.

Finally, my forward looking income view.  I calculate my forward looking income by taking all the dividends declared by company, multiplying them by the shares I own (I reinvest all dividends) and finally summing those values together.

That number is always on a bit of a lag, reinvested shares will generate their own dividends quarter after quarter.  Secondly, a particular company may not have announced their yearly raise which of course would understate the real income.

That said, right now, just in May, I’ve already increased my income by about 9% over the end of 2016.  I believe this sort of rate is sustainable for the long term.

Public Storage

Public Storage ended up being my only portfolio change over the month.  In general, I’m not seeing too many reasonable valued opportunities.  That is especially true of dividend paying companies as they have been generally bid up during this bull market.  Public Storage had been on my radar for a while, there is a lot to like about the company.

The business model has been steady and has created a long term market beater.  People are always moving or always need to store their belongings temporarily.  Storage facilities are very low maintenance which keep cost of operations low.

While the yield for a REIT is low, the current 3.8% yield is higher than most other stocks today.  This is especially true for a high caliber stock, one that carries an A credit rating from S&P.  Public Storage is an odd REIT in the sense that they fund future growth by issuing preferred dividends and very little debt.  Most other REITs issue much more debt and subsequently carry much lower credit ratings.

I purchased 17 shares at an average cost of $210.82 and initially it should generate me $136 in yearly dividend income.

F.A.S.T Graphs

fast graph for public storage showing reasonable valuation

The blue line on the chart above represents the historical average value for whichever metric you are looking at.  For a REIT, the P/AFFO (Price to Adjusted Funds From Operations) metric is the best to look at.  Consider it the P/E ratio for a REIT.  Due to the accounting rules associated with REITs, earnings themselves are volative and don’t capture the cash generated by the underlying business.

Over the timeframe available (9 years), Public Storage typically trades at a P/AFFO ratio of 23.  You can see the stock price (black line) trade very much in sync with that 23 value for most of the time frame.  It was only during 2015 that the stock price became decoupled with the underlying business.

It took until recently for the stock price to come back in line with historical norms.  With the future being inherently unknowable, this represented a reasonable valuation to me.  It’s a quality business and I’m willing to pay approximately what it has historically traded at.

Dividend Increases

Dividend increases are one of my favorite experiences as an investor.  You get a raise just for holding shares and get to share in the success of a growing business.

In April, four of my holdings raised their dividends

  • Traveler’s by 7.4%
  • IBM by 7.1%
  • Johnson & Johnson by 5%
  • Omega Healthcare Investors by 1.6%

Disney World

Lastly, I spent a lovely week at Disney World with my family over my wife’s Spring Break.  There’s far too much to mention but this was not the Disney trip of yesteryear.  I have mixed feelings about my experience as a child, namely the extremely hot weather and long lines.

The Magic Band you receive as part of staying in the resort was astounding.  This one bracelet was your room key, ticket to the park, meal plan, credit card, photography linkage and also gave access to the rides when they were setup with FastPass.

Cinderella's castle at night during Disney trip

Conclusion

  • Current Total Balance: $213,294 (up from $209,454)
  • Current Cash: $10,325 (down from $12,058)

While the headline number was slightly lower than I expected, I still had a good month with my portfolio.  My holdings continue to give me solid dividend raises, much better than my raises at work!

I am very curious to see what my sustainable growth rate can be.  The three-headed monster as I like to call it:

  • Purchasing new shares generates income
  • Reinvested dividends generate income
  • Yearly raises generate even more income

I may be able to achieve 8-10% yearly growth over the long term with this plan.  I have a similar article posted on Seeking Alpha if you wish to view it here.  Let me know your thoughts in the comments section.

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