The Retiree's Dividend Portfolio - John's October Update: Caution For The Market's Optimism (2024)

October Summary

I like to start my articles by reviewing a basic summary of how much income John and Jane have generated in their Traditional IRA and Roth IRA for each respective month. Additionally, I will be creating additional tables and graphs that track the amount of cash available at the end of the month in John and Jane's accounts (this will take some time as I plan to go back through the last three years of statements so that it matches the same time frame as the rest of the data).

Traditional IRA - Dividend Income

• October 2019 - $1,079.80 of dividend income
• October 2020 - $1,089.80 of dividend income

Roth IRA - Dividend Income

• October 2019 - $914.55 of dividend income
• October 2020 - $548.25 of dividend income

In total, Johns' income generated from his Traditional and Roth IRAs for October 2019 totaled $1,994.35 of dividend income compared with October 2020 total dividend income of $1,638.05.

Traditional IRA - Cash Balances

• October 2019 - cash balance of $18,765.23
• October 2020 - cash balance of $6,291.48

Roth IRA - Cash Balances

• October 2019 - cash balance of $1,663.05
• October 2020 - cash balance of $7,845.09

Notable Changes

We closed the position is Eaton Vance (EV) after the stock price shot up on the offer from Morgan Stanley (MS). EV has been a great stock and has provided 38 years of consistent dividend increases. We also closed the position in JP Morgan (JPM) as we continue to reduce the number of positions held. We have been focused on reducing the number of positions with exposure to the banking sector.

Background

For those who are interested in John and Jane's full background, please click the following link here for the last time I published their full story. Here are the key details about John and Jane that readers should understand:

• This is a real portfolio with actual shares being traded.
• 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 is only collecting Social Security income at this point in time.
• Jane is working part-time and will continue to do so for the remainder of 2020. Jane has officially decided that she will be retiring at the end of the year.
• John and Jane have no debt and no monthly payments other than water, power, property taxes, etc.

I started helping John and Jane with this because I was infuriated by the fees and gimmicky trades made by their previous financial advisor. I do not charge John and Jane for anything that I do, and all I have asked of them is that they allow me to write about their portfolio anonymously in order to help spread knowledge and to make me a better investor in the process.

Generating a stable and growing dividend income is the primary focus of this portfolio, and capital appreciation is the least important characteristic.

Dividend And Distribution Decreases

There were no stocks that reduced or eliminated their dividend that was payable during the month of October.

Dividend And Distribution Increases

The following companies increased their dividend or distribution that was payable during the month of October.

• Bank OZK (OZK)
• Healthcare Trust of America (HTA)
• Kite Realty Group (KRG)
• Altria (MO)
• Realty Income (O)
• WP Carey (WPC)

We will only include a summary of the dividend increase for MO, O, and WPC because these have been covered in a previous article. Please see the links at the end of this article if you are interested in that information.

Bank OZK - OZK continues its lengthy streak of quarterly dividend increases which was following by a solid Q3-2020 earnings beat. OZK is still one of the more undervalued plays even though it does come with some risk given some of its real estate assets. I reviewed the company a while back and honestly I believe the issue is overhyped. OZK is crawling back to 52-week highs but the stock is trading at a much more reasonable P/E Ratio of 13.3X compared with its all-time-high stock price P/E ratio of 21X. It is also worth noting that the company's EPS is expected to exceed EPS when shares were at the all-time-high of $54.87/share. Don't expect the stock to move back into the $50 range anytime soon, however, I think it would be reasonable to see the share price move into the mid-$30/share range.

The dividend was increased from $.2725/share per quarter to $.275/share per quarter. This represents an increase of .9% and a new full-year payout of $1.10/share compared with the previous $1.09/share. This results in a current yield of 3.71% based on a share price of $29.63.

Healthcare Trust of America - HTA gave investors something to be happy about when it announced that it collected 102% of Q3 charges and FFO per share came in at $.43/share compared with $.42/share the previous year. HTA has been conservatively increasing its dividends and this marks the seventh year of consecutive increases. The near bond maturity has been pushed out to 2026 and the company has roughly $1.5 billion of total liquidity. We did recently reduce John's overall position in HTA but this was done to reduce the high cost portion of the portfolio since we purchased a lot of shares below $24/share.

The dividend was increased from $.315/share per quarter to $.32/share per quarter. This represents an increase of 1.6% and a new full-year payout of $1.28/share compared with the previous $1.26/share. This results in a current yield of 4.80% based on a share price of $26.69.

