It is with some sadness and a heavy heart that I bring to you this last quarterly dividend report. I had been making it a point to increase my dividend income and had been doing a good job of it this year, but circumstances have forced me to change direction. You see, the dividend stocks were in my retirement account which I am taking as a lump sum to pay off some outstanding tax debt. I will probably write more about that decision later.
So in preparation for the distribution, I did allow some of my stocks to get called out so the dividend income is a bit lower compared to last quarter. But had I not had to make this decision, I am sure that I would have been able to meet my goals for the rest of the year. At least that’s my story and I’m sticking to it.
You can see from the graph that the income was down from the first 2 quarters of this year. Like I said, I allowed SDRL and STX primarily to have some shares called away without buying those back which I would have done if the portfolio had kept going. But since I knew that I was arriving at this decision to liquidate, I just went with the cash and have been totally in cash since mid-September.
Nevertheless, I think it was a good experience to focus on dividend income over the past 12 months. This is exactly what I will need to do someday when I retire, namely wring cash out of my investments so that I don’t have to tap into the principal.
Now, my focus will be to eliminate a bunch of other debt so that I can aggressively invest and put together a nice portfolio of cash spewing assets. But for now, I think debt elimination will provide a better return on my investment since the interest rates are high enough and the savings are all tax free. So that’s where I will be putting my energies which means that you can be looking forward to debt reports. Yippee!
Seagate Technology (STX) is one of the stocks that I am holding in my retirement account. I purchased it as part of my focus on dividends since it had a 4% yield at the time. The stock increased in price and I ended up selling it in late June for a 23% annualized profit. But I immediately repurchased it again and instituted my hedging strategy since I still fell like the stock had some decent potential for further gains.
Well this week, STX reported earnings. It seemed at first like investors were going to be disappointed as the stock had opened down over 5% from above $30 per share to the mid-$28 range. But gradually, the stock began to improve and closed right at $30 per share even though the broader market was down for the day.
Why the Strength?
Well in addition to reporting earnings and giving a somewhat disappointing outlook, Seagate announced that they were increasing their dividend from $0.25 per share to $0.32 per share! Assuming that the dividend remains at that level for the next year, the yield on the stock at $30 per share is just over 4.2%. I think that investors may have figured that out and realized that maybe it is worth the investment to get a decent return with the potential for some capital gains.
Now if you are like me, then you can have your dividends and hedge the stock also. Right now, I am sitting on protective puts at $25 and $27 per share with outstanding calls at $28 and $30. My basis for all the shares I own are $27.16. If STX remains above $30 per share for the next eleven trading days, then they will all be called away at an average of $29 giving me a $1.84 profit. Plus I will get the dividend since the ex-dividend day is August 10th.
It is possible that my $28 strike calls could get exercised before then if someone wants to try and capture the dividend. However, they would have to make sure that it is worth it when compared with the price paid for the option and the amount of capital required to exercise. Even so, I would still have a profit at that price.
I was encouraged to see that the dividend seemed to help stabilize the stock and provide a floor for the shares. Of course, it isn’t that surprising since a significant portion of historical stock market return can be attributed to dividends. It only makes sense that stocks of companies that return money to shareholders would be in demand and perform well over time.
I am really excited to write this dividend income report especially after having put together the numbers. As you know (or maybe you don’t), it has been my goal to increase the dividend income coming into my retirement account and get familiar with dividend investing as a prelude to retirement. It has been my belief that I shouldn’t be saving with the goal of living off my savings when I retire. Rather, I plan on investing in assets that produce income and living off that income.
My goal for the first quarter was $1500 which I was able to meet. For this quarter, that amount was increased by $300 meaning that I was supposed to make $1800 during these past 3 months. I planned on being able to increase the dividend payments because I am moving from stocks that don’t pay dividends to stocks that do and increasing the amount that I have invested in those stocks by selling covered calls and using the proceeds to buy more stock.
First, check out the graph of the results:
As you can see, there has been a great increase since making a conscious effort to focus on dividend income. You can also see that I met my goal of $1800 for the quarter. In fact, I crushed it with $2143.23! That is over $700 per month in passive income during a time when the stocks in my portfolio didn’t do all that well.
But it really doesn’t matter if the stocks do very well or not. When it comes to retirement income, I am looking for solid companies that will be sending out a steady income stream. I just need to make sure that the worst case scenario (company bankruptcy) doesn’t hurt the portfolio too much. Otherwise, I should expect some ups and downs in the value of the portfolio, but consistent dividend payments.
Now this quarter, I have a goal of getting $2100. It seems like that should be pretty easy, but I did get two dividend payments from Silver Wheaton during the quarter (not exactly sure why) and an extra small dividend from Seadrill. Those payments will have to be made up with additional shares. But I did add some Nucor stock which should help with that. I am fairly confident that I can make it to my next target.
I can’t wait for the next report!
- Summertime is dividend time, research shows (mysanantonio.com)