Monthly Income Update – September 2022

Dear Readers,

It is the start of a new month and that usually means a new entry into the monthly income update post series. To say that this has been a rough month and a year for the markets is a bit of an understatement. That said, if you are a dividend growth investor, you would be absolutely LOVING these market moves. Why? Because you now have an opportunity to either start new positions into companies that were previously richly valued or add to your existing positions at valuations such that the resulting dividend yield and your cumulative yield-on-cost will improve. And if you are not focusing on your portfolio value but instead focusing on your income stream through dividends, you are probably sleeping a lot better at night.

At the risk of sounding like a broken record, THIS is yet another reason why this strategy works for an average Joe like myself. Through dividend growth investing, an investor will naturally gravitate towards the fundamental tenets of successful long-term value investing without even realizing they are doing so.

So how did this month go? Lets find out shall we.

Dividend Income Received

Sl No.Company / ETF (ticker)Amount
1AFLAC (AFL)$16.67
2Church and Dwight (CHD)$2.12
3Duke Energy (DUK)$5.17
4The Home Depot (HD)$19.22
5Intel (INTC)$10.65
6Johnson and Johnson (JNJ)$39.89
7Lockheed Martin (LMT)$47.41
83M (MMM)$53.94
9Microsoft (MSFT)$18.65
10NextEra Energy (NEE)$2.16
11Pepsi Co (PEP)$11.75
12Snap-On Inc. (SNA)$5.71
13Southern Company (SO)$11.21
14Target (TGT)$14.41
15T. Rowe Price Group (TROW)$76.84
16United Health (UNH)$3.34
17Visa (V)$11.52
18Whirlpool (WHR)$56.75
19Waste Management (WM)$0.66
20Exxon Mobil Co (XOM)$2.73
21Schwab US Equity Dividend ETF (SCHD)$39.37
22iShares Core Dividend Growth ETF (DGRO)$8.06
23Realty Income (O)$16.20
24Digital Realty Trust (DLR)$38.91
25STAG Industrial (STAG)$3.8
26JP Morgan Equity Premium Income ETF (JEPI)$5.05
Total$522.19

A total of 26 companies + ETFs combined to give me a monthly income of $522.19. This is a record breaking month again as my portfolio breached the $500 mark for the first time since its inception. At the same time last year, I had earned a total of $144.15. I have been investing rather aggressively in the interim as 2022 has provided me with interesting opportunities to either build my existing positions or start new positions.

I did not write any option contracts during this month. Part of the reason was that I have been incredibly busy with my job, thus not having enough time to do a fair value estimate for positions that have been earmarked for the options strategy. That said, the current market scenario does not quite seem to be ideal for my strategy. In an overall bearish market, writing OTM covered calls does not seem attractive from a risk/reward standpoint. Also, writing OTM cash secured puts is challenging because I might end up getting stuck with large bag of shares at a valuation that is probably not the best, since the stock price is dropping. Not at all worth the risk, especially when I am generating enough income for the month through simple dividend growth investing.

My largest payment came from TROW, a stock that has been decimated for the major part of 2022. I view TROW as essentially a proxy to holding the market. So it is not at all surprising to me that the TROW ticker has struggled for the majority of this year. In my opinion, the stock is oversold and is a steal at current values. The fundamentals with this business look solid. Moreover, this company is blessed with a competent management team that has rewarded shareholders with special dividends when times were rosy. Moreover, with companies like Blackrock and T Rowe Price Group, folks with a bearish outlook are essentially betting that people will generally shy away from stock trading altogether in the near long term, a thesis that I certainly do NOT subscribe to.

I have so far made $2265.26 for the year in terms of passive income and as we head into the last quarter of the year, I am confident of breaching the $3000 mark, one of my goals that I had set at the start of this year.

Dividend Increases

So what is better than setting a record-breaking month for dividend income? Yes, the news that some of my holdings are increasing their quarterly dividend payment! There were a few noteworthy mentions here:

  • Microsoft (ticker: MSFT): announced an increase to their quarterly dividend, now amounting to $0.68/share, an increase of nearly 9.7%
  • Texas Instruments (ticker: TXN): announced an increase to their quarterly dividend, now amounting to $1.24/share, an increase of nearly 8%
  • Lockheed Martin (ticker: LMT): announced an increase to their quarterly dividend, now amounting to $3.00/share, an increase of nearly 7.14%
  • Realty Income (ticker: O): announced an increase to their monthly dividend, now amounting to 0.248/share, an increase of nearly 0.2%

In this environment, all pay increases should be celebrated, especially the ones from MSFT, TXN and LMT, which are “in-line with inflation” increases. I thank the hard-working employees and the management at all these corporations for thinking about long-term shareholders such as myself, who are intending to rely on the dividend income from these holdings towards our retirement goals.

Buys and Sells during this month

I did make a couple of sells during this month. Regular readers of this blog might know that my ideal holding time for stocks is forever. That said, if there are compelling reasons to exit a position, I will not hesitate to pull the trigger and sell after much thought and deliberation. I exited out of the following positions:

  • AT&T (ticker: T) : This investment was a huge mistake and, therefore, also a learning opportunity for me as an investor. When I first invested in this position back in 2020, I was relatively new to dividend growth investing. Like most amateurs, I followed the advice of content creators and did not focus on doing my own research. T was a name that came up quite frequently in most of the discussions around dividend growth investing. At the time, it was a dividend aristocrat, it had a nice juicy yield. My thought process was also clouded in that I viewed this as a conglomerate where they had their tentacles in different types of businesses: they were into media and entertainment, their bread and butter was cellular and they had a decent subscriber base. Also at the back of my head were the following thoughts: Maybe with the COVID pandemic WFH dynamics in 2020, folks would need to rely on their broadband offerings, their streaming business would take off etc. In all of my analysis though, I had not once taken a deeper look at the company fundamentals and its management. And that was it. It was a terrible mistake. There is a lot more to say here, so I will maybe reserve my thoughts for a future post.
  • Warner Bros & Discover (ticker: WBD): I was assigned WBD shared after T spun-off its Warner Media business and combined that with Discovery to form a new company. In my humble opinion, I really cannot understand how the streaming business can be a long-term profitable venture. These businesses simply cannot build a moat, the barriers to entry for a new large company are relatively small. The consumer “stickiness” is non-existent as consumers can easily move away from one streaming service to another after they have finished watching their favorite shows/movies on one service. Moreover, it is the quality of the content and also the value-add of the subscription service (by combining it with some other services and making it a package, eg. Amazon Prime) that might determine consistent revenues for these businesses. Considering all this, I did not see how WBD fit into my investing philosophy and I certainly could not see myself being a long-term investor in this business.

As far as buys, I used the massive sell-out in tech as an opportunity to add to my positions in MSFT and V. I do not consider the price in the discount territory, but they are in the fair-value range IMHO. I also added to my HD position this month.

In what might seem like a shallow and prolonged recessionary environment, I am going to be looking for opportunities to build up my core positions. These are the times to focus on buying high-quality stocks. Unfortunately, in my opinion, some of the core stocks that I am tracking like JNJ, PG, PEP etc. are holding up quite well even in this environment. PG and PEP are I think overvalued at this point and I would like them to drop some more before buying.

Summary

Another record-breaking month is in the books. Who knows what is in store as far as the economy. What I do know for sure is that those dividend checks are guaranteed to come in every month.

How did your month go? Do you hold any of the stocks from the list above? Let me know in the comments below.

Until next time…

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