Five months into the pandemic it seems that things have sort of normalized. The risk of a second major lockdown is very low despite tens of thousands of new cases registered each day. The NASDAQ is hitting one all-time high after another, the S&P 500 is about to hit a new high and Dow Jones has also recovered tremendously thanks to Apple (NASDAQ:AAPL) and Microsoft (MSFT) mostly.
Tech pandemic-play stocks like Zoom (ZM), The Trade Desk (TTD), Square (SQ), Tesla (TSLA), Shopify (SHOP), Fastly (FSLY), and Livongo (LVGO) are moving at least 3% a day – and most of the time it is up even though the ongoing earnings season has led to some wild movements in some of those stocks with parabolic moves like Fastly.
Meanwhile I got hit by two substantial dividend cuts from Wells Fargo (WFC) and BP (BP) lately which will show themselves in September. While that is detrimental to my dividend income at least short term I will sit these ones out and continue to add to these positions via monthly savings plans. And on top of that, you need to prepare yourself for the very real possibility that the Democrats will win the election and maybe even hold both chambers of Congress and, therefore, potentially take back the massive tax cut, which would add even more stress on dividend payout ratios.
Portfolio Changes in July
July was a slow month due to holidays where I was able to deploy $1,350 in net cash. The majority of purchases was again tied to my monthly investment plans, with the remainder attributable to select one-time purchases of Livongo Health and Intel (INTC) which were slightly offset by the trimming of my position in Dominion Energy (D).
Due to the nature of how the monthly investment plan process works, I am investing relatively equally into these stocks at two points of time during the month – at the beginning of the month and mid-month – which break down as shown below. Figures are in Euro and show that for instance at the beginning of the month I am investing between 50-75 EUR each into Microsoft, The Home Depot (HD), Visa (V), W. P. Carey (WPC) and BP. Mid-month I am adding between 33-40€ each into Stag Industrial (NYSE:STAG), AT&T (NYSE:T), NextEra Energy (NEE), TD Bank (TD), Main Street Capital (MAIN) and JPMorgan (JPM):
Source: designed by author
It will take a pretty long time (2-3 years) before most of these positions will have turned into at least a $1,000 investment, but I want to diversify broadly, have the patience to ride this out and see in what shape and form these companies will exist in 2022/2023 and beyond.
I added to Livongo following the company’s fabulous earnings report and the resultant selloff when it announced a merger with Teladoc (TDOC).
(Source: Livongo Investor Relations)
While both stocks have had an impressive run this year with the companies being leaders in their respective market segments, I am not happy about that deal as a Livongo shareholder, given that I would have preferred to see the company simply continue its great growth story and let the magic of compounding do the trick over the next years.
However, that completely ignores the fact that Livongo stock price had already more than quintupled in 2020 and, above all, the idea of what this new company could become one day.
Digitizing healthcare is, in my opinion, one of the biggest secular growth stories in at least this decade and by combining two largely complementary pioneers in the fields of virtual care, digital health and healthcare delivery. As such I am very committed to increasing my position in Livongo Health and later Teladoc Health over time.
I also bought a couple of shares in Intel after the stock collapsed double digits when Intel announced yet another delay in its 7nm roadmap. I am not a chip architect but as long as Intel is raking in multiples of AMD’s (AMD) profit and sales things can’t be so bad. Just because Intel lost the “Nanometer Games” does not mean it is losing sales and market share. For the end user it is pretty meaningless if the architecture is 7nm or 10nm. The architecture is just part of the final product and as long as Intel is selling its final products to OEMs and enterprises the way it currently does I have no real concerns here especially given the fact that Intel’s data center business is on fire.
All those purchases substantially raised forward annual dividend income – even though over the next quarters, not all of this is likely to be realized (the color indicates the degree of safety for the next 2 dividend payments based on my assessment) – breaking down as follows:
All net purchases in July can be found below:
Dividend Income: What Happened on The Dividend Side?
My dividend income from 36 corporations amounted to $298.11, up 57% Y/Y and up 23% sequentially. These big growth rates are partially driven by the delayed annual dividend payments from Daimler (OTCPK:DDAIF) and Vonovia (OTCPK:VNNVF) but even more so by a collection of new and growing positions in STORE Capital (STOR), W. P. Carey, Medical Properties Trust (MPW), Starwood Property Trust (STWD), Altria (MO) and the Canadian banks.