Kite Realty Group - KRG's dividend increase isn't a true dividend increase in the sense that they slashed the dividend at the beginning of COVID to preserve capital (the current dividend is nearly 75% less than where it was pre-pandemic. In Q3-2020, KRG has been able to officially collect 92% of billings and deferred another 2%. According to the earnings presentation, there are no debt maturities until 2022 and the company's current liquidity exceeds its debt obligations through 2025 which should give investors some comfort. The dividend is now extremely conservative and should allow KRG to continue with regular raises now that they have made strong improvements when it comes to the quality of assets and improved demographics. At this point KRG is at least a strong hold and we should have a better idea of how they will emerge from the pandemic after Q4-2020 earnings.

The dividend was increased from $.052/share per quarter to $.08/share per quarter. This represents an increase of 54% and a new full-year payout of $.32/share compared with the previous $.208/share. This results in a current yield of 2.1% based on a share price of $15.19.

Altria - The dividend was increased from $.84/share per quarter to $.86/share per quarter. This represents an increase of 2.4% and a new full-year payout of $3.44/share compared with the previous $3.36/share. This results in a current yield of 8.52% based on a share price of $40.38.

Realty Income - The dividend was increased from $.2335/share per month to $.234/share per month. This represents an increase of .2% and a new full-year payout of $2.81/share compared with the previous $2.80/share. This results in a current yield of 4.46% based on a share price of $62.90.

W. P. Carey - The dividend was increased from $1.042/share per quarter to $1.044/share per quarter. This represents an increase of .2% and a new full-year payout of $4.176/share compared with the previous $4.168/share. This results in a current yield of 5.89% based on a share price of $70.95.

Retirement Account Positions

There are currently 23 different positions in John's Roth IRA and 32 different positions in his Traditional IRA. While this may seem like a lot, it is important to remember that many of these stocks are held in both accounts and/or are also held in the Taxable portfolio.

Traditional IRA - The following stocks were added to the Traditional IRA during the month of October.

• AT&T (T) - Purchased 25 Shares @ $27.21/share.
• HTA - Purchased 25 Shares @ $24.94/share.

The following sales took place in the Traditional IRA during the month of October.

• Duke Energy (DUK) - 10 Shares @ $92.41/share.

Roth IRA - The following stocks were added to the Roth IRA during the month of October.

• T - Purchased 25 Shares @ $27.99/share.
• T - Purchased 25 Shares @ $27.22/share.
• Cohen & Steers Infrastructure CEF (UTF) - Purchased 30 Shares @ $23.06/share.
• General Dynamics (GD) - Purchased 10 Shares @ $139.65/share.
• New Residential Preferred Series B (NRZ.PB) - Purchased 100 Shares @ $19.69/share.

The following sales took place in the Roth IRA during the month of October.

• Eaton Vance (EV) - 110 Shares @ $60.69/share.
• Westrock (WRK) - 50 Shares @ $38.52/share.
• JP Morgan Chase (JPM) - 30 Shares @ $101.88/share.
• Las Vegas Sands (LVS) - 25 Shares @ $49.00/share.

The Roth IRA hasn't seen much trading in 2020 and the sale of EV during the month makes up a significant amount of the realized gains. The sale of EV was strictly because of the buyout offer from Morgan Stanley (MS) and unfortunately this decision to see was premature as the stock price has climbed further on strong Q3-2020 results and also the issuance of a special dividend of $4.25/share in December. The main reason I didn't mind selling is that I have been looking to reduce John's exposure to the financial sector (specifically banking) because I am concerned about the potential impact of large charge-offs.

October Income Tracker - 2019 Vs. 2020

Income for the month of October was up (just barely) for John's Traditional IRA and down significantly for his Roth IRA year over year. The main challenge for John's account (particularly in his Roth IRA) is that a significant amount of dividend income comes from REITs and several of them were directly impacted by COVID-19 suspensions/cuts. Fortunately, we recently had Brixmor Properties (BRX) announce that it will begin paying a reduced dividend in 2021.

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 that comes from stocks no longer held in the portfolio, even though it is non-recurring. All images below come from Consistent Dividend Investor, LLC.

Here is a graphical illustration of the dividends received on a monthly basis for the Traditional and Roth IRAs.

Based on the current knowledge I have regarding dividend payments and share count, the following tables are a basic prediction of the income we expect the Traditional IRA and Roth IRA to generate in FY-2020 compared with the actual results from 2019.