It will be very interesting to see how dividend income develops over the next 12 months. I am expecting significant declines in the energy, automobile, hospitality, REITs and financial sectors. I am getting more anxious about the potential sea change that COVID-19 could bring to retail and office REITs, as it is totally unclear whether, once the pandemic is over – which obviously will take a lot longer than expected given renewed and accelerating outbreak in the Americas and elsewhere – people will just return to their normal spending and dining habits or choose ecommerce and working and cooking at and from home. I don’t know, and that’s why I am investing more in the broad S&P 500 (SPY) now via index funds.
By looking at the development of the top 3 dividend payments in July from Altria, Bank of Nova Scotia (NYSE:BNS) and Cisco Systems (NASDAQ:CSCO), we can clearly see that over the last 4 yours the average amount of net dividends received in the months of January, April, July and October from these three companies has more than doubled as I have continually invested into these stocks throughout all these years.
And in relative terms the top 10 dividend paying companies in July has become much more homogenous compared to previous years with the top payer Altria now only commanding a 15% share compared to 20% in the previous year.
Here is a look at my favorite chart: the net dividend income development by month over time between 2015 and 2020, where you can easily see the development of my dividend income as well as the average annual dividend in a given year:
Next, I have scattered all the individual dividend payments I have ever received and colored them by year, rearranging the years side by side rather than horizontally as in previous updates:
This view looks very cluttered at first, but it is very rich in information. It shows every single dividend payment I have received since I started my journey in 2015 in the shape of circle colored differently by year and sized, based upon their contribution. The view is broken down by month and by year (not by year and by month), and thus allows to better see the development over time. For every year of a certain month, a white rectangle indicates the average monthly dividend. The area where dividends fall below that average is filled dark red, whereas the area above is colored dark green. Personally, I absolutely love this redesigned view of my old “bubbles chart,” as it is much clearer to identify developments and trends in my dividend income.
Now, zooming in on July we can immediately see that there is a number of green dots for 2020 with no past history. These include the delayed dividend payments from Daimler and Vonovia as well as the new positions in STOR, WPC and MPW which are already making quite an impact. Apart from that the top positions on the left are all showing increased dividends on a Y/Y basis which is what I would like to see even if the major drivers are new investments rather than organic dividend growth.
Another way to express the monthly dividend income is in terms of Gifted Working Time (GWT).
I am assuming an average hourly rate of $25.75 for 2020 here:
- In 2018, I generated 121 hours in GWT, equaling slightly more than $3,000 in annual net dividends.
- In 2019, I generated 142 hours in GWT, equaling almost $3,600 in annual net dividends.
- In 2020, I am targeting to reach $4,000 in annual net dividends, equaling roughly 155 hours in GWT. That was a rather conservative estimate, as it only reflects around 12% growth driven by organic dividend growth and new purchases. However, due to a series of dividend cuts already during this year, it will be interesting to see if and to what extent my new investments can offset them.
The view below shows YTD dividends for every year since 2015 – in this case, total net dividends for January for each year. The lower section depicts YTD Y/Y growth, i.e., as the year progresses, that green bar should creep up to at least 12%, so I will be able to hit my growth target. Right now, it stands at +8.5% (up from 4% as of end of June) due to the reasons mentioned above. As such, it is not really possible to say how I am trending Y/Y, as I am expecting more dividend cuts (most notably Wells Fargo, BP and the Commonwealth Bank of Australia) in future months but will also continue to see the impact of the heavy buying since March.
Expressed in GWT, it presents itself as follows:
What this shows is as follows:
- All time (blue area) – Around 466 hours, or 58 days, of active work have been replaced with passive income since the start of my dividend journey. Assuming a five-day workweek, that equals more than 11 weeks of vacation funded via dividends.
- YTD (green bars) – Around 91 hours, or 11.3 days, of active work have been replaced with passive income in 2020 already.
- Highlighted in pink is the accumulated YTD total at the end of the current reporting month (July) across each year.
Upcoming August Dividends
July is packed with dividend payment dates in the second half, and I am really looking forward to it. The snapshot below is taken from my newly and free-for-all released Dividend Calendar (make sure to follow instructions in the video) and show my expected dividend payments in July.
One final word
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Disclosure: I am/we are long ALL STOCKS MENTIONED EXCEPT SQ, TSLA, SHOP, ZM, TTD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am not offering financial advice but only my personal opinion. Investors may take further aspects and their own due diligence into consideration before making a decision.