Below is an expanded table that shows the full dividend history since inception for both the Traditional IRA and Roth IRA.

I have included line graphs that better represent the trends associated with John's monthly dividend income generated by his retirement accounts. As year three begins, we should continue to see a more stable pattern that comes from the deposit of regular dividend income. The images below represent the Traditional IRA and Roth IRA, respectively. There may be additional volatility in monthly dividends received due to dividend suspensions/cuts as a result of COVID-19.

We continue to see that the Traditional IRA is producing strong income and is up 2.3% year-over-year while the Roth IRA has seen dividend income take a tumble to the tune of -8.3% (This is largely due to the heavier concentration of REITs that saw their dividend suspended like EPR Properties (EPR) and Occidental Petroleum (OXY) which gutted its dividend. On the positive side, OXY and EPR both saw share prices spike over the last few days and is not reflected in the numbers below.

Here is a table to show how the account balances stack up year over year. (I previously used a graph, but believe the table is more informative.)

When it comes to transparency, I like to show readers the actual unrealized gain/loss associated with each position in the portfolio, because it is important to consider that in order to become a proper dividend investor, it is necessary to learn how to live with volatility. The market value and cost basis below is accurate as of the market close on November 22, 2020.

Here is the Unrealized Gain/Loss associated with John's Traditional and Roth IRAs.

The following graph was suggested by one of my readers who thought that this particular graph would demonstrate some of the interesting trends that we see each month while comparing them on a year-over-year basis. The main issue with the graph as it currently stands is that this is only the third year of collecting this data, which makes the graph more choppy than it should be. I believe that the graph will continue to become more valuable as we enter into years four and five.

Conclusion

The recent market rally for REITs and energy companies is not reflected in the numbers above as these were pulled from the 22nd of November. This positivity is encouraging, however, I have begun reducing certain positions because I see the market as being way too optimistic given how many businesses have permanently closed their doors for good. Based on this, I expect any inaction by Congress to have a major negative impact on the outlook of certain companies. Readers' can expect to see John's cash reserves build over the next few months as we accumulate cash while waiting for the market to pullback.

October Articles

I have included the links for John and Jane's Taxable Account and Jane's Retirement Account articles for the month of October below.

The Retirees' Dividend Portfolio: John And Jane's October Taxable Account Update

The Retiree's Dividend Portfolio - Jane's October Update: Time To Take Some Gains

New Article Format: Let me know what you think about the new format (what you like or dislike) by commenting, liking, following, etc. I appreciate all forms of criticism and would love to hear what I can do to make the articles more useful for you!

In John's Traditional and Roth IRAs, he is currently long the following mentioned in this article: Aflac (AFL), Apple Hospitality REIT (APLE), BP plc (BP), Brixmor Property Group (BRX), Canadian Utilities (OTCPK:CDUAF), Chatham Lodging Trust (CLDT), CVS Health Corporation (CVS), Chevron (CVX), CyrusOne (CONE), Dominion Energy (D), Digital Realty Preferred Series J (DLR.PJ), Duke Energy (DUK), Eaton Vance Floating-Rate Advantage Fund (EAFAX), EPR Properties (EPR), EPR Properties Preferred Series G (EPR.PG), General Dynamics (GD), Healthcare Trust of America (HTA), Iron Mountain (IRM), Kinder Morgan (KMI), Kite Realty Group (KRG), LTC Properties (LTC), Main Street Capital (MAIN), Altria (MO), New Residential Investment Corp Preferred Series B (NRZ.PB), Realty Income (O), Occidental Petroleum Corp. (OXY), Bank OZK (OZK), PacWest Bancorp (PACW), PepsiCo (PEP), iShares Preferred and Income Securities ETF (PFF), VanEck Vectors Preferred Securities Ex-Financials ETF (PFXF), Park Hotels & Resorts (PK), PIMCO Income Fund Class A (PONAX), Portland General Electric (POR), Regions Financial (RF), RPT Realty Preferred Series D (RPT.PD), STAG Industrial (STAG), AT&T (T), Toronto-Dominion Bank (TD), Truist Financial (TFC), T. Rowe Price (TROW), Cohen & Steers Infrastructure Fund (UTF), Valero (VLO), VEREIT (VER), Valley National Bancorp (VLY), Umpqua Holdings (UMPQ), Ventas (VTR), Walgreens (WBA), WestRock (WRK), and W. P. Carey (WPC).

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Matthew Utesch